1. Special Needs Trusts: A Comprehensive Guide for Practitioners McAndrews Law Offices, P.C. Berwyn, PA 610-648-9300 Northeastern, PA 570-969-1817 Wyomissing, PA 610-374-9900 State of Delaware 302-380-4975 Central PA 717-221-1422Washington, DC Area 202-735-2300 www.mcandrewslaw.com

2. Purpose: Special Needs Trusts are designed to permit financial resources to remain available to assist a disabled individual who receives, or may receive in the future, Medicaid (Medical Assistance) and/or SSI and/or Mental Health/Intellectual Disabilities benefits. These Trusts protect resources from immediate invasion by the state Medicaid agency. Special Needs Trusts are designed to permit financial resources to remain available to assist a disabled individual who receives, or may receive in the future, Medicaid (Medical Assistance) and/or SSI and/or Mental Health/Intellectual Disabilities benefits. These Trusts protect resources from immediate invasion by the state Medicaid agency.

3. Three Types of Special Needs Trusts- An Overview Three Types of Special Needs Trusts- An Overview Common Law - Third Party Funded - Lang and its progeny -Generally created via Wills or inter vivos trusts of family members -No payback involved to Department of Public Welfare

4. Self-Funded Special Needs Trusts (a.k.a. “Payback Trusts”) 42 U.S.C. § 1396p(d)(4)(A) Disabled beneficiary (only one) Disabled beneficiary (only one) Must be created by parent, grandparent, guardian or the court Must be created by parent, grandparent, guardian or the court Payback to state for Medical Assistance in a beneficiary’s lifetime Payback to state for Medical Assistance in a beneficiary’s lifetime Total discretion of Trustee Total discretion of Trustee Irrevocable Irrevocable

5. Pooled Trust - - 42 U.S.C. § 1396p(d)(4)(C) Non-profit Fiduciary must be the Trustee Non-profit Fiduciary must be the Trustee Anyone can create a Pooled Trust, including the disabled beneficiary Anyone can create a Pooled Trust, including the disabled beneficiary Residue remains in Trust for other disabled persons upon death of beneficiary Residue remains in Trust for other disabled persons upon death of beneficiary Pennsylvania’s requirement that up to 50% of residue be available for Medical Assistance payback has been overturned. Lewis v. Alexander, 685 F.3d 325 (3d Cir. 2012); 62 P.S. § 1414(b)(3)(iii) Pennsylvania’s requirement that up to 50% of residue be available for Medical Assistance payback has been overturned. Lewis v. Alexander, 685 F.3d 325 (3d Cir. 2012); 62 P.S. § 1414(b)(3)(iii)

6. Issues Related to the Affordable Care Act (ACA) in 2014 -Will a divided Congress refuse to fund the ACA and prevent it’s implementation? -Will Pennsylvania refuse to accept expansion of Medicaid despite 100% Federal Funding for two years and no less than 90% through 2020? -Will ACA’s elimination of pre-existing conditions as a reason to deny coverage reduce need for SNT’s in large cases? -Consider breath of coverage under Medical Assistance regarding ICR/IDs, nursing home care, in-home programs, wraparound services, various waiver programs, group homes -Will SNT lawyers be requested to terminate SNT’s in 2014? -Use of SNTs for smaller financial recoveries and in general estate planning

7. Structured Settlements Use caution before placing all, or mostly all, of a personal injury settlement into a Structured Settlement Use caution before placing all, or mostly all, of a personal injury settlement into a Structured Settlement Settlor may not have a broad choice of corporate Trustees due to minimal initial corpus Settlor may not have a broad choice of corporate Trustees due to minimal initial corpus Trustee may not have enough available resources upon death of beneficiary to pay death taxes and the payback to the Department of Public Welfare Trustee may not have enough available resources upon death of beneficiary to pay death taxes and the payback to the Department of Public Welfare

8. Structured Settlements (Continued) Arrange for a commutation clause to be effective upon the death of beneficiary Arrange for a commutation clause to be effective upon the death of beneficiary Otherwise, the Trust could remain open for years, and the estate may be unable to pay death taxes Otherwise, the Trust could remain open for years, and the estate may be unable to pay death taxes

9. Structured Settlements (Continued) Carefully identify the residual beneficiary of a Structured Settlement which funds the Special Needs Trust--The Department of Public Welfare requires that the residual beneficiary be the Special Needs Trust, not a third party who could take the cash and evade DPW’s payback Carefully identify the residual beneficiary of a Structured Settlement which funds the Special Needs Trust--The Department of Public Welfare requires that the residual beneficiary be the Special Needs Trust, not a third party who could take the cash and evade DPW’s payback

10. 62 P.S. §1414 (Act 42 of 2005) In Lewis v. Alexander, 685 F.3d 325 (3d Cir. 2012), the Court held that various sections of 62 P.S. Section 1414 were impermissibly more restrictive than the federal law with respect to Pooled Special Needs Trusts under 42 U.S.C. 1396p(d)(4)(C).

11. 62 P.S. §1414 (Act 42 of 2005) (Continued) While the Court upheld Section 1414(c) which allows DPW to petition the Court to terminate an SNT that violates 1414(b)’s provisions to protect the beneficiary, the Court held that the following sections are preempted by federal law; while the court only held these sections to be void as to Pooled SNTs, the court’s rationale appears applicable to all Self-Funded Special Needs Trusts.

12. 62 P.S. §1414 (Act 42 of 2005) (Continued) Section 1414(b)(2) - the beneficiary must have special needs that will not be met without the trust Section 1414(b)(2) - the beneficiary must have special needs that will not be met without the trust

13. 62 P.S. §1414 (Act 42 of 2005) (Continued) Section 1414(b)(3)(ii) - any expenditure must have a reasonable relationship to the needs of the beneficiary Section 1414(b)(3)(ii) - any expenditure must have a reasonable relationship to the needs of the beneficiary Section 1414(b)(1) - a person over age 65 cannot participate in a pooled trust (but the Court noted that elsewhere in the Medicaid Act such transfers result in a period of ineligibility) Section 1414(b)(1) - a person over age 65 cannot participate in a pooled trust (but the Court noted that elsewhere in the Medicaid Act such transfers result in a period of ineligibility) Section 1414(b)(3)(iii)- after the death of a beneficiary of a pooled trust the state may recover up to 50% of the remaining corpus for Medical Assistance provided to the beneficiary, and the pooled trust can retain only the remaining 50%. Section 1414(b)(3)(iii)- after the death of a beneficiary of a pooled trust the state may recover up to 50% of the remaining corpus for Medical Assistance provided to the beneficiary, and the pooled trust can retain only the remaining 50%.

14. Preapproval of Special Needs Trusts by Department of Public Welfare Department of Public Welfare desires (but is not legally entitled to obtain) notice of expenditures of principal in Special Needs Trusts Department of Public Welfare desires (but is not legally entitled to obtain) notice of expenditures of principal in Special Needs Trusts If no guardian or minor is involved or the case arises in a court which does not require DPW preapproval, the drafter of the Trust need not include this restrictive language in the Special Needs Trust If no guardian or minor is involved or the case arises in a court which does not require DPW preapproval, the drafter of the Trust need not include this restrictive language in the Special Needs Trust

15. “Dual Eligibles” Who Receive Medical Assistance and Medicare - Reduced need may exist for a Special Needs Trust for persons dually eligible for Medicare and Medicaid, especially where larger settlements are involved, because Medicare recipients can 1) purchase Part B (doctor visits) at modest cost, and 2) privately pay for Part D’s drug exclusions together with any Medicare deductibles and co- pays - Reduced need may exist for a Special Needs Trust for persons dually eligible for Medicare and Medicaid, especially where larger settlements are involved, because Medicare recipients can 1) purchase Part B (doctor visits) at modest cost, and 2) privately pay for Part D’s drug exclusions together with any Medicare deductibles and co- pays - But consider programs Medicare does not fund

16. Fixing “Broken” Trusts The Department of Public Welfare and the Social Security Administration are reasonable in reforming or decanting broken trusts so long as a new payback trust is created which gives Department of Public Welfare prior notice regarding principal expenditures--even where the trust is irrevocable The Department of Public Welfare and the Social Security Administration are reasonable in reforming or decanting broken trusts so long as a new payback trust is created which gives Department of Public Welfare prior notice regarding principal expenditures--even where the trust is irrevocable A beneficiary or representative may also petition the court to reform or decant the defective trust A beneficiary or representative may also petition the court to reform or decant the defective trust

17. Rapid Spenddown Maintains SSI and/or Medical Assistance without use of a payback trust Maintains SSI and/or Medical Assistance without use of a payback trust For fair market value (keep receipts) For fair market value (keep receipts) In calendar month of receipt In calendar month of receipt Caution: a Social Security Administration caseworker may disqualify anyway--be proactive with the caseworker if possible Caution: a Social Security Administration caseworker may disqualify anyway--be proactive with the caseworker if possible

18. How Does a Court “Create” a Trust Where No Parent of Grandparent or Guardian is Available? Court acts only as the technical Settlor Court acts only as the technical Settlor The court need not sign the Trust, but should issue an order approving and establishing the Trust The court need not sign the Trust, but should issue an order approving and establishing the Trust Review the Trust to make sure that it is consistent with the court acting as Settlor, e.g. the “$20 rule” required by Social Security Administration (no judge will pay the $20!) Review the Trust to make sure that it is consistent with the court acting as Settlor, e.g. the “$20 rule” required by Social Security Administration (no judge will pay the $20!)

19. Social Security Administration Idiosyncracies Trust must be created by a person with right to manage the monies of the beneficiary, i.e., “The $20 Rule”) Trust must be created by a person with right to manage the monies of the beneficiary, i.e., “The $20 Rule”) Trust must have a named contingent beneficiary Trust must have a named contingent beneficiary Cannot use Trust for funeral or burial of a deceased beneficiary except via prepaid funeral/burial plans Cannot use Trust for funeral or burial of a deceased beneficiary except via prepaid funeral/burial plans Prohibits direct reimbursements to family for expenditures (provide credit card or directly pay vendors) Prohibits direct reimbursements to family for expenditures (provide credit card or directly pay vendors)

20. Payments for In-Kind-Support- and-Maintenance Presumed Maximum Value Rule limits reduction of SSI to about a third of SSI regardless of the amount of IKSM actually paid Presumed Maximum Value Rule limits reduction of SSI to about a third of SSI regardless of the amount of IKSM actually paid The Trust should not put cash in family’s account to pay for food and shelter; again the Trust should directly pay vendors, or provide to the family a credit card where feasible The Trust should not put cash in family’s account to pay for food and shelter; again the Trust should directly pay vendors, or provide to the family a credit card where feasible

21. Payments to Family as Caregivers - Court approval should almost always be obtained Reasonable rates must be used, and should reflect replacement of lost income of the caregiver Reasonable rates must be used, and should reflect replacement of lost income of the caregiver Obtain report of life care planner Obtain report of life care planner Who is the employer for withholding, workers compensation, unemployment, etc? Who is the employer for withholding, workers compensation, unemployment, etc?

22. Purchase of Homes – Generally Obtain Approval of Court and DPW The house should be titled in the name of the Trust The house should be titled in the name of the Trust The use of the home will likely be considered In- Kind-Support-and-Maintenance subject to the Presumed Maximum Value Rule, as will taxes and essential utilities The use of the home will likely be considered In- Kind-Support-and-Maintenance subject to the Presumed Maximum Value Rule, as will taxes and essential utilities Will the Trustee agree to manage property? Will the Trustee agree to manage property? -What if the property declines due to neglect or due to declining property values? Will the court require the beneficiary’s family to pay some rent/expenses? Will the court require the beneficiary’s family to pay some rent/expenses?

23. Questions? McAndrews Law Offices, P.C. Berwyn, PA 610-648-9300 Northeastern, PA 570-969-1817 Wyomissing, PA 610-374-9900 State of Delaware 302-380-4975 Central PA 717-221-1422Washington, DC Area 202-735-2300 www.mcandrewslaw.com