We are fortunate to work closely with many outstanding colleagues in the legal community. Our Team often works hand-in-hand with attorneys Janet L. Lowder and David S. Banas (Hickman & Lowder Co. LPA) to address legal and practical issues that arise when representing injured children or catastrophically injured adults, requiring probate court involvement in, for example, establishing special needs trusts. Their work exemplifies the outstanding contributions by Janet and David on behalf of many of our clients. We are delighted to share their Guest Blog, which is an excellent piece on Special Needs Trusts.
For decades, Special Needs Trusts have been the primary tool to maintain or ensure a disabled individual’s eligibility to receive governmental benefits after receipt of settlement funds or awards. Now, with the implementation of expanded Medicaid through the Affordable Care Act, and the ABLE Act, those with disabilities have a broader range of options in obtaining and/or protecting health insurance and supplemental income. In the right circumstances and with careful planning and advice from a qualified Special Needs attorney, the disabled can strategically utilize SNTs, Expanded Medicaid, and ABLE Accounts to maximize flexibility and independence for individuals with disabilities.
SPECIAL NEEDS TRUSTS
A Special Needs (Medicaid Payback) Trust is a trust arrangement that allows an individual with disabilities to have funds available for his or her needs without the funds counting as a financial asset for benefit eligibility purposes. Many government programs that provide income or payment for medical services and assistance to individuals with disabling conditions have strict financial eligibility limits. Without careful planning, assets received by a child or adult who is enrolled in or may be eligible for these benefit programs (such as Supplemental Security Income or Medicaid) can jeopardize eligibility for those programs.
Typically, Special Needs Trusts hold assets received by the person with a disability through a personal injury settlement, jury award, or an inheritance. The beneficiary of a Special Needs Trust must be under 65 when the trust is established; the individual must meet the definition of disability under the Social Security Act – Title II; and the trust must include a Medicaid reimbursement provision. A parent, grandparent, legal guardian, or a court must establish the trust. That simply means that a parent, grandparent, or legal guardian must sign the trust agreement, or a court must order creation of the trust; however, there is no requirement that the person establishing the trust contribute funds for deposit into the trust. There are also guidelines for using the trust funds; for example, it is generally best to use trust funds to purchase “supplemental” goods and services, not food, shelter, or clothing or items that government programs ordinarily provide.
A pooled trust is a Special Needs Trust that may be advisable when a smaller amount of assets is involved and when it is in the best interests of the individual for a professional to make decisions about investments and distributions (payments out of the trust). An individual with a disability can establish a pooled trust account on his or her own behalf; therefore, it can be an appropriate choice when he or she has assets to place in the trust but does not have a parent or grandparent available to enter into a trust agreement. Nonprofit organizations must establish and manage Pooled trusts; they are available in most states.
A Special Needs Trust can be established even after an individual has received funds directly and therefore has assets above program eligibility limits. Transferring funds to a Special Needs Trust (which includes some pooled trusts run by nonprofit organizations) is permissible under federal law and is one of the very few ways an individual can legitimately transfer assets in order to re-establish benefit eligibility.
Special Needs Trusts continue to be necessary planning tools to maintain eligibility or ensure future eligibility for Medicaid and SSI, especially for an individual with developmental disabilities or those who are severely medically involved. The Waiver programs and the DD system provide services paid for by Medicaid, which are not available elsewhere. Examples of these valuable services are group home staff, vocational and adult day programs, transportation, and nursing care and therapy in the home.
EXPANDED MEDICAID (MAGI)
For individuals not on SSI and need only traditional medical coverage, the need for an SNT may not be imminent. In states like Ohio, which have implemented the ACA’s Medicaid expansion, certain individuals who could receive Medicaid based on blindness or disability will be eligible to receive health insurance under a MAGI coverage group. Prior to the adoption of the ACA, individuals could not purchase health insurance in Ohio if the individual had a preexisting condition. Beginning January 1, 2014, individuals between the ages of 19 and 64 who earn less than 138% of the Federal Poverty Level are eligible to receive Modified Adjusted Gross Income (MAGI) Medicaid. For a single individual, that income threshold is $15,856 per year, or $1321 per month. If individuals have income greater than 138% of the Federal Poverty Level, the individual can purchase insurance on the exchange and would likely receive subsidies and tax credits, depending on income. There is no resource limit to qualify for MAGI insurance. Thus, if a disabled individual with low income needs health insurance but is over the current $1500 Medicaid resource limit, coverage under the MAGI program could provide the stopgap while the beneficiary determines whether an SNT is appropriate going forward. A beneficiary would lose SSI (assuming their resources were over $2000), but would maintain health insurance coverage. Those eligible for MAGI will receive essentially the same benefit coverage as would be received under the Medicaid program. These benefits are distributed through a Managed Care provider.
THE ABLE ACT
In December of 2014 the Achieving a Better Life Experience Act of 2014 (ABLE Act) was signed into law by the President. After eight years of consideration and development, the ABLE Act provides a vehicle for qualified disabled individuals (disabled prior to the age of 26) to establish tax-free savings accounts to meet their special and supplemental needs. Congress rooted the ABLE Act in the 529 education savings plans that many families utilize to save for the costs of college tuition. The ABLE Act allows anyone to establish a special savings account for the benefit of a qualifying disabled beneficiary to pay for disability-related expenses. Earnings in the account are not taxable, and the funds will be unavailable resources for SSI and Medicaid. However, there are significant limitations and pitfalls avoid. For instance, ABLE accounts do have a Medicaid payback provision. Total annual deposits are limited to the annual gift tax exclusion amount, currently $14,000. While any person may contribute to an ABLE account, a beneficiary may only have one account.
Ohio Representatives Margy Conditt and Jonathan Dever and Senators John Eklund and Shannon Jones have sponsored legislation that enables the creation of these ABLE accounts in Ohio. Soon, individuals with disabilities can establish ABLE accounts into which they can deposit small inheritances or gifts. A competent disabled individual who is a plaintiff in a personal injury suit could utilize the first $14,000 received in the case by funding an ABLE account and enjoy the benefit of that supplemental fund outside of an SNT. Child support for a disabled person can be deposited into an ABLE account and saved. ABLE accounts will be particularly useful for small inheritances, lottery winnings, or residual monthly savings.
Like the expanded Medicaid program, the new ABLE accounts provide another tool in the important work of maintaining or protecting Medicaid or SSI benefits. It also provides individuals the ability to establish accounts and save without having an SNT prepared.
MORE OPTIONS, MORE FREEDOM
Special Needs Trusts will remain the keystone of planning for those with disabilities. Circumstances will dictate the type of SNT utilized, funding vehicles, and court involvement. Now, with expanded Medicaid and ABLE accounts, multi-pronged planning that includes the use of SNTs, ABLE Accounts, and stopgap insurance through MAGI permits a more reasoned and fair treatment of those with disabilities.
Janet L. Lowder, CELA
Attorney Janet L. Lowder has devoted her career to defining, promoting, and protecting the legal rights of the elderly, and of persons with mental and physical disabilities. Janet's activities have encompassed individual representation, litigation on a local and statewide scale, representation of agencies and county programs serving people with disabilities and the elderly, legislation, and publication in professional journals. She received her law degree, summa cum laude, from Cleveland Marshall College of Law. Janet is a recognized authority on Medicaid issues and estate planning for families with special needs. She is a member of the National Academy of Elder Law Attorneys and is a Certified Elder Law Attorney (CELA) by the National Elder Law Foundation.
David S. Banas, J.D.
Attorney David S. Banas focuses his practice on estate planning and guardianships, legal issues facing older adults and individuals with disabilities, Special Needs Trusts, Medicaid, and long term care planning, as well as litigation and appellate advocacy. Mr. Banas has been counsel in multiple federal actions regarding the rights of elderly couples in relation to Medicaid. He is a graduate of the Capital University Law School in Columbus, Ohio, and the Ohio University in Athens, Ohio, where he received his degrees cum laude. Mr. Banas has co-authored articles appearing in the Probate Law Journal of Ohio and is a frequent presenter at various events, such as the Ohio State Bar Association’s Elder Law Institute and the Ohio State Bar Association Annual Convention.