Coastal Senior is a monthly periodical published in Savannah, Georgia and circulated throughout the Georgia and South Carolina low country. Bob Mason is its legal columnist.
You may have heard that Congress has imposed drastic restrictions on long term care assistance under Medicaid. Don’t lose hope. Plenty of options remain for married couples, and many remain for disabled individuals and their families.
The parents of a disabled child must ensure that the child will receive adequate financial protection, probably for the child’s entire lifetime, while at the same time providing equitably for other family members. Maybe a parent is worrying about her own nursing home care but wants to insure her assets can be used for her disabled child.
In many cases access to government entitlement benefits — whether Supplemental Security Income, state supplemental assistance programs, or Medicaid – is critical. How does one remain eligible for these valuable resources without first becoming impoverished?
An inheritance left directly to a disabled child will soon be gone. If a disabled individual comes into a “windfall”, such as a personal injury settlement, those assets, too, will quickly disappear.
Sadly, many parents (with inadequate or no advice) simply leave everything to the “non-disabled” children with the hope those children will “look after” their disabled sibling. Unfortunately, greed, divorce, lawsuits or carelessness can throw this plan awry.
A “special needs trust” might be a great alternative. Because someone other than the beneficiary provides the trust assets, and the trust holds the assets for “supplemental needs” only, the trust should not affect the disabled individual’s eligibility for entitlement benefits or be accessible to the individual’s creditors, including the government.
A “special needs trust” will supplement, not reduce or replace, entitlement benefits that may be available to the disabled individual. If no benefits are available, the trust assets stand ready to help. If the available benefits do not provide adequately for the beneficiary’s needs, the trust assets will fill in that gap. Even if the available benefits adequately cover material needs, the trust assets may be used to enrich the beneficiary’s quality of life without jeopardizing the much-needed benefits. Finally, to the extent that the assets are not used during the beneficiary’s lifetime, they may pass to other family members.
What happens, however, if the disabled individual has assets, but these are inadequate to meet his or her needs? What if a will or a trust names the individual without providing for a trust in the event of disability? And what if the individual is about to receive a settlement or award in a personal injury lawsuit?
By placing his or her property in another kind of special needs trust, a so-called “OBRA ’93 Trust” or “payback” trust, the individual will remain eligible for many important benefits, including Medicaid. The catch is that upon the beneficiary’s death, the Medicaid benefits must be repaid, with only the balance passing to other family members. During the individual’s lifetime, however, the difference between an OBRA ’93 Trust and no trust can be the difference between having training and educational opportunities, a computer, music, regular outings and a vacation, and living a life of poverty or dependency.
The requirements of an OBRA ’93 Trust are simple. It must be established for the lifetime benefit of someone under age 65 who is disabled or blind. It must also provide for pay-back of Medicaid benefits paid by the state. In addition, only parents, grandparents, courts, or “guardians”, not the disabled individual directly, may establish a pay-back trust.
When deciding to establish an OBRA ’93 trust, the disabled beneficiary’s specific needs and the effect of the trust on the individual’s benefits must be taken into account. Also, in the context of a personal injury settlement, many common settlement options (such as annuities) may render an OBRA ’93 trust impossible. Because of this, early planning is a must when damages for a personal injury are involved.
For the trusts I’ve just described, administration can be difficult. Also, for people over 65, or for people with no parents, grandparents, or guardians available to establish a trust, these trusts may be unavailable. In that case, a community or pooled trust may be the answer. They work very much like pay-back trusts, but are administered by non-profit community-based trustees and are “pooled” with the trusts of other disabled beneficiaries. When the beneficiary dies, the assets either “pay-back” Medicaid or can be retained in the trust to provide for other beneficiaries in the community.
This is an exceedingly complex area of the law. I’ve tried to simplify it. Whatever you do, get good advice!
Bob Mason
