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Mary Alice Jackson, Esq. PA|ELA 7TH Annual

ConferenceOmni Bedford Springs

ResortFebruary 20-22, 2015

SPECIAL NEEDS TRUST PLANNING:

THE YEAR IN REVIEW

CMS AdvocacyEasing Distribution Rules

Special Needs Trust Fairness Actd4A and Permissible Grantors

Achieving a Better Life Experience Act Limited Application with Increased Options for PWD

Working with the Affordable Care Act and PWDWhen is an Exchange product better than Medicaid coverage?

Medicaid Benefits for Medicare RecipientsTips for Money Saving

EVOLUTION: SNT PLANNING IN A CHANGING WORLD

NAELA Attorneys meeting with CMS to seek clarification of POMS and to advocate for changes

CMS history re: SNTs is to focus on sole benefit rules for d4A trusts

Advocates affected change in 2014-2015

Current Priority Issues: Draper case and ABLE Act

Practice Tips

ADVOCACY WITH THE CENTERS FOR MEDICARE AND MEDICAID (CMS) – Courtesy of Advocate Mary O’Byrne

The word “sole” only occurs once in the statute: 42 U.S.C.A. Sec. 1396p(d)(4)(C)

“…(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…”

Could one say that the word “solely” refers to the preservation of an individual’s pooled account for that beneficiary and not other pooled trust beneficiaries?

IS A “WII” FOR THE SOLE BENEFIT OF A C/W/D DISABILITY AND OTHER IMPOSSIBLE QUESTIONS

42 USC §1396p(d)(4)(A): 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.

HCFA 64 – First agency interpretation of OBRA ’93 - Section 3257B.6: As to transfers of assets taking place in such a way that no

individual or entity except the beneficiary can benefit from the assets transferred in any way, whether at the time of the transfer or at any time in the future

As to the trust itself, sole benefit means the trust benefits no one but the individual, whether at the time the trust is established or any time in the future

WHO SAID “SOLE BENEFIT” WAS A RULE?

Foster Care Independence Act of 1999 provided for certain eligibility

provisions

POMS came out with fi rst reference of “sole benefit” SI 00120.201F(2):

a.  General rule regarding sole benefit of an individual

Consider a trust established for the sole benefit of an individual if the

trust benefits no one but that individual, whether at the time the trust is

established or at any time for the remainder of the individual's life.

Except as provided in SI 01120.201F.2.b. in this section and 

SI 01120.201F.2.c. in this section, do not consider a trust that provides for

the trust corpus or income to be paid to or for a beneficiary other than the

SSI applicant/recipient to be established for the sole benefit of the

individual.

THE ADVENT OF SOLE BENEFIT BY SSA

POMS SI 00120.203(b)(1)(e) Under the special needs trust exception, the trust must be established for

and used for the benefit of the disabled individual. SSA has interpreted this provision to require that the trust be for the sole benefit of the individual, as described in SI 01120.201F.2. 

[a]ny provisions that: provide benefits to other individuals or entities during the disabled

individual's lifetime, or allow for termination of the trust prior to the individual's death and

payment of the corpus to another individual or entity (other than the State(s) or another creditor for payment for goods or services provided to the individual), will result in disqualification for the special needs trust exception.

REGULATION AND PLAIN MEANING OF THE STATUTE?

Sole Benefit Third Party Travel Reimbursement of income to third parties not being treated as

income to beneficiary Inconsistency between agency field offi ces Need for reasonable time for amendment when rules or

interpretations change Payment to family caregivers Payment of beneficiary’s legal obligations at Trustee’s discretion

ONGOING LIST OF PRIORITIES BETWEEN ADVOCATES AND THE AGENCY

“LESS IS MORE” when drafting definitions of “special needs” SI 00120.200B(13) Glossary: A Supplemental needs trust limits the trustee's discretion as to the purpose

of the distributions. This type of trust typically contains language that distributions should supplement, but not supplant, sources of income including SSI or other government benefits.

SI 00120.201E(1)(c) Disbursements from Trusts:

c. Disbursements which are not income Disbursements from the trust…are not income. Such disbursements may take

the form of educational expenses, therapy, medical services not covered by Medicaid, phone bills, recreation, entertainment, etc .

No need to get fancy

PRACTICE TIPS

If paying family caregivers, document the need for services above expectations of parental support, such as with physician or care manager orders/recommendations in a plan of care.

Pay rate should be appropriate to scope of services and local norms of compensation.

Income reporting to tax authorities and SSA, if applicable e.g., for deemingWhen establishing trust by court order, carefully follow POMS examples, and

have court “order” trust creation by a third party or actually establish the trust by court action.

If SSI benefi ciary is competent and no living parent/grandparent is available, even if someone else petitions the court the result may be considered as established by benefi ciary - and the trust will fail to meet the SSI requirements.

If parent or grandparent establishes trust have them seed the trust with at least nominal amount.

MORE DRAFTING PRACTICE TIPS

Persons with disabilities can purchase private health insurance regardless of any pre-existing conditions

Federal law went into effect on January 1, 2014

Pennsylvania is an expansion state – expansion states use income-only calculations for eligibility

PA has now switched plans and coverage will begin January 1, 2016

SO, HOW’S IT GOING WITH THE ACA?

Modified Adjusted Gross Income (“MAGI”) Conversion Plans - translates pre-2014 net income eligibility standards into MAGI-based eligibility standards. Replaces income disregards with more universal income eligibility rules that are generally aligned with the rules that are used to determine eligibility for the premium tax credits in the Marketplace

The ACA does NOT cover LTCSS, but there is an expansion of certain waiver programs

SO, HOW’S IT GOING WITH THE ACA?

Expansion applies to non-Medicare eligible individuals under age 65

Example: Jane experienced a TBI at age 6. She received a settlement of $2.1M, some of which was structured. She was eligible for SSI and Medicaid from the date of the accident, and Jane’s father died unexpectedly when she was 30. Under federal law, Jane was then entitled to Child Disability Benefits (CDB), which are determined by her father’s earnings record. Jane will receive Medicare 24 months after getting her first CDB check. She can purchase through the health care exchange or remain on Medicaid until her Medicare coverage begins.

Should the SNT purchase a plan for her through the exchange because there are more beneficial health care options for her through the plan?

THE ACA AND SNTs

Once Jane becomes Medicare eligible, will she be able to purchase a Medigap policy to pay co-pays, insurance and deductibles?

Although there is no federal guarantee that persons with disabilities can buy Medigap coverage (a/k/a Medicare supplemental plans); Pennsylvania law allows individuals with disabilities and ESRD to purchase Medigap coverage within normal enrollment periods

What role will the SNT play once Jane has Medicare and Medigap coverage? Is the Trustee knowledgeable about Jane’s options?

THE ACA AND SNTs

Caroline was in an auto accident at age 17. As a result, she has quadriplegia. Six years after the accident, Caroline is otherwise healthy and needs little assistance. Medicaid pays for dressing and bathing costs for 3 hours per day.

Caroline’s SNT has a balance of $1,600,000 and she receives a monthly annuity payment of $4,500 for life or 30 years.

Caroline wants to work and although she can’t work full-time, she can earn money of her own. She also volunteers to talk with teenagers to talk about the dangers of distracted driving.

Should the Trustee look into the cost of buying coverage through the health care exchange and avoid the hassles of Medicaid? What language might need to be in the trust document to allow her to do so?

ONE MORE EXAMPLE OF SNTs AND THE ACA

26 U.S.C. 529A – Tax Code; SSA involvement

ABLE Account – established and maintained under a QAP

State sponsored investment accounts f/b/o any “Eligible Individual” [26 USC 529A(e)]

States have the option to participate Non-participating states can contract with states which have ABLE plan

(“contracting state” is the state without a program)

QUALIFIED ABLE PROGRAMS

QAP established and maintained by State, Agency, or instrumentality thereof; Must keep separate accounting for ABLE account in state program Must provide adequate safeguards to prevent excess contributions

529 Plan Program Examples: Texas Prepaid Higher Education Tuition Board

Chaired by State Comptroller Ohio Tuition Trust Authority (OTTA)

Subset of College Tuition 529 Savings Plan for the state Education Trust Board of New Mexico

New Mexico Higher Education Department

STATE ROLE: ESTABLISH QUALIFIED ABLE PROGRAM

Plan administrator provide adequate safeguard to insure no excess contributions

If more than one account is established, only the fi rst account treated as qualified account

Contributions of parent/grandparent protected from bankruptcy if made 365 days in advance

Contributors may not directly or indirectly direct the investment of contributions

May not be used as collateral for loans

ADDITIONAL REQUIREMENTS

Feds to write regulations, including: Information required to open an ABLE acct Generally define qualified disability expenses Relating to disability certifications Allow for interstate transfers if Beneficiary moves

Trustee of an ABLE account submits notice to the Secretary upon establishment of account Must contain name and state of residence of beneficiary

Monthly electronic submission of distributions and account balances to SSA

REGULATIONS AND REPORTING

Payback, payback, paybackMore than one account established ; overfunding Failing to ensure paying qualified disability expense Failing to report to stateLoss of SSI relationship to MedicaidEducated choice between alternativesConfusion between SNT and ABLE rules – distribution of cash from

ABLE account to beneficiary on SSI? Protection from fraud, undue influence, exploitationChild support?

CLIENT PITFALLS

Avoid testamentary trust reformationNot quite ready to spend down – waiting for new van to be custom

madeLow income beneficiary savings planStates with onerous oversight of SNT rulesIn conjunction with larger SNT or pending litigation resultWhere $$ are small and clients will never understand SNT rulesWhen rules are promulgated, fleshed out, tried out and the ABLE

account option fits the facts

PLANNING: WHERE ABLE MIGHT FIT

Mix and Match – assume $ within range: Small amounts of 1st party monies Control for competent beneficiaries Accumulation of wages over time Transfer of UTMA accounts at 18 to qualify for SSI/Medicaid Save for purchase of home or car or wedding expenses Disability has potential to resolve No available or competent d4C entity

PLANNING: WHERE ABLE MIGHT FIT

Amends Veterans laws to permit the payment of Survivor Benefit Plans (SBP) to a SNT

Prior law required the benefit to be paid directly to the beneficiary, who was often on public assistance

Payment of the benefit arguably could not have been refused as Medicaid is the payor of last resort

Receipt of income made disabled beneficiaries ineligible for public assistance

DISABLED MILITARY CHILD PROTECTION ACT

Created a chilling effect on the veteran who did not want to endanger well-being of disabled child, and therefore did not name the child as the beneficiary of a SBP or did not invest in the program

Assignment of the payment directly to the SNT means that the payment is not counted as income

Veterans now have same estate planning choices that non-veterans enjoy

DISABLED MILITARY CHILD PROTECTION ACT

Example: Capt. Bennett invests in the Survivor Benefit Plan. He wishes to name his two adult disabled children as beneficiaries of his SBP. His children are in their 50’s and have resided in an excellent group home for 28 years. The group home is only available to Medicaid recipients. If the SBP is paid directly to his two children, neither will be eligible for Medicaid and they will have to be moved. The SBP funds could be used to purchase much needed clothing, technology, entertainment and outside trips for his children. With the passage of the DMCPA, Capt. Bennett is now able to provide for his children with the knowledge that they will not be removed from their present living environment.

NAELA played the defining role in the passage of this bill; sponsored by Rep. Jim Moran of Virginia and Sen. Kay Hagan of North Carolina

DMCPA’s IMPORTANCE

NAELA sponsored legislation“Glitch Bill” - amends 42 USC §1396p(d)(4)(A) Will allow individuals with the necessary mental capacity to

establish their own trustsWould no longer require the intervention of parent, grandparent,

guardian or courtBrings the law into conformity with 42 USC §1396p(d)(4)(C), which

reads in part “(iii) Accounts in the trust are established solely for the benefit of individuals who are disabled…by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.

NAELA website has more information, bill needs additional sponsors

SPECIAL NEEDS TRUST FAIRNESS ACT

SI 01120.200B(G)d:  Assignment of income A legally assignable payment (see SI 01120.200G.1.c. for what

is not assignable), that is assigned to a trust/trustee, is income for SSI purposes unless the assignment is irrevocable. For example, child support or alimony payments paid directly to a trust/trustee as a result of a court order, are not income. If the assignment is revocable, the payment is income to the individual legally entitled to receive it.

CHILD SUPPORT AND SNTs – HELPING FAMILIES THROUGH DIVORCE

SI 01120.200G.1.c: …Non-assignable payments include: Railroad Retirement Board-administered pensions; Veterans’ pensions and assistance; Now changed via the DMCPA Federal employee retirement payments (CSRS, FERS) administered by the

Offi ce of Personnel Management; Social Security title II and SSI payments; (rep payee status is not an

assignment) Private pensions under the Employee Retirement Income Security Act

(ERISA) (29 U.S.C.A., Section 1056(d)).

CHILD SUPPORT AND SNTs – HELPING FAMILIES THROUGH DIVORCE

Qualifi ed Medicare Benefi ciary (Healthy Horizons Medicare Cost-Sharing): QMB – Pays Medicare Parts A and B premiums, Medicare deductibles and copayments 2015 PA Income Limits - $1,001 for a single person; $1,348 for a couple Resource Limit - $7,280 for a single person; $10,930 for a couple Up to 100% of FPL

Specifi ed Low-Income Medicare Benefi ciary Program SLMB – Pays Medicare Part B premium 2015 PA Income Limit - $1,197 for a single person; $1,613 for a couple 2015 PA Resource Limit - $7,280 for a single person; $10,930 for a couple 100-120% of FPL

Qualifying Individuals QI – Pays Part B Premium 2015 PA Income Limit - $1,345 for a single person; $1,813 for a couple 2015 PA Resource Limit - $7,280 for a single person; $10,930 for a couple 120 – 135% of FPL

USING MEDICAID FOR MEDICARE EXPENSES

A.P. ex rel Phinisee v. U.S., 556 Fed. Appx. 132 (3rd Cir. 2014) http://www2.ca3.uscourts.gov/opinarch/123893np.pdf (not precedential)(but instructive).

Summary: Rasheena Phinisee, acting for the benefit of her minor daughter, fi led an action for medical malpractice pursuant to the Federal Tort Claims Act. At settlement conference the government off ered $1.2 million to be placed in a SNT. Ms. Phinisee accepted.

The next day, Ms. Phinisee notified her attorney that she had learned that there was a $703,491.25 Medicaid lien, and she insisted that her acceptance of the off er be withdrawn. A week later, the government sent her attorney a formal settlement agreement; at about the same time, Ms. Phinisee fi led her own “Motion to Reopen Civil Action” and discharged her attorney.

CASE LAW – PA IN THE FEDERAL COURTS

The government fi led a motion to enforce the settlement agreement, and Ms. Phinisee’s new counsel argued that the Medicaid lien meant that the proposed settlement would not be suffi cient to protect her daughter’s interests. She also argued that her attorneys had tricked her into dropping her own separate claims.

At hearing, her original attorneys testified they definitely discussed the liens with their client. They characterized her acceptance of the agreement as “enthusiastic.” The Magistrate Judge granted the motion to enforce the settlement.

The Third Circuit Court of Appeals reviewed the history of the settlement negotiations and upheld the order approving settlement.

CASE LAW – PA IN THE FEDERAL COURTS

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Mary Alice Jackson, Esq. PA|ELA 7TH Annual

ConferenceOmni Bedford Springs

ResortFebruary 20-22, 2015

SPECIAL NEEDS TRUST PLANNING:

THE YEAR IN REVIEW