6.1 Introduction

• Library: Elder Law in Virginia (Virginia CLE) (2021 Ed.)

6.1 INTRODUCTION

6.101 In General. Persons with disabilities have many needs beyond basic medical care, food, clothing, and shelter. These needs include recreation, transportation, dental care, telephone and television services, cosmetology needs, supplemental nursing care, private case management, and mobility aids, including electric wheelchairs. Because persons with disabilities may be receiving, or be eligible to receive, needs-based government benefits, they face a dilemma in providing for supplemental needs with their own resources, which may disqualify them from receiving the government-provided benefits. It is possible to resolve this problem by vesting ownership of those resources in a trust, known as a special needs trust, for the benefit of the individual with disabilities.

6.102 What Is a Special Needs Trust? A special needs trust (SNT) is a trust that enables a person with disabilities to retain his or her own resources, or enables family members to provide an inheritance for the person with disabilities without disqualifying the individual from needs-based government benefits, including Supplemental Security Income (SSI) ¹ or Medicaid ² benefits. There are two types of SNTs, self-settled and third-party.

A. Self-Settled (First-Party) SNTs. A self-settled (or first-party) SNT is funded with the beneficiary's own assets, normally from a personal injury settlement, inheritance, or the beneficiary's excess resources. Irrevocable trusts established after August 11, 1993 solely for the benefit of an individual with disabilities will not affect Medicaid eligibility for the individual, as these trusts are considered exempt resources of the person with disabilities to the extent that the same are not otherwise revocable or subject to the direction of that person. ³

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There are two types of self-settled SNTs:

1. (d)(4)(A) SNT. ⁴ A (d)(4)(A) SNT is a trust created (and funded) for the sole benefit of an individual with a disability under the age of 65 by the individual, the individual's parent, grandparent, legal guardian, or a court. ⁵ The trust is funded with the assets of the person with a disability. The trust must provide that the state Medicaid agency will receive all amounts remaining in the trust upon the individual's death up to the amount paid by each state under the Medicaid program for services to the individual with a disability. A self-settled trust is also known as a "payback special needs trust" because of this reimbursement requirement.

It is generally inadvisable to fund such a trust with property other than the beneficiary's. Third parties—such as ancestors and collateral relations other than spouses ⁶ —who wish to supplement, and not supplant, benefits for the disabled beneficiary may avoid the reimbursement requirement by creating a purely discretionary special needs trust in which the intent to preserve and maximize public benefits is expressly stated. ⁷

On the other hand, if a third party—for example, a parent or other family member who has been admitted to a nursing home—contemplates the need for Medicaid long-term care services for himself or herself and wishes

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to avoid exhausting personal resources, he or she can fund a payback special needs trust until the 65th birthday of the beneficiary. Transfers by the beneficiary or any other person to the trustee of a payback special needs trust are exempt from the transfer of assets penalty. ⁸

This strategy is often seen in the increasingly large number of situations in which a developmentally disabled adult child, often middle aged, has lived with his or her aging parents since birth. When the aging parent becomes incapacitated and enters a nursing home, establishment of a payback special needs trust permits the parent to qualify for Medicaid benefits while preserving Medicaid (and SSI) eligibility for the child with disabilities. ⁹ Essentially, two persons can thus obtain (and retain) Medicaid eligibility (and, when applicable, SSI benefits) by using this device.

The trust instrument may provide for reasonable compensation for the trustee ¹⁰ and for disposition of the remainder after mandatory Medicaid reimbursement has been made. ¹¹

2. (d)(4)(C) "Pooled" SNT. ¹² A (d)(4)(C) SNT is a trust created and managed by a nonprofit organization. A separate subaccount is maintained for each beneficiary of the trust, but the assets are pooled for investment and management purposes. The account is created for the sole benefit of an individual with a disability by the individual's parent, grandparent, legal guardian, a court, or the individual. The trust is funded with the

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assets of the person with a disability. Some states, including Virginia, ¹³ require the (d)(4)(C) SNT to be funded by the individual with disabilities before he or she attains age 65; any funding by that individual after that age may constitute a divestment by the individual.

One of the most significant differences between a (d)(4)(A) and a (d)(4)(C) trust is the ability of an individual with a disability to create his or her own pooled trust subaccount within a (d)(4)(C) SNT. The (d)(4)(C) SNT must provide that to the extent that funds in the account are not retained by the (d)(4)(C) SNT upon the beneficiary's death, the state Medicaid agency must receive the amounts remaining up to the amount paid by the Medicaid program for the individual. There are at least two (d)(4)(C) pooled SNTs operating in Virginia. ¹⁴

Such a pooled trust containing the assets of an individual with disabilities of any age is exempt from being counted as an available or countable resource. It is clear that assets in a pooled trust are not countable resources to...