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Lisa Nachmias Davis,
Attorney at Law

PLANNING FOR THOSE WITH SPECIAL NEEDS
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Tip:  Read the MANY useful articles in the Voice, publication of the Special Needs Alliance - you can also subscribe to receive it by email.

A family member's special needs may place an enormous financial and emotional strain on the individual and his or her family. 

A person whose needs arise out of a disability occurring during adulthood needs access to all available entitlement benefits--whether Social Security disability or Supplemental Security Income, state supplemental assistance programs, Medicare and Medicaid (Title XIX), property tax exemptions or income tax deductions--and must plan for his or her family at the same time.  A person with a mental illness arising during young adulthood may face special financial hardship, as government benefits do not adequately meet these needs.  The parents of a child whose needs arise out of a developmental disability may be especially concerned that after they are gone their child will still be protected as they have protected the child during their lifetimes.  In each case, the family will want to balance the desire to meet the special needs of one family member while still treating the rest of the family fairly. 

What are the answers to these problems?

Assistance with understanding, and if appropriate, obtaining all available entitlement benefits. 

Estate planning for parents and family members incorporating "third party" special needs trusts, also called "supplemental needs trusts" or "supplemental benefits trusts," to benefit the disabled person without affecting entitlements or depleting family resources for non-disabled family members, and without any need to pay the government back later on.

Assistance in other types of special needs trusts, usually called "first party" or "payback" trusts, that can be established with an individual's own assets, but which pay the State back at death for medical assistance received during lifetime.

Involvement in settlement negotiations or damage litigation of lawsuits arising from a disabling injury, to ensure that entitlements are preserved and taxes saved before the ink has dried. 

Guidance through court procedures such as the Connecticut probate court proceedings for conservatorships  and for appointment of guardians of developmentally disabled persons. 

Help locating private and non-profit sources of assistance including determining appropriate insurance -- supplemental insurance or "Obamacare" insurance under the Affordable Care Act. 

Planning for disabled individuals and their families requires a thorough knowledge of the law of entitlements (Social Security Disability, SSI, and state programs, as well as Medicaid (HUSKY) and Medicare) and newly evolving insurance laws, as well as more traditional familiarity with tax law, the law of trusts, estates and probate, conservatorships and guardianships, and real estate law.

A typical plan for an individual with a disabled family member might require drafting a Will and/or trust agreement, durable powers of attorney, living will and related documents, and designations of conservator in the event of future incapacity (for the individual) and "standby guardian" (for a developmentally disabled family member). Quite often, the plan will involve a "third party" supplemental needs trust for the family member with special needs, and then coordinating the plan to direct all payments for that individual's benefit through the trust. If the amount is small, other options might be an "ABLE" account (if the person was disabled at an early age) or a pooled trust account.  The plan will generally require evaluating the effect on Title 19 eligibility of planned gifts to family members and rights under Social Security or Medicare.

Finally, when planning has not been done, and the estate passes directly to an individual with needs-based entitlements, it may be necessary to establish a so-called "OBRA '93," "first-party," or "payback" special needs trust, ABLE account or pooled trust, in order to enhance the quality of life of the disabled person, while maintaining eligibility for benefits. OR THIS MAY NOT BE NECESSARY OR APPROPRIATE-- it will be important to be sure, since the trust options have severe restrictions and drawbacks that should not be undertaken lightly.  The disabled client and his or her family must be sure that his or her attorney is knowledgeable in all of these areas and does not apply a one-size-fits-all solution.  When interviewing an attorney, the disabled client and family should ask the attorney searching questions about the individual's specific benefit programs -- it has become commonplace to recommend trusts in all cases with sometimes disastrous results.  While generally one can assume that an attorney who is a member of the National Academy of Elder Law Attorneys or the Special Needs Alliance will be knowledgeable, sometimes the knowledge is limited to general knowledge of federal law, and Connecticut has thousands of special rules.  BE CAREFUL.

"Blog" of News Items (begun before they invented blogs)

  Starting 2024 or in some cases 2025, new "asset tests" for those in subsidized housing a/k/a Section 8.  Previously, only income was relevant for someone in Section 8 housing -- assets created a fictitious income based on a standard "passbook rate," and transferred assets were treated as if still held (which meant that the income was still received) 2 years after gift. In 2016, PRESIDENT OBAMA signed into law the "HOTMA" changes which included an asset limit -- denial of occupancy rights if the person owns either a habitable home or assets of $100,000 or more, with a few exceptions.  In February 2023, HUD issued FINAL REGULATIONS.  But these are still somewhat confusing!  It seems that if your assets are too high you could place them in a trust provided the trustee doesn't live with you.  It also seems as if the only trust distributions that would count as income would be those that are from the trust's own income.  THis is still complicated and confusing.  Housing authorities are still being trained so we don't know how all this will work out.

Stay tuned -- awaiting final regulations that will let you take your friend on SSI out to dinner.  Did you know that currently, if someone on SSI has help paying for food or "shelter" expenses, the person's benefits are cut? (if reported, and reporting is required, and if they find out you didn't, trouble...)  Regulations have been proposed that will only do this if the help is for housing, NOT FOOD.  Crossing fingers taht these are made FINAL!  There are still workarounds. (1) When someone is receiving SSI or Medicaid, a family member can often pay for items and expenses DIRECTLY without affecting benefits.  (2) The maximum reduction is 1/3 of the max. SSI benefit, so it may still be worth it.  For example, if the maximum were $974, that would be only $324.67.  Obviously $324.67 is still $324.67, but if the rent is $800, what makes more sense?  (3) if the person was disabled prior to age 26 and has an ABLE account, the family member or trustee can put money in the ABLE account (up to $18,000 can go in from all sources any year), and then the person can use THAT to pay for the expenses. (4) If the person doesn't get SSI but Social Security Disability instead, then it won't affect the Social Security Disability payment by one cent, and almost certainly the payment isn't going to affect Medicaid eligibility either. So the $800 paid to the landlord won't change a thing about the individual's benefits.  CAUTION:  These statements are generally true but may not be true in any given state; payments may also affect eligibility for benefits other than SSI or Medicaid, so when in doubt, TALK TO A KNOWLEDGEABLE ATTORNEY.

 No more LIENS,and VERY LIMITED recovery for benefits paid!!!!  -- As of 2022, Connecticut NO LONGER (1) puts liens on real estate for benefits paid, (2) requires repayment for benefits when the beneficiary receives an inheritance or lawsuit (exception:  reimbursement if the state paid the medical bills from the accident; child support); or (3) gets paid back from a person's "estate" at death unless the person received Medicaid in a nursing home or for "waiver" services, or was in a mental institution.  As of 2023, Connecticut no longer plans to get paid back out of your ABLE account if you die.  BUT PLEASE REMEMBER:  a self-funded special needs trust MUST repay the state for ALL MEDICAID whenever received.

  How to avoid the Spend-Down in Connecticut.  If you're someone who gets Medicare, you're not eligible for "Husky D" Medicaid (and also if your income is too high).   Maybe the Medicare Savings Plan (see below) will be enough for your needs, since it will pay your copays and deductibles and get you federal "extra help" with prescriptions so they are free or nearly.  But what if you need something Medicare doesn't cover -- like lots of non-emergency medical transportation, expensive dental work, hospital stays longer than the Medicare maximum?  You would need to qualify for "Husky C" Medicaid.  The problem is, unless you are on a "waiver," your income has to be very low for Husky C to pay out anything for you.  If your income is over $1,280month, Medicaid won't pay for anything until you meet the "spenddown." The state takes your monthly income, subtracts the monthly "categorically needy income limit" (for most single people $1280/month, although the figure online is lower due to a "disregard"), and multiplies the result by six. This is your six-month deductible or "spenddown." Until you accrue medical expenses that "meet the spenddown," Medicaid won't kick in. This is a real pain in the **** when you have a Medicaid-payable expense every month.  It's a pain for DSS too, but it is what it is.  There are two ways to deal with this. (1) If you can work AT ALL -- you can apply for the SO-5 or MedConnect category of Medicaid (see below) OR (2) If you have a self-settled special needs trust or pooled trust account, and you can show DSS that your "excess" income over that $1,280 is put in the trust every month -- bingo.  Your income disappears and you don't have to "spend down" or meet that deductible any more. And then the trust can spend the money on your other needs - it doesn't disappear from being used by you, only from being counted.  See my article.  Needless to say, you won't find this in the DSS policy manual and not all the caseworkers will know about it either. Unfortunately, to get this done, you will probably need an attorney (to whom you had better show this article) unless a legal services organization will help you. Here's an email from the DSS Policy folks and a 2009 official transmittal, both of which back this up.  I've done it a bunch of times so it is for real.  You can try to go to a supervisor or contact "Community Options" at DSS if you get stuck. 

  SECURE Act adopted eff. 1/1/2020 -- only spouses, disabled individuals, and trusts for their benefit can "stretch" payout of an inherited IRA over the beneficiary's lifetime; almost all other inherited IRAs must be distributed within 10 years after death of owner.  (For minors, the 10 years starts when they turn 21.) This may make it more important to have a child determined disabled.  In 2023, "proposed regulations" were issued that suggest a trust for a child works if the child will get the whole IRA by age 31.  IMPORTANT:  if it's a trust for a disabled person that COULD be distributed to someone else during the person's lifetime, this may not work.  CHECK the TRUST SET UP FOR YOUR CHILD.  You might need a new one.  BTW -- My most popular article seems to be the one I wrote explaining the arcane rules that apply when you want to name a trust as beneficiary of your IRA or retirement plan, written 2014 and updated in 2022:"Naming a Special Needs Trust as Beneficiary of your IRA or Retirement Plan - Update"  (published in the February 2022 edition of the Voice, the newsletter of the Special Needs Alliance) 

Community First Choice services.  Connecticut now allows individuals who are eligible for ANY category of "Husky" (Husky A, B,C,D) to apply to have "community first choice" services included as part of their benefits  These often include the services of a personal care assistant who may assist with activities of daily living that are not traditionally considered "medical" and that previously were available only to those who qualified for a so-called "Medicaid waiver" that allowed the person to stay at home rather than in a nursing home.  The criteria for the waivers were the same as someone in a nursing home except that gross income also had to be no more than 3 x maximum SSI (in 2023, that means $2829). Waiver eligibility could be denied or delayed because someone had made a gift -- like the rules for nursing homes.  See my article on this. (Old article, but still true.)  However, with Community First Choice, the gift might not be a problem and the long waiting lists for waiver services would not apply either.  The catch:  for someone not eligible for Husky A,B, or D, but only Husky C, the income limit is even lower than 3 x SSI (in 2024, $1182/month).  Solution?  A special needs trust into which the excess income is deposited every month!  This stuff is very complicated, so you do need an attorney to figure out how it will work for you.

You can sign your own special needs trust.  Since December 13, 2016, when Congress enacted section 5007 of the Twenty-First Century Cures Act (also known as the Special Needs Trust Fairness Act), an individual may create and sign a "first party" special needs trust without needing a parent or conservator to do so.  Prior to this law, a competent individual in Connecticut without a living parent or grandparent willing to sign the trust document had to go to probate court and get a conservator appointed just so as to set up the trust.  NOTE:  a plain vanilla, garden variety "short form" Power of Attorney document does NOT give the person named as "POA" the power to create such a trust, whether one created by the individual or a pooled trust account administered by PLAN of Connecticut.  That power IS in the new "long form" but only if the box is initialled.

The ABLE Act.  The Achieving a Better Life Experience Act, authorized states to set up ABLE plans -- similar to 529 plans -- that will not be counted as assets for needs-based benefit plans, will not incur income taxes, and -- more importantly -- distributions from which (for "qualified disability expenses," including housing) will not affect needs-based benefit plans.  Drawbacks are many:  Only one account per person; Person must be severely disabled before age 26; the state must set up the plan and designate a custodian; no more than $18,000 per year total contributions (PLUS up to 100% of poverty level from earnings, that is, if you don't contribute to a retirement account); no more than $100,000 can be excluded as an asset for SSI purposes; and on death, what remains passes to the State to the extent of Medicaid benefits received by the individual.  Perhaps the best use of an ABLE account will be to receive distributions from trusts that the individual can then handle directly -- finally someone on SSI may be able to get to buy Popeye's chicken with funds from a supplemental needs trust!!  Read the excellent articles by my colleague and co-author Robert Fleming:  The ABLE ACT, Part I and Part II, and subscribe to stay tuned for more.  And finally -- 2020-- Connecticut has its own "ABLE" program, although a Connecticut resident can establish an account in another state's program too - compare.

Trusts and IRAs: 

HUSKY D (Connecticut term) is low-income Medicaid -- based only on "tax" income ("MAGI") for those aged 19-64 who aren't on Medicare -- this form of Medicaid has no asset test and eff. 1/1/14, no estate recovery -- no payback at death for benefits received during lifetime except for nursing home coverage or "waiver service" such as the PCA waiver.  Husky D covers all the same things as "regular" Medicaid including vision and dental care. Click here to see if you are eligible. (For married people, the spouse's income will count unless you file separately and technically you are supposed to live apart too.)  However, a person on Husky D during his or her first 24 months of Social Security Disability (before Medicare is available) will face a rude shock when Medicare kicks in. True, Medicare is not needs-based or income-tested at all -- that's great.  Also true -- Medicare savings plans (QMB, SLIMB, ALIMB) are based solely on income, with no asset test; those with higher income can purchase a Medicare supplemental policy. The PROBLEM  is that Medicare and the MSPs are not as comprehensive as Husky (Medicaid). In order to be eligible for Husky C (the Medicaid that is available to someone not eligible for the other Husky programs including Husky D), individuals are limited to $1,600 of "counted assets" and have a "spend down" or deductible if income exceeds certain low thresholds.   In effect, the newly disabled will have 24 months to plan what to do with any assets they have or may receive, or whether they will put up with Medicare and QMB and pay privately for dental, vision, and any special waiver services that are only there for those on Husky C.  One solution can be to contribute excess income monthly into a self-settled special needs trust or pooled trust account; this may also be needed if the MSPs reduce their eligibility limits again. But this is expensive and cumbersome.

(REVISED 2019) QMB and other Medicare Savings Plans, pros and cons.  "QMB" is a benefit for low-income individuals who receive Medicare.  An individual receives Medicare after 24 months of eligibility for Social Security Disability Income (SSDI) (or sooner, with some disabilities).  However, Medicare has many gaps and deductibles and the "Part B" (doctor) coverage premium is getting higher.  Someone who didn't sign up for Medicare when eligible can also face an even higher premium.  All "Medicare Savings Plans" take care of the Medicare premiums entirely! Those eligible for any of the Medicare Savings Plans are automatically  eligible for the Low-Income Subsidy for Medicare Part D (the prescription drug benefit under Medicare) -- which means no premium is paid for the standard prescription drug plan coverage, copays are small or nonexistent, and the "doughnut hole" in coverage -- where some Medicare Part D members must pay up to $3,000 or more for drugs -- does not exist.  QMB is one of the Medicare Savings Plans that ALSO pays the copays and deductibles for care from health care providers that participate in Medicaid.  Since 2009, IN CONNECTICUT there is no asset test for any Medicare Savings Plan  (in Connecticut) and no estate recovery -- no obligation to repay benefits -- from the recipient's estate at death.  In Connecticut, any single person receiving Medicare who has income of $2,563 or less (2024 figures) is eligible for QMB, and someone with as much as $2,988 can get the ALIMB Medicare Savings Plan.  And if your income is too high -- no problem, set up a special needs trust and tell the state you contribute the excess to the trust every month.  It's true!  Check for updates on the figures at www.CTElderLaw.org or the DSS FAQ.  The point is -- if an individual has Medicare, and lives in the community, (s)he may not need to worry about complying with the strict income and asset limits of the Medicaid program in order to get medical care and almost all prescriptions covered.   No more need to worry about the "spend-down" -- no more need to worry about staying under $1,600 per month.  You apply for QMB with a super-simple form:  click HERE (Word document).  If you are already on Medicaid and eligible for QMB or another Medicare Savings Plan, your case worker should automatically include that benefit, but doesn't always do it.  The point is: even if you "lose Medicaid" or get told you have a huge spenddown, if you have QMB and live in the community, you may not care that much.  Caution:  doctors CAN discriminate and decide not to accept you if they don't participate in Medicaid or even if they do but don't want to accept what the QMB pays.  The problem is that if you have QMB they are not allowed to charge more than the Medicaid rate, which for specialists will be a LOT less than the Medicare rate let alone the private rate.  ASK YOUR DOCTOR FIRST if they can still treat you if you get QMB.  If not, you may instead find it worthwhile to pay for supplemental coverage and put up with the Part B and D premiums.  Or you could tell the State you do not want QMB but just want the other lesser groups -- SLMB or ALIMB.

Tax info in article written for the Special Needs Alliance newsletter, the Voice.  I was fortunate to be asked to join the Special Needs Alliance  in 2006 - a national network of attorneys who work with special needs trusts and help disabled individuals and their families.  Later, as a contributor to Exceptional Parent magazine on behalf of the Special Needs Alliance, I was finally able to summarize my thoughts on the difficult issues of choosing a trustee for a special needs trust and taking care that you really understand what you are signing, in my article Absolute Discretion: Understanding the Trustee Provisions in Your Child's Special Needs Trust. My partner Shawn O'Sullivan and I wrote a concise summary on the way these trusts are taxed, "Taxes and Special Needs Trusts." Sign up to receive the Voice on the Alliance's website. 

A COURT DECISION, Corcoran (2004), explains how trust language can cause the trust beneficiary to lose government benefits.  This decision relies in part on a STATE LAW that has now been in effect for a few years.  The short summary:  if a trust is for someone's "support" then no matter what else the trust says, the trust will be treated as available and affect benefits.  If it doesn't say "support" and the beneficiary has no right to require the Trustee to use the funds for support or medical expenses, and the trust is not established by the beneficiary or spouse, it should not affect benefits, and can remain in place to improve the beneficiary's quality of life as discussed in my article, "How Should the Family of a Disabled Individual Design an Estate Plan?  Part I.  Good news: Another case, Pikula (2016) explains that even a pretty vague trust can let someone KEEP benefits!  (Postscript:  in 2016 another case, Pikula, used a much looser standard. Basically if the trust gives the trustee absolute discretion and makes it clear that the trustee's decisions can only be questioned on the basis of bad faith, the trust will be exempt -- even if over $200,000 -- but who knows if the court would say the same for a $2 million trust.)

CHANGE WITH RESPECT TO STATE SUPP. AND SPECIAL NEEDS TRUSTS!  In 2004 I wrote:  BAD NEWS FOR THOSE ON STATE SUPP:  Parkhurst v. Department of Social Services was a BAD CASE for someone living in a group home or "residential care home" or otherwise receiving State Supplement benefits.  The decision says that if someone sets up an "OBRA '93" payback trust -- described in my article Part II -- funding of the trust is a TRANSFER under the state supp. program and will cause a potential loss of benefits if you are already a recipient or apply within 2 years; and at the same time the trust is an AVAILABLE ASSET that may cause loss of benefits if the trust assets still remain.  This means that if you have an accident and bring a lawsuit, you may not get much benefit out of the proceeds unless the proceeds are substantial.  BUT -- in recent years DSS has CHANGED ITS MIND on the asset side. YES there is a transfer of asssets penalty if you do this while on benefits or apply wtithin 2 years.  But after 2 years you are home free.  I HAVE A LEGAL THEORY THAT COULD BE USED IF A PENALTY IS IMPOSED --LET ME KNOW IF THIS HAPPENS TO YOU.  Note: there is NOT a problem if putting excess INCOME into a pooled or special needs trust if otherwise the income would mean loss of eligibility AND if the excess income is not enough for private pay. (The 2024 cap on income is $2,829).  I wonder whether a person MIGHT transform the money into an immediate, Medicaid-qualifying annuity, and then transfer the extra income into the trust each month?  There doesn't seem to be any limit on how the money can be used. This is tricky stuff, don't try this on your own. 

DANGER:  STATE LAWS VARY WIDELY.  Before planning for a family member who lives outside Connecticut, you MUST consult a local attorney familiar with the intricacies of benefits law and trust law in that state.  What is perfect for a trust in Connecticut can be deadly in New Jersey, or Ohio.  Do not try this at home.  You can find an attorney familiar with this are of law on the website for the National Academy of Elder Law Attorneys, naela.org.  Many elder law attorneys also practice in the area of special needs trusts. 

 Connecticut's "Working While Disabled" Medicaid Program.  Also known as "SO-5" or MedConnect, this sub-category of the Medicaid program in Connecticut started in 2000 and provides another alternative to help avoid the annoying "spenddown" problem. Here's the DSS page. Under SO-5, individuals with a "disabling condition" may continue to qualify for Medicaid if they are working, even with (a) income up to $75,000 per year and (b) countable assets of up to $10,000 -- IRAs and retirement accounts DO NOT COUNT.  And your spouse's income doesn't count! However, at higher levels of income you contribute to the cost of care by paying a premium computed as 10% of income (including spousal income) exceeding 200% of the federal poverty limit.  Even self-employed individuals may qualify if they earn enough to pay self-employment tax-- $450/year. 

For further information on entitlement programs available to the disabled, send email to davis@sharinglaw.net, or write to me at the address shown.  I can only provide general information, and will not provide advice about a particular case without a formal engagement. Writing to me does not create an attorney-client relationship.

Sites and resources of interest -- click to read more.

A list of important cases, many of them relating to Supplemental Needs Trusts.

List of articles referred to on this page:

DISCLAIMER:  THIS 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 AND FINANCIAL ADVISORS BEFORE TAKING ANY ACTION. 

I can only provide general information, and will not provide advice about a particular case without a formal engagement. Writing to me does not create an attorney-client relationship.
 

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Lisa Nachmias Davis
Davis O'Sullivan & Priest LLC
Attorneys at Law
59 Elm Street, Suite 540
New Haven, CT 06510
Phone: 203-776-4400
Fax: 203-774-1060
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