d4A SPECIAL NEEDS TRUSTS
This article re d4A Special Needs Trusts was written by Attorney Brian F. Mahoney at the request of the Massachusetts Academy of Trial Attorneys for publication in September, 2007 within the Massachusetts Lawyers Weekly. Although this article concerns funding a d4A SNT Trust with the settlement proceeds due to a Trial Attorney's disabled client, any property owned by the disabled client can be used to fund a so-called d4A SNT. Please note that Parents can leave inheritances to their disabled offspring who is under age 65 through a Third Party SNT.
A. INTRODUCTIONWhen settling a civil case for a disabled client under age 65 we must consider what their current or future needs for government benefits are. Both the Commonwealth and the Federal governments allow eligibility for Medicaid or SSI if the injured , client's settlement is used to fund a d4A SNT for those under age 65 a so-called d4C Pooled Trust is the vehicle for those disabled clients over 65. The d4ASpecial Needs Trust which this article discusses is also known as a supplemental needs trust or simply as an SNT, and it is authorized under 42 U.S.C. § 1396p(d)(4)(A).
Huge settlements for other than catastrophic injuries are rare today and yet living expenses are constantly rising. So we would need a disabled client to remain eligible for government benefits, if the settlement will not likely cover living needs over the client's remaining life expectancy. But, at the same time, we also must remember that once an d4A SNT is funded with the settlement there are certain limitations on what the Trustee can pay for on behalf of the d4A SNT Beneficiary, because this trust is supposed to "supplement," but not to "supplant," government benefits.
B. GOVERNMENT BENEFITS & PUBLIC ASSISTANCE PROGRAMSThis article's focus is on what a d4a SNT must contain for provisions once it is determined the client's settlement will be funding such a trust. To make that decision we evaluate what public benefits are available and how one qualifies for those benefits.
The main programs available for disabled clients under age 65 are summarized as follows:
For monthly cash payments see: Supplemental Social Security Income (SSI); Social Security Disability Income (SSDI) and the public welfare program in Massachusetts, known as Transitional Aid to Families with Dependent Children (TAFDC),that can provide cash and medical assistance to needy families with dependent children.
For Medical Care see: MassHealth, aka Medicaid or Medicare.
For Housing see: the Housing Choice Voucher Program formerly known as Section 8.
In 2007, for Living Arrangement A--Full Cost of Living �Individual, SSI pays a Federal benefit of $623.00/ month and the State supplement is $114.39 for a total of $737.39/ month.
To be eligible for SSI an inured client can own only $2,000.00 in countable assets, hence the need to fund a d4A SNT with a settlement. A primary residence is not a countable asset. If the d4A SNT is established properly, the settlement that funds this trust is not a countable asset.
If a disabled client qualifies for SSI they also qualify for MassHealth / Medicaid benefits, the Commonwealth being one of the so-called § 1634 states where eligibility for S.S.I. means eligibility under that state's Medicaid program. See also Ramey v. Rizzuto, 72 F. Supp.2d 1202 (D.C. Colo. 1999), aff'd, Ramey v. Reinertson, 268 F.3d 955 ( lOth Cir. 2001) where the Court held that when the state's Medicaid laws are more restrictive than SSI, the SSI rules take precedence over state Medicaid rules. However, please also see Reames v. Oklahoma, 411 F. 3rd 1164 (10th Cir. 2005) where the court acknowledged Ramey, but held that the Courts need to first determine Congress' specific intent, and if a state law is "based on a permissible construction of the statute," then it likely allowable.
SSDI is available to workers under age 65 who are blind or disabled and who had a work history recent to the onset of the disability and have earned a certain amount of so-called "quarters of coverage." There is no asset limit.
Certain family members of the injured worker might be eligible for benefits. See generally: 20 C. F. R. Sec. 404. Individuals eligible for SSDI can become eligible for Medicare benefits after 24 months of SSDI.
Individuals earning less than 133% of the Federal Poverty level are eligible for government sponsored MassHealth to cover health care. through the Medicaid program. Federal poverty levels in 2007 are $10,210.00 per year for an individual and $20,650 for a household of 4.
C. REQUIREMENT OF THE D4A SNTA d4A SNT is but one type of Special Needs Trust.The Commonwealth describes Special Needs Trusts generally in 130 CMR 515.001:
"Special-Needs Trust - a special-needs trust is one that meets all the following criteria as determined by the Division.
Requirements summarized in: POMS SI 01120.203.D.l include:
If the beneficiary has no parents or grandparents, appointment of a Guardian is necessary and then one could look to M. G. L. c. 201 Sec 38: "Management of estate; support of ward and family; custody of wills; estate plan;" to M. G. L. c. 215 Sec. 6, regarding general equity jurisdiction, or to the Court where the personal injury lawsuit is pending. Currently, a disabled person can establish their trust.
Analysis of the Client's latest pay stub is needed as is obtaining a medical report from a doctor regarding their opinion on the issue of disability. A denial on any issue before MassHealth requires an appeal for a Fair Hearing within thirty days of the adverse decision. They allow for faxing of the appeal, but certified mail, if not hand delivery should be done. A fair hearing can come up rather quickly sometimes, so obtain all proof of disability before establishing and funding the d4A SNT and well before an adverse decision is rendered state or federal.
D. MANAGEMENT OF TRUST ASSETS:Drafting should include guidelines for the categories of allowable investments by the Trustee. The disabled client may never again come into possession of thousands of dollars. Shouldn't a Trustee therefore consider maintaining the safety of the Trust principal versus making growth a priority due to risk inherent in investments that might allow for the most growth potential?
Surely we do not want to let trust funds languish in a savings bank account, nor do we want to allow funds to get clobbered by a stock market downturn, especially when a disabled client will likely never again get the chance to replenish assets that are lost. I have had clients require me to insert the following language into trusts:
"The Trustee may not invest in:
Please also see the Principal and Income Act, M. G. L. C. 203d, before drafting a trust.
Prohibited Expenses or Payments under POMS SI 01120.203.B.3. are: payments of debts owed to third parties; funeral expenses, and payments to residual beneficiaries (prior to re-payment of the state.)
The Trustee can normally pay for vacations and related expenses. Entertainment is generally allowed, such a movie tickets and other social events, but the money should not go directly to the Beneficiary, but for $20/month.
Be careful if the Trustee is a close family member and receiving pay for acting as the Trustee, essentially the government wants to assure itself that money is not being funneled through the trustee to the Beneficiary.
Placing assets into a d4A SNT can in and of itself result in Section 8 imputing income if the funding of the d4A SNT is deemed a "transfer of assets for less than fair market value," and that can reduce benefits. A recurring monthly payment of $100 for the disabled client's electric bill by the trustee could be counted as income which can reduce benefits.
If the d4A Trust were to own a home, the following could be considered by SSI to be countable housing expenses if paid by the trustee: mortgage, real estate taxes, water and electricity. Rent paid by the trustee is countable. Telephone, cable TV, laundry, cleaning products, and repairs are likely not countable.
Ideally you want trust income to be taxed at the income tax rate of the d4A SNT beneficiary because the disabled client's rate would likely be in the lowest income tax bracket, as opposed to higher trust income tax levels. Generally, income and capital gains generated by property owned by a so-called Grantor trust are taxed at the rate of the grantor's individual tax rate, and income, deductions, and credits of the trust are reported on the disabled client / grantor/ beneficiary's personal tax return each year.
Initially the plaintiff will be recognized as the grantor of a Special-Needs Trust, even if a third party, such as a court or legal guardian, creates the trust. A d4a SNT can be considered a so-called Grantor trust if it meets the requirements of § 671-679 of the Internal Revenue Code.
E. THE CORPUS OF d4A SNT IS SUBJECT TO LIENSAlthough an SNT was not properly before the Court due to procedural error, the Court cannot permit settlement proceeds to be used to fund a d4A SNT to avoid a Commonwealth lien for medical benefits paid for the injury in question. See Whelan v. Division of Medical Assistance, 44 Mass. App. Ct. 663 (1998.)
An individual who has received or will be receiving payments from a third party as a result of an accident, injury, or other loss must first repay the MassHealth agency for medical assistance under M.G.L. c. 118E, §22 (DIVISION OF MEDICAL ASSISTANCE) and also under 42 U.S.C. 1396a(a)(25)(A) and (B) and repay the Department of Transitional Assistance for financial assistance under M.G.L c. 18, §5G (DEPARTMENT OF TRANSITIONAL ASSISTANCE, Claimant; subrogation), even if such third-party payments have been or will be placed into a special-needs trust in accordance with 42 U..S.C. 1396p(d)(4).
One can use an I.M.E. report which in whole or in part, reports that that medical treatment paid for by MassHealth was unrelated to the accident in an attempt to reduce the lien.
If the client is on SSDI, remember the possibility of a Medicare lien.
F. DRAFTING ISSUES AND SAMPLE D4A SNT TRUST CLAUSES:
Young v. Dept. of Public Welfare, 416 Mass. 629 (1993) discussed that a Probate Court Judge can interpret and issue declaratory judgments concerning the provisions of a Trust and this judge declared the Trust in issue to be a supplemental needs trust pursuant to M. G. L. c. 215 Sec. 6 and Burn v. McAllister, 321 Mass. 660 at 661 (1947.)The Probate Court later amended its order to allow the Trustee to make payments for the Beneficiary's care and welfare during the time when the Beneficiary was not entitled to Medicaid benefits. However, this does not govern MassHealth or the Social Security Administration as they may interpret their own regulations as applied to the Trust.
G. CONCLUDING THOUGHTWhen the d4A SNT is drafted and the disabled client's parent or grandparent is alive, then, consider drafting a second SNT, a so-called Third Party SNT that can be established by a parent or grandparent and which can be funded with any inheritance the disabled client might receive. That type of special needs trust is very similar to the d4A SNT.
MATA member Brian F. Mahoney, a former accountant, first joined MATA in 1985 and is a member of the National Academy of Elder Law Attorneys. He concentrates in Estate Planning, Elder Law, Asset Protection and litigation of Estate & Will contests, Attorney Mahoney has been practicing Law for 25 years in Massachusetts with locations in Boston, Canton and Dedham.
Please call him at 781-828-0083 or contact him at:
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