Don’t Risk Loss of Medicaid Benefits by Failing to Plan
A claimant receiving Medicaid benefits should know that proceeds from a physical injury judgment or settlement may be counted in a “means test” that can make the client ineligible for this public assistance. All that will have been accomplished is to replace Medicaid benefits with proceeds until they have been exhausted—unless you plan.
Through the creation of a “Medicaid Disability Trust,” also known as a “(d)(4)(A) Trust,” to receive a lump sum or periodic payments, or both, from a judgment or settlement, a claimant shield these assets from being counted. These are also inaccurately called “Special Needs Trusts” or “Supplemental Needs Trusts” because there is no requirement in the authorizing statute, 42 U.S.C. § 1396p(d)(4)(A), to consider the special needs of the beneficiary.
The claimant can still receive regular monthly income, including Supplemental Security Income (SSI) payments, and possess other assets up to the maximum allowed by state-specific Medicaid guidelines, while the money in the trust can pay for items not covered by Medicaid and to enhance lifestyle. The trust can pay for medical, dental, ophthalmic and auditory care; psychological support services; supplemental nursing or physical therapy care; rehabilitation; medical procedures desirable in the discretion of the trustee, even though the procedures may not be necessary or life-saving; differentials in cost between housing and shelter for a shared or private room in an institutional setting; expenditures for travel and transportation for both the client and caregivers; and similar care which other assistance programs may not otherwise provide. The trust also can provide non-medical assistance such as education, including computer service and Internet access; entertainment, including pets; and such other items needed to assure as natural and pleasant a life as is possible.
Title XIX of the Social Security Act establishes the Medical Assistance Program, which is more commonly known as “Medicaid,” a federal program administered by the states that provides medical care for certain categories of low-income people with few assets. Medicaid is often confused with Medicare, which is an entirely separate program administered by the U.S. Social Security Administration. Social Security benefits, including SSD (disability payments) and Medicare, are a federal insurance program for which earners pay “premiums.” Social Security benefits are not considered in determining Medicaid eligibility.
Medicaid program is administered by a state agency designated by each state. Medicaid rules are very complicated, involving interconnecting definitions and exceptions as well as constantly amended statutes and newly promulgated regulations. Each state is given a number of options. Therefore, no two states have Medicaid programs alike.
The Medicaid Disability Trust must be established by the disabled person’s parent, grandparent, guardian or a court. The disabled person must be less than 65 years old when the trust is established and funded (except that periodic payments into the trust may continue after 65). The trust must contain only the disabled person’s money and must be irrevocable. All statutory Medicaid liens for benefits provided prior to the settlement must be satisfied or both the claimant and attorney may incur a liability.
Qualified Medicare beneficiary (QMB) individuals are limited in monthly countable income plus limited other resources. An individual and spouse may have combined monthly countable income and resources. Income limits are different for other categories of Medicaid eligibility and subject to inflation adjustments every quarter. They may be different in other states.
The trust must reimburse the state from its assets at the time of the primary beneficiary’s death for all expenses paid on the beneficiary’s behalf. However, if the settlement agreement is properly drafted, other designated payees can receive any guaranteed periodic payments remaining from a structured settlement, without being subject to the Medicaid lien. For example, if the annuity purchased by the third-party assignee outside the trust to fund the periodic payments will pay monthly benefits for 20 years certain and the life of the beneficiary thereafter, and the beneficiary dies before 20 years of payments, the remaining payments can go to another payee, if the allocation is made at the time of settlement. If the structured settlement is not properly constructed, the state can lay claim to the guaranteed payments. This strategy is perfectly legal and simply part of prudent Medicaid planning. However, not all states will accept this fact willingly.
Medicaid rules of some states permit the trust beneficiary to serve as the trustee. Other states many not. However, serving as one’s own trustee is not for everyone, since the trustee must comply with the terms of the trust agreement, file periodic reports to OHCA and file annual federal and state income tax returns. A relative, conservator, guardian or professional trust manager may serve as trustee. Since trust management fees often are predicated on the amount of funds under the trustee’s control, a structured settlement can save costs because the funding asset (the annuity) is owned by the assignee outside the trust. The trust assets under this plan would include only the “seed money” paid directly into the trust at the time of settlement plus any money left over from the periodic payments already paid into the trust. Income earned by the trust is taxable annually.
Assets that may be owned outside the trust and not counted as a “resource” in determining Medicaid eligibility include:
The home the disabled person lives in
One car, as long as it is used four times a year to get medical treatment or prescriptions, to employment, or is handicap equipped;
Clothing, furniture and household goods;
The cash surrender value of life insurance policies up to $1,500;
Designated accounts for burial up to $1,500;
Irrevocable burial contracts or life insurance policies designated for funeral expenses up to $7,500, plus accrued interest.
The combination of a structured settlement that pays guaranteed tax-free periodic payments into a Medicaid Disability Trust may be ideal for preserving Medicaid benefits and eliminating the stress and cost of managing investments, since payments are guaranteed by the annuity issuer, not subject to investment market risk.
By Richard B. Risk, Jr., Esq., and reprinted with expressed permission.