Planning for the Disabled
For purposes of qualifying for Supplemental Security Income (hereinafter "SSI") and Medicaid, or Arizona Health Care Cost Containment System (hereinafter "AHCCCS") as it is known in Arizona, benefits, an individual may have no more than $2,000 in countable resources. The statute and regulations provide exemptions for certain resources, like a personal residence, a vehicle (up to $4,500 if not used for transportation to medical appointments or for work), personal and household effects (up to $2,000 equity value), and irrevocable burial plans, to name a few.
An individual who has resources that otherwise prevent him or her from being eligible may be able to have such resources excluded by establishing a trust that meets the requirements of 42 U.S.C. § 1396p(d)(4)(A). Trusts that meet such requirements are exempt for purposes of Medicaid eligibility, and for those trusts established on or after January 1, 2000, are exempt for purposes of SSI eligibility. The requirements are as follows: (1) the beneficiary must be under the age of 65 when the trust is established; (2) the beneficiary must be "disabled" according to Social Security criteria; (3) the trust must be established by the beneficiary's parent, grandparent, guardian, or a court; and (4) the trust must provide that, upon termination of the trust, the state is reimbursed for all of the Medicaid or AHCCCS benefits it paid to, or for the benefit of, the beneficiary. Note, the rate at which AHCCCS is reimbursed is the capitated rate paid by AHCCCS to the contract provider regardless of the level of services actually provided.
The Arizona Long Term Care System (hereinafter "ALTCS"), one of several medical assistance programs administered by AHCCCS, additionally requires the trust to be used for the sole benefit of the beneficiary. If individuals other than the beneficiary benefit from the trust or a disbursement therefrom, it will potentially disqualify the trust from special treatment. As a result, the trust assets become countable. Moreover, ALTCS sets forth by statute, A.R.S. § 36-2934.01, what distributions are allowable under its program.
In establishing such trusts, it is also important to bear in mind the respective benefit programs' income limits and rules concerning trust distributions. For purposes of SSI, an individual's total combined income may not exceed $564.00 per month (effective 01/01/2004) and for purposes of Arizona Long Term Care System (hereinafter "ALTCS"), one of several medical assistance programs administered by AHCCCS, an individual's total combined income, which amount includes SSI, cannot exceed $1,692.00 per month (also effective 01/01/2004).
Both benefit programs count as income any distributions from a disability trust for food, shelter, clothing, or anything that can be converted into such, like cash. Such distributions, although they do not disqualify the trust from special treatment, may result in a reduction or loss of benefits. Thus, it is imperative that such trusts be drafted in such a way so as to make it clear that any and all distributions are within the sole and absolute discretion of the trustee and that does not contain language that requires the trustee to make certain distributions or can be interpreted as providing for mandatory distributions to or on behalf of the beneficiary. In addition, language that can be interpreted as providing for the basic support needs of the beneficiary, such as "basic living needs", "welfare," or "essential dietary needs" should be avoided. At the same time, the language should not be overly restrictive by expressly disallowing distributions for such needs.
Trustees of such trusts must also be mindful of the reporting requirements of the SSI and ALTCS programs. Both programs require that the establishment of such trusts be promptly reported to the respective programs, with a copy of the trust and verification of its funding be included. Both programs will also want an initial and periodic accountings of trust disbursements so as to determine to what extent, if any, they qualify as income and potentially impact eligibility or benefits.
Oftentimes it is the family, such as the parents, of an individual who is eligible for SSI and AHCCCS who is concerned about that loved one's continued eligibility for benefits at the time of their deaths should that individual benefit from their estate. Family members can provide for their loved one with special needs by doing a Will or trust that, upon their death, retains that loved one's beneficiary interest in trust to be managed by a trustee of their selection. Such a trust must be clear in its terms that the trust estate held for the benefit of the person with special needs is not intended to meet that person's basic support needs, but his or her supplemental needs, that is, those needs that are arise out of that person's condition and are above and beyond what is otherwise provided for by the public benefit programs. Such a trust is not counted as a resource as it consists of assets of the decedent rather than the beneficiary, and distributions for other than food, shelter, clothing, or cash will not affect eligibility. Finally, AHCCCS has no right to reimbursement from such third party trusts.
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