New Social Security policy creates confusion over Special Needs Trusts

The Social Security Administration has published a new policy requirement concerning Special Needs Trusts in the form of a  provision in its POMS [Procedure and Operations Manual]. The new POMS states that attorney fees charged for preparation of certain trusts for individuals who are now receiving, or may in the future receive SSI, must be approved by the Social Security Administration (SSA). 

POMS Link:

This new policy has created some confusion, because there are numerous situations in which an attorney drafts the Trust but is not representing the client in their application for SSI benefits at Social Security, and isn’t representing the client on any appeal of a denial or termination of SSI benefits.

When a person is disabled and needs benefits through Medicaid, SSI or other programs, there is a limit on the resources (assets) that they can have. If this person is under age 65, s/he may want to transfer the excess assets into a Special Needs Trust, because this is a way to preserve and safeguard the excess monies so they can be used for future special needs.

Sometimes the disabled individual hires a lawyer for estate planning and along with things like a Power of Attorney, Will and Health Care Directive, they sign a first-party Special Needs Trust. The lawyer prepares the estate plan and guides the client on how the plan is to be implemented. Other times, the disabled individual might be inheriting money from an estate — such as, their parent died and left them an inheritance — or might be settling a personal injury case or a workers compensation case. In all of these examples, the attorney may be preparing the Trust, but is not representing the individual on any of their claims or appeals before the Social Security Administration.

There are other situations as well when an SNT is prepared.

  1. SSI recipient has an SNT that is not valid and must be modified. SSI recipient [or his POA, or his Guardian] retains lawyer who does the legal work to amend or redo the trust, with or without court proceedings depending on the circumstances, along with basic instructions, and who then provides the signed documents to the claimant to personally deliver to the SSA.
  2. Estate planning for a family with a young child who has disabilities who may or may not apply for SSI benefits when he or she is 18.
  3. Estate planning for a disabled adult person who intends to apply for SSI; preparation of a Will, POA, LW, SNT, and opinion letter with guidance on how to fund the trust and what to do when client decides to go apply for SSI.
  4. Disabled person is incapacitated and Guardian is appointed, and Guardian gets court’s permission to establish and fund an SNT so that the Guardian can file a claim for SSI benefits [or update existing file, in case funds have been received]. Guardian hires a lawyer who does this work, but lawyer does not handle the case at the SSA.

The elder law bar is working   on this issue, as is the National Academy of Elder Law Attorneys , to obtain clarification from the Social Security Administration and determine how to structure these work relationships. In the meantime, practitioners need to be aware of the situation, as their clients may receive letters asking for production of  fee agreements and fee-approval applications. Along with concern about what the process will be for fee approval, how long it will take and the impact it might have on receipt of pending assets, another worry is that the POMS includes criminal penalties for attorneys who do not comply with the directive.

If you are concerned about this topic, contact Lauren S. Marinaro, Esq., immediate past President of the NJ chapter of NAELA.

Call us for legal advice concerning Trusts, Estates and Medicaid eligibility .. 732-382-6070

Food stamp eligibility saved; trust payments not “income”

In a recent decision by the New Hampshire Supreme Court, the Court ruled that trust payments to third party vendors were not countable as “income” to the trust beneficiary for purposes of determining her eligibility for food stamps. Petition of Kelly Hagenbuch.

The federal food stamp program (called SNAP in New Jersey) is available to individuals who meet certain income and asset limits. Kelly Hagenbuch was a recipient of food stamps in New Hampshire. She was also the beneficiary of an irrevocable trust that had been established for her sole benefit. Kelly had no right, title or power over the distributions, and could not compel a distribution under any circumstances. The Trustee made payments from the trust to various third parties for such things as administration expenses and taxes. These payments were considered to be payments to third party vendors, which are normally excluded from “income” under the program’s rules. In reviewing the trust, the agency determined that the trust’s distributions should be treated as “income” to Kelly, and terminated her benefits, as the income would disqualify her from receipt of benefits. Kelly sought court review.  The New Hampshire Supreme Court held that these vendor payments did not count as her income because the trust funds were not “owed to” her — in other words, that she had no right to compel the payments. Petition of Kelly Hagenbuch.

Call us to review your existing trusts and advise you on eligibility for benefits programs … 732-382-6070

Payback provisions are required for a qualified special needs trust

Self-settled special needs trusts must have a payback provision to be considered an exempt trust  under the federal and state Medicaid program. A Medicaid applicant under 65 can transfer his or her excess resources (assets) into a “special needs trust” and avoid the usual transfer penalties, but only if the trust meets all of the requirements of the federal and state law. Also, if the trust meets all of the requirements it will not be treated as a countable resource that might otherwise disqualify the person. New Jersey’s regulations are quite detailed on this subject. One of these requirements is that the State of New Jersey must be named as the first beneficiary upon the death of the trust beneficiary/Medicaid recipient, up to the amount the State has expended for the individual. The case of D.W. v.Division of Medical Assistance and Health Services,

2015 WL 7738711 (App. Div. 2015), illustrates the problem.

D.W. received a settlement from a personal injury action, and a first party trust was established for D.W.’s benefit by the Court to receive the assets. However, the Trust lacked the required payback provision. D.W. lost his benefits/ was turned down for benefits because the amount in the trust was deemed to be a countable resource and put D.W. over the resource limit for the Medicaid program. On appeal, the Appellate Division affirmed, in an unpublished and nonprecedential opinion.

This was an unfortunate situation.  D.W. may be able to initiate an action in court to reform (amend) the Trust moving forwards, but that will not guarantee that the amendment will be made retroactive.

For legal advice and representation on Special Needs Trusts and Medicaid application, call us at … 732-382-6070