FAQ: Special Needs Estate Planning

What is a Special Needs Trust?

What is a Medicaid Payback Trust?

What is a Pooled Trust?

What is a Supplemental Services Trust?

What is a Discretionary Trust?

What are the responsibilities of a Trustee?

What types of supplemental services can be paid for from a Special Needs or Medicaid Payback Trust?

What is a Special Needs Trust?
A Special Needs (Medicaid Payback) Trust is a trust arrangement which allows an individual with disabilities to have funds available for his or her needs without the funds counting as a financial asset for benefit eligibility purposes. Many government programs that provide income or payment for medical services and assistance to individuals with disabling conditions have strict financial eligibility limits. Without careful planning, assets received by a child or adult who is enrolled in or may be eligible for these benefit programs (such as Supplemental Security Income or Medicaid) can jeopardize eligibility for those programs. [Top of Page]

What is a Medicaid Payback Trust?
A Medicaid Payback Trust is funded by assets received by a person with a disability through a personal injury settlement, jury award, or an inheritance.  It may also be used when a person receives a lump-sum from Social Security or simply when the person’s income or resources are too high and could jeopardize the financial eligibility for Medicaid or Supplemental Security Income.  The beneficiary of a Medicaid Payback Trust must be under 65 when the trust is established, the individual must meet the definition of disability under the Social Security Act Title II, and the trust must include a Medicaid reimbursement (payback) provision. [Top of Page]

What is a Pooled Trust?
A pooled trust is a Medicaid Payback Trust which may be advisable when a smaller amount of assets is involved and when it is in the best interests of the individual for a professional to make decisions about investments and distributions (payments out of the trust). Pooled trusts are available in Ohio through the Community Fund Management Foundation in Cleveland, the Disability Foundation in Dayton, the SCSA, and others. The pooled trust involves relatively low management fees, but it is also less flexible in making distributions from the trust account. [Top of Page]

What is a Supplemental Services Trust?
Unlike a pooled trust, which is created with the beneficiary's personal assets, the Supplemental Services Trust must be created with the assets of another. This trust will allow a parent to leave assets for the benefit of their disabled child after the parent's death. The trust must be a "testamentary trust" for an individual who meets the eligibility requirements for services under the Ohio Department of Developmental Disabilities and the Ohio Department of Mental Health. [Top of Page]

What is a Discretionary Trust?
A discretionary trust must also be funded with the resources of another individual, either during his or her lifetime, or through the provisions of his or her will at death. Such a trust arrangement is appropriate when an individual establishing the trust wants it to be available for the benefit of a group of beneficiaries which includes the recipient or prospective recipient of means-tested programs. The terms of the trust do not mandate that any beneficiary receive any particular amount of the trust funds, nor can any beneficiary demand that trust funds be distributed for his or her benefit. Therefore, the trust funds are not considered to be assets of any one beneficiary, and there is not a Medicaid payback provision. A discretionary trust can also be established for a single disabled beneficiary, but it may be subject to more scrutiny as an available resource for benefit eligibility purposes. [Top of Page]

What are the responsibilities of a Trustee?
Being appointed and serving as the Trustee is a very serious undertaking. Every Trustee is held to a high standard of accountability, considerably higher than is required for one's own affairs. One who holds property for another is considered a fiduciary. Every Trustee is a fiduciary and every Trustee has certain duties which must be strictly respected. Those duties include:

  • Duty to carry out the terms of the trust agreement.
  • Duty of loyalty to the Beneficiary.
  • Duty to act and invest prudently.
  • Duty to not delegate Trustee responsibility, although the Trustee may seek professional advice and guidance.
  • Duty to maintain records and keep the Beneficiary reasonably informed of the trust administration.

Perhaps the most significant duty of the Trustee is that of undivided loyalty to the Beneficiary. As the Trustee, you must administer the trust solely in the best interests of the Beneficiary and exclude your own benefit or the benefit of anyone other than the Beneficiary. Because the Trustee has control over the Beneficiary's property, the Trustee is held to a higher standard than would prevail in an ordinary business transaction.

It is important to realize that if you do not carry out these Trustee duties with diligence, you may be held personally responsible to the Beneficiary and may be required to repay any losses which result from your actions. [Top of Page]

What types of supplemental services can be paid for from a Special Needs or Medicaid Payback Trust?
Supplemental services may include, but are not limited to, the following:

  • Reimbursement for attendance at or participation in recreational or cultural events;
  • Participation in hobbies, sports or other activities;
  • Items beyond necessary food and clothing (e.g., funds for dining out occasionally, for special foods periodically delivered, or for an article of clothing such as a coat which is extra but which is desirable because it is newer, more stylish, etc.);
  • Cosmetic, extraordinary, experimental or elective medical or dental care, if not available through other third-party sources;
  • Visiting friends, companionship;
  • Exercise equipment, or special medical equipment if not available through other third-party sources;
  • The cost differential between a shared room and a private room;
  • Equipment such as telephones, cable television, televisions, radios and other sound equipment, Internet accesss, computer, and cameras for private use by the individual;
  • Membership in clubs such as book clubs, health clubs, record clubs;
  • Subscriptions to magazines and newspapers;
  • Small, irregular amounts of personal spending money, including reasonable funds for the occasional purchase of gifts for family and friends, or for donations to charities or churches;
  • Personal advocacy;
  • Services of a representative payee or conservator;
  • Guardianship or other protective service listed in section 5123.55 of the Revised Code;
  • Counseling and guidance;
  • Someone to visit the individual periodically and monitor the services he/she receives; intervention or respite when the person is in crisis;
  • Vocational rehabilitation or habilitation, if not available through other third-party sources;
  • Reimbursement for attendance at or participation in meetings, conferences, seminars or training sessions;
  • Reimbursement for the time and expense for a companion or attendant necessary to enable the individual to access or receive supplemental services including, but not limited to, travel and vacations and attendance at meetings, conferences, seminars, or training sessions;
  • Items which medicaid and other governmental programs do not cover or have denied payment or reimbursement for, even if those items include basic necessities such as physical or mental health care or enhanced versions of basic care or equipment (e.g., wheelchair, communication devices), and items which are not included for payment by the per diem of the facility in which the Beneficiary lives; and
  • Other expenditures used to provide dignity, purpose, optimism and joy to the Beneficiary of a supplemental services trust.

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