Should the Family of a Disabled Individual Design an Estate Plan? (Part
Part One of this article
discussed the ways that the family of a
disabled individual could design an estate plan to include a "special
needs trust" to supplement, not reduce or replace, the disabled
person's entitlement benefits. But what if planning has not been done,
and funds pass to the disabled individual outright? Or what if the
individual is about to receive a personal injury settlement or award?
First, a word about liens. Families should know that
the State of
Connecticut has a lien for so-called "cash assistance," also known as
"state supp.," but only up to 50% of an inheritance or proceeds of
litigation received. A similar lien applies with respect to costs of
incarceration, care provided in state mental institutions or through
state programs for the developmentally disabled, and care provided to
an individual's children under the TANF (formerly AFDC) programs, as
well as other state-funded programs. In addition, when a personal
injury is involved,
the State's lien includes costs of medical assistance (Medicaid)
related to that injury. (There are also liens for other
state-administered benefits.) However, the law in Connecticut to date
(being challenged in the courts) is that under federal law the State
can not require further repayment of Medicaid benefits provided during
the disabled individual's lifetime, but must wait until the
individual's death to file a claim. Nor does the federal government
impose a payback lien of any kind with respect to the programs it
administers (Social Security, SSI, and Medicare), with the possible
exception of disabling injuries subsequently compensated by a workers'
Second, a word about income. An inheritance or
injury award that is
received while an individual is on Medicaid is considered "lump-sum
income" that may affect benefits for at least six months. The
individual may sometimes avoid this problem by going "off" Medicaid
payment is received. Other state and federal benefits have their own
Once these issues have been resolved, however,
families should know
that the "OBRA '93 Trust" or "payback" trust can preserve the remaining
funds in a
trust for the individual's supplemental needs during lifetime without
further affecting Medicaid benefits.
The requirements of an OBRA '93 Trust are simple:
for the lifetime benefit of one individual under age 65 (2) who is
either blind, or disabled as defined by the Social Security laws
(receipt of a government disability benefit should satisfy this
requirement, but is not required), (3) with pay-back of the state
Medicaid lien required at death. In addition, the trust may only be
established by parents, grandparents, courts, or "guardians" (construed
to include conservators), not by the disabled individual directly. In
1998, the Connecticut legislature passed a law explicitly authorizing
probate courts and conservators to establish OBRA '93 Trusts, subject
to ongoing probate court jurisdiction, and in December the Connecticut
Supreme Court not only upheld this power with respect to pre-1998
trusts, but also implicitly endorsed OBRA '93 Trusts as important to
the management of a disabled ward's estate.
In deciding whether to establish an OBRA '93 trust
disabled individual's funds, the disabled beneficiary's specific needs
and the effect of the trust on all of the individual's entitlement
benefits must be taken into account. For example, establishing a trust
while the beneficiary is receiving cash assistance within two years of
application may result in a lengthy period of ineligibility from
receiving this benefit, and funds left in the trust at the end of that
period may be considered an available resource. If cash assistance will
be important to the
beneficiary, it may be foolish to preserve Medicaid eligibility while
destroying eligibility for state cash assistance, and other options
must be considered instead.
In the context of personal injury lawsuits,
available settlement options such as "structured settlement annuities"
must also be considered. Once such an annuity is established, it
usually cannot be assigned, and as a result, the OBRA '93 Trust option
is lost. However, if the court directs payment to the OBRA '93 Trust,
or if the settlement is in a lump sum, the OBRA '93 Trust option
remains open. It is important, therefore, to plan from the beginning
when damages for a personal injury are involved.
The rules affecting entitlement benefits for
are complex. Attorneys who handle estate planning are not always
familiar with these rules. While the OBRA '93 Trust can provide a
significant benefit when appropriate planning was not done, or when no
planning is possible (the personal injury situation), it is essential
to obtain both good estate and tax planning and good entitlement
planning when arranging for an OBRA '93 Trust.
INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND CREATES NO
ATTORNEY-CLIENT RELATIONSHIP. NO ENDORSEMENT IS
INTENDED BY ANY REFERENCES HEREIN. PLEASE CONSULT YOUR OWN LEGAL
FINANCIAL ADVISORS BEFORE TAKING ANY ACTION.
only provide general information, and will
not provide advice about a particular case without a formal engagement.
to me does not create
an attorney-client relationship.