Baltimore County Bar Association

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1 Baltimore County Bar Association Estates & Trusts Committee Special Needs Trusts and ABLE Accounts Tuesday, December 15, p.m. SPEAKER PROGRAM CHAIR LOCATION Mary E. O Byrne, Esquire Frank, Frank & Scherr, LLC Robert S. Campbell, Esquire Pessin Katz Law Mezzanine 08, County Courts Building COST BCBA Members, FREE: Non-Members, $20 Ms. O Byrne will be providing a primer on Special Needs Trusts and an update on the implementation of the ABLE Act of 2014 in Maryland. Estates & Trusts Committee December 15, 2015 Name(/s) Telephone Address City State: Zip Amount Enclosed Please return this form to the Baltimore County Bar Association, 100 County Courts Building, 401 Bosley Avenue, Towson, MD with a check or credit card info (below.) Or to REGISTER ONLINE, go to Name on C/C Today s Date Billing Address City, State, Zip MC/Visa/Discover/American Express Card No. Exp SEC# Amount authorized Signature

2 Using and Drafting Trusts in Estate Planning Planning for People with Disabilities Copyrighted to the Maryland State Bar Association Used with permission. Prepared and Presented by: Mary E. O Byrne, M.B.A, J.D. Frank, Frank & Scherr, LLC 1400 Front Avenue, Suite 200 Lutherville, MD mobyrne@frankelderlaw.com February 23,

3 I. Planning for People with Disabilities Approximately 19% of U.S. citizens report having a disability. 1 Some individuals with disabilities rely on public benefits for income, medical and long term care, as well as supports and services in the community such as food stamps, housing, personal care attendants, private duty nursing, day habilitation programs, job placement and coaching, and respite care. As of December 2013, approximately 8.4 million Americans received Supplemental Security Income (SSI); of this group, approximately 1.3 million are under the age of 18; 5 million are between the ages of 18-64; and 2.1 million are over In the same year, 8.94 million disabled workers received Social Security Disability Insurance (SSDI). 3 Approximately 8.8 million non-elderly individuals with disabilities receive Medicaid benefits, as do 11 million non-elderly, low income adults who are not disabled, and over 31 million children. 4 Attorneys, particularly those involved in estate planning, are likely to have individuals with disabilities among their clients and so need to be aware of the importance of, and methods for, preserving eligibility for public benefits when advising clients. Some public benefits programs are not subject to financial eligibility criteria, such as Social Security Disability Insurance (SSDI) 5, Social Security retirement or survivors benefits, or Medicare. However, many other benefits programs include financial criteria or "means-testing" as part of determining eligibility pdf. 2 Facts and Figures About Social Security 2014, Social Security publication No ; rel. Sept. 2014, pp Facts and Figures About Social Security 2014, Social Security publication No ; rel. Sept. 2014, p SSDI eligibility is affected by the recipient s earnings from employment, and not by accumulated assets or income unrelated to earnings. 2

4 The most common means-tested programs are SSI and Medicaid. SSI is a federally funded income benefit intended to provide for the support and maintenance of individuals who meet the definition of disability and strict financial tests. Medicaid, known as Medical Assistance (MA) in Maryland, is funded jointly by the federal and state governments and provides medical insurance, selected services for targeted populations in various "waiver" programs, and long term care coverage to individuals meeting various disability and age requirements, as well as financial tests. The Food Supplement Program (FSP), as the federal Supplemental Nutrition Assistance Program (SNAP) is known in Maryland, and many housing subsidy programs are also subject to means-testing. Means-tested programs typically consider the income and resources of the applicant and his or her spouse; assets of parents may or may not be considered for a child applicant. Some benefits have only an income test and no test for resources, such as most states' programs for children's health insurance, and Maryland s new Medicaid expansion program for childless adults under age 65. Benefits programs count income and resources differently and, generally, the income counting rules for public benefits programs differ from those of the Internal Revenue Service. For example, SSI may not count as income regular payments from a third party (such as a trust) made to the provider of cell phone service or car insurance. But such payments may be counted as income for certain housing subsidy programs and result in an increase in the individual's rent calculation. Benefits programs may differ on their definition of "receipt" of income. For example, SSI counts income as available to the individual at the point the individual has the legal right to 3

5 obtain it. 6 SSI also considers the receipt of "in-kind income." If an individual receives free food and shelter (such as when an adult child lives with her parents and does not pay for room and board), SSI treats this as "in-kind support and maintenance" or ISM, which will cause a reduction in the individual's benefit for the month of receipt. 7 If an individual receiving means-tested public benefits receives income or resources which exceed the allowed limits, the individual risks the loss of eligibility, and may be required to repay the benefits previously paid, as well as face other penalties. These consequences carry a high cost, not only financially, but also in terms of the time and effort required to regain eligibility and the emotional toll of the loss of income, medical insurance and security. The introduction of the Affordable Care Act (ACA) 8 and with it Maryland s expanded Medicaid eligibility category (based on modified adjusted gross income or MAGI ), are important changes with which practitioners should be familiar as they advise clients about planning for family members with disabilities. II. Use of Special Needs Trusts to Preserve Assets for Future Needs and Permit Continuing Eligibility for Public Benefits A special (or supplemental) needs trust is a vehicle to preserve and manage assets for the benefit of an individual without adversely affecting eligibility for means-tested benefits. An important purpose of such a trust is also to contribute to the beneficiary s quality of life, by helping to provide those goods and services which public benefits do not cover. A special needs trustee is often called upon to serve as an advocate for the beneficiary, such as in assisting in the pursuit of benefits, exercise of the beneficiary s rights and achievement of greater independence. 6 POMS SI U.S.C. 1382(a)(1)(A); 20 CFR et seq; POMS SI series 8 PL A (2010) 4

6 Special needs trusts may be established and funded by someone other than the beneficiary (third party trusts) or may be funded with assets of the beneficiary (self-settled trusts.) Many practitioners use the term special needs trust to refer to a self-settled trust, and supplemental needs trust to refer to a third party trust, although there is no legal requirement to use one term or the other. Special needs trusts is used throughout this outline to refer to both self-settled and third party trusts. Eligibility rules for SSI and Medicaid historically treated trusts unfavorably. Certain trusts established by an applicant/recipient (A/R) or spouse during lifetime, curiously referred to as Medicaid Qualifying Trusts, are effective mainly to disqualify one for benefits. Revocable living trusts offer virtually no asset protection for eligibility purposes when established by the applicant/recipient (A/R) or spouse. Principal in such a trust is considered a resource; any payment from the trust to the A/R or for the A/R s benefit is considered income. Any payment from the trust to anyone other than the A/R is treated as a disposal for less than fair market value. 9 Note, however, that a properly drafted third party revocable special needs trust would not affect the beneficiary s eligibility for benefits. With irrevocable trusts created by the A/R or spouse, any portion of the trust which the trustee has discretion to use for the A/R or spouse is considered a resource. In addition, any payments from the trust to anyone other than the A/R or spouse, and the portion of the principal or income from which no payment could be made to the A/R or spouse, are considered transfers of assets subject to penalty. If the trust provides that no payments may be made to the A/R or spouse, the entire funding of the trust is considered a transfer subject to penalty U.S.C. 1396p(d)(3)(A); COMAR B(1) U.S.C. 1396p(d)(3)(B); COMAR B(5). 5

7 A. Statutory Self-Settled Special Needs Trusts. The Omnibus Budget Reconciliation Act of 1993 (OBRA '93) established three self-funded trusts as exceptions to this generally unfavorable treatment of trusts in the context of Medicaid eligibility. 11 In enacting this statute, Congress sought to enhance the quality of life for individuals with disabilities by allowing a vehicle for them to set aside funds of their own in a responsible manner to be used for their needs not met by public benefits. Otherwise, assets over program limits would have to be spent down to retain or regain eligibility, or the individual would face disqualification for excess assets or income. Congress balanced the needs of individuals with disabilities to plan for the future with the state s interests in managing their benefits programs with the requirements related to disposition of the trust assets when the beneficiary dies, described in more detail below. In 1999, Congress extended these protections to SSI. 12 Two of these trusts are applicable in Maryland. 1. Self-settled stand-alone special needs trust - the (d)(4)(a) trust. This trust may be established by a parent, grandparent, legal guardian, or a court for the benefit of an individual who is under 65 years of age and who is disabled according 13, 14 to the Social Security Administration (SSA) definition. Note that the individual is not required to have been determined by SSA to be disabled in order to have this type of trust, only 11 Omnibus Budget Reconciliation Act of 1993, PL , Aug. 10, 1993, 107 Stat Foster Care Independence Act of 1999, PL , Dec. 14, 1999, 113 Stat U.S.C. 1382c(a)(3). Section 1382c(a)(3) states, in relevant part, that an individual will be considered "disabled for purposes of this subchapter if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months." 14 6

8 that he or she meets the agency s definition of disability. The trust must provide that when the beneficiary dies, the trust assets will be paid to all of the states from which the beneficiary received Medicaid benefits in reimbursement up to the amount of all medical assistance benefits paid on the individual s behalf. 15 If there are not sufficient funds to repay all states which have provided such benefits, the states are to be reimbursed proportionately. Once this repayment obligation is met, any remaining assets may be distributed according to the beneficiary s instructions or to his or her descendants or heirs at law. It is recommended to avoid naming the beneficiary s estate as the remainder beneficiary as SSA considers this to cause a self-settled trust to be treated as revocable, on the theory that there is no ultimate beneficiary who can hold the trustee to account. 2. Self-settled pooled special needs trust the (d)(4)(c) trust. The trust must be managed by a nonprofit agency which maintains a separate account for each individual but may pool the accounts for investment purposes. The individual must meet the SSA definition of disability. The account may be established by a parent, grandparent, legal guardian, court, or the individual himself or herself. The trust may retain funds in the account when the individual dies, and to the extent that the trust does not do so, the trust must provide that funds remaining in the individual account be paid to all of the states from which the beneficiary received Medicaid benefits in reimbursement up to the amount of all medical assistance benefits paid on the individual s behalf. 16 If there are not sufficient funds to repay all states which have provided such benefits, the states are to be reimbursed proportionately. Once this repayment obligation is met, any remaining assets may be distributed U.S.C. 1396p(d)(4)(A), COMAR B(6)(a) and COMAR C U.S.C. 1396p(d)(4)(C), COMAR B(6)(b). 7

9 according to the beneficiary s instructions or to his or her heirs or descendants. Here too, naming the estate of the beneficiary as the remainder beneficiary should be avoided, for the reasons stated in the previous section. 3. Self-Settled Trusts Generally. These trusts represent exceptions to the restrictive financial rules for Medical Assistance eligibility. The transfer of assets (income or resources) into a (d)(4)(a) trust or an individual account in a (d)(4)(c) trust is not subject to penalty and assets in the trust are not counted as available resources for eligibility purposes. The Foster Care Independence Act of 1999 (FCIA) extended these provisions to SSI eligibility. 17 When preparing a self-settled special needs trust, particularly for a beneficiary who receives SSI, practitioners must take care to follow all of the Social Security Administration (SSA) requirements. 18 Only certain parties may establish or create a self-settled trust under 42 U.S.C. 1396p(d)(4). The party establishing the trust (meaning executing the document and funding the trust with the assets of the beneficiary) must have legal authority to do so; if this legal authority is lacking, SSA will consider the trust a countable resource. If a trust is established by a court, the court order must actually establish the trust or trust account, or direct and require an individual to do so on behalf of the court. Mere approval of the trust or authorization for the funding of the trust by the court is not sufficient to meet the requirement of court establishment. Internal communications issued by SSA in May 2015 clarified that a capable individual may petition a court directly to establish a trust, or a third party may do so on 17 Foster Care Independence Act of 1999, PL , Dec. 14, 1999, 113 Stat The Social Security Administration Program Operating Manual System (POMS) Sections SI SI contain many of the requirements regarding establishment of d4a and d4c trusts. 8

10 behalf of the individual. If another party establishes the trust, that individual must provide verification of the relationship, e.g, birth certificates for parent/grandparent, or copy of the guardianship order. A Representative Payee is not authorized to establish a trust under 42 U.S.C. 1396p(d)(4), unless that individual is otherwise qualified as a parent, grandparent or guardian, in which case the trust must be established under these authorities. Funding must be accomplished with legal authority. The person transferring assets that belong to the beneficiary into the trust must have legal authority for this purpose. This may be a capable beneficiary himself or herself. Although a parent or grandparent may establish a seed trust for a beneficiary, there must be legal authority to transfer the beneficiary s assets to the trust, such as a power of attorney. If the beneficiary is not capable and has not executed a power of attorney, it may be necessary to obtain a court order for authority to transfer assets. A third party may add to the trust that is established with assets of the individual, but any such addition to a (d)(4)(a) or (d)(4)(c) trust will be subject to all of the requirements of such trusts, including the sole benefit and termination requirements. A Representative Payee is authorized to transfer conserved SSDI or SSI benefits to fund a self-settled trust, provided the terms of the trust are not contrary to the SSA use of benefits policies. 19 A recent case of national significance illustrates the potential complexities in meeting the SSA requirements for parent or grandparents to establish a trust. Draper v. Colvin involved the creation of a (d)(4)(a) trust agreement by the parents of a disabled capable adult child who was injured in an automobile accident at the age of 18. The parents executed the trust document as the beneficiary s parents, and did not contribute any funds of their own to the trust. The trust 19 POMS GN

11 document recited that the initial funding of the trust was from the personal injury settlement. As the beneficiary s agents under her power of attorney, the parents transferred the proceeds of the beneficiary s personal injury settlement into the trust. SSA concluded that the trust was established by the parents in their role as agents under the beneficiary s power of attorney. As a result, the beneficiary was considered to have established the trust. This caused the trust to fail to meet the special needs trust exception and be treated as a fully countable resource back to the date of establishment. On appeal, this decision was upheld by the 8 th Circuit Court of Appeals. 20 The Court of Appeals found, in part, that [W]hen a trust is formed with an initial, existing res, like the trust at issue here, both the POMS and traditional trust law hold that someone with a legal interest in the entire res must be involved in the trust s creation; otherwise, the trust is invalid. POMS SI B(1)(g). Hence the Court found that the parents had established the trust while acting as the beneficiary s agents. Had the parents seeded the trust with a small amount of their own funds to complete the act of establishment, as interpreted by SSA, and then transferred in the beneficiary s funds acting as her agents, the problem could have been avoided. Self-settled trusts may be funded from a variety of sources, e.g, an inheritance, a personal injury settlement including lump sum and structured settlement/annuities, insurance proceeds, assets owned by the individual before becoming disabled, funds held in a Uniform Transfer to Minors Act account and conserved Social Security or other public benefits. Note that under certain circumstances, SSA will not count as a resource a Maryland Uniform Transfer to Minors Account until the child turns twenty-one (21) if the assets in the account were irrevocably gifted 20 Draper v. Colvin, CIV KES, U.S.D.C., D.South Dakota, July 10, 2013; No , (8 th.cir. 2015), March, 3, 2015, p

12 into the account by one or more third parties. 21 A custodian of a Uniform Transfer to Minors Account does not have the legal authority to transfer account assets into an irrevocable trust without a court order or valid consent of the adult beneficiary. Maryland Medical Assistance requires both (d)(4)(a) and (d)(4)(c) trusts to be reviewed and approved by the office of the Attorney General. 22 That office has created an Attorney Review form for review of (d)(4)(a) trusts for this purpose. The Attorney General s office will only accept such a request for approval of a (d)(4)(c) trust from the sponsoring organization, not directly from a beneficiary who is enrolled in the trust. Take note that approval by Maryland s Attorney General does not guarantee approval by SSA. For example, SSA requires that a (d)(4)(a) trust provide for all states in which a beneficiary has received medical assistance benefits to be reimbursed, while Maryland regulations only require payback to this state. B. Statutory Third Party Special Needs Trusts A third party trust, generally, is not considered a countable resource to the beneficiary if the trustee has complete discretion over the use of the trust assets and the beneficiary does not have the legal authority to revoke or terminate the trust, or to direct the use of the trust assets for his or her own support and maintenance. 23 The settlor of a third party trust should be made aware of the potential effect on his or her own eligibility for benefits, such as Medicaid long term care, when funding a third party inter vivos trust as doing so may create a transfer penalty that can cause a delay in eligibility for benefits. 24 Federal law provides for two types of third party trusts which may be established for a beneficiary who is disabled, without 21 POMS SI Maryland Medical Assistance Manual, Section , pps (July 2012). 23 POMS SI D U.S.C. 1396p(c)(2)(B). 11

13 creating a transfer penalty for the grantor or a countable resource for the beneficiary. 1. Third party trust for disabled child of any age. This is a trust established by a parent for his or her child of any age who meets the SSA definition of disability; the trust must be for the sole benefit of the disabled child, meaning that no individual other than the beneficiary can benefit from the trust in any way, whether at the time of the transfer or at any time in the future. The Centers for Medicare and Medicaid Services (CMS) has interpreted sole benefit to require either that the trust is spent down on an actuarially sound basis or that the trust provide that any funds remaining in the trust upon the death of the beneficiary go to the state(s), up to the amount of medical assistance benefits paid on the beneficiary s behalf. 25 The trust may provide for contingent beneficiaries to take after this reimbursement requirement is met. 2. Third party trust for disabled individual under the age of 65. This is a trust established by an individual for a disabled individual under the age of 65 who meets the SSA definition of disability; the trust must be for the sole benefit of the disabled individual (as described in the previous paragraph) and provide either that the trust assets are either spent down on an actuarially sound basis or that any funds remaining in the trust upon the death of the beneficiary go to the state(s), up to the amount of all medical assistance benefits paid on the beneficiary s behalf. 26 The trust agreement may provide for contingent beneficiaries to take after this reimbursement requirement is met. C. Trusts Under Maryland Common Law and Statute U.S.C. 1396p(c)(2)(B)(iii), COMAR B(8)(c). See also State Medicaid Manual , Transmittal 64, Centers for Medicare and Medicaid Services, November 1994, Section U.S.C. 1396p(c)(2)(B)(iv), COMAR B(8)(d). See also State Medicaid Manual , Transmittal 64, Centers for Medicare and Medicaid Services, November 1994, Section

14 1. Common Law Discretionary Trust This type of trust was recognized in the case of First National Bank of Maryland v. Department of Health and Mental Hygiene, 284 Md. 720, 399 A. 2d 891 (1979). If the trust is a discretionary trust and not a support trust, and the trustee s actions are not arbitrary or capricious, then the beneficiary cannot compel a distribution, nor can any party acting on beneficiary s behalf; hence trust assets are not available to beneficiary. Inter vivos transfers to fund this type of trust are subject to a transfer penalty for five years for the settlor with regard to his or her eligibility for Medicaid Long Term Care and waiver programs, and up to three years for SSI. Also, a trust created for the donor or the donor s spouse may be subject to transfer penalty and treatment as a Medicaid Qualifying Trust. 2. Maryland Discretionary Trust Act The Maryland Discretionary Trust Act (MDTA) provides a vehicle for a third party to create a trust for an individual, and assets in the trust will be excluded from consideration for benefits eligibility for the beneficiary. 27 Trust assets are exempt from any claim by the State for costs of care provided to the beneficiary. The statute provides sample language to create the trust, which may be revocable or irrevocable. The document transferring property must be created in a legally recognized manner, identify the trustee and beneficiary, and identify property as being transferred under the MDTA. This trust may have only one beneficiary. A trust which gives withdrawal powers to anyone other than the single beneficiary would not qualify as a trust under the MDTA. Although funds in the trust are exempt from consideration for the beneficiary s eligibility for programs such as MA or or SSI, transfers made during the 27 Md. Code Ann., Est. & Trusts et seq. 13

15 settlor s lifetime are subject to a transfer penalty for five years for the settlor s eligibility for Medical Assistance Long Term Care and waiver programs, and up to three years for SSI. 3. Testamentary Trust By their nature, testamentary trusts create no eligibility problems for the testator or testatrix. Where the trustee has sole and absolute discretion in making distributions, trust assets will not be considered available to the beneficiary for purposes of eligibility for MA, SSI or other means-tested programs. There is no requirement for a testamentary trust to have a payback to the state. When advising married clients on estate planning for a spouse who may at the time be receiving Medical Assistance Long Term Care or is expected to in the future, note that MA requires a surviving spouse to elect against the Will of the deceased spouse if the deceased s Will leaves the surviving spouse outright less than the statutory spousal share. 28 MA treats the failure to make this election as a transfer subject to penalty, which will result in a loss of benefits. 29 If a Will creates a testamentary trust for the benefit of the surviving spouse, without provision for the spousal share, the surviving spouse s election of this share will nullify all provisions of the Will related to the spouse, including the special needs trust. One approach for long term care planning for a disabled spouse is to leave the surviving spouse outright an amount equal to the spousal elective share as defined by law and direct the balance of the residuary estate to a testamentary special needs trust for the benefit of the surviving spouse. With this planning strategy, it is helpful to minimize but not entirely eliminate the probate estate. 4. Maryland Special Needs Trust Statute 28 Md. Code Ann., Est. & Trusts COMAR (A)(1). 14

16 The Maryland Special Needs Trust Statute expresses the public policy of the State to encourage the use of special needs trusts for people with disabilities. 30 The statute reiterates the State s obligation to enact rules regarding trusts and benefits eligibility that are no more restrictive than federal law, regulations or policies. Pooled trusts funded with assets belonging to the beneficiary have no age limit for those who wish to join, nor is there any transfer penalty applicable for individuals over the age of 65 for transferring assets into the trust. Enhancements enacted in 2013 require each State agency that provides public benefits to individuals of any age with disabilities to adopt regulations that are not more restrictive than any State law regarding trusts, in particular regarding the reasonable exercise of discretion by a trustee, guardian or conservator in the best interests of the beneficiary, and that do not require disclosure of a beneficiary's personal or confidential information without the consent of the beneficiary. 31 III. The Impact of the Affordable Care Act and Medicaid Expansion on Special Needs Planning. With the implementation of the ACA, private health insurance can now be purchased regardless of pre-existing conditions and without annual limits on benefits. Applicants may also qualify for advance premium tax credits to offset the cost of insurance if their MAGI falls between 100% and 400% of the federal poverty level. Individuals under the age of 65 with MAGI less than 138% of the federal poverty level may qualify under the new Medicaid expansion program, which has no asset test. 32 Hence, an individual may be able to obtain health 30 Md. Code Ann., Est. & Trusts Originally enacted as (eff. October 1, 2011). 31 Md. Code Ann., Est. & Trusts (C)(ii) & (iii). 32 COMAR

17 insurance through either of these programs without the use of a special needs trust to preserve assets in an exempt manner. Further, if such benefits can be obtained without the use of a special need trust, the post-mortem reimbursement to the State can be avoided. The ACA and the Medicaid expansion programs provide health insurance only. For individuals who need public benefits for income, or for health and medical services beyond the basic health insurance available under these programs, such as those on SSI, long term care Medical Assistance or waiver services through any of the MA Home and Community Based Waivers (e.g., the Community Pathways waiver for people with developmental disabilities, the Living at Home waiver for younger adults with physical disabilities, or the Waiver for Older Adults) asset preservation for resource eligibility will remain an important planning strategy, as these programs all have specific income limits and asset limits ranging from $2,000 to $2,500. It is critical for practitioners to verify the benefits clients presently receive or may be able to qualify for in the future, and to understand the nature of the client s care needs in order to present appropriate and cost effective planning options to preserve assets and secure needed income and health care coverage. IV. Effect of Trust Distributions on Benefits Eligibility A self-settled special needs trust established pursuant to 42 U.S.C. 1396p(d)(4)(A) or an account established in a pooled special needs trust pursuant to 42 U.S.C. 1396p(d)(4)(C) or third party special needs or discretionary trust may effectively shelter the trust assets from being considered as available resources for the beneficiary for purposes of eligibility for certain public benefits, but the ways in which the trustee makes distributions may still affect adversely the beneficiary s eligibility for benefits or the amount of the benefit. A trustee must be aware of 16

18 all of the benefits which the beneficiary receives and the applicable rules regarding counting income and resources to understand the consequences of distributions to the beneficiary. The trustee and beneficiary must recognize these consequences as well as the requirement of reporting changes in financial circumstances to the appropriate agency. A. Verification of benefits i. Practitioners should obtain proof of the beneficiary s benefits such as award letters, original or annual notice(s) of eligibility determination. If the client cannot provide this information, have the client s representative or agent obtain written verification or have the appropriate person sign a consent for the attorney to verify this information. This should be done annually. ii. For Medical Assistance (MA) purposes, a general notarized consent is usually acceptable, although there is a form commonly used for long term care applicants/recipients. iii. For Social Security (SSA) recipients use form SSA This form must be signed by the recipient/beneficiary or a court appointed guardian; a Representative Payee does not have the authority to consent to the release of information, nor will SSA honor a power of attorney. iv. Verification of benefits is essential; often trust beneficiaries and their families do not know exactly what benefits they receive, or the eligibility criteria. v. When a benefit provides income or other financial assistance (such as a rental subsidy) verify the program and the amount of the benefit or subsidy exactly, as this may affect the trustee s decision to make certain distributions. 17

19 B. Not all benefits are means-tested. i. Social Security Disability Insurance (SSDI), Social Security retirement or survivor s benefits are not means-tested (although eligibility may be affected by the individual s earnings, as distinct from unearned income or accumulated assets.) ii. Medicare is not means-tested, but there are means-tested programs to assist low income Medicare beneficiaries: a. Qualified Medicare Beneficiary (QMB) pays for Parts A and B premiums, deductibles, copays and coinsurance. Financial limits: monthly income: $1,001 for an individual, $1,348 for a married couple; resources: $7,280 for an individual, $10,930 for a married couple. (2015 figures) b. Specified Low-Income Medicare Beneficiary (SLMB) pays for Part B premium only. Financial limits: monthly income: $1,197 for an individual, $1,613 for a married couple; resources same as for QMB. (2015 figures) c. Qualified Individual (QI) pays for Part B premiums only. Financial limits: monthly income: $1,345 for an individual, $1,813 for a married couple; resources same as for QMB. (2015 figures) Limited funds available; priority to those who received in last month of prior year. Recipient cannot be receiving Medical Assistance. 18

20 d. Qualified Disabled and Working Individual (QDWI) pays Part A premiums only. Financial limits: monthly income $1,962 for an individual, $2,655 for a married couple; resources: $4,000 for an individual, $6,000 for a married couple. For those under 65, who have lost Medicare Part A when returned to work, not on MA and meet applicable state requirements. e. For all the above, resources do not include: home, car, burial plot, up to $1,500 set aside for burial expenses, household goods. Eligibility for all of the above qualifies for Extra Help. f. Extra Help helps with out of pocket pharmacy costs under Medicare Part D. Financial limits: monthly income: $1,471 for an individual, $1,991 for a married couple; resources: $13,640 for an individual, $27,250 for a married couple. (2015 figures.) Resources does not include home, car, burial plot, up to $1,500 set aside for burial expenses, household goods and life insurance. 33 iii. A beneficiary may have a combination of benefits some of which are means-tested and some of which are not. This is why verification of all benefits is important. Also, the trustee may recognize that the beneficiary could be eligible for additional benefits he or she is not presently receiving. C. Common means-tested benefits Sites last visited on May 10,

21 i. Supplemental Security Income (SSI) Monthly benefit: $733 for an individual; $1,100 for married couple. The first $20 of unearned income is disregarded. Resource limit: $2,000 for individual; $3,000 for married couple. (2015 figures.) a. SSI pays benefits to adults and children who are disabled and who have limited income and resources. This income benefit is intended to pay for the individual s basic support needs. If such needs are met from other sources, this may be reportable to SSI as income and the result will be a reduction in the monthly benefit. b. Distributions from a trust which provide the beneficiary with resources, as opposed to income, may be countable, depending on the nature of the resource. c. Exempt resources include clothing, furniture, household goods, computer, recreational equipment for recipient s own use, one car, pre-paid funeral plan. d. Countable resources include: income retained into the following month. e. Trustees may pay third party vendors for goods or services for the beneficiary and this is not considered income so long as what is purchased is not ISM; if the purchase is for a resource which is not countable, there is no effect on resources POMS SI

22 f. Reductions to the SSI benefit due to receipt of ISM may be limited to one-third of the federal benefit rate under the "Presumed Maximum Value" (PMV) rule. 35 In 2015, the individual SSI benefit is a maximum of $733; the PMV rule will result in a reduction in the benefit to a maximum of $488 a month. ii. Medical Assistance there are multiple programs within MA and each has its own income and resource limits, for example: a. Community MA (See Section III of this outline for information regarding the Medicaid Expansion program.) b. Maryland Children s Health Insurance Program (MCHP): COMAR c. Waiver Programs, such as Home and Community Based Services Waivers (the Older Adults Waiver and Living At Home Waiver, were combined in 2014 into the Home and Community Based Options Waivers,); COMAR ; Community Pathways Waiver, COMAR ; Model Waiver for Disabled Children, COMAR d. See generally for Community MA and Long Term Care MA: COMAR (Consideration of Income); (Consideration of Resources); (Determining Financial Eligibility for Non-institutionalized Persons); (Determining Financial Eligibility for Institutionalized Persons); 35 POMS SI I.1.b; POMS SI

23 (Treatment of Income and Resources of Certain Institutionalized Spouses). iii. U.S. Department of Housing and Urban Development (HUD) subsidies, such as the Housing Choice Voucher Program (also known as Section 8.) a. Financial eligibility based on income only, generally, family income not to exceed 50% of the median income for the county or metropolitan area in which family chooses to live. No resource limit; however income from certain resources may be counted or imputed, including resources transferred to a trust. Rent is subsidized; usually set at 30% of adjusted income. 42 U.S.C. 1437f et seq. b. Unlike SSI, HUD counts regular and routine distributions made to or for the benefit of the individual as income for purposes of determining the rental obligation even if the payments are made to a third party, such as regular payment of cell phone bills directly to the vendor. 24 CFR iv. The effect of trust distributions on the beneficiary s eligibility for benefits is tied to the financial criteria for the benefit: the benefit may be eliminated or reduced; a repayment obligation may be created for benefits paid when not eligible; the beneficiary s cost sharing obligation may be increased. 22

24 D. Reporting requirements i. SSI: within 10 calendar days after the month in which the change occurred. POMS SI B3 ii. MA (all types): within 10 working days of the event. COMAR B.1 iii. HUD: beneficiary should contact local property manager/housing authority re: timely reporting requirements. iv. Generally, notice of change in circumstances postmarked within the required time frame is considered timely. E. Consequences and Remedies i. SSI recoups overpayment due to excess income by future reduction in recipient s monthly benefit, usually at the rate of 10% per month. If beneficiary is overscale for resources or continues to receive disqualifying income, eligibility may terminate until excess income ceases or resources spent down. [NB: this refers to unearned income only.] ii. MA remedies include: referral to Division of Recoveries and Financial Services for payment of resources overscale; proration of lump-sum income over six month period; termination of benefits. iii. HUD: rent increase based upon value of countable income. V. Summary and Practice Tips 23

25 Practitioners should be alert to the possibility that a client or a client s family member is or may become eligible for public benefits which are subject to financial tests, and consider how best to draft trusts that will support continuing eligibility. Changes in 2014 in the availability of affordable health insurance and expanded Medicaid eligibility may make trusts unnecessary for the sole purpose of qualifying for benefits, although a trust may still be advisable for management of assets, protection from dissipation and undue influence on a vulnerable individual or the potential need for other benefits in the future. It may be advisable to include in a selfsettled trust drafted intentionally not to comply with the requirements of 42 U.S.C. 1396p(d)(4) the power either to amend the trust in the future so that it will comply with the statutory requirements or to permit the distribution of trust assets into a statutory trust, in the event a beneficiary requires other means-tested benefits in the future. As trustees, or counsel to trustees, practitioners should be familiar with the beneficiary s public benefits eligibility, how those programs count income and resources, and the effect on the beneficiary of distributions from the trust. A trust written to exclude the assets from consideration as available resources may yet have an adverse effect on the beneficiary s eligibility for benefits if distributions result in the beneficiary receiving countable income or resources. The attorney should ask clients if they or any intended beneficiary, including grandchildren who may take by representation, receives public benefits and should verify this information with award letters or other proof. 24

26 In drafting third party special needs trusts, it is recommended to avoid giving Crummey withdrawal powers to a beneficiary who may now or in the future receive public benefits. 36 While the withdrawal right exists, the permitted withdrawal amount may be counted as an available resource. If a withdrawal is taken it may be counted as income. Lapsed withdrawal rights may be treated as a transfer subject to penalty. It is recommended to avoid mandatory income or principal distributions directly to the beneficiary, as these may be treated as income. For clients who wish to leave retirement accounts to a third party special needs trust, plan carefully when advising clients in naming contingent trust beneficiaries, considering options regarding trust distribution instructions, and completing beneficiary designation forms or instructions, in order to achieve the most favorable stretch out period for required minimum distributions. As of now, there is no clear ruling from the Internal Revenue Service that permits an individual named personally as a beneficiary of an inherited IRA to transfer this interest to a self-settled special needs trust without triggering a tax liability. Although three private letter rulings have been published since 2005 permitting such transfers without realizing taxable income, no formal rule has been issued. 37 Practitioners drafting trusts for people who receive SSI should become familiar with the SSA Program Operating Manual System (POMS), and check the SSA website ( for updates. To stay abreast of changes and activities in state and federal agencies and evolving practices regarding estate planning relating to 36 Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968). 37 PLRs ; ;

27 people with disabilities, consider joining local and national organizations, such as the National Academy of Elder Law Attorneys ( and participate in the listservs supported by its membership. i i While every effort has been made to present current and accurate information in these materials, readers are advised to verify independently current requirements for specific public benefits programs and their respective eligibility criteria. Information provided in these materials is not intended to be comprehensive of all eligibility requirements for any benefits mentioned herein, nor is it offered as legal advice. Statute, regulation and policy and policy interpretations by government agencies are subject to change at any time. 26