Navigating the complexities of Medicaid can be daunting, especially when considering the "Medicaid look-back period." This crucial aspect involves reviewing an individual's financial transactions to determine eligibility for long-term care benefits. Understanding how this period works is essential for proper planning and compliance.
The Medicaid look-back period refers to a specific timeframe that Medicaid examines for any asset transfers made by an individual seeking long-term care coverage. This period helps determine if any assets were transferred below fair market value.
During this time, Medicaid scrutinizes all financial transactions to prevent individuals from transferring assets to fraudulently qualify for benefits.
The primary aim of the look-back period is to ensure that individuals do not give away their assets just before applying for long-term care benefits. By doing so, they may artificially lower their asset levels to meet eligibility requirements.
This scrutiny discourages improper asset transfers and maintains the integrity of the Medicaid program, ensuring that benefits are allocated fairly and only to those who genuinely need them. This is not to be confused with a spend-down plan, where an individual can pay bills, or purchase exempt resources which helps them meet financial eligibility requirements.
Typically, the look-back period for Medicaid spans sixty (60) months, or five years, preceding the date of application. Any transfer of assets during this duration is carefully evaluated. If improper transfers are identified, penalties such as a waiting period for benefits may be imposed.
Medicaid look-back penalties are determined by dividing the total value of transferred assets by the penalty divisor.
The penalty divisor is calculated based on the average private pay rate for a nursing home in a specific state. In Michigan, the state typically publishes these numbers twice a year, in January and July.
Transfers made during the look-back period that exceed Medicaid's asset limits trigger these penalties.
Look-back penalties can result in individuals being ineligible for Medicaid coverage for a certain period, delaying their access to crucial healthcare services.
Individuals may have to cover long-term care costs out of pocket until the penalty period ends, leading to significant financial strain.
Assets transferred within the look-back period can impact an individual's eligibility for Medicaid benefits, affecting their overall financial stability.
Gifts or transfers made during the look-back period can lead to penalties if they exceed Medicaid's asset limits.
These transfers are scrutinized to prevent individuals from artificially impoverishing themselves to qualify for Medicaid benefits quickly.
It is essential for individuals to carefully consider any gifts or transfers they make within the look-back period due to potential repercussions on their Medicaid eligibility and finances.
The penalty period, or months of ineligibility for Medicaid benefits, does not start to run until 1) the individual is in a skilled nursing facility and 2) they meet the Medicaid eligibility criteria. In short, the individual is in a nursing home and has no money but has to somehow privately pay for their care during the penalty period. The impact of improper gifting can be severe.
Certain assets are exempt from the Medicaid look-back period, allowing individuals to qualify for benefits while owning these assets. These include a primary residence, personal belongings, a prepaid funeral contract, and one vehicle. A properly drafted special needs trust and ABLE account are also exempt resources.
Medicaid does not take these exempt assets into consideration when determining eligibility during the look-back period. For instance, if an individual has been residing in their primary home or using a single vehicle regularly, these assets are typically not subject to review.
In some cases, transfers of assets between family members may be exempt from the Medicaid look-back period. For example, if a property transfer occurs between siblings with shared ownership rights without exchange of funds, it might not violate Medicaid rules.
Family members who provide care for an elderly individual and receive compensation through asset transfers may also fall under certain exemptions. This scenario involves a direct correlation between caregiving services provided and asset transactions.
Asset transfer is a common strategy to reduce countable assets within the Medicaid look-back period. It involves transferring excess assets to family members or setting up trusts.
To protect assets while complying with Medicaid rules, individuals can utilize legal tools such as irrevocable trusts. These trusts allow for asset protection by removing ownership from the individual.
Another effective strategy is converting countable assets into non-countable ones through financial transactions, often called a spend down, like purchasing exempt items or paying off debts. This helps lower the individual's asset levels for Medicaid eligibility.
Utilizing these strategies requires careful planning and consideration of the look back period regulations. While they can be beneficial, it's crucial to ensure full compliance with all legal requirements.
Maintaining detailed records of all financial transactions is crucial to avoid inadvertent violations of the Medicaid look-back period. Documenting every expenditure, transfer, or asset conversion helps in demonstrating compliance. Without proper documentation, the government agencies reviewing a Medicaid application will assume such a transfer was a gift or transfer for less than full market value.
Consulting with a financial advisor, special needs or elder law attorney can provide valuable insights into navigating the complexities of Medicaid regulations. These experts can offer tailored advice on structuring assets to adhere to look-back rules.
Understanding the specific timeframes involved in the Medicaid look-back period is essential. Being aware of when the clock starts ticking and ensuring that all financial decisions align with these timelines can prevent violations.
Violating Medicaid's look-back rules can result in significant repercussions, including penalties, delayed eligibility for benefits, and even legal consequences. It's vital to prioritize compliance to avoid these adverse outcomes.
Michigan applicants must meticulously document their property and assets to successfully navigate the Medicaid look-back period. Proper documentation is essential to avoid ineligibility.
Michigan has specific time frames and rules concerning asset transfers that can lead to Medicaid ineligibility. These regulations may differ from those of other states, requiring careful consideration by applicants. An experienced elder law or special needs planning attorney will be able to help outline the best available options that meet a client’s goals and unique circumstances.
Consulting with an elder law or special needs planning attorney is crucial when preparing for potential nursing home care needs. These experts possess in-depth knowledge of the intricate program requirements and regulations.
Expert guidance can help individuals navigate the complex Medicaid look-back period, ensuring compliance with all necessary rules. This proactive approach can prevent costly mistakes and protect assets from being disqualified.
Seeking advice from an experienced elder law or special needs planning attorney can lead to significant benefits, such as maximizing eligibility for Medicaid benefits while safeguarding assets. Professionals can develop tailored strategies to meet individual needs and goals.
By leveraging the expertise of these attorneys, individuals can potentially reduce the financial burden associated with long-term care, making it more manageable for families in challenging situations.
When looking for a Medicaid planning expert, consider factors such as experience, credentials, and client testimonials, including involvement in organizations that support the experience you are looking for. Research reputable firms or professionals specializing in elder law or Medicaid planning services.
It's advisable to schedule consultations with multiple professionals to compare their approaches and determine who best aligns with your objectives and preferences.
The complexities of Medicaid's look-back period demand careful navigation to avoid penalties and ensure compliance. Understanding the nuances, exceptions, and strategies is crucial for asset protection and successful Medicaid planning. Seeking professional guidance in this intricate process can provide invaluable insights tailored to individual circumstances.
For those embarking on Medicaid planning journeys, staying informed and proactive is key. By implementing asset spend-down strategies effectively and adhering to regulations, individuals can safeguard their financial well-being. Remember, meticulous planning and expert advice are instrumental in securing a stable financial future amidst the intricacies of the Medicaid look-back period.
The Medicaid look-back period is crucial as it determines if any assets were transferred for less than their value. This affects eligibility for Medicaid benefits and can lead to penalties.
Look-back penalties result in a delay of Medicaid coverage based on assets transferred during a specific timeframe. Understanding these penalties is essential to avoid complications in the application process.
Yes, certain circumstances like transfers made for fair market value or transfers to a spouse are exempt from the look-back period scrutiny. Knowing these exceptions can help navigate through Medicaid planning effectively.
Asset spend down strategies involve reducing assets legally to qualify for Medicaid benefits. This may include converting excess resources into exempt items or paying off debt strategically within guidelines.
Avoiding look-back violations involves careful planning and adherence to regulations. Seeking professional guidance, understanding permissible asset transfers, and following proper procedures are key steps in compliance with Medicaid rules.
Medigap policies that supplement Medicare’s basic coverage can cost vastly different amounts, depending on the company selling the policy, according to a new study. The findings highlight the importance of shopping around before purchasing a policy.
When you first become eligible for Medicare, you may purchase a Medigap policy from a private insurer to supplement Medicare’s coverage and plug some or virtually all of Medicare’s coverage gaps. You can currently choose one of eight Medigap plans that are identified by letters A, B, D, G, K, L, M, and N (If you were eligible for Medicare before January 1, 2020, but not enrolled, you may also be able to purchase Plans C and F, but those plans are no longer available to people who are newly eligible for Medicare). Each plan package offers a different menu of benefits, allowing purchasers to choose the combination that is right for them.
While federal law requires that insurers must offer the same benefits for each lettered plan–each plan G offered by one insurer must cover the same benefits as plan G offered by another insurer–insurers set their own prices for each plan. This means that the price of each plan varies considerably depending on the insurance company.
The American Association for Medicare Supplement Insurance compared costs of plans in the top 10 metro areas and found huge cost differences. Using the most popular plan–Plan G–for comparison, the association found that in Dallas the lowest price for a 65-year-old woman to purchase a plan was $99 a month while the highest price was $381 a month. This is a yearly difference of more than $3,000 for the exact same plan.
The association also found that no one company consistently offered the lowest or highest price. In their study, investigators discovered that 13 different companies had either the lowest or highest price. This means you can’t rely on just one company to always have the better price.
When looking for a Medigap policy, make sure to get quotes from several insurance companies. In addition, if you are going through a broker, check with two or more brokers because one broker might not represent every insurer. It can be hard work to shop around, but the price savings can be worth it.
Our clients have completed the first and most important step in the Family Protection process; our award-winning legal professionals helped them create a customized estate plan that protects themselves and their loved ones with special needs. However, life happens in many unexpected ways. To effectively protect your family, an estate plan must be maintained to keep current with changes in the law, public benefits policy, and family relationships. In order to meet these ever-changing needs, families must have a process to regularly maintain and enhance their estate plan to ensure their goals and wishes are met, no matter what challenge arise.
The expert staff at The Michigan Law Center, P.L.L.C., are committed to be your trusted resource to protect and prepare your family for life’s inevitable changes. As part of our commitment to our clients, we have developed an exclusive program to provide the guidance needed to ensure their family is protected now and in the future. As a member of the Family Protection Program ™, you will have access to exclusive educational opportunities and workshops to help advocate for yourself and your family, especially for your loved one with special needs, priority access to our experienced staff when you need answers, and (for higher level plans) a completely updated plan when needed. These are just a few of the many benefits of membership.
To protect your family now, email reception@michiganlawcenter.com to schedule your appointment.
Our goal is to have an ongoing relationship with our clients to ensure that your plan continues to meet your needs, not only when you leave our office but for the rest of your lives. Below is our chart of services for this important program that shows the different levels of protection our office can provide:
We offer the following protection programs for ongoing support managing your personal estate plans, settlement plans and trusts. These ongoing protection plans are offered to all of our clients as ongoing maintenance plans.
Services Included:
Services included:
Services included:
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Illegal evictions of Medicaid nursing home residents are nothing new, but the coronavirus pandemic is exacerbating the problem, according to an investigation by the New York Times.
Some states have asked nursing homes to accept coronavirus patients in order to ease the burden on hospitals. Even as the virus has devastated nursing homes, some have been welcoming these patients, who earn facilities far more than do Medicaid patients. To make room for these more lucrative coronavirus patients, the Times found that thousands of Medicaid recipients have been “dumped” by nursing homes. Many of the residents were sent to homeless shelters.
Nursing homes make far more money from short-term Medicare residents than from Medicaid residents, especially since the federal Centers for Medicare and Medicaid Services changed the reimbursement formula last fall. Now, writes the Times, a nursing home can get at least $600 more a day from a Covid-19 patient than from other, longer-term residents. In other cases, it wasn’t about the money but simply pressure from states to accept Covid patients.
According to federal law, a nursing home can discharge a resident only if the resident’s health has improved, the facility cannot meet the resident’s needs, the health and safety of other residents is endangered, the resident has not paid after receiving notice, or the facility stops operating. In addition, a nursing home cannot discharge a resident without proper notice and planning. In general, the nursing home must provide written notice 30 days before discharge, though shorter notice is allowed in emergency situations. A discharge plan must ensure the resident has a safe place to go, preferably near family, and outline the care the resident will receive after discharge.
According to the New York Times, nursing homes have been discharging residents without proper notice or planning. Because long-term care ombudsmen have not been allowed into nursing homes, there has been less oversight of the process. Old and disabled residents have been sent to homeless shelters, rundown motels, and other unsafe facilities. The Times heard from 26 ombudsmen, from 18 states, who reported a total of more than 6,400 discharges during the pandemic, but this is likely an undercount. In New Mexico, all the residents of one nursing home were evicted to make room for coronavirus patients.
If you or a loved one are facing eviction, you have the right to fight the discharge. Contact your attorney to find out the steps to take.
To read the New York Times article about the evictions, click here.
Transferring assets to qualify for Medicaid can make you ineligible for benefits for a period of time. Before making any transfers, you need to be aware of the consequences.
Congress has established a period of ineligibility for Medicaid for those who transfer assets. The so-called “look-back” period for all transfers is 60 months, which means state Medicaid officials look at transfers made within the 60 months prior to the Medicaid application.
While the look-back period determines what transfers will be penalized, the length of the penalty depends on the amount transferred. The penalty period is determined by dividing the amount transferred by the average monthly cost of nursing home care in the state. For instance, if the nursing home resident transferred $100,000 in a state where the average monthly cost of care was $5,000, the penalty period would be 20 months ($100,000/$5,000 = 20). The 20-month period will not begin until (1) the transferor has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer. Therefore, if an individual transfers $100,000 on April 1, 2017, moves to a nursing home on April 1, 2018 and spends down to Medicaid eligibility on April 1, 2019, that is when the 20-month penalty period will begin, and it will not end until December 1, 2020.
Transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five-year look-back period elapses without first consulting with an elder law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.
Be very, very careful before making transfers. Any transfer strategy must take into account the nursing home resident’s income and all of his or her expenses, including the cost of the nursing home. Bear in mind that if you give money to your children, it belongs to them and you should not rely on them to hold the money for your benefit. However well-intentioned they may be, your children could lose the funds due to bankruptcy, divorce, or lawsuit. Any of these occurrences would jeopardize the savings you spent a lifetime accumulating. Do not give away your savings unless you are ready for these risks.
In addition, be aware that the fact that your children are holding your funds in their names could jeopardize your grandchildren’s eligibility for financial aid in college. Transfers can also have bad tax consequences for your children. This is especially true of assets that have appreciated in value, such as real estate and stocks. If you give these to your children, they will not get the tax advantages they would get if they were to receive them through your estate. The result is that when they sell the property they will have to pay a much higher tax on capital gains than they would have if they had inherited it.
As a rule, never transfer assets for Medicaid planning unless you keep enough funds in your name to (1) pay for any care needs you may have during the resulting period of ineligibility for Medicaid and (2) feel comfortable and have sufficient resources to maintain your present lifestyle.
Remember: You do not have to save your estate for your children. The bumper sticker that reads “I’m spending my children’s inheritance” is a perfectly appropriate approach to estate and Medicaid planning.
Even though a nursing home resident may receive Medicaid while owning a home, if the resident is married he or she should transfer the home to the community spouse (assuming the nursing home resident is both willing and competent). This gives the community spouse control over the asset and allows the spouse to sell it after the nursing home spouse becomes eligible for Medicaid. In addition, the community spouse should change his or her will to bypass the nursing home spouse. Otherwise, at the community spouse’s death, the home and other assets of the community spouse will go to the nursing home spouse and have to be spent down.
While most transfers are penalized with a period of Medicaid ineligibility of up to five years, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:
In addition, you may transfer your home to the following individuals (as well as to those listed above):
If you die without a Will or some other form of estate planning, the state in which you reside and the IRS will simply make one for you. Of course, they have no interest in avoiding or reducing estate taxes, minimizing estate administration costs or protecting your family and legacy. The distribution of your assets will just be turned over to the Probate Court. The probate process is needlessly time consuming, frustrating and expensive. It is also open to the public, meaning creditors, predators or anyone else will have complete access to all information about your estate. For the vast majority of people, the benefits of a Will or other estate planning tools far outweigh any initial costs.
An “I love you” Will is one in which all the decedent’s assets have been left to the spouse. On paper, it might seem to be a caring, thoughtful gesture, but the reality is quite different. That’s because such a Will simply passes the complex issues and problems associated with transferring and protecting wealth onto the spouse or other loved ones. An “I love you” Will creates more problems than it solves, particularly for future generations.
Here is another “solution” that might sound good at first, but ignores several important realities. For instance, what if the child in question is too immature to handle the responsibility of a large sum of money on his or her own? What if the child suffers a severe financial setback that puts the inheritance at risk to creditors? What if the child marries a fortune-hunter, is addicted to drugs or alcohol, gets divorced or remarried? In short, you may need to protect your children and heirs from their own poor decisions.
There are two types of joint ownership, Joint Tenancy with Right of Survivorship (JTWROS) and Tenants in Common (TIC). Problems with JTWROS include postponement of probate until last tenancy, loss of the double step-up in tax basis, and outright distribution. With TIC, you also lose the double step-up in tax basis, and your property is subject to the estate plan of each tenant as well as probate for each tenant.
A trust is the single most effective estate planning tool available. There are many different types of trusts. Among the better known and more commonly used are revocable trusts, irrevocable trusts and testamentary trusts. In addition to protecting your privacy, a trust will help you leave what you want, to whom you want, in the way you want—at the lowest possible cost.
A trust can be thought of as a safe. It can do a great job of protecting your hard earned wealth, but if there’s nothing in the trust—i.e. nothing in the safe—what good does it do you? None whatsoever. Which begs another question, why would someone go to the trouble of creating a trust and then not fund it? The answer is quite often that the person in question simply never gets around to it. He or she procrastinates, resulting in an unfunded trust—which is worse than no trust at all. Estate Planning The Ten Most Avoidable Mistakes
Once they have their estate planning and other documents created, many people simply file them away and never look at them again. Big mistake. An outdated plan can be as bad or even worse than having no plan at all. Your documents should be reviewed, at the very least, every two years. Why? In a word, change. Your needs and goals change; your financial situation changes; your children grow older and their needs change. The law itself is constantly changing. And even if you’ve specified a trustee or executor, the named person’s ability to follow through on your wishes may change as well. Updating your plan allows you to take these changes into account and avoid unintended consequences.
We may say this tongue in cheek but, given the current status of the laws governing estate taxes, there is nothing funny about how much of your estate will be lost to estate taxes should you pass away in 2011. That’s because the Bush administration’s 2001 estate tax modifications will expire in 2010, meaning the exemption amount will return to the 2002 level of $1,000,000 (down from $3,500,000 for 2010) and the maximum rate will increase from 45% to 55%. If you think this is unusual, consider this: laws governing estate taxes have changed more than 20 times since 1986. Which only underscores the importance of getting expert legal advice to prepare for and cope with continuous change.
Trust alone is enough The Living Trust is a powerful estate planning tool, but to truly ensure your wishes are carried out should you become incapacitated and incapable of making decisions for yourself, addendums can be extremely helpful. For example, an Advanced Healthcare Directive can dictate how you wish to be cared for and what steps you authorize medical personnel to take to prolong your life. A HIPAA Authorization can ensure your privacy while still making crucial medical information available to the people you want to have it. A Power of Attorney for financial affairs determines in advance who will be able to make financial decisions for you. Other commonly used addendums include Pourover Wills, Assignment of Personal Property, Community Property Agreements, Appointments of Guardianship or Conservatorship, to name a few.
If the biggest threat to preserving your wealth is not the IRS, who or what is? Frankly, it is human nature. None of us wants to think about our own deaths or the possibility of becoming incapacitated. Consequently, we tend to put off taking the steps necessary to prepare for what the future may hold. We procrastinate. And our loved ones often suffer the painful financial consequences. Perhaps Walt Kelly put it best: “We have met the enemy and he is us.”
Note: You actually have the seven months surrounding your 65th birthday to enroll in Medicare. For example, if your birthday is April 15th, you can enroll starting January 1st until July 31st, but you should enroll before April 1st if you want Medicare coverage in April. Retirees technically have eight months to enroll after retirement.
* Most people do not pay a Part A Premium because they or a spouse earned 40 credits in Social Security-covered employment.
**If prescription drug premium is not part of the Medicare Advantage plan.
After deciding a special needs trust is appropriate, one of the most difficult choices parents make is the nomination of the trustee. Often a family member, especially a parent, will want to serve in that capacity. They have choices depending on the amount going into the trust, from trust department of banks to legal counsel, non-profit corporations, professional fiduciaries and family or friends.
If the trust is large enough, trust departments of banks will compete for the opportunity to act as trustee, especially in this economic market. There may be an opportunity to reduce the fiduciary fees they would charge for the opportunity to act as trustee. There are national banks and even life insurance companies that market their expertise to special needs planners. One advantage to a bank is that as a large institution it may provide better customer service in a predictable heavily regulated manner. In addition, rarely does a bank have to file a surety bond, which saves the trust from otherwise having to pay premiums. However, if there is a difference of opinion between the beneficiary and the bank trustee, it may be very difficult to move the trust to a different trustee. Courts often favor local banks over national corporations, especially if they do not have a physical presence in the state. Some other choices for professional fiduciaries are non-profit organizations which may specialize in special needs trust administration or may offer such services through grant programs, like ARC of Macomb in Michigan. Often, the drafting attorney will be willing to serve as trustee or has knowledge of other attorneys and organizations specializing in this type of trust administration. A judge or Guardian ad Litem may have special knowledge or experience with a particular professional fiduciary, and may appoint them despite other recommendations or family preference.
Most often family members or lay people, in general, are not the best option. The policies regarding allowable distributions change frequently and vary state to state. You can pay a family member for care services in some states, as you can in Michigan, but not others without penalty. In addition, there are tax considerations and investment issues to consider. Special needs trusts are complex to administer, and professional administration, even in light of the costs involved, is usually for the best. Potential family members as Trustees usually fall into two categories: the busy professional or the unsophisticated but willing. Neither are good choices. The busy professional is just that. Too busy. The willing but unsophisticated person is not a good choice as the potential for mistakes without professional guidance is too great a risk. In addition, if a bond is required the client may have trouble qualifying. Bond companies look at credit scores as a strong indicator of an individual’s fitness to serve as trustee, and if there are blemishes they will decline the application. If there is no court supervision or bond, there is no recourse for the disabled beneficiary if a family member improperly distributes funds or mismanages investments, causing a loss of benefits or loss of principal. The plaintiff or their next friend may not have full control over the nomination of trustee. The Guardian ad Litem, trial court judge or probate court judge may not agree with the nomination and may appoint a different party altogether. The wants and needs of the beneficiary should be given priority, balanced with accountability, professionalism, experience, costs and advocacy abilities of the potential trustee.
Individuals seek professional guidance to protect their assets, children, spouse, partner or other family members after they are gone. If their loved one is an individual with disabilities who depends on means-tested public benefits to meet his or her basic needs, it is essential to choose experienced counsel to help protect his or her present and future eligibility. Individuals who do not hire counsel, whether from a lack of sophistication or resources, may resort to disinheriting their child with disabilities and leave a disproportionate share to a sibling who , it is hoped, will “do the right thing.” While this is the least expensive approach, it provides no protection for their special needs child, and as such, it is the number one planning mistake many families make. The designated sibling may use the funds for themselves, especially if they encounter personal financial difficulties. The assets may become part of marital estate in the event of divorce, disability or death, and they are vulnerable to the creditors and claimants of the designated sibling.
In order to protect vulnerable family members, counsel will properly suggest a custom drafted third-party special needs trust as part of a complete estate plan. Most third party trusts are created either by execution of a custom drafted document, or through use of a third party joinder agreement with a pooled trust.
Even though other family members, especially those without children of their own, may wish to make a bequest to a family member with special needs, parents fail to inform them of the existence of the third party trust. As a practice point, counsel should inform the client how to instruct others to make current or future gifts to the trust and the tax consequences of doing so. However, not all families are of sufficient means to warrant a complex estate plan. They may have difficulty paying legal fees for the creation of this type of estate plan, or it may be too complex for them to manage. They may never fully fund the trust, or review the plan again. All of these factors contribute to the reluctance to create a comprehensive estate plan for themselves or periodically revise their existing plan. Counsel may consider the use of pooled trusts to assist families in exploring options which are cost effective and help meet the particular needs of their family member with disabilities. A pooled trust, as defined by 42 USC §1396(p)(d)(4)(C), is created and administered by a non-profit entity to manage and protect the assets of individuals.
Social security defines a third party trust as “a trust established by someone other than the beneficiary as grantor.” POMS SI 01120.200(B)(17). A grantor is further defined as the party who provides the res of the trust. POMS SI 01120.200(B)(2). To qualify as a valid third party special needs trust the beneficiary must have no ability to revoke the trust or direct distributions in any way (42 USC §1382b(3)(3)(A), 20 CFR §416.1201(A)(1); POMS SI 01120.200(d)(2)).
A pooled trust is defined in 42 U.S.C. §1396p(d)(4)(C), which states: “A trust containing the assets of an individual who is disabled (as defined in section 1614(a)(3) that meets the following conditions: (i) The trust is established and managed by a non-profit association. (ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts. (iii) Accounts in the trust are established solely for the benefit of individuals who are disabled with disabilities who are dependent upon governmental benefits to meet their basic needs, such as shelter, medical care, food, and income. An individual with excess assets, his or her parent, grandparent, guardian or court actions on his behalf, can place his or her excess funds into the trust and thus maintain their eligibility for governmental benefits.
In order to become a member of any pooled trust, the beneficiary, or other recognized authority as listed above, must execute a Joinder Agreement which dictates the terms under which the beneficiary will become a member of the pooled trust. While maintaining separate accounts for each individual member, assets are pooled together to maximize the return on investments, to spread the cost of administration and management among the members, and to reduce those costs through economies of scale. Pooled trust administrators apply these same principles to the administration of third party funds for individuals with disabilities. Pooled trusts are as varied in culture, fee schedule, asset management, and administrative style as other corporations, and there are many choices in pooled trusts, ranging in scope from local to national organizations.
(as defined in section 1614(a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court. (iv) 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 pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this title.”
Parents with eligibility issues can also transfer assets to their child with special needs without penalty pursuant to 42 U.S.C. §1396p(c)(2)(B)(iii), and the funds must be placed in a self-settled trust, which mandates either a payback to the State or retention of the remaining assets. When reviewing the pooled trusts available in your state, counsel should consider several factors: (a) the reputation of the non-profit and trust within the locality of the client being served, (b) the cost of membership such as initial set up fees, perpetual and extraordinary fees (which varies greatly), (c) the longevity of the pooled trust, (d) reputation and experience of the counsel and administrators, (e) the ease and method of requesting distributions, (f) the performance of the investments and oversight of same, (g) availability of advocacy on behalf of the beneficiary, and (h) the retention policy of the trustee. Choice of pooled trusts, in many cases, depends on the recommendation of counsel creating the estate plan. Counsel should not make recommendations based on costs alone, but all of the listed factors, including compatibility of the emotional needs of the client with the trustee. Many pooled trusts have developed third party joinder agreements to allow parents or other family members to make current or future gifts to their loved one with disabilities. The method for determining the residual beneficiaries and the terms by which they receive funds vary greatly among pooled trusts. Typically, there is very little drafting required by counsel when using a third party joinder agreement, as the agreement itself is created and implemented by the non-profit trustee. The trustee may have a standard joinder agreement which contains provisions that are filled out by family or their counsel as to the disposition of any remaining assets. Other pooled trusts may implement a joinder agreement which references anaddendum to the joinder agreement outlining the grantor’s wishes. As with other ©2009 all rights reserved 5 third party special needs trusts, there is no payback required to any governmental entity. However, counsel should thoroughly investigate the non-profit trustee’s policy regarding the fees associated with disbursement of the residual funds to the designated beneficiaries, and whether the trust retains a percentage or charges a flatfee for wrapping up the affairs of the trust. Each family is unique in dynamic and presentment of issues. Use of the pooled trust joinder agreement provides flexibility when the parent is not sure whether governmental benefits will be necessary. Given the uncertainty as to their child’s potential for achievement and self-supporting independence, counsel can incorporate language which will allow the trustee of the parent’s trust agreement to convert the trust to a special needs trust.
Counsel should attach an executed joinder agreement to the Grantor’s revocable trust agreement. The grantor, or other family members, provides enough initial funding to qualify the trust as a seed trust, typically a nominal amount. In a more simple estate plan where a simple last will and testament are most appropriate, counsel can also reference the pooled trust as beneficiary on behalf of the heir or devisee with disabilities, and attach an executed joinder agreement. This Sample trigger provision provided by Susan Tomita: “It is the intention of the Grantors, should the Trustee determine that it is in the best interest of a beneficiary to qualify for needs based public benefits, that the Trustee have the discretion to amend the trust (or a trust share) to allow such qualification. Consequently, the Trustee shall have the power, if the Trustee deems it to be in a beneficiary’s best interest, to transfer the assets of the trust (or of any trust share) to a special needs trust or to convert the trust (or any trust share) into a special needs trust for the benefit of the beneficiary of the trust (or any trust share) that will allow such beneficiary to qualify for Supplemental Security Income, Medicaid, or other governmental assistance.” method allows the will to serve as a conduit for funding the special needs trust for the individual with special needs, thus creating a simple, cost effective estate plan that adequately protects the child with disabilities.
Using a pooled trust for third party funds may also offer a unique opportunity for the grantor and beneficiary to experience the pooled trust administration during the lifetime of the grantor. The parent, prospective caregivers, and beneficiary can form a relationship with the pooled trust administrators before the parents are gone. By forming a bond and creating an additional support for the beneficiary during the life of his or her parent, there is less stress after the parent(s) are deceased, and any issues with administration can be worked out ahead of time. It is also an opportunity for any nominated successor advocate to ease into their role by working with the beneficiary and the trustee.
Third party pooled trusts also help to eliminate choice of trustee issues as family members cannot serve as trustee. Rather, pooled trusts must be administered by the non-profits that created the fund, and typically do so with the assistance of counsel. Choosing the wrong trustee is another common mistake parents make when completing their estate plan. Parents naturally place administrative responsibilities for their own fiduciary needs on their adult children, who are typically the natural choice for trustee of the third party special needs trust. However, administration of these trusts is not like wrapping up the affairs of their deceased parent’s trust, which at some point will terminate. A special needs trust is particularly complex in that the ©2009 all rights reserved 7 trustee must provide management of the funds, be aware of changing public benefits policies, have a working knowledge of community and governmental resources, anticipate the impact of distributions on benefit eligibility, community, state and federal benefit programs, address tax issues, and be able to advocate for the beneficiary should benefits be eliminated. The siblings may or may not be familiar or comfortable with the role of advocate for their sibling with special needs. They or their spouse may become resentful of the time and attention required. The use of a pooled trust and its professional administrators and their counsel helps eliminate these issues, and possibly others as well. When the sibling is thrust into the role of trustee for life and has full discretion over the use of funds, it can place unnecessary stress and friction on that relationship. There is also a natural conflict of interest if the sibling is the remainder beneficiary and the trustee. Every dollar spent on theirsiblings needs is one dollar less that they will eventually receive. In addition, many pooled trusts provide the type of professional administration that would otherwise be unavailable for the size of assets under management.
Utilizing a pooled trust for third party special needs can be a flexible tool for counsel to meet the unique needs of their client by providing a cost effective estate plan which addresses the current or potential needs of a special needs beneficiary. Experience with pooled trusts will allow counsel to make confident recommendations to the client, eliminate some of the hazards associated with family trustees, and provide an additional planning choice to the traditional third party special needs trust.
Part of a continuing series regarding what can be paid for from a special needs trust. The most common question a special needs trust client has is, “What can the trust pay for?” Policies regarding distributions change frequently and differ from state to state. What is allowable in one jurisdiction may cause a disruption of benefits in another. In general, a special needs trust is extremely flexible as to what it can and will provide. A trustee of a special needs trust generally does not pay for any good or service otherwise available through governmental benefits. Governmental benefits arguably provide for the basic needs of an individual, such as income, housing, medical benefits, and food. Professional trustees, in most circumstances, will not issue cash or a cash equivalent, such as a pre-paid card, due to the immediate impact on the individual’s benefits. The Trust itself is designed to supplement governmental benefits, not replace them, so needs that can be met through outside entities should be exhausted first before seeking payment from the Trust.
Depending on the terms of the trust, a trustee can pay for the basic needs of the individual under certain circumstances, especially in an emergency where the health and safety of the beneficiary are in jeopardy. Payments from the trust for the basic needs or support of the beneficiary may cause a decrease in monthly income or loss of other benefits. This situation can arise even if no money changes hands. For instance, an adult child living in his parent’s home rent-free may see a one-third reduction of his SSI check as in-kind support and maintenance (ISM). A trust that owns a home can pay for all expenses related to the home, including utilities. In most states, this will cause a one-third reduction of the SSI income, but the benefit to the beneficiary outweighs the loss of income. If there are others living in the home, the trustee may have a lease agreement and receive rent to help support the home. Overall, the duty of the trustee is to act in the best interests of the beneficiary and there are circumstances where the benefits to the beneficiary outweigh the penalties. These types of distributions should be done with the professional guidance of special needs attorneys so as to minimize any potential negative impact and maximize the benefit to the beneficiary.
Generally, distributions from the trust must meet several criteria: (1) the distribution must be for the sole benefit of the beneficiary, (2) in his or her best interests, (3) otherwise unavailable from other resources and/or no other responsible party, and (4) be fiscally prudent. Most often clients will inquire about the purchase of a home and transportation. Can they be purchased by the Trust? Yes. However, it must be done in light of the considerations outlined above and the purchase of any home should not be done without professional guidance, and with court approval if the trust is supervised. If the beneficiary is a minor, the trust does not relieve a parent of their obligation to provide for the basic needs of their minor child. Even though parents are losing jobs and facing economic difficulties, the court is generally unsympathetic to requests for funds or purchases to meet the basic needs of the children.
The most important practice tip is that a special needs trust is a very flexible document in which the trustee has full discretion to act in the best interests of the beneficiary. Every jurisdiction has its quirks. Even though the trusts are written pursuant to federal statutory authority, the administrative policies differ greatly between states. An experienced special needs planning attorney can help set reasonable client expectations, which are important for the client’s future relations and satisfaction with the Trustee and/or special needs trust attorney.