Special Needs Trust can’t be created by beneficiary’s agent under power of attorney

Federal law allows a person who receives or is applying for Medicaid or Supplemental Security Income (SSI), which are means-tested programs, to transfer their excess resources into a Special Needs Trust that was “established for the sole benefit of the disabled individual by a parent, grandparent, legal guardian or the disabled individual or a court.” 42 U.S.C. 1396p(d)(4)(A) https://www.law.cornell.edu/uscode/text/42/1396p New Jersey’s regulation tracks the federal language. N.J.A.C. 10:71-4.11(g)1. The transfer causes no penalty, and once the assets are in the Trust, they are no longer ‘countable” so that they wouldn’t be treated as excess resources. See also the SSI POMS  01120.203, which is the Social Security Administrations’  explanatory guidance.  https://secure.ssa.gov/poms.nsf/lnx/0501120203 These are first-party special needs trusts with third-party grantors.

What is contemplated here is a two-step process. In step one, someone who is not the disabled person creates the trust. In some cases, the disabled person’s parent or grandparent creates the Trust and signs it as grantor, seeding it with a minimal amount just to open the trust account. In other cases, the disabled person’s legal guardian,  or their agent under power of attorney or even the disabled person himself (see N.J.S.A. 3B:11-36 and 11-37) petitions the court to establish the trust. In that case, the Court is the “grantor” and signs an Order establishing the trust. Afterwards, in step two,  the disabled person transfers their excess assets into the trust. Now there may be an Agent under Power of Attorney or a legal Guardian acting who does this transfer transaction on behalf of the disabled person. However, the law distinguishes between these roles when it comes to step one and step two.

On March 5th, the 8th Circuit US court of Appeals sustained a decision  which held that the assets in a certain Special Needs Trust were countable because the party creating the trust had acted as Agent Under Power of Attorney for the disabled person for both step one   and step two. Draper v. Colvin, No. 13-2757 (March 3, 2015). The result was a termination of benefits. The Court held that the person who was acting as POA did not meet the law’s express criteria for who could be a third party grantor for such trusts.

The reasoning would apply to Special Needs trusts established in New Jersey as well. The lesson is that the Special Needs Trust requirements must be scrupulously followed, as the results could be catastrophic for the person who needs Medicaid or SSI.

For legal advice on establishing and administering Special Needs Trusts, and for Medicaid applications and planning, call 732-382-6070

Trust & Transfer Planning for VA Benefits may not be effective for Medicaid Planning

A Medicaid application for nursing home level services is not filed until your countable, available assets are below a specific limit. Transfers (gifts) and Trusts can be used in certain circumstances. When our attorneys  are analyzing the laws and developing your asset protection plan, the two major issues in this regard are (1) whether the funds in the Trust continue to be countable assets, and (2) whether the transfer to the Trust causes a disqualification (called a “transfer penalty”).

A VA Special Pension application is also filed when the assets are below a certain level (and the uncompensated medical expenses reduce the income below a set level). If assets are transferred or placed in Trust, the issue is whether the funds continue to be countable as assets.http://www.benefits.va.gov/pension/

The fact is that certain plans that help you become eligible for VA Special Pension can make you ineligible for Medicaid, and vice versa. If you require care and plan to remain at home with the help of VA Special Pension, but then you need to move into a nursing home and apply for Medicaid because your assets have run out, you may find that you were eligible for the VA program, but now you’re not eligible for Medicaid.2014 VA Pension Resource and Trusts Chart

For example, if you are under 65 and your attorney writes a Special Needs Trust (SNT) for you and you transfer your assets to a properly-structured SNT, the transfer won’t cause a Medicaid penalty and the assets in the Trust won’t be countable. However, that Trust IS considered an asset for VA pension purposes.

Another example is that if an applicant transfers assets into an irrevocable discretionary trust written by his attorney, and the applicant is the beneficiary of the Trust, the Trust may not be an asset for VA purposes but it is certainly an asset for Medicaid purposes.

A third example is that if assets are transferred to a disabled child, the assets are no longer countable for Medicaid purposes, but if the disabled child lives in the applicant’s household, the assets remain countable for VA pension purposes.

The laws governing these programs are a dense confusing thicket and great care & legal advice are needed to protect your interests.

Call us for legal advice on long-term care planning, Medicaid and VA benefits … 732-382-6070