An Introduction to: OBRA ‘93 Special Needs Trusts

1. An Introduction to:OBRA ‘93 Special Needs Trusts

2. When Congress enacted the Omnibus Reconciliation Act of 1993 (OBRA ‘93), it created a specific exception to the rules that normally apply to trusts. OBRA trusts share the following characteristics: Trust assets are not counted as an available resource; Transfers to OBRA trusts are not subject to transfer penalties; and, Interest or dividend income generated within OBRA trusts are not counted as income for purposes of public benefit eligibility. OBRA ‘93

3. 42 U.S.C. §1396p(d)(4)(A) OBRA ‘93 was codified in the law at 42 U.S.C. §1396p, where three specific types of trusts are found that preserve public benefit eligibility. These three trusts include: (d)(4)(A) Trusts, or “Special Needs Trusts;” (d)(4)(B) Trusts, or “Miller Trusts;” and, (d)(4)(C) Trusts, or “Pooled Trusts.”

4. (d)(4)(A) Special Needs Trusts A Special Needs Trust (SNT) must meet the following requirements: The beneficiary must be disabled as defined by law and under age 65; Only the beneficiary’s parent, grandparent, legal guardian, or a court may establish the SNT; The SNT must be irrevocable, funded with the beneficiary’s assets, be established and administered for the sole benefit of the beneficiary; and, Any funds that remain in the SNT at the beneficiary’s death must be used to reimburse the State for all medical benefits provided during the beneficiary’s lifetime. The requirement to reimburse the State is commonly referred to as a payback provision.

5. (d)(4)(B) Miller Trusts Miller Trusts are also called Income Trusts and serve a very limited purpose. They can solve income problems for benefits such as long term nursing home care. • The trust can only receive and hold income. • Except for a small personal needs allowance, all of the income received each month must be spent for the beneficiary’s care. • Any funds that remain in a Miller Trust at the beneficiary’s death must be used to reimburse the State for all medical benefits provided during the beneficiary’s lifetime.

6. (d)(4)(C) Pooled Trusts A Pooled Trust (PT) must meet the following requirements: The beneficiary must be disabled as defined by law, but there is no age limit; The PT account must be established by the beneficiary’s parent, grandparent, legal guardian, or a court, but the beneficiary may also establish the trust on his or her own behalf; The PT account must be irrevocable, funded with the beneficiary’s assets, be established and administered for the sole benefit of the beneficiary; PTs must be created and managed by a non-profit association; A separate account must be maintained for each PT beneficiary, but the trustee may “pool” the accounts for investment and management purposes; and, Any funds that remain in the SNT at the beneficiary’s death must either be retained in the trust or used to reimburse the State for all medical benefits provided during the beneficiary’s lifetime. Pooled Trusts are very similar to Special Needs Trusts, but there are some important differences

7. Third Party Trusts Third Party Special Needs Trusts are NOT OBRA Trusts, but are simply trusts that are created with funds belonging to someone other than the beneficiary. They must: Be established by someone other than the beneficiary who has no legal duty to support the beneficiary; Be funded with funds in which the beneficiary has no ownership interest; and, Contain special need provisions regarding trust distributions. Third Party Trusts may be revocable or irrevocable and can be incorporated into traditional estate planning because they do not require “payback” provisions.

8. Deficit Reduction Act of 2005Effects on Medicaid Planning The look-back period for all transfers below fair market value is now 60months, and penalties will now begin at the date of application. No rounding down for monthly gifting, and all transfers are lumped together. Annuities may no longer include balloon payments, and in most cases, they must name the State as a contingent beneficiary. Personal Services Contracts are limited and narrowly defined in some states. Home equity over $500,000-$750,000 will be a countable asset. Purchase of a life estate will be disallowed if the beneficiary is not living in the home.

9. Who Can Benefit from a Special Needs Trust? People who are disabled as defined by law Some Examples: Elderly persons who have become infirm; Nursing home residents; ALF residents; Minor children with disabilities; People with disabilities living in the community; Disabled recipients of or applicants to government assistance programs such as Medicaid or SSI; and, Recipients of personal injury settlements who need to apply for or protect, government assistance benefits.

10. How Trust Funds Can Be UsedExamples Care-Giver services Attorney fees Guardian fees Supplemental nursing care Medical procedures not provided through government assistance Tuition Transportation Purchase a home Purchase a vehicle Travel expenses Entertainment Differentials in housing costs between shared and private rooms in institutional settings Any other expense not provided by government assistance programs

11. How Professionals Benefit SNTs and PTs can provide additional resources for helping clients augment or increase the level of care and services they receive. Increasing the level of care and services ultimately translates into an additional revenue source for professionals who add value. SNTs and PTs can reduce potential liability in the decision-making process of settlement allocation.

12. TheFlorida Pooled Trust The Florida Pooled Trust was created to assist in public benefits planning across the country and to protect the interests of a vulnerable population. The end result is that beneficiaries of the Florida Pooled Trust can continue receiving public benefits for meeting essential needs and still have resources available for their special, or supplemental needs.

13. Safety and Protection With an eye toward safety, protection, and stability, the Florida Pooled Trust has been structured with an internal safety system. The Trust’s safety system consists of a check and balance system that is supported by professional money management as well as separate custodians.

14. Conclusion: Many of the previously-used public benefit planning vehicles have been eliminated. Because of the increasing complexity of public benefit programs, the use of specialized administrative professionals has become a critical consideration. Attorneys are becoming increasingly more concerned about protecting public benefit eligibility at the time a settlement is reached. Helping a client to establish a SNT or PT can alleviate that concern.

15. Who Operates The Florida Pooled Trust? The Not-for-Profit Trustee is: The Center For Special Needs Trust Administration, Inc. 4912 Creekside Drive  Clearwater, FL 33760 1-877-766-5331 www.sntcenter.org