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Using Supplemental Needs Trusts To Protect Income: Sometimes You Can Eat Your Cake Too

Date: October 16, 2015

The times they are a' changin' in the world of Medicaid funded home care here in New York. Many of our readers know this only too well, as they are wrestling with these changes first hand. Some are struggling to secure eligibility to one of our community based Waiver programs. Others are trying to figure out how to navigate through one of the 'managed long term care' programs that are popping up all over the State. All would surely agree that the system is not getting any easier to navigate.

Yet in the grand scheme of things - and certainly when compared with programs and services offered in many other states - we in New York are quite lucky. We have a number of different Medicaid funded programs which provide residential services and social services support for individuals with disabilities across the age spectrum, and New York compares favorably to many other states in the area of financial eligibility for Medicaid. This latter point is highlighted by the fact that New York's Medicaid program allows individuals receiving care in the community to utilize supplemental needs trusts (also referred to as special needs trusts) in order to protect their monthly income - income which can then be used to pay for housing and other necessary expenses.

 Community Medicaid (versus Institutional Medicaid)

Most professionals use the term "Community Medicaid" to refer to the category of Medicaid coverage which provides services and supports to people who are living in the community and not in an institutional settling (like a nursing home). Community Medicaid can include basic health care, nursing and long term care services, and other skilled care and assistance. For many middle class and even upper middle class individuals with chronic and significant care needs, these services would be beyond their financial reach if they had to pay for them privately. 

Qualifying for Community Medicaid presents challenges of its own, as the Medicaid program imposes restrictions on income (what an individual receives each month from sources like Social Security, pension, and disability insurance) and resources (assets of value which could be sold in order to generate funds necessary to pay privately for care). These restrictions present a dilemma: in order to qualify for Medicaid, an individual is required to "spend down" those financial assets which are often necessary to pay the bills associated with living at home in the first place. This is particularly troublesome for individuals with limited income; their monthly income is often just enough to meet their monthly cost of living. If they had to "spend down" the majority of their income in order to receive Medicaid funded care, they would not have enough to meet their other basic needs. 

Can an individual who needs home care services establish eligibility for Medicaid while retaining enough to pay the ongoing costs of living in the community? Can that person have her cake and eat it too? With Supplemental Needs Trusts, the answer in most cases is a resounding YES.

 Basic Medicaid Income Budgeting

When an individual is receiving Medicaid while residing in the community (as opposed to an institutional or nursing home setting), that individual is generally allowed to keep no more than $825 (in 2015) per month of her own income in order to maintain eligibility. If she has more than that amount, the Medicaid program works similar to a deductible under a private health insurance plan. In these cases, the Medicaid program requires that this "excess income" be "spent-down" before Medicaid will issue payment for services.  

While Medicaid income budgeting is actually a little more complicated than this, the general concept is that if you have more income than the Medicaid program allows you to retain, that "excess" has to be contributed to the cost of your medical care before Medicaid steps in to pay. The net result is that the individual needing care will often not have sufficient funds available to pay for other things, like rent, automobile expenses, utilities, and other costs that are necessary to live in the community.  

There is a solution. Under current Medicaid law and practice in New York, individuals with disabilities can use a supplemental needs trust in order to protect their monthly income. Rather than spending down excess income on medical expenses (or remitting the excess income to the local Department of Social Services, which is required in some counties), an individual can transfer that excess income to a supplemental needs trust. Once in the hands of the trustee, that income can be used to pay for the ongoing costs of residing in the community without impacting eligibility for Medicaid funded benefits. 

The supplemental needs trust is particularly useful for individuals receiving services through one of our Waivered services programs (such as the Nursing Home Transition and Diversion Waiver or the Traumatic Brain Injury Waiver), or through one of the growing number of Managed Long Term Care (MLTC) programs. 

As many of our readers know, funds in a supplemental needs trust are used to "supplement" goods and services received through government benefit programs, including the Medicaid program. While using the trust to make payments for "support" expenses (like food and shelter) can negatively impact eligibility for certain other benefit programs (like the Supplemental Security Income program), this is not the case with the Medicaid program. Under the Medicaid program, most direct payments for basic living expenses do not impact eligibility. 

Taken together, these two concepts - protecting monthly income by placing it in the supplemental needs trust, and then using funds in the trust to pay for basic living expenses like rent and groceries - combine to allow many Medicaid recipients to pay their bills and still receive the Medicaid-funded support and services they need. It's a win-win situation for the individual and the Medicaid program alike. The individual gets to stay at home longer, and the Medicaid program does not have to shoulder the cost of providing residential care (which would be the likely result if the Medicaid recipient couldn't keep enough income to pay the expenses associated with living at home). 

Of course, there are some rules governing the mechanics of administration. For example, the Medicaid recipient cannot receive funds from the trustee directly. Rather, payments are made to the providers of goods and services. So if the "beneficiary" of the trust (this is the term we use to describe the Medicaid recipient) wishes to purchase computer equipment, the trustee doesn't write a check to the beneficiary. Rather, the trustee would pay the retailer directly. This may seem like a distinction without a difference, but under traditional Medicaid income budgeting, if the trustee were to make a distribution directly to the beneficiary, this would result in an increase to the beneficiary's countable income for that month and would impact Medicaid eligibility. In other words, the loss of direct access to the funds in the trust is the price to be paid for receiving full coverage under the Medicaid program. 

There are a few other rules to keep in mind as well. So long as the Medicaid recipient is under age of 65, she is able to utilize a private supplemental needs trust (meaning that the trust is drafted specifically and only for that individual, and the individual typically gets to pick the trustee). With a private supplemental needs trust, any funds left at death life must first be used to repay the Medicaid program for any Medicaid benefits received during the individual's lifetime. After repayment, remaining funds (if any) can go to the Medicaid recipient's estate. 

Individuals who are over the age of 65 (or individuals who are under the age of 65 but have no one available to establish the trust or to serve as trustee) can use a pooled supplemental needs trust to protect income. Unlike the private trust, a pooled trust is managed and administered by a not-for-profit organization, and there is a single trust document that is used by all beneficiaries of the trust. All of the contributions are "pooled" together for investment purposes, but each beneficiary's individual contribution is separately tracked and managed by the pooled trust administrator. Distributions for that beneficiary can only come from that beneficiary's separate account. And when the beneficiary dies, funds left in the beneficiary's account (if any) are typically retained by the trust to be used to help other individuals with disabilities. 

As with many planning decisions in this area of the law, the devil is always in the details. Whether a supplemental needs trust (private or pooled) is a good decision for a client requires consideration of a number of different factors: financial composition, current and expected care needs, and availability of family or other informal supports, just to name a few. The important thing to remember is that the Medicaid program allows individuals to protect their income while still receiving home care benefits. In other words, when used correctly supplemental needs trusts allow an individual to have her cake and eat it too... 

Firm Notes and News

Edward V. Wilcenski Named in Best Lawyers in America

For the second year in a row, Ed Wilcenski was included in the current edition of The Best Lawyers in America for his work in the practice of Elder Law and Trusts and Estates. Selection is based on a confidential peer-review survey of top attorneys practicing in the nominee's area of the law

Wilcenski, Pleat & Dezik Honored by New York State Super Lawyers

Attorney Edward V. Wilcenski has been named to the New York Super Lawyers list as one of the top Elder Law Attorneys in New York State for 2015. Super Lawyers selects no more than 5% of the lawyers in New York State for this designation. This is the fifth year Ed has received this honor

Attorneys Tara Anne Pleat and Michael D. Dezik have been named to the New York Super Lawyers Rising Star list as two of the top Elder Law attorneys in New York State under the age of 40 for the year 2015. Super Lawyers selects no more than 2.5% of the lawyers in New York State for this designation. This is the third consecutive year that Tara has received this honor and the second consecutive year for Michael.

Super Lawyers, a Thompson Reuters business, is a rating service of outstanding attorneys for more than 70 practice areas who have received a high degree of peer recognition and professional achievement. The annual selections are made using a rigorous multi-phased process that includes a statewide survey of lawyers, independent research evaluation of candidates, and peer review by practice area.

Tara Anne Pleat Elected Treasurer of the Elder Law and Special Needs Section of the New York State Bar Association

At the annual meeting of the Elder Law and Special Needs Section of the New York State Bar Association this past February, Tara Anne Pleat was elected to be the Section's Treasurer. The election to Treasurer is the first in a 7 year commitment to the leadership of the Section. Her tenure began on June 1, 2015.

Dezik Elected Vice President of The Estate Planning Council of Eastern New York, Inc.

Michael D. Dezik was recently elected as Vice President of the Board of Directors of the Estate Planning Council of Eastern New York, Inc.

The Estate Planning Council of Eastern New York, Inc. is a not for profit organization which provides quarterly educational programs on topics of general interest to the estate planning community. The Council is further tasked with fostering the growth and development of the Council's diverse group of professional members, which includes Attorneys, Trust Officers, Accountants, Financial Advisors, Insurance Professionals and Banking Professionals. More information about the council can be found at www.epceasternnewyork.org.

Wilcenski & Pleat PLLC

Wilcenski & Pleat PLLC is a law firm focused entirely on Special Needs Estate Planning, Elder Law, and Trust & Estate Planning. Our Special Needs Estate Planning practice involves Special (Supplemental) Needs Trusts for individuals with disabilities, guardianship proceedings, Medicaid applications and other government benefit advocacy. We work with special education professionals serving students of all ages, personal injury attorneys settling cases on behalf of permanently disabled plaintiffs, service coordinators providing support to consumers, and financial professionals and corporate trustees managing funds for individuals with disabilities.

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