By Jason D. Lazarus, J.D., LL.M., MSCC, CSSC
The receipt of personal injury proceeds by someone with a disability can cause ineligibility for government benefit programs subject to means-based tests. Medicaid [i] and Supplemental Security Income (SSI) [ii] are two such programs. However, there are planning devices that can be utilized to preserve eligibility for those with a disability. A Special Needs Trust (SNT) can be created to hold the recovery and preserve public benefit eligibility, since assets held within an SNT are not a countable resource for purposes of Medicaid or SSI eligibility. The creation of SNTs is authorized by the Federal law. [iii] Trusts commonly referred to as “(d)(4)(A) SNTs,” named after the Federal code section that authorizes their creation, are for those under the age of sixty five. [iv] Another type of trust is authorized under the Federal law with no age restriction and it is called a Pooled Trust, commonly referred to as a “(d)(4)(C) trust.” [v]
A personal injury recovery can be placed into an SNT so that the victim can continue to qualify for SSI and Medicaid. Federal law authorizes and regulates the creation of an SNT. The 1396p[vi] provisions in the United States Code govern the creation and requirements for such trusts. First and foremost, a client must be disabled in order to create an SNT. [vii] There are two primary types of trusts that may be created to hold a personal injury recovery, each with its own requirements and restrictions. First is the (d)(4)(A) [viii] SNT, which can be established only for those who are disabled and are under age 65. This trust is established with the personal injury victim’s recovery and is established for the victim’s own benefit. Second is a (d)(4)(C) [ix] trust, typically called a Pooled Trust which may be established with the disabled victim’s funds without regard to age. There is also a trust that can be used if an elderly client has too much income from Social Security to qualify for some Medicaid -based nursing home assistance programs. This trust is authorized by the federal law under (d)(4)(B) [x] and is commonly referred to as a Miller Trust.
The Pooled (d)(4)(C) Trust is the only type of SNT that may be established for those over the age of 65 with their personal injury recovery. There are four major requirements under Federal law necessary to establish a Pooled Trust. First, the trust must be established and managed by a Non-Profit. [xi] Second, the Trust must maintain separate accounts for each Beneficiary, but the funds are pooled for purposes of investment and management.[xii] Third, each Trust account must be established solely for the benefit of an individual who is disabled as defined by law, and it may only be established by that individual, the individual’s parent, grandparent, legal guardian, or a Court. [xiii] Fourth, any funds that remain in a Beneficiary’s account at death must be retained by the Pooled Trust or used to reimburse the State Medicaid agency. [xiv]
There are four primary differences between a Pooled Trust and a (d)(4)(A) SNT. First, a Pooled Trust has no age restriction. A (d)(4)(A) SNT can only be created for those under age 65. Second, a Pooled Trust is not an individually crafted trust like a (d)(4)(A) SNT. Instead, a disabled individual joins an already established Pooled Trust and a professional trustee pools the assets together for purposes of investment, but each beneficiary of the trust has his or her own sub-account. Third, a Pooled Trust is managed by a not-for-profit entity that acts as trustee overseeing the management and distributions of the money. In some instances, the non-profit trustee may hire a separate money manager to oversee investment of the trust assets. Fourth, at death the non-profit trustee retains whatever assets are left in the trust instead of repaying Medicaid for services they have provided as is the case with a (d)(4)(A) SNT. By joining a Pooled Trust, a disabled aged injury victim can make a charitable donation to the non-profit entity that manages the Pooled Trust and avoid the repayment requirement found within the Federal law for (d)(4)(A) SNTs. Other than the aforementioned differences, a Pooled Trust operates like any other SNT, with the same restrictions on the use of the trust assets.
Pooled Trusts are useful in smaller settlements because of the relatively low costs of joining a pooled trust. They are also preferable in many settlements to a (d)(4)(A) SNT because a (d)(4)(C) pooled trust can be established by the injury victim and does not require a parent, grandparent, legal guardian or court order like a (d)(4)(A) SNT. Even though the pooled trust accepts relatively small settlements, the trust beneficiary gets the benefit of having a professional trustee manage their trust. With a (d)(4)(A) it is very difficult to find a professional trustee to manage a small trust. The pooled trust under (d)(4)(C) avoids that problem.
To learn more about the Settlement Solutions National Pooled Trust, a pooled trust created exclusively for injury victims, visit www.ssnpt.com
[i] Medicaid is a needs-based public benefit that provides basic health care coverage for those who are financially eligible. The Medicaid program is federally and state funded but administered on the state level. Services and eligibility requirements vary from state to state. The asset limit is $2,000 for most Medicaid programs but the income limits vary by state.
[ii] SSI or Supplemental Security Income, administered by the Social Security Administration, provides financial assistance to U.S. citizens who are sixty five or older, blind or disabled. The recipient must also meet the financial eligibility requirements. 42 U.S.C. § 1382 (2007).
[iii] 42 U.S.C. § 1396p (d)(4) (2007).
[iv] 42 U.S.C. § 1396p (d)(4)(A) (2007).
[v] 42 U.S.C. § 1396p (d)(4)(C) (2007).
[vi] 42 U.S.C. § 1396p (2007).
[vii] To be considered disabled for purposes of creating an SNT, the SNT beneficiary must meet the definition of disability for SSDI found at 42 U.S.C. § 1382c. 42 U.S.C. § 1382(c)(a)(3) states that “[A]n individual shall be considered to be disabled for purposes of this title … 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 … last for a continuous period of not less than twelve months (or in the case of a child under the age of 18, if that individual has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or … last for a continuous period of not less than 12 months).”
[viii] 42 U.S.C. § 1396p (d)(4)(A) provides that a trust’s assets are not countable if it is “[a] trust containing the assets of an individual under age 65 who is disabled (as defined in section 1382c (a)(3) of this title) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this subchapter.”
[ix] 42 U.S.C. § 1396p (d)(4)(A) provides that a trust’s assets are not countable if it is “[a] trust containing the assets of an individual who is disabled (as defined in section 1382c (a)(3) of this title) 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 (as defined in section 1382c (a)(3) of this title) 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 subchapter.”
[x] 42 U.S.C. § 1396p (d)(4)(B) (2007).
[xi] 42 U.S.C. § 1396p (d)(4)(C) (2007).