2011 Special Needs Trust Legislation in Maryland Special Needs Alliance Fall Meeting ST. Pete Beach, FL October 2011 Presented By: Jason A. Frank, Esq. Frank, Frank & Scherr, LLC Ron Landsman, Esq. Ron M. Landsman, P.A. Mary E. O’Byrne, Esq.

FMDT Letter to DHMH “I am seeking confirmation that persons with disabilities age 65 and older may transfer assets to a pooled asset special needs trust, established pursuant to federal law and state regulation without the imposition of a transfer penalty period of ineligibility for Medicaid long term care benefits incurred as a result of the transfer of assets into the D4C Trust sub account.” Jason Frank, President, First Maryland Disability Trust, Inc. (Feb. 3, 2010)

DHMH Letter in Reply to FMDT “I have reviewed this issue and agree that there is no age limitation imposed to existing federal or state law on who may transfer assets into a pooled trust sub-account. Accordingly, a disabled beneficiary 65 years of age and older may transfer assets into an approved pooled trust sub-account without penalty.” Meredith Borden, Assistant Attorney General, DHMH (May 11, 2010)

DHMH Proposed Regulations In January 2011, the Department of Health and Mental Hygiene proposed new regulations regarding special needs trusts.[1] The regulations stated that a transfer into a pooled asset special needs trust after age 65 would be subject to the transfer penalty provisions for determining Medical Assistance eligibility. [1] 38 Md. Reg. 185 (proposed January 28, 2011) (to be codified at Md. Code Regs. 10.09.24.08-2 through .08-5 (2011)).

DHMH Proposed Regulations Other provisions of the proposed regulations severely limited the use of special needs trusts. Assets in a special needs trust may not be used to compensate family members of the trust beneficiary in any way, such as accompanying the beneficiary on travel. The trustee of a pooled asset trust must pay the Department all amounts remaining in a beneficiary’s individual account upon the death of the beneficiary up to an am0unt equal to the total Medical Assistance benefits paid on behalf of the beneficiary. Trust assets may not be used to pay the following expenses: The purchase of food or shelter for the beneficiary. The beneficiary’s monthly utility cost; or Credit card overdraft or late fees.

DHMH Proposed Regulations A pooled asset trust may only accept individual accounts valued at less than $100,000. A pooled asset trust must be established, held and managed by a nonprofit corporation that: Has received tax-exempt status under, §501(a) or §501(c)(3) of the US Internal Revenue Code of 1954, as amended; Is organized under Corporations and Associations Article, Title 5, Subtitle 2, Annotated Code of Maryland, or defined in §501(c) of the Internal Revenue Code or 1954, as amended; AND Has as one of its principal purposes the use of trust monies for the care and treatment of individuals with disabilities who are or could be recipients of Program services.

FMDT’s Response to Proposed Regulations “The regulations proposed by DHMH would fundamentally shift the use of these trusts, severely limiting their use for people with disabilities. The proposed regulations present a gross over-reaching of State regulatory authority. They (1) violate the express language of federal law, (2) are inconsistent with express provisions of federal SSI policy, (3) are stricter than Federal law allows (barred by federal law and the ruling of the Maryland Court of Appeals), or (4) are just made up without any authority whatsoever.” Jason Frank, President, FMDT (Dec. 30, 2010)

Withdrawal of Regulations “On February 16, 2011, the Secretary of Health and Mental Hygiene withdrew amendments to Regulation .08-2, new Regulations .08-3 ­ .08-5, and the recodification of existing Regulation .08-3 to be Regulation .08-6 under COMAR 10.09.24 Medical Assistance Eligibility…”

Proposed Revisions “Enclosed please find proposed revisions to [COMAR 10.09.24.08-2] and a brief document providing a framework for further discussion. The changes proposed here are based on four principles: rules no more restrictive than federal law and Social Security policy, the sole benefit of the beneficiary, common sense and humanity.” Mary O’Byrne. Esq. (March 4, 2011)

Testimony in Support of HB 1277/ SB 888 The House Judiciary Committee hearing was held on March 16, 2011. The Senate Judicial Proceedings Committee hearing was held on March 22, 2011. Link to Mary O’Byrne's Testimony: http://mgahouse.maryland.gov/House/Viewer/?peid=efe22ec60b 3b4f1989cff12c96f5dd431d

DHMH Proposed Amendments to SB 888 “The Medical Assistance Program shall convene a group of stakeholders consisting of interested and affected parties to provide the program with recommendations before the adoption of regulations specified in subsection (C) of this section.”

2011 Maryland Legislation In April 2011, Maryland legislature passed the estates and trusts House Bill 1277/ Senate Bill 888.[2] The bill maintains the “status quo” in Maryland regarding the use of special needs trusts. The bill encourages the use of certain special needs trusts by individuals with disabilities to preserve funds that will provide for the individual’s needs which are not met by public benefits. The bill effectively bars some of the provisions of DHMH’s proposed regulations. [2] H.D. 1277, S. 888, 2011 Leg., 428th Sess. (Md. 2011), to be codified at Md. Code Ann. 14-115(A)-(D).

House Bill 1277/ Senate Bill 888 In addition, the bill requires Medical Assistance and other public assistance programs to promulgate regulations consistent with the following provisions: An individual account in a pooled asset special needs trust may be funded without financial limit. A fund in a special needs trust, supplemental needs trust, or pooled asset special needs trust may be used for the sole benefit of the beneficiary, including at the discretion of the trustee, distributions for food, shelter, utilities, and transportation. An individual may establish or fund an individual account in a pooled asset special needs trust without an age limit or a transfer penalty. (provisions continued on next slide)

House Bill 1277/ Senate Bill 888 An individual may fund a special needs trust or supplemental needs trust for the individual’s child with disabilities without a transfer penalty and regardless of the child’s age. All legally assignable income or resources may be assigned to a special needs trust, supplemental needs trust, or pooled asset special needs trust without limit. Lastly, the bill states that a determination of the Internal Revenue Service regarding the nonprofit status of an organization operating a pooled asset special needs trust will satisfy the nonprofit requirement of 42 U.S.C. § 1396p(D)(4)(C).

Original Fiscal and Policy Note The original Fiscal and Policy Note stated that “[g]eneral and federal fund revenues decrease annually due to reduced recovery by the Department of Health and Mental Hygiene (DHMH) of expenditures under the Medicaid program from special needs trusts upon the death of the disabled individual that has received benefits under the program. Average recovery over the past five years has been $716,000 per year. General/federal fund revenues therefore decrease by some fraction of that amount, split evenly between general and federal funds.”

Revised Fiscal and Policy Note The revised Fiscal and Policy Note stated that “[t]o the extent the bill limits future recoveries for the Medicaid program from pooled asset special needs trusts, general fund expenditures increase. The extent of such impact is uncertain.”

Final Fiscal and Policy Note The final Fiscal and Policy Note to both HB 1277 and SB 888 state that the bill has zero fiscal effect. “The bill’s requirements can be met with existing resources.”