SPECIAL NEEDS TRUSTS UPHELD IN RECENT FEDERAL CASE

By Fredrick P. Niemann, Esq. a Special Needs Trust Attorney

Recently, a United States Court of Appeals decided a case involving a “special needs trusts.” 

A special needs trust is one of two trusts that the federal Medicaid Act created.  A special needs trust or “SNT” is a trust that permits a disabled person to continue to receive Medicaid benefits and have money in the SNT for his benefit.

A disabled person might want to create a special needs trust after he receives an award in a lawsuit.  For instance, a person might be disabled because he was in a car accident.  After the accident, he may sue the person who caused the accident and receive money as a result of that lawsuit.  The damages awarded might be a few thousand dollars or a few million dollars.

Typically, if a person is the beneficiary of a traditional trust, the assets in the trust will disqualify him/her from Medicaid benefits.  So, without some exception to this general rule, a person cannot be the beneficiary of a trust with any significant amount of money in it and continue to receive Medicaid benefits.

Under the federal Medicaid Act, an SNT must be established for a disabled person.  The SNT must be for the disabled person’s sole benefit, meaning that no person other than the disabled person can receive money from the trust.  To be for the sole benefit of the disabled person, the trust must also name certain entities as remainder beneficiaries.

A remainder beneficiary is the person who will receive the money remaining in the trust when the disabled trust beneficiary dies.  When a disabled Medicaid beneficiary dies, Medicaid wants what’s left in the trust.

There are two types of special needs trusts.  One trust is called a d4(A) trust and is the most common type of special needs trust.  The other special needs trust is called a d(4)(c) trust or pooled special needs trust.  The odd alphanumeric names come from the sections of the federal Medicaid Act that create these trusts.

A d(4)(A) trust is a trust that an individual establishes for himself.  The disabled person contacts his own attorney, and his attorney drafts a d(4)(A) special needs trust just for him.  A d(4)(C) trust, or pooled trust, is a trust that exists for numerous beneficiaries and is managed by a non-profit organization.  The money of all the beneficiaries is pooled together for investment purposes but separate accounts are maintained for each beneficiary.

A d(4)(A) trust must name the state of New Jersey as first remainder beneficiary for all money remaining in the trust when the disabled person dies.  A d(4)(C) trust must name the state of New Jersey as first remainder beneficiary but only to the extent that the money is not retained by the non-profit organization that managed the funds.  In other words, the non-profit that ran the trust can retain the money and only to the extent that it does not retain the money does the money go to the state.

The Lewis case involves a Pennsylvania law that said the managing non-profit cold only retains 50% of the money and the remainder had to go to the state.  What the court in Lewis said was the federal law trumps state law, that the provisions of the federal law are mandatory, not permissive, and the Pennsylvania law conflicted with and contradicted the federal law.  As such, the Pennsylvania law as held to be in violation of the federal Medicaid Act. 

The Lewis case is another win for the disabled.  The disabled can rest assured that with proper planning they can continue to receive benefits.

Contact me personally today to discuss your special needs trust matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com/.

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