Support the Special Needs Trust Fairness Act

The Special Needs Trust Fairness Act of 2015 ( S-349) would correct an error in OBRA ’93, which was a major revision to the Medicaid Act that allowed Medicaid applicants or recipients under age 65 to make penalty-free transfers of their assets or income into a first-party Special Needs Trust for their sole benefit. To qualify for the exemption, the Trust had to be established by a parent, grandparent, guardian or court.

This created a problem for a person who is disabled but is not incapacitated and has no guardian, whose parents and grandparents are either deceased or uninvolved. A person in this circumstance would have to file a petition in the chancery court to create the Special Needs Trust for them. We have certainly done that many times over the years. But it seems unfair and should be unnecessary.

S-349 solves this problem. There’s no logical reason to oppose the bill. The individual would be able to select a trustee and hire their own attorney to write and establish the trust, assist with the process to get the assets transferred into the trust, and assist and advise them with regard to their rights and the trustee’s responsibilities. It could all be done much quicker, as court proceedings often get bogged down and delayed. It would also preserve the privacy and self-determination of the individual, which could be especially important if there is any hostility or dissension in the family.

We have been seeing a steady movement toward supporting the autonomy of people with disabilities. This Act should be supported as yet another step in that direction. The Act was passed in the Senate and now needs to be approved by the House of Representatives. To encourage your Congressperson in the House to co-sponsor or support the bill, contact them via email. You can find them all here.

For legal assistance with creation and administration of Special Needs Trusts, call us at … 732-382-6070

Review your old special needs trusts before it’s too late

Laws change. Sometimes, federal law stays the same and state laws implementing it change. State statutes may remain the same but the state regulations change. State regulations may stay the same, but the executive branch agency issues advisory memoranda which change the procedures. That’s what occurred back in 2001 when the State of New Jersey Division of Medical Assistance and health Services (DMAHS) (“Medicaid”) adopted a set of specific administrative, procedural, technical requirements for first party special needs trusts which are occasionally called “(d)4(A) trusts” by reference to a section of the federal Social Security Act. 42 USC 1917(d)4(A). The State’s regulation is found at N.J.A.C. there be a payback clause so that and 4.11(g) in particular.

The federal statute which undergirds this regulation was enacted long before 2001, and has not changed. So you may find that the Trust that adequately protected your loved one’s SSI or state Medicaid benefits — including eligibility for services through the NJ Division of Developmental Disabilities or DDD — is rejected, because it doesn’t have the technical provisions that were adopted years after the trust was written. The technical provisions include things such as a requirement to notify the State if an expenditure of greater than $5,000 is made, or a requirement that certain information about the Beneficiary be stated in the trust document. There is no change in the historic requirement that the trust be solely funded with assets of the disabled individual, or that there be a payback clause so that the State be the first remainder beneficiary. So rejection of an old non-conforming trust can result in a termination from benefits, or a denial of an application. In cases of termination from benefits, there is the risk of being assessed for “wrongfully paid benefits.”

There is a remedy. Some trusts contain provisions that allow the trustee to amend the trust in whatever way is necessary to conform it to requirements that would still preserve the eligibility of the disabled beneficiary and would not reduce the beneficiary’s interest. Other trusts require that amendments be made by court order. The message is that if you are a trustee of a special needs trust that was written in the 1990’s, this would be a good time for a legal review to see whether any modification is required in order to protect your beneficiary.

Call us for advice on creation and amendment of Special Needs Trusts, and for Medicaid applications and appeals … 732-382-6070

Special Needs Trusts have to be Sole Benefit Trusts

If a person is disabled  and cannot  support themselves, they may  need the support of government benefits over the long term to help with costs of housing, health insurance, transportation, residential services, and home health aides. If they then receive assets through a personal injury settlement, the impact of the settlement on their eligibility for benefits must be taken into account. That lump sum or structured payment stream may seem large, but can pale in comparison with the overwhelming lifetime needs of the disabled individual. The remedy is to petition the court to create a Special Needs Trust (“SNT” or “d4a”) to receive the proceeds of the settlement. This can preserve eligibility for Medicaid, SSI, DDD services, Section 8 housing, and more. However, Special Needs Trusts must meet many specific requirements and must be spent for sole benefit of the disabled individual. https://secure.ssa.gov/poms.nsf/lnx/0501120203

There are complicated rules concerning what it means to spend the trust assets for sole benefit of the trust beneficiary. https://secure.ssa.gov/poms.nsf/lnx/0501120201#f2

If trust assets are spent on another person to pay for that person’s legal obligations (mortgage, taxes, utilities, car payments), to pay for their travel, or to buy something that is then owned by the other person (computer, furniture), there are several risks to the disabled beneficiary: the payment could be treated as a transfer of assets; the payment could be counted as income to the beneficiary; and the whole value of the trust (the trust corpus) could become a non-exempt asset and be counted as an available resource. The Social Security Administration tightened up these “sole benefit” rules in May 2012, but there may be older trusts out there which have language that on its face would seem to authorize certain disbursements that today will cause big problems. For instance, although it is arguably “for benefit of” the disabled individual if the trust maintains the family home or pays for expenses that enable the whole family to stay together, these expenditures can violate the “sole benefit” requirements. Caution is advised — make sure to get updated advice on permissible ways to structure these arrangements.

For legal advice on creating and administering Special Needs Trusts and applying for Medicaid benefits, call 732-382-6070