Current Issues in Supplemental Needs Trust

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Medicaid districts are becoming more vigilant in protecting their remainder interests in Supplemental Needs Trusts and Special Needs Trusts. 

Therefore, when considering the drafting and administration of Supplemental Needs Trusts and Special Needs Trusts, it is important to consider, for the continuation of this important exception to Medicaid rules, the protection of Medicaid’s remainder interests. 

Consider the following:

    1.  Who will administer the Supplemental/Special Needs Trust?  Will the administration by a bank provide greater flexibility to the administration of the Trust, than administration by a parent acting as Trustee? 

    2.  When notice should be provided to Medicaid prior to certain expenses?  Notice, which appears to limit payments from the Trust for the beneficiary, may actually protect the beneficiary and his/her family.  When notice is given to Medicaid, it is more difficult for Medicaid subsequently to complain about expense items for which it received notice. 

    3.  Provide annual accountings to Medicaid.  This is for the protection of the Trustee and the Trust beneficiary.  When accountings are provided, the Trustee then reasonably should know what items of expense may be objectionable to Medicaid.  Annual accountings should protect the Trustee in the following accounting periods.  A bank on the West coast was the trustee of a Special Needs Trust.  The court order directed the Trustee to pay the parents of the Trust beneficiary, who was a minor, $22.00 per hour for caring for the child.  The court order did not indicate any “cap” on the hours.  The bank-Trustee did not perform its annual accountings and, for three years, continued to pay the parents approximately $200,000.00 per year.  At the end of the three years, the Trustee paid approximately $600,000.00 to the parents.  The Trustee were sued by a guardian ad litem appointed by the court.  the corporate fiduciary settled, paying $600,000.00 to the Supplemental/Special Needs Trust.  The court appointed another bank to serve as Trustee.

    4.  The Social Security Administration is concerned that when parents execute a Supplemental/Special Needs Trust for their adult child, in the absence of court direction, that the adult child was not competent.  Therefore, the Social Security Administration has stated that it wants clear language that the adult beneficiary transferred his/her funds into the Supplemental/Special Needs Trust.  The Social Security Administration has also stated that when the parents create the Supplemental/Special Needs Trust in the absence of court direction, that the parents, to be the creators of the Supplemental/Special Needs Trust must transfer some of their own funds into the Supplemental/Special Needs Trust, even if only a few dollars. 

    5.  CMS (The Center for Medicare and Medicaid Administration) has issued new rules about Supplemental Needs Trusts and Special Needs Trust.  CMS has stated that after the death of the beneficiary, the Trustee cannot pay for a funeral or other new expenses.  The Trustee can, however, prepay for a funeral.  The Trustee, after the death of the beneficiary, can pay for administration expenses and estate taxes.

    6.   Consider whether a Supplemental (Special) Needs Trust is appropriate or necessary in the situation, or is there a better plan.  What about private health insurance?  What is the life expectancy of the injured party?  If there is a short life expectancy and a potentially large Medicaid remainder interest in the trust, would it be best for the potential heirs if there were no Supplemental (Special) Needs Trust?  Is there a structured settlement?  Perhaps the monthly payments from the structure are sufficient for anticipated medical and medically related needs.  Remember:  the case may appears to need a Supplemental (Special) Needs Trust, but on further analysis, there may be a better alternative.

    7.   Consider whether there are any Medicare issues:  lien for retroactive payments and/or need for a Medicare Set-Aside Arrangement for future medical needs, causally related to the injury and which would be covered by Medicare.  The rules on Medicare Set-Aside Arrangements are evolving. 

    8.  Consider the impact, if any, upon Medicaid and Social Security entitlements from the receipt of funds from any settlement or award.

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    JAY J. SANGERMAN, ESQ.
    Jay J. Sangerman, PLLC
    171 East 84th Street, Unit 21B
    New York, New York 10028
    Telephone (212) 922-0711
    Facsimile (212) 439-0056