Huntington Beach, California Attorney, Mark W. Bidwell

Special Needs Trust

Until the Special Needs Trust Fairness Act became law late in 2016, the only persons or entities authorized to “establish” (create) an individual first-party Special Needs Trust were the Special Needs Trust beneficiary’s parent, grandparent, legal guardian, or a court. Since December 13, 2016, federal law also authorizes a mentally and legally competent SNT beneficiary to establish an individual first-party SNT.

Public benefits of Social Security Income and state-paid medical care are provided on a needs basis to those who cannot earn income for themselves due to a disability. Money distributed directly to a disabled person is treated as income and reduces these public benefits on a dollar for dollar basis.

Special Needs Trusts prevent the loss of these public benefits. The trustee does not make distributions directly to the disabled individual, but makes distributions to third parties for the benefit of the individual.  A properly prepared and administered Special Needs Trust is valid and legitimate under both Federal and California law. Contact information at www.BidwellLaw.com.

Protect Medical Coverage

Special Needs Trusts prevent loss of medical coverage provided by California’s Medi-Cal program. Medi-Cal is medical coverage provided by the State of California to low income individuals at no cost. Typically the only source of income to the disabled is Social Security Income. Social Security Income paid to a disabled individual is less than Medi-Cal limits. So a disabled person receiving Social Security Income also qualifies for free medical care under the Medi-Cal program.

Any funds received by a disabled individual are considered as income. Income in excess of Medi-Cal income limits requires the disabled to share in the cost of medical expenses or the elimination of benefits until the funds are gone. A Special Needs Trusts prevents assets in the trust from being counted as income to the beneficiary. This is accomplished by avoiding direct cash disbursements to the disabled person. Disbursements are instead made by the trustee for the benefit the disabled.

Protect Receipt of Social Security Income

Special Needs Trusts protect receipt of Social Security Income, also known as SSI. Social Security Income is intended to provide funds for food, clothing, and shelter for the disabled. Any money received by an SSI beneficiary is considered income to the beneficiary, and reduces SSI benefits on a dollar-for-dollar basis.

Payments made to third parties for food or shelter is considered payment in-kind and results in about 33 cents loss or reduction of SSI benefits for each dollar spent. Payments to third parties for goods and services that are not food or shelter will not result in any reduction of Social Security Income.

Improve Quality of Life

Payments to third parties for goods and services that are not food or shelter improve the quality of life of a disabled person. Permissible expenditures are; purchase of a home, home improvements and repairs, modifications to a home for handicapped use, cleaning and maintaining the property, telephone, TV cable, education, medical costs not covered by Medi-Cal, dental, eye classes, home insurance, auto insurance, entertainment, companion services, transportation expenses, vacation travel and furniture.

The trustee of a special needs trust must be aware of the fine distinction between non-food and non-shelter items. The devil can be in the details. A movie is a permissible expenditure, but popcorn bought for the movie is not. A Thanksgiving dinner would be considered as payment-in-kind but has been allowed under the discarded food exception.

In addition to managing the assets of the trust, a trustee can provide a connection to the community and prevent isolation. A public charity as trustee provides community support and makes appropriate expenditures. A Public Charity Trustee also addresses a major concern of parents, "what will happen to our disabled child when we are gone."

Public Charity Trustees pool the assets of multiple special needs trusts for management, but each individual has a separate trust account. Disbursements are made from the individual accounts. These organizations also provide community resources such as help in finding suitable housing, medication education, life skills tutoring, social activities and friendship.

Funding and “Payback” Provision

Special Needs Trusts are created and funded in two ways. Most are created and funded on the death of parents of a disabled child. The parents create a living trust with special needs provisions.  On the death of the surviving parent, the parents’ assets are transferred into the Special Needs Trust. These trusts can provide for distributions of assets to individuals or charities on the death of the disabled beneficiary.

Disabled individuals who directly received money, usually from an inheritance with no special needs provisions or a court settlement can creat a SNT by the individual, his or her parent or grandparent, a legal guardian of the individual, or a court; if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan. 

This type of trust is referredt to as a First-party Special Needs Trust and is also are commonly called self-settled SNTs, Medicaid payback trusts, OBRA ’93 trusts, and d4A or d4C trusts.

First Party Speical Needs Trusts do require a “payback” provision. The wording is set out in federal law, (42 USCA § 1396p(d)(4)(A).) The payback provisions require upon death of the disabled the trustee is to pay back to the State of California the cost of all state provided medical care. Then any assets remaining in the trust can be distributed to individuals or charities.

Author’s Profile

Mark W. Bidwell is an attorney licensed to practice in the State of California and Certified Public Accountant, Inactive. His office is located at 18831 Von Karman Avenue, Suite 270, Irvine, California 92612. He can be contacted by email at Mark@BidwellLaw.com or by phone at 949-474-0961 begin_of_the_skype_highlighting FREE 949-474-0961 end_of_the_skype_highlighting.

Key Issues for Special Needs Trusts for the Disabled:

• Protect payment of medical expenses (Medi-Cal)
• Protect receipt of social security income (SSI)
• Improve quality of life of a disabled person
• When a "Payback Provision" is required

Disabled individuals who directly received money, usually from an inheritance with no special needs provisions or a court settlement can creat a SNT by the individual, his or her parent or grandparent, a legal guardian of the individual, or a court; if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan. 

This type of trust is referredt to as a First-party Special Needs Trust and is also are commonly called self-settled SNTs, Medicaid payback trusts, OBRA ’93 trusts, and d4A or d4C trusts.

First-Party Special Needs Trust do require a “payback” provision. The wording is set out in federal law, (42 USCA § 1396p(d)(4)(A).) The payback provisions require upon death of the disabled the trustee is to pay back to the State of California the cost of all state provided medical care. Then any assets remaining in the trust can be distributed to individuals or charities.

Category of Impairments

Category, Musculoskeletal

Major dysfunction of a joint(s)

Reconstructive surgery or surgical arthrodesis of a major weight- bearing joint

Disorders of the spine

Amputation (due to any cause)

Fracture of the femur, tibia, pelvis, or one or more of the tarsal bones.

Fracture of an upper extremity 1.08 Soft tissue injury (e.g., burns)

Category, Impairment of senses and speech

Loss of visual acuity

Contraction of the visual fields in the better eye

Loss of visual efficiency

Disturbance of labyrinthine-vestibular function

Loss of speech

Hearing loss not treated with cochlear implantation

Hearing loss treated with cochlear implantation

Category of Impairments, Respiratory System

Chronic pulmonary insufficiency

Asthma

Cystic Fibrosis

Pneumoconiosis

Bronchiectasis

Mycobacterial, mycotic, and other chronic persistent infections of the lung

Cor pulmonale secondary to chronic pulmonary vascular hypertension

Sleep-related breathing disorders

Lung transplant

Impairments, Cardiovascular System

Chronic heart failure

Ischemic heart disease

Recurrent arrhythmias

Symptomatic congenital heart disease

Heart transplant

Aneurysm of aorta or major branches

Chronic venous insufficiency

Peripheral arterial disease

Impairments, Digestive System

Gastrointestinal hemorrhaging from any cause, requiring blood transfusion

Chronic liver disease

Inflammatory bowel disease (IBD)

Short bowel syndrome (SBS)

Weight Loss due to any digestive disorder

Liver transplant

Genitourinary Impairments

Impairment of renal function

Nephrotic syndrome, with anasarca

Impairment of Renal function

Nephrotic syndrome, with anasarca, persistent for at least 3 months despite prescribed therapy

Impairments, Hematological Disorders

Chronic anemia

Sickle cell disease, or one of its variants

Chronic thrombocytopenia (due to any cause)

Hereditary telangiectasia

Coagulation defects (hemophilia or a similar disorder)

Polycythemia vera (with  erythrocytosis, splenomegaly, and leukocytosis or thrombocytosis)

Myelofibrosis (myeloproliferative syndrome)

Chronic granulocytopenia (due to any cause)

Aplastic anemias with bone marrow or stem cell transplantation

Impairments, Skin Disorders

Ichthyosis

Bullous disease

Chronic infections of the skin or mucous membranes

Dermatitis

Hidradenitis Suppurativa

Genetic photosensitivity disorders

Burns

Endocrine Disorders

Pituitary gland disorders

Thyroid gland disorders

Parathyroid gland disorders

Adrenal gland disorders affect bone calcium levels, blood pressure, metabolism, and mental status. 

Diabetes mellitus and other pancreatic gland disorders

a. Hyperglycemia. 

(i) Diabetic ketoacidosis (DKA). 

(ii) Chronic hyperglycemia. 

b. Hypoglycemia. 

Non-mosaic Down syndrome

Category of Impairments, Neurological

Epilepsy - convulsive epilepsy, (grand mal or psychomotor)

Epilepsy - nonconvulsive epilepsy (petit mal, psychomotor, or focal)

Central nervous system vascular accident

Brain tumors

Parkinsonian Syndrome

Cerebral Palsy

Spinal cord or nerve root lesions, due to any cause

Multiple Sclerosis

Amyotrophic Lateral Sclerosis

Anterior Poliomyelitis

Myasthenia Gravis

Muscular Dystrophy

Peripheral  neuropathies

Subacute combined cord degeneration (pernicious anemia) with disorganization of motor

function

Degenerative disease such as Huntington's Chorea, Friedreich's ataxia, and spino-cerebellar degeneration

Cerebral trauma

Syringomyelia

Impairments Mental Organic Mental Disorders

Schizophrenic, paranoid and other psychotic disorders

Affective disorders

Mental retardation

Anxiety-related disorders

Somatoform disorders

Personality disorders

Substance addiction disorders

Autistic disorder and other pervasive developmental disorders

Category of Impairments, Immune System Disorders

Systemic lupus erythematosus

Systemic vasculitis

Systemic sclerosis (scleroderma)

Polymyositis and dermatomyositis

Undifferentiated and mixed connective tissue disease

Immune deficiency disorders, excluding HIV infection

Human immunodeficiency virus (HIV) infection

Inflammatory arthritis

Sjögren's syndrome

Growth impairment

Growth impairment, considered to be related to an additional specific medically determinable impairment

Growth impairment, not identified as being related, to an additional, specific medically determinable impairment