How to Tell If a Pooled Special Needs Trust Would Fit Your Needs. Jennifer Lile Explains

Special needs trusts have been the subject of several reports on The Settlement Channel. There are several types of special needs trusts, including the pooled special needs trust. The pooled trust is not the right choice in every situation for a person with special needs, but it can be a valuable tool in the right situation. In this report, Jennifer Lile discusses the nature of the pooled special needs trust and how it may be beneficial.

Lile explains that a pooled special needs trust is a trust whose corpus is exempt from the means testing associated with public benefit programs like Medicaid and Supplemental Security Income (SSI). The exemption is provided by 42 U.S.C. § 1396p(d)(4)(C). Under the Social Security Program Operations Manual System (POMS), pooled SNTs are not counted as resources when making eligibility determinations. A pooled special needs trust is established and administered by a nonprofit entity to manage and protect the assets of individuals with disabilities who are dependent on government benefits to meet their basic needs.

Lile notes that there are two types of (d)(4)(C) trusts. First-party, or self-settled, pooled trusts may be established by the individual with a disability, a parent, a grandparent, or a guardian. They are funded with assets belonging to the individual with a disability (i.e. the proceeds of a personal injury settlement, an  inheritance, or a lump sum Social Security payment). Third parties may fund a (d)(4)(C) trust, but would be better served by using a pooled or private third-party discretionary trust,  because (d)(4)(C) trusts have a mandatory payback requirement. “Upon the death of the beneficiary, any funds remaining are subject to being retained by the nonprofit administrator” or being paid as reimbursement to a state or states in repayment of medical assistance provided to the beneficiary during the beneficiary’s life.

Lile says that (d)(4)(C) trusts can be established for anyone who has been determined by the Social Security Administration to have a qualifying disability and is under 65 years of age. In about twenty states, a person with a disability of any age may establish a pooled trust account.

When a beneficiary dies, any funds remaining in the trust must be administered in accordance with the provisions of 42 U.S.C. § 1396p(d)(4)(C) and the Social Security POMS. One option, Lile says, is for the remaining funds to be distributed to a specifically-authorized nonprofit entity, typically the nonprofit entity that administers the trust. Otherwise, to the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust must pay to the state(s) an amount equal to the total amount of medical assistance paid on behalf of the beneficiary by the state(s). Lile points out that the main purpose of this type of trust is to provide funds to improve or maintain the quality of life of the beneficiary, such as paying for items or services not otherwise covered by Medicaid.  In general, the goal should not be to have a large amount remaining in the trust upon the death of the beneficiary.   Some pooled trust companies will allow individual remainder beneficiaries to be named in the event that the Medicaid claim for reimbursement is small and a balance remains after the state has been fully paid back.

Lile says that there are several reasons why someone might consider using a pooled trust. First, in most states, there is a $2,000 limit on funds that can be retained by a person in order to be eligible for federal public benefit programs, so the pooled trust account is a way to avoid the immediate spend down of assets above this resource limit. Another advantage of a pooled trust is the long-term access to a professional trustee. Lile explains that pooled trusts must be administered by a qualified nonprofit partnering with a financial institution that serves as a professional trustee, and because funds are managed as a pool, the trustee and administrative fees are not as expensive as they would be with an individual trust. Also, a pooled trust makes sense where the amount of assets coming to the beneficiary is too small to justify the legal fees or professional trustee fees associated with other types of special needs trusts, such as a trust established under 42 U.S.C. § 1396p(d)(4)( A).

In the case of third-party funded pooled trusts, some states allow “dry” trusts, where the paperwork is done to have the trust in place in advance, but not funded until, the death of a parent or grandparent.

Another advantage of a pooled trust is the expertise of the nonprofit administrators. In order to properly administer pooled trusts, they must stay abreast of the law in ways that family members typically would not. Finally, a pooled trust is advantageous in that the assets are invested as a pool, allowing broader market exposure and the potential for generating greater growth.

Jennifer Lile

People who are thinking about using a pooled trust should consider the following: What services does a particular pooled trust company provide? What are the set up costs and annual fees? What is the process for distributing funds? What are the trust’s investment policies? How often are reports issued and what details are included in their reports? What are the opinions of other families or special needs attorneys who have worked with a particular pooled trust company?

Jennifer L. Lile is a shareholder and director with Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A. Her practice focuses on the areas of estate and special needs planning, trust, probate and elder law. Jennifer is a Certified Specialist in Estate Planning, Trust and Probate Law, by the Ohio State Bar Association, and a Certified Elder Law Attorney (CELA) by the National Elder Law Foundation, as accredited by the American Bar Association and by the Ohio State Bar Association. She has served on many non-profit boards and is currently an officer on the board of directors for the Special Needs Alliance, as well as president of the Stark County, Ohio, Bar Association. The Settlement Channel is a featured network of Sequence Media Group.

The October 1, 2017 Medicare Secondary Payer (MSP) reimbursement changes

Beginning October 1, 2017, the Centers for Medicare and Medicaid (CMS) will implement a new policy regarding Medicare Secondary Payer (MSP) reimbursements—specifically,liability Medicare set-asides (LMSAs). At the request of CMS, the Medicare Administrative Contractor will begin to track the existence of any LMSAs related to a claim and deny payment for items or services that it deems should be paid from that LMSA rather than being paid for by Medicare. According to CMS, “Liability and No-Fault MSP claims that do not have a MSA will continue to be processed under current MSP claims processing instructions.”

I can not stress how important it is for trial lawyers nationwide to be aware that these changes in Medicare policy are going to generate a lot of additional issues, and potential liability, when injury victims and their lawyers settle claims with a Medicare component. 

Many trial lawyers believed this was a settled issue, but it is vital to note that Medicare's authority in this area has never changed! There has been no change in statutory or regulatory policy. Rather this is a notice of CMS commencing enforcement of a long standing provision in the law allowing for CMS to deny future payments for claims in which a liability settlement was in place. 

While this instruction from CMS does not create an affirmative directive for Medicare beneficiaries, both current and future, to create a liability set-aside (Medicare Set Aside Account), it does indicate that you MUST evaluate and begin to resolve any lien early in the settlement process. 

Further, and possibly of greater importance, is the need to understand the MSP statute even if you are currently contracting out your Medicare Lien Resolution to a third party. The stakes are substantial and you absolutely must make plans for FUTURE Medicare clients at the time of settlement by way of a set aside and determine if funds need to be placed in a MSA account to resolve that liability at settlement. 

It is the opinion of Mark Wahlstrom, at Wahlstrom & Associates, that these changes are going to dramatically impact the settlement process and increase the cost of settlements once trial lawyers understand the importance of including the present value of this possible future liability in their settlement demands and ultimately their settlements. 

If you have questions on how to handle these new MSA and MSP issues, contact your current expert or contact Mark Wahlstrom at Wahlstrom & Associates for a better understanding of the options for staying compliant and protecting both the injury victim and their attorney from future liability.  It is clear that CMS is attempting to shift towards a mandatory LMSA regime and trial lawyers must have a legally sound,and efficient strategy and process in place to deal with this increase demand for Medicare reimbursements. 

Using ABLE Programs and Special Needs Trusts to Help Special Needs Clients. Mary Alice Jackson Explains

The Social Security Act covers the needs of retirees, individuals with disabilities and the elderly. For persons with disabilities, the Supplemental Security Income program (SSI) provides monthly income for individuals who have never worked, or who never paid enough into Social Security, to receive Social Security Disability Insurance benefits (SSDI).  Medicaid provides essential medical benefits.  Both SSI and Medicaid are “means-tested” and require that applicants meet medical, income and asset rules.  In addition, there are strict rules for applicants who give money away to become eligible for these benefits.   Frequently, clients confuse the regulations in the Internal Revenue Code (IRC) with SSI/Medicaid rules.  What is permissible under the IRC Code may create ineligibility for SSI/Medicaid applicants.  For instance, the IRC permits taxpayers to give away up to $14,000 per year each to as many people as they choose.  However, both SSI and Medicaid will impose penalties on applicants who make such gifts.  Now, there is a new program that promotes independence for persons with disabilities, but also overlaps IRC and SSI/Medicaid rules. Austin, TX attorney Mary Alice Jackson explains how these conflicts may be avoided in this report.

The SSI and Medicaid resource limit is $2,000 (excluding a home, car and a few other items). This small amount often results in individuals with disabilities living a life of poverty.  But instead of spending down excess assets, these monies can be used to fund a “special needs trust” (SNT). A trust is a contract with certain terms and conditions, and there are many different types of trusts.  An SNT can accept excess monies, and the funds in the SNT are not counted as assets against the $2,000 limit.  Thus, there is no disqualification from public benefits, and there are funds that can be used for all kinds of needs the individual with disabilities may have.   An SNT provides that an individual with a disability or a third party—a family member, friend, or charitable source —contributes money for the sole benefit of the person with the disability to supplement the beneficiary’s special needs.  Done correctly, the trust assets are not counted when eligibility determinations are made for for public benefit programs. For example, a child for whom a trust has been established is eligible to apply for Supplemental Security Income and Medicaid at age eighteen, and both programs have a $2,000 asset limit for eligibility. If an SNT has been created and the individual applicant has more than $2,000 from earnings or gifts, the excess money can be placed in an SNT and eligibility problems are avoided.

Mary Alice Jackson

Jackson points out that creating and funding an SNT is perfectly legal under SSA regulations and is a great planning option for many individuals.  However, there are two important downsides to the benefit of an SNT:  the beneficiary is dependent on the “trustee,” who legally owns the trust money, and can’t compel the trustee to make any distributions.  For example, a device might be invented that would allow someone who cannot speak to speak using new technology. The SNT funds could pay for such a device. The SNT could also pay for the services of a home health worker to be available daily.  The beneficiary may request these items, but the trustee can refuse the expenditures based on their subjective assessment of the beneficiary’s needs and the available trust assets.  The SNT gives no autonomy to the beneficiary to manage his or her own money,whether or not he or she has mental capacity.   

The newest tool in special needs planning is an “ABLE” account. ABLE stands for “Achieving a Better Life Experience,”, Jackson says. An individual with a disability can have only one ABLE account.  . One difference between an ABLE account and an SNT is that there is no document establishing it. An ABLE account is simply established online with a state agency which invests the funds and makes disbursements.  The account does not have to be established in the state in which a beneficiary with special needs resides. The account investment choices can be reviewed twice a year. In order to spend the money, one sends in a request to the state, often to the comptroller’s office, and the state sends a check. The state does not follow how the money is spent, but the Social Security Administration will care.

Jackson points out that ABLE accounts are another place where state and federal rules may collide. The federal solution was to add a new §529 to the Internal Revenue Code. §529 covers accounts to collect money for education. §529A covers ABLE accounts. “In every state of which I’m aware, it’s the same agency that’s managing both sides of these accounts.” As to who makes the requests for ABLE funds, it is a matter of the beneficiary’s capacity. Beneficiaries with capacity may make their own requests and can spend the money themselves on “qualifying disability expenses,” or QDEs. QDEs include education, technology, companions, assistive devices, travel, clothing, etc. Realistically, Jackson says, it can be almost anything that is of benefit to the person for whom the account was established. If an ABLE beneficiary does not have the capacity to work with money, the request must be made by a parent, legal guardian or someone with an appropriate power of attorney.

There are no restrictions on who can give money to an ABLE account. The limit is that donations may not exceed $14,000 in a calendar year. The $14,000 figure is also tied to the Internal Revenue Code: It is the amount an individual can give away in a year without having to file a gift tax return. Should the amount that can be given annually increase from $14,000, the ABLE rule will change as well.  If the balance of an ABLE account exceeds $100,000, an SSI recipient’s benefits will be suspended, not terminated, until the balance falls below $100,000 again.  

Planning for a person with special needs may involve either or both an SNT and an ABLE account. The two are not  mutually exclusive. For example, someone who can work may want to get a job and put money into an ABLE account and save towards purchasing a car. That person may also have an SNT, funded with other people’s money, as a place for relatives to leave money when they die. One difference between the two is that if an SNT is funded by people other than the beneficiary (known as a “third party” SNT), Medicaid has no claim on the money when the beneficiary passes away.  There is a Medicaid claim when the SNT was funded only with money that was owned by the beneficiary (a “first party” SNT).  Unfortunately, an ABLE account will be liable to repay Medicaid when the beneficiary passes away regardless of who contributed the funds to the ABLE account over the years.  

The area of special needs planning is complex. Interested parties might want to check with Special Needs Alliance website to locate attorneys skilled in this area of practice.

Mary Alice Jackson is the sole shareholder in the firm of Mary Alice Jackson, P.C. in Austin, Texas. Her practice focuses on elder law and special needs planning, including estate planning for individuals with special needs and their families. She is a Fellow of the National Academy of Elder Law Attorneys.   She is also a board member of the Special Needs Alliance and serves on its Public Policy Committee, which identifies priorities for advocacy on the state and federal levels. The Settlement Channel is a featured network of Sequence Media Group.