Please note: Guardianships, conservatorships and special needs

Please note: Guardianships, conservatorships and special needs trusts are complex matters. The laws, rules and regulations change frequently. Please seek advice from a knowledgeable attorney.

Medicaid and other public benefit programs do not provide for all of the possible needs of a disabled person. Gifts of income or resource to a recipient of such benefits to purchase needed goods and services may cause the reduction or elimination of these benefits. Likewise, cash distributions from a trust paid directly to a beneficiary already receiving public benefits are considered unearned income, regardless of the purpose of the distributions, and as such may jeopardize eligibility for these benefits.

On the other hand, distributions from a trust created by a third party are not considered income to the beneficiary if these payments are made for purposes other than food, housing or clothing, even though these payments purchase goods or services used by the beneficiary. For example, distributions directly to a retailer for a radio, to an airline for a plane ticket, or to a companion/aide are not income to the beneficiary. Thus, a special needs or supplemental care trust can be designed to coexist with eligibility for public benefits.

Although the special needs trust evolved in the context of planning for adult disabled children, it may also be appropriate where an adult child wants to provide for an institutionalized elder through a living trust, or a spouse wishes to do so through a will.

For trusts created on or after August 11, 1993, the source of the trust funds and the identity of the trust beneficiary are crucial in determining whether the assets of a trust will be counted as a resource of the beneficiary and thereby disqualify the beneficiary for public benefits, especially Medicaid. According to the Omnibus Budget Reconciliation Act of 1993 (OBRA ‘93), trusts with the following characteristics are considered assets of the benefits recipient and his/her spouse:

(1)The corpus was formed in whole or in part, from the assets of the recipient (or spouse);

(3)a person, including a court or administrative body, with legal authority to act in place of or on behalf of the recipient or the recipient’s spouse; or

(4)a person, including any court or administrative body, acting at the direction or upon the request of the recipient or the recipient’s spouse.

State law, regulations, or policy must be examined to determine whether a trust will be considered as a resource. Colorado generally follows the OBRA in providing that all trusts created or funded by a Medicaid applicant and/or his or her spouse will be treated as available to the extent that any of the trust’s funds can be paid to the Medicaid applicant. Subject to those certain limited exceptions set forth below, this rule also applies to a trust created by a court or anyone acting on behalf of the applicant or the applicant’s spouse.

Accordingly, all funds in a revocable trust are deemed available to the Medicaid applicant. Payments from such a trust are treated as income. Payments from the trust to others, such as adult or dependent children, are considered transfers subject to the 60-month lookback period.

Similarly, funds held by an irrevocable trust are also considered as a countable resource, if the trust allows payment of trust funds to the Medicaid applicant. If no portion of the trust assets can be distributed to the Medicaid applicant, then no portion of the trust is deemed a resource of the Medicaid applicant for eligibility purposes. Distributions of income will, however, be counted toward the monthly income limit.

As stated above, there are several exceptions to the very strict trust provisions of OBRA. To simplify matters they can be divided into trusts that are created by third parties and trusts that are self-funded, i.e., funded with the Medicaid applicant’s own funds.

A special needs or supplemental care trust is a unique trust created by a third party which is designed to provide for the special or supplemental needs of a disabled beneficiary without causing a loss of public benefits. Such a trust may be established during the lifetime of the settlor (donor) or as a part of a last will and testament of the donor. So long as the trust is drafted as a special needs trust, any distributions to or for the benefit of the disabled beneficiary will not be considered an available resource.

Both Colorado and federal law recognize the following types of trusts funded with the beneficiary’s own funds. Assets of such trusts will not be counted for purposes of the $2,000 maximum asset eligibility standard:

(5)“Miller” or Income Trusts. Trusts for individuals over the age of 65 years, requiring long-term care, whose income exceeds the “income cap” but is less than the average monthly cost of nursing home care in the geographic region in which the individual lives and who are otherwise eligible for Medicaid.

(6)Disability Trusts. This trust is found at C.R.S. §15-14-412.8. To use this trust to shelter assets:

(1)the beneficiary must be disabled as that term is defined by Social Security Law;

(2)the beneficiary must be under age 65;

(3)the State must be designated as the remainderman, thereby entitling it to any funds remaining in the trust at the beneficiary’s death;

(4)the trust must be established by a parent, grandparent, legal guardian or court;

(5)the trust must be reviewed and approved by the Colorado Department of Health Care Policy and Financing; and

(6)the trust must be drafted as a special needs trust.

(3) Pooled Trusts. These trusts are similar to Disability Trusts but they are administered by non-profit associations making it unnecessary for the beneficiary to create a disability trust as such.

(a) The Colorado Fund for People with Disabilities (CFPD) is an example of a non-profit organization that was created to administer such a pooled trust. The beneficiary, a parent, grandparents or court order may set up a trust fund through CFPD. The beneficiary must receive Medicaid or be applying for Medicaid.

(i) Costs: The cost of joining the CFPD is: $250 set-up fee, 2% of all deposits, 1% renewal fee at anniversary, $10/month accounting fee. In addition, the CFPD offers case management services, booking assistance, companion and shopping service at additional charges.

(ii) Application Process: The CFPD trust document has already been approved by the State of Colorado. The process usually takes a week, although it can be done in several hours, if necessary.

(iii) Administration: The beneficiary makes requests for payment of expenditures to the case manager. The request is submitted to the Executive Director for approval. Once funds are disbursed, the expenditure can be made.

(iv) Investment of Funds: All funds are invested with the Trust Department of American National Bank. The Board of Directors makes all investment decisions.

(v) Benefits of CFPD instead of individual disability trust: Case management services are available to help manage and access the funds. Case managers have experience working with people with disabilities and their families, and they are able to develop and coordinate support when need. CFPD is a non-profit organization, so any interest gained is not taxed. Upon the death of the beneficiary, any remaining money is put into CFPD’s charitable fund for the benefit of other people with disabilities.

PLANNING FOR A DISABLED BENEFICIARY

Often parents will want to make provision for disabled children or another loved one. Even though a child may reach chronological adulthood, that child may never have the decision-making capacity to provide for that child’s needs. Further, that child may already be receiving government assistance. The parents may wish to provide for that child, but they do not wish to interfere with that child’s eligibility for such assistance. They may create a special needs trust for the benefit of such child.

Likewise, an adult child, having his or her own assets, may be concerned about the welfare of an institutionalized parent if the child predeceases the parent. The child in such circumstances may create a special needs trust for the benefit of the parent.

THE ABOVE INFORMATION IS NOT INTENDED TO BE USED AS LEGAL ADVICE. LAWS, RULES AND REGULATIONS MAY CHANGE. PLANNING FOR A DISABLED PERSON CAN BE TECHNICAL AND COMPLEX AND SHOULD NOT BE UNDERTAKEN WITHOUT THE ADVICE OF LEGAL COUNSEL.