DISABILITY BENEFITS IN THE ESTATE PLAN: PASSING THE MEANS TEST
DISABILITY BENEFITS IN THE ESTATE PLAN: PASSING THE MEANS TEST
H. Clyde Farrell
Attorney At Law
5511 Parkcrest Drive Suite 210
Austin, Texas 78731
512/323-2977
23rd Annual Advanced Estate Planning
and Probate Course
June 2-4, 1999
San Antonio, Texas
Y
Copyright 1999 by H. Clyde Farrell
H. Clyde Farrell
Attorney at Law
5511 Parkcrest Drive Suite 210
Austin, Texas 78731
512/323-2977 (Telephone)
512/453-4253 (Fax)
BIOGRAPHICAL INFORMATION
EDUCATION
J.D. Degree, The University of Texas School of Law, 1975
M.A. Degree (Political Science), The University of Wisconsin, 1971
B.A. Degree (Government), The University of Texas, 1970
Certified Financial Planner, College for Financial Planning, 1987
PROFESSIONAL ACTIVITIES
Solo Practitioner in Austin, Texas
Formerly Chief of Texas Attorney General’s Consumer Protection Division and Elder Law Section
Immediate Past President, Texas Chapter, National Academy of Elder Law Attorneys
President's Council, Family Eldercare, Inc. (Austin)
Member of the Bars of United States Supreme Court, U.S. Court of Appeals for the Fifth Circuit, U.S. District Court for the Western District of Texas, U.S. District Court for the Southern District of Texas, U.S. District Court for the Northern District of Texas, State Bar of Texas
LAW-RELATED PUBLICATIONS, ACADEMIC APPOINTMENTS AND HONORS
Co-Author (with Joe C. Fiore), Texas Consumer Law (1993), 3rd Ed.
Author/Speaker on Elder Law for Professional Education Systems, Inc. & National Academy of Elder Law Attorneys, 1995 & 1996
Author/Speaker, South Texas College of Law Wills & Probate
Institute, 1992; and State Bar of Texas Annual Meeting, 1992
Editor, Caveat Vendor (quarterly journal of the Consumer Law Section of the State Bar of Texas) (1982-84)
Author, Proof of Court-Awarded Attorney Fees in Texas Courts, 45 Tex. Bar J. 857 (July 1982); Consent to Medical Care for Minors: Who Has Authority in Texas? 42 Tex. Bar J. 25 (January 1979)
TABLE OF CONTENTS
I. INTRODUCTION 1
II. supplemental security income (ssi) 1
A. Eligibility 1
1. “Categorical” Requirements: Disability, Age 65 or over, or Blindness 1
2. Citizenship/Immigration/Residency Status 1
3. Income 2
4. Resources 4
B. Benefits 5
1. Cash Benefits 5
2. Medicaid Eligibility 5
C. Trust Rules 5
1. Third-Party-Settled Trusts 5
2. Self-Settled Trusts 6
D. Transfer Rules 7
E. Application 7
III. social security disability (ssd) 8
A. Eligibility 8
1. Work History 8
2. Disability 8
B. Benefits 8
1. Cash Benefits 8
2. Medicare Benefits 8
C. Application 9
IV. medicare 9
A. Eligibility 9
1. Eligibility at Age 65 9
2. Eligibility in Connection With Social Security and Railroad Retirement Disability Benefits 9
3. Medicare Premiums 9
B. Benefits 9
1. Hospital Services 9
2. Nursing Facility Services 10
3. Home Health Services 10
4. Hospice Services 10
5. Physician Services and Other “Part B” Benefits 10
C. Application 11
V. qualified medicaid BENEFICIARIES/specified low-income beneficiaries 11
A. Eligibility and Benefits 11
1. Qualified Medicare Beneficiaries (QMB) 11
2. Specified Low-Income Medicare Beneficiaries (SLMB) 11
3. Qualifying Individuals-1 12
4. Qualifying Individuals-2 12
B. Trust and Transfer Rules 12
C. Application 12
VI. “community MEDICAID” 12
A. Eligibility 12
1. Medicaid Linked to SSI and TANF 12
2. Medicaid for Children & Pregnant Women 12
3. “Medically Needy” Medicaid 12
B. Benefits 13
C. Application 13
VII. "LONG TERM CARE" MEDICAID 13
A. Medicaid Long Term Care Programs in Texas 13
1. Program Administration And Sources Of Law 13
2. Possibility Of Major Changes 14
3. Focus On Long Term Care 14
4. Notes On Program Terminology 14
5. Major Medicaid Long Term Care Programs in Texas 15
B. Why Become Eligible for Medicaid? 17
1. Unavoidable Impoverishment 17
2. Protection of the “Community Spouse” 17
C. Why Plan to Avoid Medicaid 17
1. The “Medical Necessity” Requirement 17
2. Possibility of Better Care 17
3. Choice of Facilities 18
4. The Client’s Values 19
D. Ethical Issues In Medicaid Representation 19
1. Identifying the Client 19
2. Avoiding Fraud 20
3. Diligent Representation 20
4. Competent Representation 21
5. Client Capacity and Gifting 21
E. Summary Of Medicaid Eligibility Requirements 21
1. Nationality and Residence 21
2. Age, Blindness or Disability 22
3. Medical Necessity for Nursing Facility Care 22
4. Income 22
5. Resources (Assets) 23
6. Medicaid Facility, Medicaid Bed 23
F. Income Requirements 23
1. Income Definitions and Exclusions 23
2. Rules Affecting Rental Income 25
3. "Spousal Impoverishment" Rules Protecting Income of the Community Spouse 26
4. Reducing Income Through a "Miller Trust" (“Qualified Income Trust”) 28
5. Rules Pertaining to Annuities 32
G. Rules Pertaining to Notes and Similar Instruments 34
1. Transferable, Secured Instrument 34
2. Transferable, Non-Secured Instrument 34
3. Non-Transferable, Non-Secured Instrument 34
H. Resource Requirements 35
1. General Definition of "Resources" 35
2. When Counted 35
3. Requirement of "Accessibility” 35
4. Co-Owned Resources Generally 36
5. Joint Bank Accounts 36
6. Trusts 36
7. Discovery of Unknown Assets 36
8. “Conversions of Resources” and “Lump Sums” 36
9. Proceeds of Insurance on Excluded Resources 37
10. Life Estates and Remainder Interests 37
11. Excluded Resources 37
I. "Spousal Impoverishment" Rules 41
1. Purpose of "Spousal Impoverishment" Rules 41
2. Eligibility for Spousal Impoverishment Rules 41
3. Limitations on Income 42
4. Limitations on Resources 42
J. Transfer ("Gifting") Rules 46
1. Nature and Purpose 46
2. Attempted "Criminalization" of Some Medicaid-Motivated Transfers 47
3. Medicaid Programs Subject to the Transfer Penalty 47
4. Only Transfers Within the "Lookback Period" Are Subject to Penalty 48
5. Certain Transfers Excepted From Penalty 48
6. Legal Capacity Requirement for Gifting 49
7. Rules for Calculating the Penalty Period 50
K. What Happens To Client Income After Eligibility 52
1. The Process Of “Determining Applied Income” 52
2. Calculation of Net Income 52
3. Unmarried Clients 52
4. Couples With Both Spouses Eligible 52
5. Spousal Impoverishment Cases 53
L. Trusts Affecting Medicaid Eligibility 53
1. General Rules on Trusts "Established By" The Client 53
2. Exceptions to General Rules Governing Trusts "Established By" The Client 55
3. Rules Affecting Trusts Not "Established By" the Client 57
M. Possible Recovery Of Medicaid Benefits From Estates Of Medicaid Recipients 59
1. Purpose and Scope of the Federal Requirement 59
2. Status in Texas 59
N. Procedural Matters In Medicaid Practice 60
1. Rulemaking by the Texas Department of Human Services 60
2. Fair Hearings 61
3. Administrative Review 61
4. Judicial Review 62
VIII. food stamps 62
A. Eligibility 62
1. Resources 62
2. Trust Rules 62
3. Transfer Rules 62
4. Income 63
5. Citizenship/Immigration Status 63
6. Work Requirements 63
B. Benefits 63
C. Application 63
IX. Temporary assistance for needy families (TANF, formerly afdc) 64
A. Eligibility 64
1. Resources 64
2. Trust Rules 64
3. Transfer Rules 64
4. Income 64
5. Citizenship/Immigration Status 65
6. Deprivation of Parental Assistance 65
7. Time Limitation on Eligibility 65
B. Benefits 66
C. Application 66
X. mhmr programs 66
A. Eligibility 66
1. Medicaid-Funded Services 66
2. Non-Medicaid-Funded Services 66
B. Benefits 67
1. Mental Health Facilities 67
2. Mental Retardation Services 67
3. Community Services 68
4. Support Services 68
C. Trust Rules 69
D. Transfer Rules 71
XI. veterans’ benefits 71
A. Disability Compensation 72
1. Eligibility 72
2. Benefits 72
B. VA Pensions 72
1. Eligibility 72
2. Benefits 72
C. Vocational Rehabilitation 73
1. Eligibility 73
2. Benefits 73
D. Health-Care Benefits 73
1. Hospital and Outpatient Care 73
2. Nursing Home & Assisted Living Care 74
3. Miscellaneous Medical Services 75
E. Application 75
XII. OTHER PUBLIC BENEFITS 75
A. Subsidized Housing 75
B. Local Medical Assistance Programs 75
C. Emergency Room Assistance 75
D. Indigent-Care Responsibilities of Hospitals 75
E. Local Nonprofit Agencies 75
F. Unlisted Agencies & Benefits 75
appendices 77
APPENDIX 1: Miller Trust (Qualified Income Trust)--Trust Instrument 77
APPENDIX 2: Miller Trust (Qualified Income Trust)--Sample Letter of Instruction to Trustee 82
APPENDIX 3: Testamentary Contingent Trust With Short-Form Supplemental Needs Provision 85
APPENDIX 4: Long-Form Testamentary Supplemental Needs Trust 87
APPENDIX 5: Inter Vivos Supplemental Needs Trust Created by Third Party 89
APPENDIX 6: Application to Create 142 Trust 92
APPENDIX 7: Order Creating 142 Trust 94
APPENDIX 8: Trust Instrument for 142 Trust 96
APPENDIX 9: Application for Guardianship and/or Creation of Guardianship Management Trust (867 Trust) 100
APPENDIX 10: Application for Creation of Guardianship Management Trust (867 Trust) With Supplemental Needs Provisions 103
APPENDIX 11: Order Creating Guardianship Management Trust (867 Trust) With Supplemental Needs Provisions 106
APPENDIX 12: Application for Creation of 867 Trust in Existing Guardianship 108
APPENDIX 13: Order Creating 867 Trust in Existing Guardianship 110
APPENDIX 14: Trust Instrument for Guardianship (867) Trust 112
APPENDIX 15: Under-65 Supplemental Needs Trust Created by Parent or Grandparent 116
APPENDIX 16: Third-Party-Funded Supplemental Needs Trusts--A Multiple-Trust Approach 121
APPENDIX 17: Summary of Public Benefits Financial Eligibility Requirements in Texas 153
APPENDIX 18: Calculation of "In-Kind Support" Income by SSI (& Other Planning Issues) 154
APPENDIX 19: Calculation of Increased Protected Resource Amount 169
APPENDIX 20: Texas Department of Mental Health and Mental Retardation Fee Guidelines 170
APPENDIX 21: Limits On Eligibility Of Aliens For Public Benefits 178
APPENDIX 22: Comparison of 142 Trusts, 867 Trusts and Guardianships 180
APPENDIX 23: Selected Bibliography 183
Nothing contained in this publication is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This publication is intended for educational and informational purposes only.
DISABILITY BENEFITS IN THE ESTATE PLAN: PASSING THE MEANS TEST
INTRODUCTION
This is an overview of the most significant public benefits for persons with disabilities. It is intended to assist attorneys and other benefits counselors to identify the major benefits to which disabled clients may be entitled. Particular attention is paid to rules relating to trusts and transfers of assets, to assist attorneys with estate planning for family members and with planning for dispositions of personal injury awards, inheritances and other assets of disabled persons.
supplemental security income (ssi)
1 Eligibility
1 “Categorical” Requirements: Disability, Age 65 or over, or Blindness
1 Disability
For an adult, the disability requirement is the same as for Social Security Disability (discussed at II. below): the client must be unable to engage in any substantial gainful activity because of a medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of at least 12 months. 42 U.S.C.A. §1382c(a)(3)(A); 20 C.F.R. §416.905.
This is a very tough standard, compared to the standards of most disability insurance policies and compared to many clients’ expectations. For example, it rules out benefits in the following cases:
The client is partially but not totally disabled.
Although unable to do his or her previous job (e.g., teaching or driving a truck), the client is able to do a much lower-paying job (e.g., assembly-line work)
Although no work is available to the client in the area where he or she lives, it is available somewhere else in the United States.
Effective August 22, 1996, a child under age 18 is considered disabled if she or he has a medically determinable physical or mental impairment that meets the adult definition above and that, in addition, results in “marked and severe functional limitations.” 42 U.S.C.A. §1382c(a)(3)(H). The regulations define a “marked limitation” to mean, “...when several activities or functions are impaired, or even when only one is impaired, as long as the degree of limitation is such as to interfere seriously with the ability to function (based upon age-appropriate expectations) independently, appropriately, effectively, and on a sustained basis.” 20 C.F.R. Part 404 Subpart P, Appendix 1, Part B §112.00C.
2 Blindness
Total blindness is not required. The requirement is for central vision acuity of 20/200 or less in the better eye with the use of correcting lenses. 42 U.S.C.A. §1382c(a)(1)(A); 20 C.F.R. §§416.801 through 416.806.
3 Age
A person age 65 or over who meets the other eligibility requirements is eligible for SSI.
Practice Note: It is quite common for persons age 65 and over to meet the SSI requirements and not know it. In addition to an income subsidy, SSI eligibility carries with it Medicaid benefits, which are vastly superior to Medicare benefits as discussed below.
2 Citizenship/Immigration/Residency Status
1 Residency
The client must be a resident of one of the 50 states of the United States, the District of Columbia, or the Northern Mariana Islands. Puerto Rico residents do not qualify. 20 C.F.R. §416.1603(b)(c). Absence from the United States for 30 consecutive days disqualifies, and the client cannot regain qualification until he or she has again resided in the United States for at least 30 days. 42 U.S.C.A. §1382(f); 20 C.F.R. §416.215.
2 Citizen or Entitled Alien
A U.S. citizen, either by birth in the United States or by naturalization, always meets this requirement.
An illegal immigrant never meets this requirement. 8 U.S.C. §§1611(a), 1641.
A person who is a permanent resident alien, an asylee, a refugee, a person paroled into the U. S. for at least a year, a person whose deportation is withheld for certain reasons, or a person granted conditional entry is a “qualified” alien potentially eligible for SSI, if he or she meets any of the following requirements:
Entered the United States before August 22, 1996. (An alien entering the U. S. on or after that date is ineligible unless he or she falls into one of the categories below.)
An asylee, refugee or person whose deportation is withheld, for the first 7 years after being granted that status; or for the first 7 years, a Cuban, a Haitian, an Amerasian, certain Native Americans from Canada, and the noncitizen children of a battered parent
Active duty troops, their spouses, their unremarried surviving spouses, unmarried dependent children, and honorably discharged veterans meeting the minimum service requirement (generally, 24 months active duty)
Persons who have earned 40 qualifying quarters of Social Security coverage, or who can be credited with such quarters due to the work of a parent or spouse under certain specified rules. 8 U.S.C. §1612.
The general prohibition on benefits for aliens is also subject to the following important exceptions:
Legal immigrants who were receiving SSI as of August 22, 1996 continue to be eligible
Immigrants who were legally in the United States on August 22, 1996 retain their potential SSI eligibility (i.e., they are not subject to the “qualified alien” rules summarized above, which in effect apply only to persons who were not legally in the United States on August 22, 1996.).
8 U.S.C. §1612(a)(2)(E),(F).
Aliens receiving SSI only because of the August 22, 1996 exceptions are not eligible for food stamps. 8 U.S.C. §1612(a)(1), §1612(a)(2)(E),(F). However, all aliens receiving SSI are eligible for Medicaid. 8 U.S.C. §(b)(2)(F).
See Appendix 21 for a chart summarizing the new limits on eligibility of aliens for numerous types of public benefits.
Practice Note: When reading summaries of the complex new alien-exclusion rules regarding SSI eligibility, it helps to bear in mind that as of this writing, the exceptions for legal residents of the U.S. on August 22, 1996 make unnecessary the application of the harsh and potentially difficult “qualified alien” rules. However, the latter rules will become increasingly important in the future, as more potential applicants enter (or re-enter) the U. S. after August 22, 1996. It is also important to remember that none of these rules apply to aliens who become naturalized citizens, which most can do after 3 years of U.S. residency (if married to a U.S. citizen) or 5 years (otherwise). See 8 U.S. C. §1423 et seq. Note especially that the requirements for speaking English and knowledge of U.S. history and government do not apply to “any person who is unable because of physical or developmental disability or mental impairment to comply therewith.” 8 U.S. C. §1423(b)(1).
3 Income
1 General Rule
An unmarried person must have less than $500 per month of countable income in 1999. A married couple can both be eligible if their countable income totals less than $750. Because the first $20 of income is not counted, these numbers are sometimes expressed as $520 and $770, respectively. These numbers change with inflation on January 1 of each year.
“Income” is defined generally as cash (or property readily convertible to cash), food, clothing or shelter. Unlike the income tax rules, the SSI rules count even gifts as “income.” This general rule is subject to a long list of exclusions that can be important in some cases. 20 C.F.R. §416.1103.
Additional important exclusions applying to “earned” income and “unearned” income, respectively, are discussed next below.
2 Rules applying to earned income
Earned income is defined as gross wages of an employee (without deductions for taxes, insurance, etc.), and net earnings from self-employment (after deduction of business expenses but also without deductions for taxes, insurance, etc.).
The following are excluded from countable earned income:
The first $65 plus one-half of remaining earned income each month
Certain federal assistance payments (including food stamps)
$10 per month of infrequent income
Certain additional exclusions for blind and disabled persons (including, for example, work expenses due to disabilities)
The general $20 per month exclusion, to the extent it has not been taken against unearned income
42 U.S.C.A. §1382a(a); 20 C.F.R. §§416.1102, 416.1110, 416.1112
3 Rules applying to unearned income
“Unearned” income is all income that is not earned, including without limitation annuities, pensions, alimony, support, dividends, life insurance proceeds, prizes, gifts and inheritances. 42 U.S.C.A. §1382a(a)(2); 20 C.F.R. §416.1120.
Important exclusions from unearned income include most federal payments (for example, food stamps), up to $20 per month of irregular or infrequent income, one-third of child support payments, and certain special VA payments (though VA pensions count as income). Because the list of exclusions is quite lengthy, it should always be consulted. 42 U.S.C.A. §1382a(b); 20 C.F.R. §416.1124.
4 “In-kind support and maintenance”
This term refers to food, clothing and shelter furnished or paid for by someone other than the SSI applicant. In general, because it is counted as unearned income, it reduces benefits dollar-for-dollar. However, a much better result for the client can be obtained by applying some important rules applicable only to this kind of “income”:
One-Third Reduction Rule: If the client is living in the household of another person who is providing both food and shelter, the client’s SSI benefit will be reduced by 1/3 of the monthly federal benefit rate (maximum payment). In 1999, that amount is 1/3 X $500 = $166.67. (Another way of viewing it is that $166.67 will be counted as income, in addition to any other countable income the client may have.) 20 C.F.R. §416.1131.
Presumed Value Rule: If the One-Third Reduction Rule does not apply, and the client is furnished any food, clothing or shelter by someone else, the agency presumes that the value of whatever is furnished is 1/3 of the federal benefit rate plus $20--that is, in 1999, $166.67+ $20.00 = $186.67. This presumption is rebuttable--that is, by showing that the actual value of what is furnished is less than $186.67, the client can have his or her income reduced by the actual value rather than the full $186.67.
Exception: If the SSI beneficiary lives in the household of someone part of whose income is "deemed" to the beneficiary, then any support provided is not treated as income. 20 C.F.R. §416.1148. For example, some income of a parent of a child under age 18 is deemed to the child, so the parent's provision of food, clothing and shelter does not result in a reduction of the child's SSI payment. 20 C.F.R. §416.1160 et seq.
In many situations it is impossible for a disabled person to live on $500 per month. Therefore, it can be critical to the client’s health and safety to apply the following planning techniques, which further protect the client from the harshness of the general rule that in-kind maintenance and support counts as “income”:
Business Arrangement: As long as the client pays a pro rata share of the actual cost of food and shelter, there is no reduction in benefits, and no food or shelter value counts as income. 20 C.F.R. §416.1130(b), 416.1133. Simply by keeping records of household expenses and having the SSI-eligible person pay his or her share, the total household income can in this way be increased by exactly $166.67. This can also allow a person with irreducible income (for example, from Social Security Disability) to achieve eligibility that would otherwise be impossible.
Pay 1/3 FBR to Landlord: Under a recent settlement agreement, the Social Security Administration agreed to apply in Texas a rule previously applied only in the Seventh Circuit--that a “business arrangement” will be deemed to exist whenever the rent paid equals or exceeds the presumed value ($186.67 in 1999). Therefore, even if the fair market value of the rent is $500, there will be no income attributed to a rent subsidy, so long as the client pays at least $186.67 to the landlord. In this way, a parent or other family member (or anyone) can subsidize an SSI recipient’s rent--including even other “shelter” expenses such as electricity, gas, water, sewerage and garbage collection--without reducing the monthly SSI payment to the client. 20 C.F.R. §1130(b); see settlement agreement in C. A. No. 3:95-CV-1817-X, Diaz v. Chater (N.D. Tex. 1996), unreported agreed order.
Practice note: The full effect of the Diaz settlement is only beginning to be felt, as advocates realize the importance of this technique. This will be especially helpful if it can be applied in a case in which a supplemental needs trust leases or subleases a house or apartment to the beneficiary in exchange for $186.67 per month. To my knowledge, the Administration has not yet decided such a case.
Appendix 18 illustrates how SSI benefits can be optimized through full use of the "In-Kind Support and Maintenance" rules.
A simple and powerful technique where a supplemental needs trust is involved is to have the trust provide all food, clothing and shelter, in exchange for reducing the SSI payment by $186.67 per month, under the "presumed value rule." In addition, the trust can make unlimited payments to the providers of "supplemental" needs. In this arrangement, the only thing the trust cannot do for the beneficiary is to pay cash to him or her. The beneficiary then has $500.00 - $186.67 = $313.33 per month in cash from SSI to spend as she or he wishes, with Medicaid paying (usually) all medical needs and the trust paying everything else.
5 Deeming of income
The income of an SSI client is “deemed” to include some of the income of persons related to the client. For specific rules, see 20 C.F.R. §§416.1160-416.1169. The relationships that give rise to deeming are summarized as follows:
Ineligible spouse living in the same household
Ineligible parent, or parent’s spouse, living in the same household with a client under age 18
Sponsor of a client who is an alien--i.e., someone who signed an affidavit of support for the alien’s admission to the U.S. Certain limitations and exceptions apply.
4 Resources
1 General rule
An unmarried individual seeking SSI is limited to $2,000 in countable resources (assets). A married couple can have no more than $3,000 in countable resources for either one or both to be eligible for SSI.
2 Definition of “resources”
Resources include cash, other liquid assets, and any real or personal property that the client or spouse owns and can convert to cash. The important exclusions include the following:
Entire value of the client’s residence, without limit, including all contiguous acreage. Leaving the residence for nursing home care or other institutionalization does not preclude exclusion of the residence, so long as there is a subjective intent to return.
Household goods up to $2,000 in value
An automobile with a wholesale value not exceeding $4,500; or of unlimited value if used for necessary medical transportation or employment, or if specially modified for operation by or transportation of a disabled person, or if necessary because of climate, terrain, distance, or similar factors to perform essential daily activities.
See 20 C.F.R. §416.1210 for a complete listing of these and other important exclusions.
3 Deeming of resources
The following resources of others are deemed to the client:
All resources of the claimant’s spouse living in the same household
Resources of the claimant’s single parent in excess of $2,000, or parent and spouse together in excess of $3,000, if the claimant is under age 18 and living in the same household with a parent.
Certain resources of an alien’s sponsor
20 C.F.R. §416.12012.
2 Benefits
1 Cash Benefits
An eligible person with no other income receives the monthly “federal benefit rate” in 1999 of $500 (if single) or $750 (for a married couple with both spouses eligible). Countable income reduces the amount of cash benefits dollar-for-dollar (but see the discussion of eligibility above for a summary of what is “countable.”)
2 Medicaid Eligibility
SSI beneficiaries are automatically eligible for the comprehensive medical benefits of the Medicaid program. These benefits are often more important than the cash benefits. They are the “Community Medicaid” benefits discussed below.
3 Trust Rules
1 Third-Party-Settled Trusts
These are trusts whose assets are contributed by someone other than the SSI beneficiary. Typically, they are created by parents or other family members of disabled persons, who are made beneficiaries. They may be created in wills (testamentary trusts) or by transfers during lifetime (inter vivos trusts).
So long as the beneficiary does not have the legal authority to revoke the trust or direct the use of the trust assets for his or her own support and maintenance, the trust principal is not the beneficiary’s resource for SSI purposes. Program Operations Manual System §01120.200D. A trust that obligates the trustee to provide for the support of the beneficiary may not protect the assets under this rule, because the beneficiary can sue the trustee to require distributions for support.[1] However, a “supplemental needs trust” directing the trustee to supplement and not supplant public benefits will protect the assets. Likewise, a trust giving the trustee absolute discretion to decide how the assets will be used will not be treated as the SSI beneficiary’s property. See Regan, Morgan & English, Tax, Estate & Financial Planning for the Elderly §19.14 (Matthew Bender, Looseleaf).
Practice Note: Providing for such trusts should be seriously considered in any estate plan involving a disabled beneficiary. Although support trusts can sometimes be reformed judicially, that process should be avoided if at all possible. Likewise, an inheritance by a disabled person may usually be transferred into a self-settled trust, but that involves providing for a remainder to the Medicaid program in order to preserve Medicaid benefits. Use of such trusts is often an excellent alternative to disinheriting a disabled child, for example, just to avoid loss of benefits.
Appendix 3 is a form for a testamentary contingent trust to avoid loss of eligibility of a person who but for the distribution would be eligible for disability benefits (such as SSI and Medicaid). This is simply an extension of a contingent trust form commonly used to avoid the need for a guardianship to manage assets for a minor or an incapacitated adult. In addition to avoiding a guardianship, this forms avoids the loss of benefits; and it does so for an adult who although not mentally incapacitated, is "disabled" within the meaning of the SSI law.
Appendix 4 is a long-form testamentary supplemental needs trust.
Dallas attorney Renée Lovelace has worked with many families who seek to plan for family members with serious disabilities, and has concluded that in most cases two trusts are needed in order to provide adequate flexibility and protection of the trusts. Her approach is addressed in Appendix 16.
2 Self-Settled Trusts
If an SSI beneficiary transfers his or her own property into a trust of which he or she is beneficiary, additional problems are raised. First, because such a trust is considered revocable if the settlor is the only beneficiary with a vested interest, it is necessary to name one or more vested remainder beneficiaries in order to make the trust irrevocable. Program Operations Manual System §01120.200D; Seguin State Bank & Trust v. Locke, 102 S.W.2d 1050 (Tex. Comm. App. 1937).
The second problem is that even if the trust meets SSI requirements, the beneficiary will risk losing the SSI-linked Medicaid benefits unless the trust also provides for a remainder to the Medicaid program, as required by 42 U.S.C. §1396p(d)(4)(a),(c). Social Security officials in Texas currently consider the trust to be irrevocable if the Texas Department of Human Services is designated as a “vested remainder” beneficiary. However, in case the Social Security Administration in some other regions may not find that sufficient, it is prudent also to designate specific named persons (not simply “heirs at law”) as vested remainder beneficiaries.
Practice Note: These rules usually come into play when an SSI beneficiary anticipates recovering a sum of money in a lawsuit, such as a personal injury case, or when he or she receives money or property through inheritance. If a trust is not utilized and SSI and Medicaid benefits are lost, the money or property may be used up quickly and the beneficiary returned to a status of poverty before again being eligible for benefits. With a trust, there is an incentive to recover and use carefully the money or property, and it can last much longer if it merely supplements the public benefits.
Appendices 6 through 8 are forms for establishing a trust created by a trial court with a judgment or settlement belonging to a person under age 65, to avoid disqualification for SSI, Medicaid and other public benefits. The forms in Appendices 9 through 14 accomplish the same purpose where there is a guardianship. Both forms include the "payback" provision required by Medicaid law at 42 U.S.C. §1396p(d)(4)(a), discussed further under the "Long Term Care Medicaid" heading below. Finally, the form in Appendix 15 is for assets of a beneficiary with capacity to accomplish the transfer to a similar trust, which can only be "created" under the Medicaid law by a parent or grandparent.
An additional option is provided by The Association for Retarded Citizens, which has recently developed a “pooled trust” as authorized by 42 U.S.C. §1396p(d)(4)(c) that meets the requirements discussed above for a self-settled Medicaid trust. This can apparently be used pursuant to an order in a guardianship case under Probate Code §867. It may be more problematic if the order is from a trial court because of the requirement of Property Code §142.005(b)(1) that the minor or incapacitated person be the "sole beneficiary of the trust;" but it would seem that a "subaccount" in the pooled trust should considered the functional equivalent of a trust with a single beneficiary, as the "pooling" is for investment purposes only. For more information, call the ARC at 800/252-9729 (454-6694 in the Austin area).
The ARC trust offers an attractive combination of low fees and administration by persons knowledgeable about the needs of persons with disabilities and the programs that serve them. It can also be utilized for assets of persons other than the beneficiary (such as testamentary gifts, by advance arrangement), in which case there is no "payback" provision.
At this writing (May 5, 1999), a trust created under either Property Code §142.005 or Probate Code §867 must have a corporate trustee. However, legislation has been introduced to remove this requirement. It is not expected to pass as to a trustee appointed under §142, but H.B. 3632, which would remove this requirement under §867 (in guardianships), has a reasonable chance of passage.
This outline does not discuss fully all the procedural rules applicable in establishment of court-created trusts. For more complete discussions, see Deborah A. Green, Special Trusts: §§867, 142, 1396 Supplemental Needs Trusts- When and How to Use Them, State Bar of Texas Advanced Estate Planning and Probate Law Course, 1998 (available for downloading at ); Kathleen A. Miller, Third Party Recovery: The Right to Recover and Defending the Recovery Action, State Bar of Texas Elder Law Institute, 1996; and Glenn M. Karisch, Court-Created Trusts, State Bar of Texas Advanced Drafting: Estate Planning and Probate Course, 1995 (available for downloading at )
4 Transfer Rules
Unlike the “Long Term Care” Medicaid rules, the SSI rules do not penalize a transfer of assets for less than adequate consideration. 20 C.F.R. §416.1246. Because “Community Medicaid” is linked to SSI, one can satisfy the resource requirements for those programs by transferring all but $2,000 of their countable assets and applying immediately. Such a transfer will still be penalized, however, if they later have a need for long term care Medicaid before the penalty period has run. Also, as of this writing (early May 1999), legislation is pending in Congress to provide for a transfer penalty, as well as for restrictions on trusts similar to those in the Medicaid law.[2]
5 Application
Filing of an application is required, and entitlement to cash benefits cannot begin until the application is filed. However, entitlement to Medicaid can be retroactive to the first day of the third month before the month in which the application is filed, if all other requirements for eligibility are met at that time.
Although filing of a written application is required, this form is filled out and mailed to the applicant after an oral interview with a Social Security representative. To arrange the interview, call your local SSA office or call 1-800-772-1213 or TTY 1-800-325-0778. Additional information is available at the Social Security website at .
social security disability (ssd)
1 Eligibility
1 Work History
Coverage depends upon the client’s having paid Medicare taxes on sufficient income during certain time periods to meet the legal requirements. Generally, a person satisfies the work history requirement if he or she has had significant employment under the Social Security system for at least 10 years, and if the person has had such employment for at least 20 of the 40 preceding quarters. Persons who are disabled under age 31 are eligible with less work experience; and those who are disabled due to blindness need meet only the 10-year work requirement.
The mind-numbing formulas for determining this are beyond the scope of this outline. The practical approach in the event of a disabling condition is to apply for benefits, then in the event of a denial based on work history, compare carefully the Social Security summary of work history to what the client reports, and apply those particular rules that appear to affect that client.
For the purpose of long-range planning, ensuring that all the client’s actual work history is credited to him or her is a good reason to advise the client to send in Form SSA-704-SM-OP1. Erroneous denials of benefits based on incomplete work records of the Social Security Administration are not unusual, and the earlier the omissions are caught, the better the chance of correcting them. 42 U.S.C.A. §405(c)(5).
2 Disability
The client must be unable to engage in any substantial gainful activity because of a medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of at least 12 months. 42 U.S.C.A. §423(a)(1). See the SSI section above for a brief discussion of the meaning of this standard.
There is a waiting period of 5 months before benefits may begin.
Recent rules limit substantially the availability of benefits to claimants whose drug addiction or alcoholism is a factor material to the determination of disability. 20 CFR §§ 404.315, 404.316, 404.321, 404.332, 404.335, 404.337, 404.350, 404.352, 404.402, 404.470, 404.480, 404.902, 404.1535, 404.1536, 404.1537, 404.1538, 404.1539, 404.1540, 404.1541.
2 Benefits
1 Cash Benefits
Amount of monthly payments is determined by a complex formula based on contributions to the Social Security system. To obtain an estimate of a particular person’s benefits, have them fill out and sign Form SSA-704-SM-OP1.
Eligibility for and amount of benefits does not depend on amount of income from other sources. Even the wealthiest Americans qualify, if they meet the contribution, disability and other requirements.
The cash benefits cannot be waived or assigned. This rule is sometimes greatly to the disadvantage of lower-income beneficiaries, who may be disqualified from receiving SSI and Medicaid by Social Security Disability benefits slightly over the SSI income limits. This precludes their receiving the immediate and more comprehensive Medicaid benefits that go along with SSI (Medicaid has no 2-year wait, as usually happens with the Medicare benefits attached to Social Security Disability; plus Medicaid has no deductibles or copayments, and prescription drugs are included.
2 Medicare Benefits
Most recipients of Social Security Disability benefits have to wait 24 months from date of onset of disability to be eligible for Medicare benefits. 42 U.S.C.A. §1395c; 42 C.F.R. §406.12(a). However, persons with end-stage renal disease (e.g., kidney failure) are eligible for Medicare Part A (hospital insurance) after 3 months from the beginning of dialysis. (The 3-month waiting period is waived in certain cases.) 42 U.S.C.A. §1395c; 42 C.F.R. §406.13(c).
See IV.B. below for a summary of Medicare Part A and Part B benefits.
3 Application
Filing of an application is required, but in the case of Social Security Disability benefits, the client may recover retroactive benefits up to 12 months before the date of filing the application. 20 CFR § 404.621.
Although filing of a written application is required, this form is usually filled out and mailed to the applicant after an oral interview with a Social Security representative. To arrange the interview, call your local SSA office or call 1-800-772-1213 or TTY 1-800-325-0778.
medicare
1 Eligibility
1 Eligibility at Age 65
Most Americans become eligible for Medicare at age 65. Because there is no “means test,” even the wealthiest are eligible. All who are eligible for Social Security retirement benefits or for railroad retirement benefits become eligible for Medicare at age 65, regardless of whether they begin receiving the monthly payments before, at or after age 65. 42 U.S.C. §1395c; 42 C.F.R. §406.10(a). Dependents and survivors of an insured worker are also entitled to Medicare. 42 C.F.R. §406.10(a)
There is a requirement of working a certain number of quarters in a job covered by Medicare. This is usually satisfied by 40 quarters (10 years) of covered employment.
Even persons age 65 or older who are not automatically eligible through covered employment can become eligible for Medicare by paying the required premiums. 42 C.F.R. §§406.20 through 406.26.
2 Eligibility in Connection With Social Security and Railroad Retirement Disability Benefits
After 24 months of entitlement to receive cash payments of Social Security Disability or Railroad Retirement Disability benefits, beneficiaries are also entitled to Medicare benefits. 42 U.S.C. §1395c; 42 C.F.R. §406.12(a). However, persons with end-stage renal disease qualify for Medicare after a 3-month waiting period (which may sometimes be waived). 42 U.S.C. §1395c; 42 C.F.R. §406.13(c).
3 Medicare Premiums
Persons eligible for Medicare in connection with Social Security or Railroad Retirement benefits pay no premium for Medicare Part A. Persons who are not so eligible and who purchase Part A voluntarily must pay a premium of $309 per month in 1999. However, persons who meet the income and resource requirements for the QMB program (discussed at IV. below) are eligible to have that program pay the Medicare Part A premium (in addition to the Part B premium) if one is required.
All persons eligible for Medicare Part A are also eligible for Medicare Part B but must pay a premium for Part B ($45.50 per month in 1999). This premium can be paid through the QMB and SLMB programs (See below) for eligible beneficiaries.
2 Benefits
Medicare is divided into Part A (primarily hospital and very limited nursing home benefits) and Part B (primarily physicians, tests, medical equipment, etc.). It can be important to know whether a particular service is covered under Part A or Part B, because they have different appeal procedures.
Effective January 1, 1998, a new “Part C” (called “Medicare+Choice”) became available, to allow beneficiaries to elect various combinations of managed care and private-pay service delivery. 42 U.S.C. §1851 et seq. Because it has not been implemented in Texas as of the time of this presentation, Part C is not covered in these materials.
1 Hospital Services
Part A covers inpatient hospital services, posthospital extended-care services, home health services, and hospice services. Hospital coverage is for 90 days per spell of illness, plus a lifetime reserve of 60 days of hospital care.
In 1999, the beneficiary must pay a deductible of $768 for Part A inpatient hospital services provided during the calendar year. There is also a requirement of a copayment of $192 per day for days 61 through 90 in a hospital, and $384 per day for days 91 through 150.
2 Nursing Facility Services
This coverage includes up to 100 days in a skilled nursing facility if all the requirements are met, including the following:
Care must be “skilled care” (not “custodial” or “intermediary”) needed, “as a practical matter,” in an inpatient facility on a daily basis.
The nursing facility stay must be preceded by a hospital stay of at least three consecutive days, not counting the day of discharge.
Admission to the nursing facility must occur within 30 days after discharge from the hospital, unless it would be medically inappropriate.
42 U.S.C. §1395d(a)(2); 42 C.F.R. §409.61.
Even during the 100 days of nursing facility coverage, Medicare pays the full cost for only the first 20 days. For days 21 through 100, there is a copayment of $96.00 per day, which in many cases exceeds the private-pay cost of the services in Texas. However, the copayment is usually (but not always) covered by Medicare Supplement insurance, if there is any, or by the Qualified Medicare Beneficiary program for eligible clients.
3 Home Health Services
Under the Balanced Budget Act of 1997, home health services are being transferred in stages from Part A to Part B. In 1999, Part A still covers the first 100 visits per spell of illness; but Part B then covers an unlimited number of visits. 42 U.S.C. §1395d. In any case, the following requirements exist for Medicare home health services:
Confinement to a home that is not a hospital or nursing facility (“homebound”)
Under care of a doctor who establishes the care plan
In need of intermittent skilled nursing care, physical or speech therapy, or occupational therapy.
Services provided by or through a Medicare-certified home health agency
For Part A coverage, home health services must have begun within 14 days of discharge from a hospital stay lasting at least 3 days. However, Part B covers home health if this requirement is not met.
42 U.S.C. §§1395f(a)((2)(C), 1395x(m); 42 C.F.R. §409.42.
4 Hospice Services
Medicare Part A includes fairly comprehensive services for supportive and palliative assistance for terminally ill beneficiaries who elect hospice coverage. The following requirements apply:
Medical determination of terminal illness, that is, a life expectancy of six months or less
Waiver of Medicare coverage that would include efforts to cure the terminal condition
The beneficiary is entitled to two 90-day periods of hospice care and an unlimited number of subsequent periods of 60 days each. The election for hospice care may be revoked at any time. 42 U.S.C. §1395d; 42 C.F.R. §418.28.
5 Physician Services and Other “Part B” Benefits
Medicare Part B includes physicians’ services, diagnostic tests, medical equipment, ambulance services, outpatient physical and speech therapy, certain limited prescription drugs, and certain preventative services. 42 U.S.C. §1395k(a); 42 C.F.R. §410.10.
The Medicare Part B premium is $45.50 per month in 1999, and the Part B deductible for the calendar year is $100. Both payments may be made by the State for persons eligible under the Qualified Medicare Beneficiary (QMB) program, and the Part B premium may be paid under the Specified Low-Income Beneficiary (SLMB) program, discussed below.
In addition, Part B requires a copayment of 20% of the Medicare-approved charge. This copayment can also be paid by the QMB program for eligible beneficiaries. A provider who “accepts assignment” can bill no more than 20% of the Medicare-approved charge, plus the $100 annual deductible. One who does not accept assignment can also bill for an additional amount, not to exceed 15% of the approved charge.
Medicare supplement insurance and Health Maintenance Organizations pay varying amounts of the Medicare copayments and deductibles; and HMO’s sometimes provide non-covered items, such as comprehensive prescription medications.
3 Application
An individual will be automatically enrolled in Medicare in three situations:
Already receiving Social Security or Railroad Retirement benefits at age 65
Has received Social Security Disability benefits for 24 months; or
Applying initially for Social Security or Railroad Retirement benefits at age 65
If a Medicare card does not arrive after the above events, or if the person becomes eligible in other situations (for example, disabled beneficiary with end-stage renal disease or retiree not applying for Social Security retirement until after age 65), an application for Medicare should be filed at the local social Security office. If the application is not filed within certain time periods, eligibility may be lost.
It may also be necessary to take action to preserve the right to obtain benefits through an appeal, after eligibility is established. If the provider denies coverage, the beneficiary has a right to require the provider to submit a claim for Medicare reimbursement. Otherwise, there is no decision from which to appeal. 42 C.F.R. §405.704; Home Health Agency Manual §265.1. Meanwhile, however, the client must arrange to pay privately for the services, if they are to be provided pending appeal. The effect of a successful appeal, then, is usually to reimburse the client for payments made pending appeal.
qualified medicaid BENEFICIARIES/specified low-income beneficiaries
Under these programs, the State pays for Medicare premiums, and sometimes deductibles and copayments, of low-income Medicare beneficiaries.
Comment: These are oft-overlooked programs that can be essential to the well-being of low-income persons not eligible for Medicaid’s more comprehensive benefits.
1 Eligibility and Benefits
1 Qualified Medicare Beneficiaries (QMB)
State Medicaid programs are required to pay Medicare Part A and B premiums, copayments and deductibles for persons whose incomes are below the poverty line and whose assets are at or below twice the SSI resource limit.
The resource limit has not changed for many years: 2 X $2,000 = $4,000 for an individual and 2 X $3,000 = $6,000 for a couple.
The income limit for 1999 is $707 per month for an individual and $942 per month for a couple (including the $20 per month that is "exempt").
2 Specified Low-Income Medicare Beneficiaries (SLMB)
The SLMB program requires states to pay the Medicare Part B premiums ($45.50 per month in 1999) of Medicare beneficiaries who meet the resource requirements for QMB and whose incomes are more than the poverty level but less than 135% of that level.
Individuals with monthly incomes greater than $707 and less than $844, and couples with monthly incomes greater than $942 and less than $1,126, are eligible.
3 Qualifying Individuals-1
This program also pays the Medicare Part B premium. The only difference is that it is available only to persons who re not certified for any other Medicaid funded program in the same month. It is available to individuals with monthly incomes greater than $844 and less than $947; and couples with monthly incomes greater than $1,126 and less than $1,265.
4 Qualifying Individuals-2
This program pays only $2.23 per month toward the Medicare Part B premium. It is available to individuals with monthly incomes greater than $947 and less than $1,222; and couples with monthly incomes greater than $1,265 and less than $1,633. It requires annual reapplication. It is expected to be of greater importance in future years, when the Part B premium is expected to increase sharply, and this program will reduce or eliminate the increase for moderate-income beneficiaries.
2 Trust and Transfer Rules
Because QMB and SLMB are Medicaid programs, the same trust and transfer rules apply to them as to the “Community Medicaid” programs. That is, in general, the assets of third-party supplemental needs trusts are not counted; nor are the assets of self-settled trusts if they are settled by persons under age 65, have a remainder to the Medicaid program, and meet the other requirements of 42 U.S.C. §1396p(d)(4)(a),(c). There is no transfer penalty, though transfers for this purpose may affect eligibility for “Long Term Care” Medicaid. A "Miller Trust" cannot be used to qualify persons with excess income, as it can for most "Long Term Care Medicaid" programs.
3 Application
Application is made to the Texas Department of Human services (not Social Security).
“community MEDICAID”
The term “Medicaid” applies generally to all benefits provided under Title XIX to the Social Security Act, codified at 42 U.S.C. §1396 et seq. It includes a host of programs sometimes referred to as “long term care Medicaid,” which are discussed at VII. below. This part will cover only programs sometimes called “community Medicaid,” which are available to disabled persons and some others who are not residents of nursing homes or receiving other long term care services.
1 Eligibility
1 Medicaid Linked to SSI and TANF
Most “community Medicaid” beneficiaries receive their Medicaid automatically because they qualify for Supplemental Security Income (SSI) (discussed at I above) or Temporary Assistance for Needy Families (TANF) (formerly AFDC, discussed at VIII. below). For such clients, requirements for Medicaid eligibility are the same as for SSI or TANF, so no further discussion is required here.
2 Medicaid for Children & Pregnant Women
Certain low-income children and pregnant women are eligible for Medicaid although they are not eligible for TANF. Eligibility information is at 40 T.A.C. Chapter 4.
3 “Medically Needy” Medicaid
Persons who are members of eligible groups may obtain Medicaid coverage, even though their income exceeds the TANF income levels. Essentially, they are required to “spend down” any income they have that exceeds the medically needy income allowance, by applying that part of their income to their medical bills. The remaining part of their medical expenses, which may be quite substantial, is paid by Medicaid. 40 T.A.C. Chapter 2; 42 U.S.C. §1396d(a); 42 C.F.R. §435.301(b).
The following are groups potentially eligible for this benefit:
Certain pregnant women
Children under 18 whose families meet the $1,000 resource limit but whose family income exceeds the TANF income limits;
Foster children in DHS conservatorship
Adult caretakers of dependent children who meet all TANF eligibility requirements, except for income (or they are sanctioned under the TANF program)
Second parents (stepparents) when either the caretaker or the second parent is incapacitated
40 T.A.C. §2.1004.
This program is under the same federal statute that in most states allows aged, blind or disabled persons to “spend down” their income so as to be eligible for Medicaid long term care. 42 U.S.C. §1396d(a). Texas is not a “medically needy” or “spend-down” state in that sense. Rather, it is an “income-cap” state. Therefore, a disabled person needing long term care Medicaid who has more income than the “income cap” ($1,500 per month in 1999) must go through the burdensome “qualified income trust” (Miller trust) procedure to achieve the same effect (i.e., achieve eligibility by spending all but a small income allowance on medical care).
Comment: The “medically needy” program is extremely important to low-income families who are stricken with an accident or illness of a family member and who are medically uninsured or underinsured. When they have used up their savings, they can often qualify for this program to pay medical bills.
2 Benefits
In general, Medicaid is a comprehensive medical assistance program. It is broader in some respects than Medicare and does not require payment of premiums, deductibles and copayments as does Medicare.
The exact scope of benefits available to the participants in the various Medicaid programs is set out in the State Medicaid Plan, which in Texas is prepared by the Texas Health and Human Services Commission. Legal parameters are found in the federal Medicaid legislation and rules at 42 U.S.C. §1396d(a), 42 C.F.R. § §440.1 - 440.180. Texas legislation generally requires that the Texas Medicaid program provide the minimum necessary to obtain federal matching funds, with some flexibility for providing additional benefits if available funding permits. Tex. Human Resources Code §32.024.
3 Application
Application for Medicaid for children and pregnant women and for the “medically needy” is to the Texas Department of Human Services. Likewise, Medicaid eligibility linked to TANF benefits is processed by DHS. However, eligibility for Medicaid linked to SSI eligibility is determined by the Social Security Administration when it processes the SSI application.
"LONG TERM CARE" MEDICAID
1 Medicaid Long Term Care Programs in Texas
1 Program Administration And Sources Of Law
The Medicaid program is administered in Texas by the Texas Health and Human Services Commission which has final authority and responsibility for the program. However, the Texas Department of Human Services (referred to herein as "DHS") determines eligibility, so it is the agency with which Medicaid applicants and their representatives have most contacts. The DHS enabling statute, regulations and agency handbook (the Medicaid Eligibility Handbook) are important sources of law and policy for the program. See the Bibliography at Appendix 23 for a comprehensive list of sources of law, policy and commentary.
In Fiscal Year 1996, federal and state outlays on Medicaid totaled $159.6 billion, with 57% of the total paid by the federal government and 43% paid by the states. The year before, 41.4 million people were enrolled in some Medicaid program nationally, of whom 20 million were children under age 21 and 9 million were adults in families with children. The elderly and non-elderly disabled without children made up only 25% of the Medicaid population, but due largely to the high cost of long term care, they accounted for 60% of all Medicaid spending.[3] The Congressional Research Service explains concisely why Medicaid policy is of such importance politically:
Due to a combination of factors including enrollment increases, health care inflation, and creative state financing practices, federal Medicaid outlays rose dramatically from FY 1989 to FY 1992, increasing at an average annual rate of over 25%. Some states said Medicaid was the largest single item in their budgets, using resources that states wanted to put into education or other state programs. Although outlay growth slowed to 12% in FY 1993 and to 8% in FY 1994, lawmakers saw the reduction of Medicaid growth as an essential part of reducing the federal deficit and providing relief to states.[4]
In 1995, the Texas Medicaid program paid $1.2 billion for nursing facility services to 1,072 facilities (93% of the 1,157 licensed nursing facilities in the State). These payments to nursing facilities represented about 18% of all Medicaid payments in Texas. The other payments were for such expenses as physician services (11%), hospital services (29%), mental health facilities (9%) and drugs (9%). Although persons over age 65 represented only 12% of Medicaid recipients, because of the high cost of nursing home care, they required 28% of all Medicaid expenditures. (The other 72% went to children in poverty, caretaker parents of those children, and non-aged disabled persons.) That is, of the $9.1 billion spent on Medicaid in Texas, about $2.5 billion went to persons over 65. This latter amount represented about 5% of the total State budget (including federal funds), with the total Medicaid program taking 18.6% of the State budget.[5]
2 Possibility Of Major Changes
In the 1995 Omnibus Budget Reconciliation Act, Congress voted to repeal Title XIX of the Social Security Act (containing the entire Medicaid program) and to replace it with a system of Medicaid block grants (sometimes referred to as “Medigrants”) to the States with minimal federal requirements. President Clinton vetoed that legislation, in part because it would subject older and disabled Americans to chronic uncertainty and to unequal treatment by the various states. President Clinton's reelection is widely assumed to assure continuation of the federal guarantees at least until the next President takes office; but his acquiescence to the abolition of federal guarantees in "welfare reform" suggests that this is by no means certain.
If legislation similar to that contained in OBRA 95 becomes law, much of this outline will be superseded. Virtually all the law in this area will be state law, and calling it “law” at all may be stretching a point, as discussed below at IV.L.4. regarding judicial review. Therefore, this outline presents the law as it is as of this writing, with the warning that everything in this outline is subject to change at any time.
3 Focus On Long Term Care
The focus of this part of the article is on Medicaid long term care benefits. The term "Medicaid" also applies to general medical insurance for recipients of Supplemental Security Income (SSI) and Temporary Assistance to Needy Families (TANF, formerly Aid to Families With Dependent Children (AFDC))--referred to herein as "Community Medicaid" and discussed at VI. above. One reason the regulations and handbook provisions are so confusing is that they seem to refer to all types of Medicaid (which they call "Medical Assistance"), but critical parts of them do not apply to the long term care programs.
Nursing home care is not the only long term care benefit available through the Medicaid program. Also available, in certain cases, is care at home and in assisted living facilities (personal care homes). The latter benefits are not as well known and are therefore underutilized. Nevertheless, they meet the need for less-restrictive care outside the nursing facility environment, which is almost always preferable if it will meet the client's medical needs. These alternative non-nursing facility programs are discussed in 5.(b),(c),(d) below.
4 Notes On Program Terminology
(a) "Medicaid" Although the program is referred to by the public and press as the Medicaid program, it is never called that in the statutes and regulations, which always call it the "Medical Assistance Program”
(b) "Client" The Texas Medicaid regulations and handbook provisions refer to persons eligible or applying for Medicaid benefits as "clients." That terminology will be used generally in this outline, without an intention to imply that the attorney will necessarily be representing the applicant or beneficiary in every case. Obviously, too, such persons are not "clients" of DHS in any fiduciary sense, but on the contrary are likely to take opposing positions regarding legal issues.
(c) Scope of this outline This outline is intended as a "bridge" to the legal source materials on Medicaid in Texas. It is not intended to cover comprehensively and precisely every aspect of Medicaid law and practice. Therefore, a minimum of technical terminology is used in the outline, with references to some of the terminology employed by the Medicaid program and with footnotes to the most useful source materials.
5 Major Medicaid Long Term Care Programs in Texas
1 Nursing Home Medicaid (DHS terminology: "SSI-Related MAO, Type Program 14")
(i) General description of benefits. This covers most medical and support needs of a person who needs nursing facility care.[6] A significant exception is dental care.
(ii) Payment for non-covered services. When a Medicaid-eligible resident needs dental care or other non-covered medical services not reimbursed by any insurance or benefit program (called “incurred medical expenses”), the cost can be paid out of the resident's income, most of which ordinarily goes to nursing facility costs.[7] The result is that the Medicaid program pays a larger share of the cost of nursing facility care as long as payments are being made for the non-covered services.
(iii) General eligibility requirements. For an unmarried person, the maximums are $2,000 in countable resources and $1,500 per month in income. For a couple with a spouse not residing in a medical institution, see "spousal impoverishment" discussion below. Also see below for requirements of residence, nationality, disability and medical necessity for nursing home care.
2 Community Care
DHS uses the term "Community Care," to include "Family Care" and “Primary Home Care.” “Primary Home Care” includes “Frail Elderly."
1 General description of benefits.
These programs provide assistance with bathing, dressing, toileting, food preparation, housekeeping, etc. Number of hours per week varies according to the caseworker's determination based on an assessment form filled out from responses provided by the client or client's representative. Current maximum in the regulations is 50 hours per week, but caseworkers say the maximum they will provide is 35 hours per week. Does not include medical benefits.
2 General eligibility requirements.
For an unmarried individual, financial requirements are the same as for nursing home Medicaid, except sometimes there are openings for individuals with as much as $5,000 in countable resources under the "Family Care" program. For a married individual, maximum income of both spouses combined is $3,000. Maximum resources for a couple are $6,000 for Family care and $3,000 for Primary Home Care. Achieving eligibility for a married person is usually more difficult, as the "spousal impoverishment" provisions do not apply.[8]
The “transfer penalty” does not apply to the “Community Care” programs. Therefore, a client can meet the resource requirements by giving away resources. However, it is important that the client understand that should the need for nursing home arise during the “penalty period” (discussed below), such transfers would affect eligibility for nursing home care or “waiver program” care (for example, Community Based Alternatives, discussed below).
3 Community Based Alternatives Program
DHS terminology: Community Based Alternatives Program, formerly Nursing Facility Waiver Program; or “§1915(c) Medicaid Home and Community-Based Waiver Services”[9]
1 General description of benefits
Personal care services are provided at home or in a licensed Personal Care Home. The cost must not exceed 90% of the cost of nursing home care.
2 General eligibility requirements
The client must meet all requirements for nursing home care. For married clients, spousal impoverishment protections are supposed to apply; but see VII.G.4(d) below for discussion of a recent DHS policy that seems inconsistent with this requirement. The transfer penalty applies the same as for nursing home Medicaid.
In addition to “medical necessity,” the applicant must be able to answer “yes” to at least two of the seven “risk assessment” factors in Form 2333.
Practice note: This is a relatively new program, of tremendous potential benefit to eligible clients. Because of its popularity, at this writing (May 1999), its funds have been exhausted to the extent that potential applicants are all being placed on a waiting list. Refunding of the program is not expected before September 1999 at the earliest.
Comment: The “risk” being assessed by Form 2333B is the risk of going to a nursing home. Note that this is required in addition to the “medical necessity” determination that what the applicant already needs is nursing home care.
4 CLASS (Community Living Assistance and Support Services) Program
Other DHS name: §1915(c) Medicaid Waiver Program for Persons With Related Conditions[10]
1 General description of benefits
Home care services of a wide variety.
2 General eligibility requirements.
Eligibility is limited to persons with a severe, chronic disability attributed to cerebral palsy, epilepsy or any other condition, other than mental illness, found to be closely related to mental retardation, manifested before the person reaches age 22 and likely to continue indefinitely.[11] Financial eligibility requirements are the same as if the person resided in a nursing facility, and spousal impoverishment provisions apply.
5 “Home and Community-Based Services”
1 General description of benefits
This is a “Medicaid waiver” program providing various community services to persons with mental retardation would otherwise be inappropriately placed in institutional facilities. Unfortunately, to the author’s knowledge, it has never been afforded a distinctive program name to distinguish it from Community Based Alternatives, the Community Care Programs and other smaller programs, all of which are referred to in the regulations as “home and community-based services.”[12]
2 General eligibility requirements.
Persons meeting financial criteria for nursing home Medicaid also meet the requirements of this program, as do certain other classes of persons.[13]
2 Why Become Eligible for Medicaid?
At VII.C. below is a discussion of the reasons to avoid Medicaid eligibility in some situations. This section will highlight the reasons that for most Texans who need long term care, avoiding Medicaid is not possible, without sacrificing more basic values.
1 Unavoidable Impoverishment
Ninety percent of Texas nursing home residents exhaust their resources and reach the poverty level after only 26 weeks of care; and 78% of all Texas nursing home residents (including those who have not yet exhausted their resources) are qualified for Medicaid.[14] For most people, the time they can postpone Medicaid eligibility by paying privately is at best very short; and the cost is their entire savings. Especially when there is a spouse at home (sometimes with a long retirement to plan for), accelerating Medicaid eligibility can appear as a life-or-death imperative.
Practice Note: It is very useful to clients to have an estimate of how long their resources will last if they decide not to apply for Medicaid. This will often be the deciding factor, one way or the other, when considered along with the life expectancy of the disabled client and his or her spouse if any.
2 Protection of the “Community Spouse”
As will be demonstrated below, in most cases, the spouse at home (the “Community Spouse”) can keep all the couple's assets; and where assets are relatively low in value, that spouse can keep all income as well. The increased standard of living that may be available to the disabled spouse on a private-pay basis may be purchased at unacceptable cost to the future well-being of the other spouse, if Medicaid benefits are foregone.
3 Why Plan to Avoid Medicaid
Here are some reasons why long-term care planning for many clients should be planning for Medicaid avoidance, not Medicaid eligibility:
1 The “Medical Necessity” Requirement
In addition to establishing financial eligibility, a Medicaid applicant must prove a “medical necessity for nursing home care.” See the discussion at VII.D.3. for specifics. Many persons who absolutely require substantial personal care do not meet this standard. Impoverishing such a person so as to make them financially eligible for Medicaid may serve only to strip them of their assets when they need them most. See also the discussion of the dangers of “gifting” at VII.H.
Practice Note: If there is any question as to what is the best type of care for the client, make a referral to a Geriatric Care Manager. The GCM will do an assessment, advise as to appropriate types of care settings, and if desired, refer to specific providers. Sometimes, this advice will rule out Medicaid eligibility, at least for the moment. First determine the client's needs, then how to meet them, instead of the other way around! For a referral to a member of the National Association of Geriatric Care Managers in your area, call the National Association of Geriatric Care Managers at 520/881-4005.
2 Possibility of Better Care
Although 94% of Texas' nursing facilities are Medicaid-certified, the 6% that are not certified include some of the very best in the State. A client who can afford to live in one of the better facilities may well prefer to do so rather than try to preserve assets for other family members--especially if there is no community spouse and if available resources are likely to be sufficient to "private-pay" for the client's life expectancy.
Texas is 48th among the 50 States in per capita spending for Medicaid (including both long term care and other services reimbursed). Under threat of litigation, DHS in early 1998 agreed to raise payments to nursing homes to an average of $71.08 per resident per day, from a previous average of $66.45.[15] In the author’s experience and according to some limited data, this is still substantially below private-pay rates.[16] This subsidy by residents paying privately (really a hidden tax on people who need long term care) appears to explain the practice of many nursing homes of limiting availability of Medicaid-reimbursed services only to certain “Medicaid beds,” with resulting disadvantages to Medicaid recipients discussed below.[17]
3 Choice of Facilities
Because “Medicaid beds” pay less than private-pay beds, many facilities have only limited numbers of “Medicaid beds.” Therefore, in some areas, it is difficult to find a good Medicaid facility that does not have a waiting list for Medicaid residents. They invariably give preference on the waiting list to residents who entered as private-pay residents (and usually, to those who entered as Medicare residents); but nevertheless, they sometimes require that residents move when they become eligible for Medicaid, because no “Medicaid bed” is then available.
One result of this system is that to have a good choice of nursing homes, it may be necessary to go in as a private-pay resident and have enough funds to pay privately until a Medicaid bed opens up. This condition has recently been made somewhat less onerous in Texas by a rule allowing a nursing home to obtain an additional “Medicaid bed” if needed to accommodate a resident who lived in the facility at least six consecutive months before becoming eligible for Medicaid.[18]
Not all states require or even allow nursing homes to designate a limited number of “Medicaid beds.” In fact, this practice probably violates the federal Medicaid law.[19]
Practice Note: The new rule just cited will help clients gain entrance to some of the better Medicaid-certified facilities, which have purposely certified only a limited number of “Medicaid beds” so as to obtain more income from the above-referenced hidden tax on the infirm non-indigent. There may be some uncertainty as to whether a person has become “eligible” for Medicaid within the 6-month period, so as to make this benefit inapplicable, if the person spends down during that period. The better interpretation would be that since availability of a Medicaid bed is a condition for eligibility, that should never be a problem. To avoid this potential issue, however, it may be preferable to time the spend-down (or Miller Trust or whatever else is needed for eligibility) so as to avoid eligibility for the full six months.
For clients threatened with discharge because they have run out of assets and there is no “Medicaid bed,” consider raising the argument that under the Linton case cited above, the whole “Medicaid bed” system in Texas is illegal. A Medicaid-certified home is prohibited from discharging a resident for any resident other than those enumerated in the rules; and the “nonpayment” ground for discharge expressly provides, “For a resident who becomes eligible for Medicaid after admission to a facility, the facility may charge a resident only allowable charges under Medicaid.”[20] If a resident meets all Medicaid requirements other than availability of a Medicaid bed in his or her facility, and that requirement is illegal, then the resident cannot be discharged for failure to pay. It is the Texas Medicaid program, not the client, that is delinquent.
Moreover, Medicaid does not pay for "bed hold" if the client goes to a hospital temporarily. If when the client is discharged from a temporary hospital stay, the nursing home has no available "Medicaid beds," the client may have to move to another facility. Whenever it is necessary to move to another facility, either as a result of a hospital stay, because of friction, because family members have moved, or because the client has gone home for a time, the client may be unable to find a desirable home with Medicaid beds available.
4 The Client’s Values
Many people see Medicaid as a stigmatizing form of "welfare" and are very resistant to applying for it, even if it is clear that they will probably be eligible eventually. Some nursing homes encourage these sentiments (whether intentionally or not) by having separate wings for their "Medicaid beds," sometimes with lower quality floor coverings and other amenities.
Practice Note: The children and other family members of the potential Medicaid applicant sometimes see things differently, as they tend to focus more on the economics of the situation--i.e., what they will inherit. This is a strong argument for the Elder Law attorney's representing only the older person (or couple).
4 Ethical Issues In Medicaid Representation
1 Identifying the Client
1 Consider the options as to who is the client.
The options are, ordinarily, the following:
An unmarried elder/disabled person
A married couple, with one or both needing long term care
Children or other family members
Joint representation of the elder/disabled person and family members
Practice Note: It is the author’s practice and recommendation that unless the elder/disabled person is already represented by an attorney, the attorney’s representation should be exclusively of that person. Whether the spouse may or should be represented jointly will depend on the nature and extent of the conflicts of interest involved. For example, if one spouse expresses an interest in considering divorce (other than a mistaken belief that there is no other planning alternative), that will preclude joint representation. Also to be considered are potential conflicts with and among other family members such as stepchildren and estranged children.
2 Decide quickly who is the client
In any case, include the identification of the client(s) in a written attorney-client agreement. The following situations, for example, cannot be ethically managed until you have done this:
A child wants to tell you a "secret" about their parent, the veracity of which is critical to the parent's decision
The younger generation argues strongly for Medicaid qualification, while the older person or persons have reservations.
The disabled spouse expresses reservations about transferring title to all their countable property to the other spouse (which is required for continuing eligibility under the spousal impoverishment provisions, as discussed below).
One spouse discloses to you "in private" that he or she is considering filing for divorce, for non-Medicaid reasons.
3 Joint representation
If you engage in joint representation of spouses or other persons, make the required disclosure to each client. See Disciplinary Rule 1.06 for the elements of a disclosure of conflicts of interest that must be made if joint representation is undertaken.
4 Do not represent both parties in litigation.
Note that litigation is an exception to the rule that joint representation is permissible, with adequate disclosure. Therefore, you cannot represent both spouses in a petition for a Qualified Domestic Relations Order (discussed below), even though both spouses are clearly in agreement that it is needed.
Practice Note: When joint representation of spouses is undertaken, the attorney-client agreement is a good place for the disclosure regarding joint representation. It should also be in any marital property agreement in which joint representation is undertaken.
2 Avoiding Fraud
1 It is unethical to assist a client in committing fraud.[21]
This sounds obvious, but it can be difficult in application where the fraud is as to the client's intent. For example, an uncompensated transfer is not penalized if it is "solely for some purpose other than to obtain Medicaid services."[22] This is a tougher standard to meet than the intent requirements in the federal tax laws, which ordinarily do not penalize a transaction merely because tax avoidance was one motive for it.
2 It is unethical to assist a client in failing to disclose a material fact.[23]
The fact that a transfer was in cash or consisted of tangible, untitled property and cannot be traced does not mean it does not have to be disclosed. The same applies to property owned by the client that cannot be traced in any legal records. Contrary to some clients' beliefs and values, these disclosures are required in the Medicaid application and in the oral interview after it is filed.
3 Diligent Representation
It is the client's philosophy regarding public benefits, not the attorney's, that should govern. “There is no question that the use of ... Medicaid planning by competent persons is permissible and that proper planning benefits their estates.”[24] Tax lawyers do not exhort their clients to decline tax benefits they (the lawyers) do not think are in the public interest. Public benefits lawyers cannot behave differently. To do so, or to advise incorrectly that planning would not be effective, would be inconsistent with the disciplinary rules and invite litigation for negligence or breach of fiduciary duty.[25] At the same time, as argued above, it is not appropriate for an attorney to insist that a client apply for a benefit he or she does not want for strictly philosophical reasons, after full disclosure by the attorney of the client's rights.
In general, the attorney should bring to the client’s attention the full range of relevant considerations. Fordham University’s 1993 Conference on Ethical Issues in Representing Older Clients resulted in the following recommendation for practice guidelines regarding “divestment of assets” of a client for the purpose of achieving Medicaid eligibility:
1. In representing clients where divestment of assets is or may be considered, the attorney should:
a. Counsel clients about the full range of long-term care issues, options, consequences, and costs relevant to the client’s circumstances;
b. Endeavor to preserve and promote dignity, self determination, and quality of life of the elderly client in the face of competing interests and difficult alternatives; and
c. Strive to ascertain the client’s fundamental values in order to be responsive to the goals and objectives of the client.[26]
This is consistent with Rule 2.1 of the Model Rules of Professional Conduct:
Lawyer as Advisor: In representing a client, a lawyer shall exercise independent judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client’s situation.
Likewise, the Ethical Considerations speak to the breadth of advice required and permitted:
Ethical Consideration 7-8: A lawyer should exert his best efforts to insure that decisions of his client are made only after the client has been informed of relevant considerations. A lawyer ought to initiate this decision-making process if the client does not do so. Advice of the lawyer to his client need not be confined to purely legal considerations...in assisting his client to reach a proper decision, it is often desirable for a lawyer to point out those factors which may lead to a decision that is morally just as well as legally permissible...In the final analysis, however,...the decision whether to forego legally available objectives or methods because of nonlegal factors is ultimately for the client and not for himself. (emphasis added)
4 Competent Representation
Medicaid law has been accurately characterized as "an aggravated assault on the English language." And that description was directed only at the basic federal statute and regulations, without consideration of the often-inconsistent State laws and practices or the constantly changing (and often unpublished) DHS and HCFA interpretations. In the author's opinion, competent practice in this area requires, at a minimum, the following:
1. Access to and general familiarity with all sources of law in the bibliography at Appendix 12 below; and
2. Familiarity with all planning techniques discussed in this outline; and
3. Keeping up to date on changes in all the sources of law and currently practiced techniques.
Practice Note: The most efficient way of keeping up to date on Medicaid and other Elder Law topics is through membership in the National Academy of Elder Law Attorneys (NAELA), which sends members its newsletter and journal and announcements of national educational conferences held twice per year. The Texas Chapter of NAELA also provides a newsletter and two statewide conference per year. For more information, call NAELA at 520/881-4005.
5 Client Capacity and Gifting
A client who lacks legal capacity cannot make a gift. It would be unethical for an attorney to assist in such a transaction.
Under Texas law, an agent under a durable power of attorney generally cannot make gifts of the principal's assets without specific gifting powers.[27] Even if DHS did not question such a gift, it would leave the agent--and the attorney--wide open to charges of exploitation by family members or other observers.
To assess capacity, use a standardized form. A form provides a disciplined way of recording observations on which you base your judgment. If the transaction is later challenged, you will have a written record of the basis for your judgment.[28]
5 Summary Of Medicaid Eligibility Requirements
1 Nationality and Residence
Nationality: The applicant must be (a) a U. S. citizen or (b) an alien lawfully admitted for permanent residence or (c) otherwise permanently living in the U. S. under color of law (as defined in the regulation).[29] In addition, an alien who entered the United States on or after August 22, 1996 is ineligible for five years, unless he or she is within one of the exceptions for certain refugees and for designated veterans and service members and their relatives.[30]
Residence: The applicant must be a resident of Texas. That is, he or she must have established residence in Texas and intend to remain here.[31] No period of residency in Texas is required. Travel out of Texas does not terminate residency here, if there is an intent to return.
2 Age, Blindness or Disability
An applicant for nursing home care must be either aged (65 or over), blind or disabled (under the Social Security Disability definition).[32] In practice, this requirement is never an issue, because the "medical necessity" requirement (discussed next below) is more stringent than the "disability" requirement.
3 Medical Necessity for Nursing Facility Care
1 Nursing Home and Community Based Alternatives Programs.
An applicant must meet the "medical necessity" requirement both for nursing home Medicaid and for the Community Based Alternatives Program.[33] The initial assessment is made on form 3652-A (the CARE form) upon admission, and a follow-up is done annually in most cases. The assessment is usually done by the Director of Nurses at the nursing home and by a nurse and physician employed by the insurance company contracted by DHS (currently, National Heritage Life Insurance Co.). The decision is appealable through the "fair hearing" process discussed below.
Essentially, “medical necessity” requires a medical disorder or disease requiring attention by registered or licensed vocational nurses on a regular basis. Inability to attend to “activities of daily living,” such as bathing, grooming and eating, is not sufficient. For more detail, see the applicable regulations.[34]
Practice Note: To assess medical necessity of a client residing in a Medicaid-certified nursing home, you can simply ask the Director of Nursing whether or not the client meets that standard. For a client who does not live in a nursing home, you can request a "pre-admission assessment of medical necessity" from a Medicaid-certified nursing home. To be sure, ask for a final decision (by National Heritage Life Insurance Co.), rather than a preliminary determination by the nursing home. (NHLIC can overrule the nursing home’s determination.)
Practice Note: The possibility of a long period of need for care that does not meet the “medical necessity” requirement is a major reason to advise caution regarding gifting strategies. A client with early Alzheimer’s, for example, and no other significant medical problems, may face many years of critical need for custodial care such as that provided in personal care homes, with no possibility of Medicaid eligibility even if all resources have been spent. Generally, such a person would be ill-advised to give away all his or her assets, thus becoming entirely dependent on the good will, good judgment, financial solvency and continued life and health of adult children or other transferees..
2 Home care under the “Community Care” programs
The Community Care programs have a less stringent disability requirement. They require disability as defined by SSI, with need for assistance in at least some activities of daily living as determined by the assessment interview.[35]
4 Income
1 Income limitation for an unmarried person.
In calendar 1999, the "income cap" in Texas is $1,500 in "countable" income of the Medicaid applicant. See below regarding what income is countable and attributed to the applicant. This amount changes on January 1 of every year with inflation.
2 Income limitation for a married person with an ineligible spouse.
The "income cap" is the same as for a single person. The critical question is how the income is apportioned between the spouses. See the discussion below of the "name on the check rule."
3 Income limitation for married couple, both of whom apply for Medicaid.
If both spouses reside in the same nursing home, the incomes are combined, and the income cap for the combined income is twice the cap for an individual (currently, $3,000).[36] However, if the combined incomes exceed this cap, one spouse can still be eligible as long as his or her income alone is below the individual cap (currently, $1,500).[37]
5 Resources (Assets)
1 Resource limitation for an unmarried applicant.
This limit is $2,000. This amount has remained the same since 1989. See the discussion of “resources” below for how to determine what resources are "countable."
2 Resource limitation for a married couple, with an ineligible spouse not living in a medical institution.
This limit is half the couple's combined resources, subject to a minimum "protected resource amount" of $16,392 and a maximum of $81,960.[38] These amounts may be increased in certain circumstances as discussed below. The minimum and maximum change every January 1 with inflation.
3 Resource limitation for a married couple, both of whom live in a nursing facility and apply for Medicaid.
This limit is $3,000. Resources of both spouses are counted toward this limit.
4 Resource limitation for a married couple, both of whom live in a nursing facility, if only one applies for Medicaid
The resource limit for the spouse applying for Medicaid is $2,000. Resources of the non-applicant spouse are not deemed to the applicant spouse because they are not regarded as living in the same “household.”[39] Therefore, the non-applicant spouse can have unlimited resources.
Practice Note: When both spouses need nursing home care, the first question to ask is whether or not they would be better off transferring all resources to one spouse, who does not apply for Medicaid, and applying only on behalf of the other spouse. The non-applicant spouse is likely to be the one with the highest income, although life expectancy may be another important factor. As with the “spousal impoverishment” rules, all that is required to transfer an account (bank, securities, deferred annuity, etc.) is to retitle it. However, for the same reasons as in “spousal” cases, it is usually preferable from a Medicaid perspective to use a marital property agreement to transfer all assets, including even the residence, to the non-applicant spouse; then provide in that spouse’s will for a supplemental needs trust or other disposition to avoid disqualifying the applicant spouse should he or she be the survivor.
6 Medicaid Facility, Medicaid Bed
To be eligible for Medicaid, a Texas resident must be in a Medicaid-certified facility and in a “Medicaid bed.” See VII.C.3. above for a discussion of these requirements.
6 Income Requirements
1 Income Definitions and Exclusions
1 Income definition
"Income is receipt of any property or service a client can apply, either directly or by sale or conversion, to meet basic needs for food, clothing and shelter. Countable income is the amount of a client's income after all exemptions and exclusions."[40] This is broader than the income tax definition. For example, it includes gifts and personal injury awards.
Generally, when food, clothing or shelter are provided to the client by someone else, the rules seem to require counting them as income under complex rules developed in the SSI program for counting “in-kind support and maintenance.”[41] However, “in-kind support and maintenance” is not counted as income by the Medicaid “waiver programs” (specifically, Community Based Alternatives, Community Living Assistance and Support Services, Home and Community-Based Services and Medically Dependent Children’s Program.)[42]
Comment: As far as long term care services are concerned, aside from the Primary Home Care ( §1929(b)) Program, the exception swallows up the rule. Whether the client seeks Medicaid for nursing home care or under one of the home care “waiver” programs, someone else can apparently provide food, clothing and shelter without its being counted as income. Thus, clients who need long term care under these programs are able to escape the strict poverty-level standard of living mandated by the SSI program, if they do not also need SSI and if they have family members or others to help them.
Apparently, this applies as well to persons who have achieved eligibility by transferring their assets into an “exception trust,” which can then provide them food, clothing and shelter—or anything else except cash-- without affecting their eligibility. Under a rule adopted in 1998, “A payment to or for the benefit of the client is counted under trust provisions only if such a payment is ordinarily counted as income.”[43]
Payments received on a negotiable note (regardless of whether it is secured or not) are counted as “income” only to the extent of the amount of interest paid. However, the full amount of all payments on a non-negotiable note, including both principal and interest, are counted as “income.”[44]
2 Exempt income definition
Exempt income is "income that is not counted in eligibility nor applied income determination.”[45] ("Applied income" is the amount of the client's income that is paid toward ("applied to") his or her nursing home or other care.) Important examples of exempt income include value of medical services provided free or for which someone else pays the provider directly; payments to providers of social services by a government program; and specifically defined "infrequent or irregular income."
The following are erroneously listed as "exclusions" in the Medicaid Eligibility Handbook. Actually, they are "exemptions," because they are not counted for determining either eligibility or applied income: VA aid-and-attendance allowances, VA reimbursement for unusual medical expenses, and VA housebound allowances.[46]
3 Excluded income definition
"Income that is not counted when determining eligibility but that is counted to determine applied income."[47] The $20 general exclusion and the earned income exclusion do not apply to Type Program 14 (Nursing Home Medicaid) and 1929b (Home Care) cases so are useful primarily to persons receiving Medicaid through the SSI and AFDC programs. A new rule sets out what deductions from employee compensation are excluded by DHS in the determination of applied income.[48]
4 Certain VA income automatically reduced by Medicaid eligibility
VA non-service connected pensions (which are paid only to veterans with incomes below certain levels) are automatically reduced to $90 per month when Medicaid eligibility is established, unless the veteran has a spouse or child.[49] Therefore, only that amount is counted for determining eligibility, and a Miller Trust is not necessary for a single veteran receiving such income.[50] Note, however, that this does not apply to service-connected disability or to retirement pay, nor does it apply to a married veteran.
5 "Name on the check rule"
The federal "spousal impoverishment" rules require that for the purpose of allocating the income of a married Medicaid beneficiary and his or her spouse after eligibility is established, community property rules are disregarded. Rather, income is allocated according to the person or persons to whom it is payable on the check or other instrument by which it is paid, unless the instrument specifically provides otherwise. That is, if a check or direct deposit is payable only to the community spouse, none of it is attributed to the institutionalized spouse (or vice-versa), even if it is clearly community property. If it is payable to both spouses, it is attributed to them equally.[51]
The federal statute requires this treatment only regarding post-eligibility treatment of income. Although the Texas rules and manual do not address this issue regarding determination of eligibility, the practice of DHS is to apply the same rule for determining eligibility.
6 Long-term care insurance benefits
Such benefits are not counted as income, but rather as “third-party resources.” As long as they are paid directly to the nursing home, they do not affect Medicaid eligibility.[52] The effect of the benefits will be to reduce or eliminate the amount the Medicaid program will have to pay for nursing home costs.
7 VA benefits
Likewise, payment of nursing home care by the Veterans Administration does not affect Medicaid eligibility.[53] Therefore, it is clear that clients may apply immediately for Medicaid, despite potential VA eligibility; and subsequent establishment of VA eligibility will not result in a break in Medicaid benefits. This can be important if Medicaid is needed for services not covered by Medicare, such as medications, and to avoid Medicare’s copayments and deductibles.
2 Rules Affecting Rental Income
Rental income is most commonly a concern when an exempt residence is being rented for cash. It can also be a factor when a rental property is part of the community spouse's "protected resource amount" (discussed immediately below).
In general, countable rental income is gross income received, less actual expenses such as (but not limited to) property taxes, utilities, maintenance, repairs and advertising.[54] A new rule adds the following provisions:
Expenses are deducted only for the month in which they are paid, regardless of when they are incurred.[55]
Payments made to a client's agent under a power of attorney are always treated as received by the client. Payments to other "responsible parties" who provide a statement that they are not making the payments available to the client are not treated as received by the client, if they made the rental agreement with the tenant; but a referral may be made to Adult Protective Services (for possible criminal referral)
Mortgage payments made by a tenant to the mortgage company are treated as countable income to the client; but if the residence is vacant and someone other than the client pays the mortgage, those payments are not treated as income.
Practice Note: In the past, it has worked well to rent the residence to a tenant who agrees to pay all taxes, insurance, maintenance, repairs and other expenses in lieu of rent. The expenses exactly offset the payments made, so there is no net income to be counted; and the residence is maintained at no net expense to the client. Because the total is usually less than fair market value of the rent, this is also a good deal for the tenant, who usually is a family member. This would appear still to be an option under the proposed rules, so long as a mortgage payment is not being made. One DHS representative has told the author that it is necessary for payment of the expenses to go from the tenant to the client, then from the client to the provider (taxing district, insurance company, etc.). However, because such a policy would serve only to increase the paperwork for the DHS worker and the client representative, and because it has never been imposed on a client of mine in practice, I question whether this is a firm decision of the agency.
If there is a mortgage payment to be made and the residence is occupied, this rule creates a “Catch-22” dilemma: how can the client pay the same funds both to the mortgage holder and to the nursing home? An interpretation sometimes given by DHS representatives is that the occupant can pay everything except principal on the mortgage, which must be paid by a non-occupant.
Another oral tradition, which has reportedly been applied by the Department for several years, is that the person paying the mortgage may be the tenant, so long as he or she subleases to someone else who will occupy the residence; and the sublessor can even make a profit that will not count as income.
3 "Spousal Impoverishment" Rules Protecting Income of the Community Spouse
The income of the community spouse (determined under the "name on the check rule" discussed next above) is disregarded in determining eligibility of the institutionalized spouse.[56] Therefore, planning techniques often focus on re-characterizing income to put it in the name of the community spouse (for example, through a QDRO, discussed below); or re-positioning assets to convert them from countable resources to non-countable community spouse income (through an annuity, discussed below).
1 The Qualified Domestic Relations Order
It is frequently advantageous to transfer income of the institutionalized spouse to the community spouse. This may be essential for eligibility, or it may be valuable for increasing the income available to the community spouse when "applied income" (income paid to the nursing home or other provider) is determined after eligibility (discussed below). Most commonly, the income involved consists of qualified retirement benefits. Under the Internal Revenue Code, these cannot be voluntarily alienated; but they can be transferred to a spouse by means of a Qualified Domestic Relations Order ("QDRO").[57] In Texas, this can be done without a divorce, in a suit for spousal support.[58] DHS accepts such re-characterization of income and does not insist on being cited in the suit.
The same principles apply to shifting an IRA to a spouse, even though an IRA is not a "qualified" plan. Simply retitling the IRA in the name of the spouse would require recognition of the full value of the IRA in the year of the retitling; but if it is transferred pursuant to a QDRO, in a suit for spousal support, it will apparently be treated as an IRA of the spouse, with taxation deferred until the funds are withdrawn.[59] This may be necessary to transfer property to the community spouse's name within one year of establishing eligibility. Moreover, if the IRA is then annuitized (as discussed below) so as to pay only in the name of the community spouse, it will no longer be treated as a resource at all.
Tips on QDRO practice in this context:
Both spouses must be represented by counsel, as it is "litigation."
Be very careful in drafting the order to meet the requirements of the Internal Revenue Code §414(p). To be sure, contact the plan administrator and obtain advance approval of the form of the order before presenting it to a judge.
If the income is from the Employees Retirement System, Teacher Retirement System, or any other program of the State of Texas or a political subdivision of the State, you must use their form. Call the Office of General Counsel of the relevant retirement system for a copy, and consult the applicable state statute.[60] Also note that although TRS and ERS are governed by the same statute, their general counsels require that different forms be used for the order.
Treat these like any other uncontested family matter. Because they are agreed by both parties, they are signed routinely without question by judges, either at uncontested docket call or in chambers without appearance (depending on the practice of the court).
You can accomplish the same thing with a Miller Trust, as far as eligibility is concerned. However, a QDRO is far better if any of the retirement plan money would be paid to the nursing home as applied income under a Miller Trust. That is because with a QDRO, all the shifted income goes to the community spouse.
Obtaining approval of the QDRO can sometimes take months, due to the complexity of the tax law ( and the occasional inefficiency and downright truculence of the pension plan administrators). Therefore, the author has adopted a policy of establishing a Miller Trust immediately, if it will accomplish Medicaid eligibility, and pursuing the QDRO at the same time. When the QDRO is finally successful at shifting pension income to the community spouse, the amount of applied income can be adjusted; and meanwhile, we usually achieve a month or more of eligibility that otherwise would have been lost.
2 Purchasing an annuity for the community spouse
It is possible to convert resources to community spouse income by purchasing an annuity. For example, a couple has $100,000 more than the Protected Resource Amount. They take countable property of that value and use it to purchase a single-premium annuity of, say, $1,000 per month for the life of the community spouse (or for a term of years less than the actuarial life expectancy of the community spouse). They have reduced their countable resources to the protected amount, and the $1,000 per month does not affect eligibility.
As long as the actuarial value of an irrevocable annuity is at least as high as the value of the resource used to purchase it, there is no transfer penalty.[61] (This is to discourage transferring property for less than adequate consideration to a family member.) An annuity with a "years certain" period beyond the life expectancy of the annuitant would not withstand scrutiny, as the present value of the remainder interest would be considered a penalized transfer. The annuity must be for the life of the community spouse, or for a term of years less than the life expectancy of the community spouse, as set out in the life expectancy table used by DHS.[62]
The proposed version of a new DHS rule would have added the requirement that the Medicaid program be the remainder beneficiary. However, if applied to a spouse of the client, that requirement would have violated the federal statute, so it was removed from the final rule before adoption.[63] The requirement that the annuity be issued by a licensed insurance company (as opposed to a “private annuity” or “non-negotiable note”) may or may not be valid under federal law. See the discussion at IV.E.5 below for more details.
4 Reducing Income Through a "Miller Trust" (“Qualified Income Trust”)
1 The problem
The Miller Trust addresses a cruel anomaly in Medicaid law in Texas and in the 12 other states with an "income cap." Although the average nursing home cost when paid privately is determined by DHS as $2,511 per month, the Legislature has seen fit to deny nursing home Medicaid benefits to anyone with more than $1,500 per month in income. Therefore, many people who need nursing home care have too much income to qualify for Medicaid but too little to afford nursing home care.
2 The solution
Arguably, the most important change in Medicaid law contained in "OBRA 93" was the provision allowing for some relief from the "income cap" by transferring income into a trust with certain provisions.[64] Such trusts are called "Miller Trusts" after the case Miller v. Ibarra,[65] which approved a somewhat similar trust in Colorado. (They are also called "qualified income trusts" and, by OBRA 93 mavens, "d4b trusts.")
The Miller Trust solution works only for institutional (nursing home) Medicaid and the Community Based Alternative Program, and other “home/community-based waiver services” such as, presumably, Type Program 19 (Medically Dependent Children) and CLASS. It is expressly excluded by DHS regulations as a way of reducing countable income for Qualified Medicare Beneficiary, Specified Low-Income Medicare Beneficiary, and 1929(b) (“Primary Home Care,” “Frail Elderly”).[66] The regulations are silent as to whether a Miller Trust can be used to gain eligibility for other home care (“Community Care”) programs such as Family Care.
3 The requirements for the trust
OBRA 93, as interpreted by HCFA and DHS, requires that the trust have the following features:
a. Funded only with pension, Social Security, and other income of the individual (and accumulated income in the trust)[67];
b. Irrevocable;
c. The State will receive all amounts remaining in the trust upon the death of the individual up to an amount equal to the total medical assistance paid by Medicaid on behalf of the individual; and
d. Require that the trustee:
(1) Pay to the beneficiary a monthly personal needs allowance.
(2) Pay to the spouse (if any) of the beneficiary a sum sufficient to provide a minimum monthly maintenance needs allowance, and
(3) Pay from the funds remaining the cost of medical assistance provided to the beneficiary.[68]
In addition to the HCFA requirements, DHS requires that the trust identify the sources of income to be transferred to the trust. Also, DHS "recommends" that the trustee not be the beneficiary "because of potential problems relating to discretionary distributions."[69]
New DHS regulations state, “...a trust which provides that the trust can only be modified or terminated by a court is a revocable trust because the client or his responsible party can petition the court to amend or terminate the trust."[70] The new regulation disregards the fact that any Texas trust can always, as a matter of law, be modified by a court if “because of circumstances not known to or anticipated by the settlor, compliance with the terms of the trust would defeat or substantially impair the accomplishment of the purposes of the trust.”[71] Nevertheless, to avoid running afoul of this new rule, practitioners must now delete from all forms involving self-settled trusts that must be irrevocable under DHS rules (including Miller Trusts), any reference to modification or amendment by trustees, courts or any other parties.
Practice Note: A suggested form for a Miller Trust is at Appendix 1. DHS has not approved a standard form for Miller Trusts, and its Office of General Counsel has a policy of characterizing all inquiries about trusts as requests for "legal advice," which agency attorneys are prohibited from giving. "The only circumstances under which DHS legal staff will review trust documents is where staff have questions about a trust that has been submitted to agency eligibility staff along with a Medicaid application."[72]
A recurring problem is, “Who can sign a Miller Trust for an incapacitated client?” Unfortunately, DHS does not allow any “responsible party” to sign, as it does regarding the Medicaid application when there is no better option.[73] Therefore, an applicant who lacks capacity to sign the trust instrument and who has not appointed an agent in a power of attorney may have to have a guardian appointed just for this purpose. However, in the author’s opinion, the mental capacity necessary for executing a Miller Trust is quite low in circumstances in which Medicaid eligibility is necessary for survival and there is no reasonable alternative. It doesn’t take a rocket scientist to understand that signing that document is a good idea.
Trustees occasionally live outside the State of Texas so prefer to establish Miller Trust accounts out of state. In the two cases the author has had involving out of state trust accounts, the Department has raised no objection.
Be sure to have the signatures on the trust acknowledged. Because Texas law does not require acknowledgment, previous versions of the form at Appendix 1 indicated that acknowledgment was optional. However, banks so frequently require it anyway that it should be done as a matter of course.
4 The trust administration requirements
DHS has the following policies pertaining to trust administration:[74]
(1) The client may place all or only a portion of his or her income in the trust; but if only a portion is placed into it, the entire amount coming from the same source must be placed in the trust. For example, if a client has income from Social Security and from a pension plan and does not want to place all income into the trust, she may place into the trust only the Social Security income or only the pension income; but she cannot place only a portion of the income from Social Security or from the pension plan.
Income tax refunds are not counted as income for the purpose of eligibility so should not be placed in a Miller Trust. However, they are considered in the determination of applied income so are likely to affect the distribution of funds from the trust in the month of receipt.[75]
Practice Note: Keeping some income out of the trust would be confusing to the caseworker and to the trustee. The author knows of no advantage to doing so. Therefore, it is recommended that if a Miller Trust is used, all income be transferred to it. To the extent possible, this should be done by automatic deposits to the trust's bank account, for the convenience of the trustee. See Appendix 2 for a suggested form for instructions to a Miller Trust trustee.
It sometimes happens that the client seeks legal counsel after having already spent part or all of the income received in the month in which the trust needs to be established. Unfortunately, some DHS officials have engrafted on the rules a requirement that the income placed in the trust be “traceable” to income received by the applicant, as opposed to pre-existing funds of the applicant or borrowed funds. This so clearly elevates form over substance that it should not be regarded as agency policy unless and until it is incorporated into the rules.
(2) Distributions must be made no later than the last day of the month next following the month of receipt.
Practice Note: See the discussion below of "what happens to income after eligibility" for a breakdown of how these "distributions" are made. As a practical matter, the attorney can initially advise the trustee to distribute according to the DHS caseworker's instructions, then review the instructions to ensure that all "deductions from applied income" in favor of the client are made.[76]
A tougher issue is, “How much to distribute before the eligibility determination has been made?” Some eligibility workers advise distributing 100% of income from the Miller Trust to the nursing home, until they have determined exactly how much should be so distributed, on the sensible theory that you can’t lose eligibility this way, and the nursing home should refund any overpayment after eligibility is established. I depart from that advice only in cases in which a community spouse must have the spousal allowance from the very beginning; and in such cases, I allow a wide margin for error in advising how much to distribute to the nursing home.
The law is that any distribution to the nursing home reduces countable income, not that any failure to pay 100% of required applied income “invalidates” the trust. However, some eligibility workers apply the latter rule until persuaded or ordered to do otherwise. Likewise, the failure to transfer 100% of income into the trust does not “invalidate” the trust, for as long as 100% of any single income source goes into the trust, that amount (to the extent it is paid to the nursing home not later than the next calendar month) reduces countable income.
(3) The trust is effective for the first month that all the following have occurred: the client has a valid, signed trust; a trust bank account has been established; and enough income has been placed in the trust to reduce the remaining income below the income cap. If all other eligibility requirements have been met as of the first day of that month, benefits will be paid from that date, provided an application is filed within three months from that date.
(4) Trust expenses, including attorney fees, may be paid from the trust account.
Practice Note: The last provision is an illusory promise in most cases, because all the client's income is usually exhausted by partial payment of the nursing home cost, and there is nothing left for trust expenses or any other distributions. Don't count on this for your trust expenses and legal fees unless you are sure there will be enough left over.
(5) If any payments are made from the trust other than for "deductions from applied income" (personal needs allowance of $30, medical premiums and expenses), income to the community spouse, and income applied to nursing home expenses--all of which must be paid first--the additional payments are subject to the transfer penalty. That is, as explained below in the discussion of the transfer rules, there will be a penalty of one month of ineligibility for every penalized transfer that exceeds the average cost of nursing home care in Texas (currently $2,511).
In the case of an unmarried person or where both spouses are eligible, there is probably an additional use of any funds left over after payment of all applied income that will probably be approved: any use for the benefit of the client, so long as those funds plus other countable income do not exceed the income cap of $1,500 per month.[77] “Countable income” does not, under the DHS regulation, include at least that income paid into the trust and paid out as applied income or for other medical services, and other statements in the regulations indicate it does not include any income directed to the trust. Therefore, in most cases, it would seem that as much as $1,500 per month can be paid out of the trust for the client’s benefit, if such amount is available after payment of personal needs allowance, applied income, medical expenses and spousal allowance if any.
Practice Note: Having an additional amount available for distribution to the community spouse, after payment of the regular spousal needs allowance and other required payments, can be a powerful incentive for Medicaid eligibility. In that situation, the nursing home is reimbursed 100%, but reimbursement is at the Medicaid rate, which is lower than the private-pay rate. As indicated, an unmarried person probably can take such distributions for any needs he or she may have, but the money must be spent quickly and/or given away every month, to avoid buildup of more than $2,000 in resources.
(6) Income must be placed in the trust during the month of receipt, and any source of income not directed to the trust during the month of receipt is countable income. Therefore, if a client has $1,800 total income in July and none of it is deposited in the trust until August 1, the client loses eligibility for July.
Practice Note: Given the complexity of the foregoing rules, it is not surprising that clients find them difficult to follow. Here is an informal checklist for supervising client followup:
1. Be sure the following documents are in proper form and copies are submitted to DHS: trust instrument, bank form showing trust account has been opened, and deposit slip or other document showing initial funding of the trust.
2. Do not allow more than $20 in funds other than client income to be used to establish the trust. Otherwise, it is “invalid.”
3. Advise the client as to the estimated amounts to be paid from the trust before eligibility is established, for the following: personal needs ($30), medical insurance, spousal allowance (if any) and applied income. As suggested above, you want to leave a wide margin for error, even to the extent of paying 100% of the income to the nursing home until the worker determines how much should be paid.
4. Be sure the client understands that all income received in any calendar month must go into the trust during that month. For example, if Social Security is direct deposited on the last day of the month into the client’s personal checking account, a check for that exact amount must be written on the checking account on that date and deposited in the Miller Trust account. This will suffice even though the check does not clear the same day; but if the trustee waits until the next day or later to deposit the check, the client will lose eligibility for a month.
5. Many perfectly competent and functional people prove incapable of following written instructions for establishing and maintaining this kind of trust. It is complicated and non-intuitive, and individuals who comply only with instructions they think make sense will never make it without personal followup. The best practice is to require all bank records to be sent to your office so you can check them for compliance before sending them on to the DHS worker; and in addition, just before the end of the all-important first month of planned eligibility, speak directly with the trustee to be sure he/she has actually followed your instructions.
5 Rules Pertaining to Annuities
In general, annuity payments are treated as “income,” without regard to how much is actually “return of principal” as opposed to investment income.[78] The difficult and important rules have to do with whether or not the annuity contract is also treated as a “resource” and whether or not the purchase of the contract is subjected to a transfer penalty.
If the payments come from a retirement plan or annuity contract paying a certain amount per month on an irrevocable basis, the investment in the contract will not be counted as a resource. That is because it cannot be drawn out by the owner, except to the extent of the regular payments. However, if the contract has not been made irrevocable (sometimes referred to as “annuitizing” the contract), it is still revocable and therefore counted as a resource of the owner to the extent the owner can convert it to cash.[79]
Practice Note: Some DHS workers require a written statement (in the contract or an addendum) to the effect that the annuity is “irrevocable,” to avoid treating the contract as a resource. Many contracts for immediate-pay annuities do not expressly say they are irrevocable, probably because they are binding contracts and any possibility of revocation would make all the company’s actuarial calculations useless. If the contract does not say it is irrevocable, ask the insurance agent for a statement to that effect and give it to DHS, to avoid delay in processing the application. Also be sure it does not have a provision saying it is assignable, which would give it a cash value. Another problem with some annuities is that they are not irrevocable until the first check is cashed, or the expiration of a certain period of time, so DHS counts the amount available by revocation as a resource until they are truly irrevocable.
The following addendum to the annuity contract should solve all the foregoing problems: “Notwithstanding any contrary provision herein, this contract is immediately irrevocable and non-assignable from its inception.”
The purchase of annuities in planning to protect the community spouse is an important planning technique, discussed at VII.E.3.
Rules recently of the Texas Department of Human Services restrict the use of annuities by the following rules:
Principal and interest must be paid in equal monthly installments to the client in sufficient amounts that the principal is paid out during the life expectancy of the client according to Medicaid Eligibility Handbook Appendix IX .
The life expectancy of the payee (client or spouse) according to Appendix IX must “equal or exceed” the stated life of the annuity.[80]
The annuity must be issued by a licensed insurance company (which prevents use of private annuities and similar devices such as non-negotiable and self-cancelling installment notes).[81]
If the client is named as the annuitant, the State of Texas or DHS must be named as the residual beneficiary of funds remaining in the annuity at the client's death, to the extent of Medicaid funds expended on the client.[82] However, if the annuity is purchased by and for the Community Spouse, this requirement does not apply. (This exception for the Community Spouse is contained in the limitation on §15.442(g)(2) that the requirements under that paragraph apply only to an annuity “purchased by or for the client.” It was added to the proposed rule in response to a comment by the Texas Chapter of the National Academy of Elder Law Attorneys to the effect that such a requirement if applied to the Community Spouse would violate federal law.)[83]
Comment: One purpose of these rules is apparently to stop the use of "balloon annuities," which pay interest only until one month before the end of the client's actuarial life expectancy, at which time the entire principal is paid.[84]
The requirement that the Medicaid program be a remainder beneficiary is found nowhere in the State Medicaid Manual but has been implemented by a few other states. Nothing in the federal statute even hints at such a requirement, but HCFA appears to have approved it. A possible rationale for this may be as follows: OBRA 93 provides that the term “trust” includes “any legal instrument or device that is similar to a trust but includes an annuity only to such extent and in such manner as the Secretary specifies.”[85] HCFA and DHS may be reading this to give HCFA essentially plenary authority over annuities, in that they can set out requirements for annuities, then make all annuities that fail to meet their requirements useless for Medicaid planning, simply by calling them “trusts.”
The requirement of issuance by a licensed insurance company is contrary to the practice of some states of approving private annuities and similar instruments such as non-negotiable notes and self-cancelling installment notes (SCINS). Arguably, the federal statute requires such approval.[86] However, HCFA may approve the “licensed insurance company” requirement, perhaps on the same rationale as suggested in the paragraph next above.
By this reasoning, attorneys and other advisors who suggest private annuities, self-canceling notes and similar devices in Texas should advise clients that a transfer penalty will probably be assessed; the only remedy would be to file suit[87]; and the outcome is not certain. Moreover, the agency has bolstered its position by passage of the rules pertaining to notes, discussed next below.
7 Rules Pertaining to Notes and Similar Instruments
Payments received on a negotiable note (regardless of whether it is secured or not) are counted as “income” only to the extent of the amount of interest paid. However, the full amount of all payments on a non-negotiable note, including both principal and interest, are counted as “income.”[88]
With regard to determining the amount of client’s “resources,” new rules[89] govern the valuation of notes and other contractual arrangements in which the client is a creditor. Those rules are important also in applying the transfer rules. The new rules are summarized as follows:
1 Transferable, Secured Instrument
If the instrument is both negotiable (actually, transferable)[90] and secured, its principal balance is a countable resource. Therefore, there is no transfer penalty for taking a note that is secured by an asset conveyed, if the value of the asset is at least equal to the face value of the note. If the client furnishes a statement from someone in the business of purchasing notes to the effect that the note is worth less than its principal balance, the lower value will be accepted.
2 Transferable, Non-Secured Instrument
If the instrument is transferable but not secured, its value is its “actual fair market value.” The difference between the consideration paid and the instrument’s fair market value is treated as a transfer without consideration.[91] As in any other transfer for less than adequate consideration, it is assumed that Medicaid qualification was a purpose of the transfer unless the client proves otherwise. If payments are made, the interest is treated as income, and the principal “reduces the transfer penalty.”
3 Non-Transferable, Non-Secured Instrument
Because it cannot be sold for any amount of cash, a non-transferable, non-secured instrument is not treated as a resource. Conversely, whatever is paid for such an instrument is treated as a transfer without consideration, subject to a transfer penalty.
Comment: To find the purpose behind the “negotiable instrument” rules, one need look no further than the NAELA workshop materials and other publications by practitioners who use “non-negotiable” and/or “self-cancelling” notes and “annuities” to shelter assets. The theory is that a resource can be made to “disappear” by exchanging it for a non-negotiable note or annuity, which itself does not count as a resource because it cannot be sold for cash. While practitioners may mourn the loss of a “planning opportunity” that apparently works in some states, we at least have reasonably clear and rational rules in place in Texas. More intrepid advocates may wish to challenge them, but this writer finds them consistent with the purposes of the federal Medicaid laws and suspects that arguments focusing on the verbiage of those confusing laws would be received with skepticism by the courts.
8 Resource Requirements
1 General Definition of "Resources"
"Resources are cash, other liquid assets, or any real or personal property or other nonliquid assets owned by a client, his spouse, or parent, that could be converted to cash."[92] Instruments that produce income, such as negotiable promissory notes and bonds, are counted as resources to the extent of their fair market value (determined as discussed at VII.F. above). In addition, the interest payments on such instruments are counted as income in the month when received by the client (and if the note is nonnegotiable, payments of principal are counted as well).[93] If there is a mortgage on real property owned by the client or a security interest on the client’s personal property, only the equity in the property is counted.
Practice Note: DHS accepts the appraised value for property tax purposes as the presumptive fair market value of real property. Therefore, that is always the starting point, and usually the ending point. However, in some cases it may be worthwhile to obtain a professional appraisal to show that the market value is lower--e.g., where there should be a discount for a undivided interest, where the property is unmarketable at any price (in which case it has no countable value), or where the tax appraisal is too high for some other reasons.
2 When Counted
Resources are counted only as of 12:01 a.m. on the first day of each month. Changes from that time until one month later do not affect countable resources for that month. Countable resources are reduced by the amount of funds encumbered before 12:01 a.m. of the first day of the month. That is, if a check is outstanding at that time, the bank balance at that time is reduced by the amount of the check for the purpose of determining countable resources.[94]
Practice Note: A critical part of the Medicaid plan is to determine the date on which you want DHS to "test for eligibility." It will always be the first day of the first month after the client has "spent down" resources or otherwise changed their position so as to become eligible. Be sure your client (or whoever is assisting the client) understands clearly the importance of this date and what they have to do to achieve eligibility. A written plan is essential for documenting and communicating this (and for reminding yourself when the client calls and asks what else they need to do).
3 Requirement of "Accessibility”
To be counted, a resource must be both owned (solely or in part) by the client and "accessible to" the client. "If a client has the right, authority or power to liquidate the property or his share of it, the property is a resource. If a client would be required to seek court action to access or dispose of property, that property is not considered a resource."[95] A client's resources are considered available to him when they are being managed by a legal guardian, agent under power of attorney or other fiduciary agent of the client, unless a court denies the guardian or agent access to the resources.[96]
Practice Note: This requirement is especially important regarding retirement accounts. If the employee has a right to withdraw the account immediately, it is "accessible" (but DHS reduces its value by 20% to account for income tax). Otherwise, it is not counted as a resource at all until such time as it can be withdrawn.
Another type of property governed by this section is property under the administration of an executor or administrator in a probate estate. When questioned about such property, DHS representatives usually say that because title to inherited property vests at death, it is considered immediately available to the client from that time on. That may be so when there is no administration (for example, because there is no will and no need for administration, or because a will is probated as a muniment of title). However, in cases in which there is an administration, that position disregards the authority of a personal representative of an estate to deny access to the property to the beneficiaries until the estate has been administered. If DHS representatives cannot be persuaded of this distinction, it may be necessary to obtain a probate court order essentially confirming that the administrator or executor is "denied access" to the property for the improper purpose of distributing it to the client when, for example, the creditors have not yet been paid.[97]
4 Co-Owned Resources Generally
If the resource can be reduced to cash without consent of the co-owner, or if the co-owner gives the required consent, the full value is counted. If the co-owner's consent is required and is withheld, the property is not counted; provided, if the co-owner who is refusing to consent is an ineligible spouse living with the client, the property is counted. Provided further, if the property is an undivided interest in real property, its value is counted anyway, on the theory that an undivided interest can be sold without the co-owner's consent.[98]
Practice Note: DHS will value an undivided interest in real property by multiplying the tax assessed value by the proportion of ownership of the client. This is subject to challenge (probably at a fair hearing), on the ground that the actual market value is less due to the existence of co-owners.
5 Joint Bank Accounts
If a client has a joint bank account and can legally withdraw funds from it, all the funds in the account are considered a resource of the client. However, this is only a presumption, and the client must be allowed an opportunity to prove that some or all of the funds are the property of someone else.[99]
Practice Note: Funds in a financial account are owned in proportion to the net contributions by the respective parties to the account, unless there is clear and convincing evidence of a different intent.[100] Therefore, if Daughter contributed 60% of the funds to an account on which she and Mom are both parties, only the 40% contributed by Mom is Mom’s resource. Where two parties have utilized an account over a period of time, it may be necessary to analyze every deposit and withdrawal to determine the current percentage of ownership.
6 Trusts
Generally, property in a trust is a resource if the client has the authority to revoke the trust; or if the trustee has discretion to make distributions to the client, and the client contributed the property to the trust. See IV.J. on trusts for more detail and for descriptions of some important "exception" trusts.
7 Discovery of Unknown Assets
If a client is unaware that he or she owns an asset, it is not a resource during the period the individual was unaware of ownership. It is counted as income in the month of its discovery, and if it is not spent down during that month, it will be a resource as of the first day of the next month.[101]
8 “Conversions of Resources” and “Lump Sums”
If a client converts one type of property to another, the new property is counted as a "resource" or not according to the policy regarding that type of property. Any cash received from the sale of a resource is considered a resource, not income.[102] By contrast, a "lump sum payment" other than from conversion of a resource is countable income in the month of receipt (so will usually result in at least one month's disqualification) and is a countable resource thereafter.[103] Examples of “lump sums” would be inheritances, death benefits, personal injury awards, and payments of retroactive public benefits. However, death benefits are excluded as income when they are used to pay the last illness and burial expenses of the deceased; and they are excluded as resources except to the extent they have not been so used by the first day of the second calendar month after the month of receipt.[104]
Practice Note: These rules are extremely important. A common example of “conversion of resources” occurs when an automobile is sold. Usually, the client can avoid any loss of eligibility, especially if the amount is relatively small. If the payment is a “lump sum” as defined above, it will count as income in the month of receipt so will ordinarily disqualify the client for that month.
With either a “conversion” or a “lump sum,” try to have the payment made as early in the month as possible so the client has as much time as possible to "spend it down" before the first day of the next month. For example, the client may pay debts or may purchase exempt property (discussed below) or may prepay for services to be received in the future. Anything left at the beginning of the next month will be a countable resource and will disqualify the client if total resources exceed $2,000.
The same considerations apply to "lump-sum payments" such as gifts, inheritances, personal injury awards and lump-sum payments of retroactive benefits, except the client will lose at least a month of eligibility because the payment counts as "income" in the month of receipt. Regarding inheritances, see the discussion above under "Requirement of Accessibility" for principles determining when an inheritance is "available."
9 Proceeds of Insurance on Excluded Resources
Insurance proceeds resulting from losses to excluded resources (for example, the residence or an excluded automobile) are not counted as resources, provided they are used to repair or replace the excluded resource. Such use must be within 6 months for personal property and within 9 months for real property.[105]
10 Life Estates and Remainder Interests
If countable, these interests are presumptively valued according to the life estate holder's age and the equity value of the property, by application of a table of values in Appendix X to the Medicaid Eligibility Handbook. The client may rebut this presumption.[106]
11 Excluded Resources
The following is a summary of types of property excluded from consideration as "resources." It is not intended to cover every detail in the legal sources but rather to provide a plain-language checklist and source of citations.
Planning Technique: Converting property from countable "resources" to assets excluded from being counted as resources is a major planning technique. It is the primary way of reducing resources quickly so as to qualify as soon as possible. Other options: (1) pay debts (especially the home mortgage) and (2) prepay for services to be performed in the future (e.g., legal services, beauty shop, rides, personal care, etc.).
1 The home
One principal place of residence is excluded.[107] The following rules apply:
(1) Intent to return required. The fact that the client lives in a nursing home does not preclude exclusion of a home. What is required is that the client express an intent to return to the home on Form 1245, Statement of Intent to Return Home. If the client lacks capacity to do this, it can be done by a relative, representative payee, legal guardian or physician. The caseworker must also obtain a corroborating statement from one of those persons. Neither the law nor the Texas agency's practice requires that there be any particular likelihood that the client will in fact be able to return home.[108] If a spouse or dependent relative (in certain specified degrees of kinship) lives in the home, it is excluded, apparently without any intent of the client to return.[109]
(2) Home must be in Texas (usually). A home located outside Texas cannot be excluded.[110] However, if the community spouse lives outside Texas, his or her home can be excluded for the purpose of initial eligibility, subject to the requirement that title be transferred to the community spouse before the first annual review.[111]
(3) Sale of the home. Placing the home on the market for sale does not make it a resource. If the client is purchasing a replacement home, the proceeds of the sale of the original home are not countable resources until the end of the third full calendar month following the month of their receipt.[112]
2 Burial spaces
A "burial space" or agreement that represents the purchase of a burial space held for the burial of the client, his or her spouse, or any other member of the client's "immediate family" is excluded, regardless of value. "Burial space" includes a burial plot, grave site, crypt, mausoleum, casket, urn, niche or other repository, plus reasonable improvements or additions including vaults, headstones, markers or plaques, caskets, arrangements for the opening and closing of the grave site, and contracts for maintenance of the grave site. "Immediate family" includes the client's spouse, minor and adult children, stepchildren, adopted children, brothers, sisters, parents, adoptive parents, and the spouses of those individuals. It does not include grandchildren or the client's spouse's immediate family. If the relationship is by marriage only, the marriage must be in effect for the exclusion to apply.[113]
3 Burial funds
A maximum of $1,500 of separately identifiable burial funds, plus interest or other earnings after designation, is excluded. Such funds may be in cash, financial accounts, securities or revocable burial arrangements. The designation is done on DHS Form 1252. The value of irrevocable burial arrangements and face value of excluded life insurance is set off against the $1,500 exclusion. The designation can be made retroactively, and caseworkers are instructed to allow clients to do so if that will make them eligible.[114]
4 Prepaid burial contracts
An irrevocable, prepaid burial contract is excluded, regardless of value.[115] All prepaid burial contracts sold before September 1, 1993 were required by law to be revocable as to 90% of the proceeds. Therefore, unless such a contract is made irrevocable, 90% of its value counts toward the $1,500 burial fund minimum.
Technique: To maximize the amount paid for funeral and burial planning, purchase a prepaid funeral contract and all the qualified burial spaces the client desires.
Practice Note: If the client already has a contract that is revocable (which is true of all such contracts issued before September 1, 1993, to the extent of 90%), ask the funeral home for a form to make it irrevocable. If the client is buying a contract for the first time, be sure the funeral home understands that it is to be both prepaid and irrevocable. Most funeral homes have these forms. In any case, obtain a copy of whatever is signed, to be sure the right form is used.
5 One automobile
(1) Unmarried individual, or married and both spouses eligible: The value of one automobile is excluded, to the extent of $4,500. If the vehicle is worth more than $4,500, the value over $4,500 is counted as a resource. However, the automobile is excluded without regard to value if it is used for any of the following:
Transportation to or from work or in a trade or business by the client or spouse; or
Transportation of a handicapped individual, and the automobile is especially equipped to permit the individual to drive it; or
Transportation for treatment for a specific or regular medical problem of the client, spouse, or any other member of the household (presumptively, an average of at least four times per year).[116]
(2) Married, one spouse in the community: one automobile is excluded regardless of its value or use.[117]
6 Household goods and personal effects
(1) Unmarried individual, or both spouses eligible: If the client's equity in these items exceeds $2,000, it is counted as a resource. However, caseworkers are instructed not to develop the value of household goods and personal effects unless a client lists items exceeding $500 on the Medicaid application (Form 1200) or discusses these items in the interview. Further, the instructions state that items used for everyday living, such as a set of silver or an antique table, are not counted.[118]
(2) Married, one spouse in the community: all personal and household effects are excluded, regardless of value.[119]
7 Life insurance
(1) Term insurance (no cash value). All is excluded, regardless of amount of death benefit.[120]
(2) Cash value insurance (e.g., whole life, universal life): The cash value (not including dividend additions) is counted as a resource; provided, if the total face value of policies owned by the client (or a spouse, if any) is $1,500 or less, the cash value is excluded.[121]
Technique: If there is countable cash value insurance, determine whether there is an option to convert it to term. If that can be done, the countable value can be eliminated. There is no transfer penalty, as the client received fair market value. Otherwise, you will need to cash them in and spend down the proceeds; or take out a loan on the cash value and spend it down; or transfer ownership and incur a transfer penalty (if cash value of $2,511 or more is transferred). Consider carefully whether the client's life expectancy and the amount of the death benefit indicate that taking out a loan on the cash value would be prudent.
Practice Note: Many people have cash value insurance, often in numerous small policies purchased many years ago. Ask about them specifically and insistently, and obtain copies so you can determine yourself the cash value. Although you may be able to estimate the cash value from the policy, the best way by far is to fax the insurance company a copy of a form authorizing them to release information to you, and obtain the cash value (as well as convertibility to term) from them. Aggravating as these policies are, it is far better to deal with them before application than to have the caseworker discover them in the interview, which will often result in several months of lost eligibility.
This, in a nutshell, is the strongest argument for doing the application yourself rather than leaving it to the client. Some small resource is frequently discovered by the caseworker, in the interview or in the documents that must be filed with the application, and several months of eligibility go down the drain.
8 Livestock
Livestock that is maintained as part of a trade or business or exclusively for home consumption is not counted.[122]
9 "Resources essential to self-support"
This exclusion applies to certain types of property that produce income, which are excluded as resources, but the income they produce is counted like any other income.[123] This is divided into business property and nonbusiness property, as follows:
(1) Business property. Property used in the client's trade or business is excluded regardless of value or rate of return. The property must be in current use, or it must have been used previously and there must be a reasonable expectation of its being used again. It may be land and buildings, equipment and supplies, inventory, livestock, motor vehicles, and liquid assets needed for the business.
(2) Nonbusiness income property. "Nonbusiness" property such as rental property, leased farm property and income producing mineral rights is excluded to the extent its equity value does not exceed $6,000, and the client receives a net annual rate of return of at least 6% of the equity value. There is some flexibility if the rate of return drops below 6% due to "unusual or adverse circumstances."[124] Although the Texas regulations do not qualify the term "property," DHS applies it to exclude liquid resources, other than those used as part of a trade or business (money in the cash register or in the operating account). That interpretation is consistent with the federal SSI regulation on which this exclusion is based.[125]
(3) Nonbusiness property essential to self-support. Also excluded is personal property that a client uses in connection with his or her employment; and property used exclusively to produce items for home consumption that constitute a significant factor in the client's support and maintenance.[126]
Practice Note: The distinction between "business property" and "nonbusiness income property" is critical, because the former is unlimited in scope while the latter is limited to $6,000 (and then only if it is tangible and earns 6% income). For example, a farm (including land, buildings, equipment, livestock, etc.) owned and operated by a community spouse is completely excluded as a resource; but if the same farm is rented to a tenant farmer, it is counted as a resource.
The critical question appears to be whether the owner "materially participates" in the farm or other business. If so, the income should be reported on Schedule F (for a farm) or C (for another business) to the federal income tax return. Self-employment tax is due, and the property is exempt from consideration by Medicaid. However, if it is properly reported on Schedule E and Form 4835 as rental income, it is not exempt for Medicaid purposes.
10 Retirement Benefits
Both the Texas Medicaid Eligibility Handbook and the SSI rules provide, “Pension funds owned by an ineligible spouse or parent are excluded from resources for deeming purposes.”[127] However, DHS does not apply that rule to “spousal impoverishment” cases involving an ineligible spouse in the community, apparently on the theory that the spousal impoverishment provisions superseded the SSI rules.[128] Based on experience and oral tradition, the author believes DHS applies the following policies to retirement plans, such as IRA’s, Keogh and 401(k) accounts, deferred compensation and like programs:
The countable amount is the amount that could be withdrawn immediately after mandatory deduction for income taxes and early withdrawal penalties if any. (The mandatory deduction for income taxes is 20% for IRA’s but may be different for other types of retirement accounts.)
If the account can be withdrawn only upon termination of current employment, it is not countable.
Availability of a loan secured by the account does not make it countable. Therefore, the community spouse is not required to quit her job or take out a loan.
The retirement accounts of both spouses are treated the same under these rules (i.e., no exemption for pension funds of the community spouse, although they often can be exempted for the reasons stated above).
Practice Note: Scrutinize the relevant terms of retirement accounts early and well. Do it early so as to advise what part if any of an account will be considered in determination of the amount of the Protected Resource Amount (when exclusion of an account can result in a much smaller PRA). Do it well, by obtaining at least a printed plan description setting out conditions under which it can be withdrawn, and preferably the plan trust agreement itself.
9 "Spousal Impoverishment" Rules
1 Purpose of "Spousal Impoverishment" Rules
When one spouse goes into a nursing home, the other spouse's living expenses ordinarily continue much as before. If all the disabled spouse's income went to pay the nursing home bills, the spouse at home would usually have substantially less income than before; and if the spouses could have only $3,000 in resources between them, the spouse at home would be truly impoverished. This was in fact often the case before the law was changed effective September 30, 1989, and it resulted in many "Medicaid divorces." Accordingly, the purpose of the federal law effective that date[129] was to prevent "spousal impoverishment."
Comment: In the author's experience, that legislation has been quite effective in achieving its purpose. When the spousal protections discussed in this outline are properly applied, in cases in which Medicaid eligibility is truly needed and desirable anyway, there is rarely an economic reason for divorce to establish eligibility. The author has seen only three cases in which a divorce would be economically advantageous for purely Medicaid reasons. All three involved second or subsequent marriages in which the community spouse had substantial separate property--and none of the three couples decided to divorce for this reason.
2 Eligibility for Spousal Impoverishment Rules[130]
1 Institutionalization beginning on or after September 30, 1989
One spouse (the "institutionalized spouse") must have resided in a "medical institution or nursing facility" for at least 30 days beginning on or after September 30, 1989. If institutionalization began before that date and has been continuous since, the rules in effect before that date apply.
Technique: If the institutionalized spouse is ineligible solely due to excess resources, and spousal impoverishment rules do not apply because the nursing home stay began before September 30, 1989, transfer all property to the community spouse in a marital property agreement. The transfer is not penalized because it is to a spouse, and the property is not deemed to the institutionalized spouse because spousal impoverishment rules do not apply. There is no limit to the amount of property the community spouse may own in this situation.
Technique: If you want the spousal impoverishment rules to apply to someone who has been continuously institutionalized since before September 30, 1989, and if it is medically feasible, bring them home for 30 days. When they return to the nursing home, it will be a new period of institutionalization, covered by the spousal impoverishment rules.
2 One spouse (the "community spouse") is not institutionalized
The community spouse must not be in a "medical institution" or "nursing facility."[131] As long as medical services are not included in the basic monthly fee, a personal care home (or the personal care part of a continuous care retirement center) is not a "medical institution," so a spouse living in such a facility is a "community spouse."[132]
3 Limitations on Income
See VII.E.3. above for discussion of this topic; and see VII.E.4. regarding Miller Trusts and VII.E.5 regarding annuities. For discussions as to what income of the institutionalized spouse is made available to the community spouse see VII.I.5. below.
4 Limitations on Resources
In summary, all resources of both spouses are combined. A "protected resource amount" for the community spouse is then determined, according to the rules discussed below. Then, within the first year of eligibility, all countable assets in excess of $2,000 must be transferred to the community spouse. The following is a summary of the specific rules:
1 When the protected resource amount is calculated
DHS takes a "snapshot" of all the countable resources of both spouses, as of 12:01 a.m. of the first day of the month in which the first continuous period of institutionalization on or after September 30, 1989 began.[133]
Practice Note: When applying the spousal impoverishment rules, you usually have to assess resources on two dates: the PRA "snapshot" date, and the date to be tested for eligibility. They will be the same only in cases in which total resources are below the minimum amount (explained below), or you are requesting an increase in the PRA (also explained below). The resources as of the "snapshot" date go on Form 1272, and the resources as of the eligibility date go on Form 1200. It may not be necessary to file Form 1272 if you are filing Form 1200 at the same time, but it appears to be a good way of making clear the difference between the values on the snapshot date and the date to test for eligibility (and some workers say they prefer that both forms be filed in all cases with a “community spouse.”
2 How the protected resource amount is calculated
(1) All property is included, without regard to its characterization as community or separate.
(2) The PRA is the greater of
One-half the couple's combined countable resources, not to exceed the maximum set by federal law ($81,960 in 1999) or
The minimum set by federal law ($16,392 in 1999).
Examples:
1. If combined resources total $200,000, PRA is $81,960.
2. If combined resources total $100,000, PRA is $50,000.
3. If combined resources total $20,000, PRA is $16,392.
Practice Note: Remember that in addition to the PRA, the institutionalized spouse can have a maximum of $2,000 in resources. Therefore, for example, if the PRA is the minimum of $16,392, the total both spouses can have together is actually $18,392.
The minimum and maximum PRA amounts applicable to a particular couple depend on the year in which the “snapshot date” occurs. Therefore, if the institutionalized spouse went into a nursing home before 1999, consult the Handbook for the correct amounts.[134]
3 How the PRA can be increased to provide for the spousal allowance
(1) The spousal allowance. Federal law provides for a "minimum monthly maintenance needs allowance" for the community spouse, which in 1999 is $2,049 per month if the other spouse is in a nursing facility. If the community spouse's income (including that spouse's investment income but not including any income of the institutionalized spouse) is less than that amount, the community spouse is entitled to keep a "spousal allowance" consisting of enough of the income of the institutionalized spouse (after deduction of the $30 personal needs allowance of the institutionalized spouse) to give the community spouse the full spousal allowance (unless the community spouse elects to give up some income in order to keep more resources, as discussed below). The rest of the income of the institutionalized spouse, if any, goes to incurred medical expenses and applied income (i.e., to the nursing home).
(2) The right to a PRA increase to provide for the spousal allowance. In some cases, all the income of both spouses together is insufficient to give the community spouse the full spousal allowance. If either spouse establishes this, DHS is required to increase the PRA to an amount sufficient to provide the full minimum monthly needs allowance.
A new DHS rule has the following essential provisions:[135]
The total resources that can be protected are equal to cost of a one-year CD that will produce enough interest, when added to the couple's total noninvestment countable income, to give the community spouse a total of $2,049 per month income (in 1999).
The formula is: annual income needed X 100 divided by interest on one-year CD = maximum dollar amount of resources to be protected.
The interest rate to be assumed in doing the calculation is the rate of a one-year CD as published in the local paper or as provided by a local bank.
This formula is used regardless of the actual income paid by the couple's resources; and they need not actually buy a one-year CD.
In determining the amount to be paid from the institutionalized spouse's income to the community spouse after eligibility, the caseworker uses the actual dollar amount being produced by the investments if it is in excess of the amount a one-year CD would produce; but if it is less than that amount, the caseworker uses the amount a one-year CD would produce.[136]
The total protected may not exceed the total of the couple's resources on the "snapshot date."[137] (Therefore, the Community Spouse should take care not to be so frugal or financially successful as to improve her status within the first year after the date of issuance of the notice of eligiblity, lest she lose eligibility as a result.)
This procedure is apparently not available in most Community Based Alternatives cases, because the spousal allowance in those cases is only the amount of the SSI benefit rate ($500 per month in 1999). This is somewhat balanced by the fact that the “personal needs allowance” in CBA cases is three times the SSI benefit rate ($1,500 per month). Therefore, both spouses together can have almost as much as one spouse when the other is in a nursing facility; but as the Department currently interprets the rules, the PRA can be increased, if at all, only by enough to give the ineligible spouse $500 per month in income rather than $2,049 per month under the nursing home program.
Example: The total of the noninvestment incomes (e.g., Social Security and pension incomes) of both spouses is $1,700 per month. After the $30 per month personal needs allowance and $70 per month Medicare supplement insurance premium, $1,600 is left.[138] A local bank offers one-year CD's with an interest rate of 5% per annum.
Income needed = $2,049 - $1,600 = $449/month X 12 = $5,388/year
PRA = $5,388 X 100 = $538,800 ( 5 = $107,760
Practice Note: The PRA can be increased only through a "fair hearing" (discussed below under "Procedural Matters"). That means it is necessary to apply, have the application denied, and appeal the denial on the ground that the PRA should be increased. Be sure the client understands that the application will be denied and why it is necessary to do it this way.
(3) The right to "shift resources first" to provide for a PRA increase. The federal provision that requires the spousal allowance for the community spouse out of the income of the institutionalized spouse qualifies the requirement as follows: "...only to the extent income of the institutionalized spouse is made available to (or for the benefit of) the community spouse."[139] Under the federal rules and the recently adopted DHS procedure, the institutionalized spouse may limit the amount of his or her income made available to the community spouse in order to make the community spouse eligible for an increased PRA under the formula discussed next above.[140] The only requirement is that there must be a “diversion from the institutionalized spouse” of at least $1.00.[141]
Technique: Determine whether the spouses' combined incomes are low enough to protect all their assets under the rule providing for increasing the PRA to meet the minimum monthly needs allowance. (See (2) above.) If not, discuss with clients the following options:
(1) "spending down" to the PRA (e.g., by paying debts and buying exempt assets);
(2) "shifting resources" as described above; and
(3) purchasing an annuity for the community spouse (discussed at IV.E.3. above)
If the clients decided to "shift resources" (which may be in addition to "spending down" as far as possible), be sure they understand that the Medicaid application will be denied initially. Appeal the denial, and make your argument at the fair hearing, providing your calculations as to how much income should be withheld to increase the PRA so as to protect all remaining assets. The desired result at the hearing is an order reversing the denial of eligibility, providing for retroactive eligibility, stating the amount of income to be withheld from the institutionalized spouse, and setting the new PRA.
Example: Same example as in (2) above, except instead of $1,600 in combined available (after deductions) noninvestment income, the spouses have $2,000. Assume they have $120,000 in resources. To keep all their resources, the institutionalized spouse needs to withhold enough income so the amount available to the community spouse, including all the investment income, does not exceed $2,049.
Investment income imputed = $120,000 X .05 ( 12 = $500/month
Noninvestment income kept = $2,049 - $500 = $1,549/month
Applied income (to nursing home) = $2,000 - $1,549= $451/month
Practice Note: This is a powerful technique whenever assets are left over after the home mortgage (if any) and other debts are paid, and all needed home improvements and other needed exempt items have been bought. It is arguably always to the advantage of the community spouse to "trade income for assets" this way, because if the institutionalized spouse dies first, the assets will still be there; and the death of the institutionalized spouse usually reduces the total income of the couple.
(4) The right to increase the minimum monthly maintenance needs allowance. If it is established at a fair hearing that the community spouse needs income above the level of the minimum monthly needs allowance ($2,049 in 1999), due to "exceptional circumstances resulting in significant financial duress," the minimum monthly needs allowance can be increased.[142]
Technique: If the community spouse has unusual expenses, such as unreimbursed medical expenses or high debts, and if the institutionalized spouse has sufficient income available, consider applying this rule. Procedure is the same as for requesting an increased PRA (see b. and c. above).
4 Post-Eligibility Treatment of the Community Spouse’s Resources
The federal statute clearly states that after eligibility is established, “...no resources of the community spouse shall be deemed available to the institutionalized spouse.”[143]
Texas, however, has an unwritten, informal policy[144] understood by the author to be as follows:
Between the certification date (date of notice of eligibility, not effective date of eligibility) and the first annual review, the protected resource amount (plus $2,000 as the “personal exemption” of the institutionalized spouse) continues to limit the amount both spouses can have while maintaining eligibility; provided, separate property acquired by the community spouse (e.g., by gift, will, inheritance or beneficiary designation) is not counted.
If the community spouse manages to save enough funds during this period to exceed this total, the institutionalized spouse may lose eligibility.
Likewise, if the community spouse sells the residence and the proceeds cause the total to exceed the protected amount, eligibility is jeopardized
After the first 12 months of eligibility (or perhaps, after the first annual review), the federal law is applied.
If the Institutionalized Spouse receives funds or property (e.g., by inheritance or settlement) at any time after eligibility, it will be income in the month of receipt; but as soon as it is transferred to the Community Spouse, it will not count as a resource of the Institutionalized Spouse—unless, perhaps, the transfer occurs in the first year after certification.
If the Community Spouse transfers anything within the first year after certification, a transfer penalty may be assessed against the Institutionalized Spouse; but not if the transfer is after that first year.
Comment: The policy outlined above is sometimes explained differently by different representatives of the Department. Such policies can cause clients to go from frustration to rage at the Department, at government in general, and even at their own attorneys. Elder Law attorneys and Department officials have a common interest in reducing these policies to clear regulations, consistent with the federal law. That has been done recently regarding trusts, annuities, transfers and notes, to beneficial effect for all involved.
5 Special rule applying to the Community Based Alternatives Program
In the Nursing Home program, the PRA never changes. It is based on the countable resources of both spouses as of the first day of the first month one goes into a Medicaid-certified nursing home, and it will be the same regardless of when the application is filed.
However, in the Community Based Alternatives Program, in most cases, nobody goes into a nursing home. The PRA is based on the countable resources of both spouses as of the first day of the first month one spouse applies for assistance. If the application is denied because the couple has not yet spent down, and they reapply, then a new PRA is determined, based on countable resources on the first day of the month of the new application. This despite state and federal law declaring that the spousal impoverishment protections apply to the Community Based Alternatives Program.[145]
Logically enough, some caseworkers have interpreted this to mean that nobody will ever be eligible for the CBA program until the spouses have spent down to the minimum PRA (currently $16,392), plus the $2,000 personal exemption. That is clearly not the rule.
Technique: This problem can be avoided if the couple spends down very quickly, between the time the application is filed and the time it is acted upon. For example, a couple with $100,000 in countable resources can still keep $50,000 (plus the $2,000 exempt amount) by paying $48,000 on a home mortgage, home improvements, etc. before the caseworker gets around to denying the application.
Another technique that has been suggested (but not yet applied by the author) is for the applicant spouse to establish “insitutionalized spouse” status by entering a nursing home for at least 30 days, then transfer to the Community Based Alternatives program. This could also have the effect, in areas where such transfers are given priority, of avoiding the customary waiting list for CBA (while saving the Medicaid program money, as CBA always costs at least 5% less than nursing home care to the program). Eligibility workers are currently saying that the nursing home stay must be for at least 6 months to avoid the waiting list.
10 Transfer ("Gifting") Rules
1 Nature and Purpose
If there were no restrictions on making gifts, many individuals would become eligible for Medicaid simply by giving their assets to family members. Therefore, to protect the integrity of the program, the federal statute requires states to penalize transfers for less than fair market value.
The basic rule (subject to exceptions discussed below) is that a person making a transfer for less than fair market value is ineligible for Medicaid for one month for every $2,511 gifted. The $2,511 amount represents DHS' estimate of the average private-pay cost of nursing home care in Texas. The amount is different in every state and is changed from time to time (in Texas, on April 1 of recent years) with inflation.[146]
Practice Note: Whenever gifts exceeding $10,000 in value are made to any individual in a calendar year, a gift tax return should be filed. However, this dollar amount has nothing to do with whether or not there is a Medicaid transfer penalty.
2 Attempted "Criminalization" of Some Medicaid-Motivated Transfers
Effective January 1, 1997, it purportedly became a crime to knowingly and willfully dispose of assets in order for an individual to become eligible for Medicaid, if disposing of the assets results in the imposition of a period of ineligibility.[147] This provision was amended, effective August 5, 1997, to purport to criminalize only counseling or assisting such conduct for a fee.
However, enforcement of that law has been enjoined in New York State Bar Association v. Reno, 97-CV-1768-TJM-DRH, (S.D.N.Y.). Before the injunction issued, the U. S. Attorney General announced that she would not defend the constitutionality of the law, because “the counseling prohibition in that provision is plainly unconstitutional under the First Amendment and because the assistance prohibition is not severable from the counseling prohibition.” However, the Attorney General offered to assist Congress in drafting legislation that would address its concerns in a consitutional way. On September 14, 1998, the Court entered a permanent injunction. In April 1999, the Attorney General withdrew her appeal.
Comment: The proponents of this law accomplished their purpose simply by having it on the books, creating fear and uncertainty regarding the Medicaid law. Therefore, it would not be surprising to see it reappear in another form. Until that time (or perhaps, until a new Attorney General takes office) it appears that attorneys may discharge their obligation of providing complete and accurate legal counsel regarding Medicaid-motivated transfers of assets without fear of criminal prosecution.[148]
At the same time, as argued elsewhere in this article, inducing and encouraging older and disabled persons to dispose of their assets to become eligible for Medicaid would in many circumstances be highly detrimental to their interests. The ethical practice is in the middle ground of ensuring client capacity to make the decision, providing accurate and objective information, and encouraging an informed decision that is truly the client’s. See the discussion of ethical issues at VII.C.3. above.
3 Medicaid Programs Subject to the Transfer Penalty
The following Texas programs are subject to the transfer penalty:
a. Nursing Home Medicaid (SSI-Related MAO, Type Program 14)
b. Community Based Alternatives Program (1915(c) Waiver Program)
c. CLASS Program (also a 1915(c) Waiver Program)
d. Home and Community-Based Services (HCS, involving mental retardation)
The following Texas programs are not subject to the transfer penalty:[149]
a. Community Care (e.g., Family Care, Primary Home Care)
b. Medicaid attached to Supplemental Security Income (SSI)[150] and Temporary Assistance for Needy Families (TANF)
c. Qualified Medicaid Beneficiary Program (QMB) and Specified Low-Income Medicaid Beneficiary Program (SLMB)
Technique: If all the client needs is personal care at home, available through the Community Care programs, gifting modest amounts of property may make sense. There is no penalty period, and eligibility is immediate (assuming the income and other requirements of the program are met). Remember, though, that if the client later needs more assistance at home through the Community Based Alternatives Program, or needs nursing home care, the transfer penalty will apply.
4 Only Transfers Within the "Lookback Period" Are Subject to Penalty
Only transfers within the "lookback period" are subject to penalty. That period ends on the date a Medicaid application is filed (or, if later, date of entry into a nursing home or other medical institution) and begins--
1. 60 months earlier, for transfers from or to most trusts.[151]
2. 36 months earlier, for all other transfers
Technique: Transfer an unlimited amount of property, then wait the applicable period from the date of the transfer before applying for Medicaid. Essentially, if the transfer is to an irrevocable trust whose corpus cannot be disbursed to or for the benefit of the client (i.e., whose corpus is not counted as a resource of the client), the waiting period is 60 months. For transfers to one or more individuals, it is 36 months.
Note that under current rules, in Texas, there is less than a 36-month penalty period if the transfer is less than 36 X $2,511 = $90,396.
Note also that if an application is filed within the lookback period, the possible limitation on penalties offered by the limited lookback period is lost. For example, if a client transfers $200,000 to an individual then applies for Medicaid 35 months later, the total penalty period will be $200,000 ( $2,511 = 79 months. Had the client waited only one more month, the transfer would have been outside the lookback period so would have been disregarded. This is a trap for the unwary.
Practice Note: Notice that a gift made from a revocable trust is subject to a 60 month lookback period. However, if this is the only problem, it can be overcome rather easily by a competent client (or one with an agent acting under a broad power of attorney with gifting powers), by transferring the asset from the trust to the client, then having the client make the gift.
5 Certain Transfers Excepted From Penalty
The following transfers are not subject to transfer penalties:[152]
1. Transfers of a home to
a. The client's spouse; or
b. A child of the client who is (1) under age 21 or (2) blind or permanently disabled; or
c. A sibling of the client who has an equity interest in the home and who resided there for at least one year immediately before the date the client became institutionalized; or
d. A son or daughter of the client who was residing in the client's home for at least two years immediately before the date the client became institutionalized and who provided care to the client which permitted the client to reside at home rather than in an institution or facility.
2. Any transfers to the client's spouse or to another for the sole benefit of the client's spouse (e.g. trusts and annuities)
3. Any transfers from the client's spouse to another for the sole benefit of the client's spouse (again, trusts and annuities)
4. Any transfers to a trust established solely for the benefit of the client's blind or disabled child (regardless of age of the "child"), or to such a child of the client directly.[153]
5. Any transfers to a trust established solely for the benefit of an individual under 65 years of age who is disabled
6. Any transfers of income to a Miller Trust
7. Transfers in which the client intended to dispose of the property at fair market value (even if actual consideration turned out to be less)
8. Transfers made exclusively for a purpose other than to qualify for Medicaid
Technique: If a transfer creating an unwanted penalty period has already been made, determine whether it was made exclusively for some purpose other than qualification for Medicaid. If you can prove that at a fair hearing, the penalty period will be avoided.
9. Transfers of property that has since been returned to the client[154]
Technique: If all else fails, an ill-advised transfer can usually be reversed, allowing you to start over with a better technique. Because the rules allow partial reduction of the transfer penalty by a partial return of the asset, the client can accept a partial return resulting only in a penalty period that has already run. The client may then spend down the amount returned on exempt assets if desired.
6 Legal Capacity Requirement for Gifting
Legal capacity required. Like any other legal transaction, a gift is invalid if the donor did not understand the nature and purpose of the transaction at the time of the gift. The transaction may later be attacked by family members or others by civil suits or even in criminal proceedings. Other grounds, such as undue influence and unconscionability, may be asserted.
Specific gifting powers required in durable power of attorney. An agent under a general and durable power of attorney arguably does not have power to make transfers for less than adequate consideration in Texas, unless the instrument makes a specific grant of such power.[155] Even a guardian may not make a gift on behalf of a ward, except for certain court-approved tax-motivated and charitable transfers and, effective September 1, 1997, for education and maintenance of a ward’s spouse and other dependents. The latter provision appears to allow transfers to the community spouse, if approved by the guardianship court.[156]
Practice Note: Donor capacity is a threshold issue whenever gifting is considered. No capacity, no specific gifting power in a durable power of attorney (or revocable trust), no gift.
Technique: When drafting durable powers of attorney, particularly with older clients, discuss with the client the possible need for gifting powers. Such needs may include continuation of family or charitable gifting, gifting for reduction of federal income and estate taxes, and lawful gifting for Medicaid purposes. Some points to consider:
1. The gifting clause should be tailored for the purposes intended, to avoid making it too broad or too narrow.
2. If gifting to the agent is desired, avoid giving the agent the power to gift to himself or herself. That would be a "general power of appointment" putting all the principal's property (or the maximum value of the possible gifts, if less) in the agent's gross estate for estate tax purposes--potentially disastrous if the agent dies before the principal with a taxable estate. Instead, appoint a special agent to make gifts to the primary agent.
3. If gifting of particular real property is anticipated, include a description of the property. Contrary to law and reason, some title companies still require it.
7 Rules for Calculating the Penalty Period
1 Transfer of Resources Penalty Period
This DHS rules are contained in the Medicaid Eligibility Handbook.[157] In summary, here is how to calculate the penalty period in any transfer for less than fair market value:
a. Determine the difference between the value of the property or money transferred, and the value paid (if any) to the client. If the client received nothing, use the full value of the asset(s) transferred.
b. Divide that number by $2,511 (or whatever number is effective at the time of the application).[158]
c. Round down to a whole number of months.
d. Count the month in which the transfer is made as a penalty month (even if it was on the last day of the month).
e. The first date on which eligibility can be established despite the transfer is the first day of the first month after the penalty period. (Remember that if the penalty period is more than the look-back period of 36 or 60 months, discussed above, the client can simply wait to file the Medicaid application until after the lookback period has passed. If that is done, the lookback period is in effect a maximum period of ineligibility.
2 Treatment of multiple transfers
If there are multiple uncompensated transfers in which the penalty periods overlap, all such transfers during the lookback period are totaled, and the total value is divided by the average private pay cost (currently, $2,511), to calculate the penalty period.[159] This prevents application of the pre-OBRA 93 rule that allowed penalty periods of multiple transfers to run concurrently, thus allowing disposal of a much larger amount of property in a given time period.
However, if the penalty periods of two transfers do not overlap, they are treated as separate transfers.[160] This is designed to prevent clients from making a small transfer to "start the clock running," then making a larger transfer later if Medicaid eligibility is needed, and including the entire period between the two transfers as a penalty period.
Technique If the client does not yet need Medicaid but wants to make transfers, consider making monthly transfers just under two times the private-pay rate (presently, under 2 X $2,511 = $5,022). This works because a there is no partial month penalty (you round down after dividing by $2,511, and as long as the penalty period is exactly one month, there are no “overlapping” penalty periods that would require aggregating the various transfers. For example: A gift of $5,021 on January 30 creates a penalty period of $5,021 ( $2,511 = 1.9996, which when rounded down, is one month’s ineligibility. Because the month of the transfer counts as a penalty month, the transfer will not preclude eligibility on February 1—nor will it preclude the client’s making another transfer for $5,021 at any time in February and waiting until March (or any later month) to apply.
This avoids the possibility of any penalty at all, while allowing transfer of substantial assets if many months elapse before Medicaid is needed. It is a good substitute for lump-sum gifting and "half-a-loaf" gifting, both of which run some risk of creating poverty and ineligibility at the same time (as discussed below). However, DHS may at some time begin penalizing gifts under $2,511 with partial months of ineligibility. Therefore, it would be prudent to keep a list of clients who may be applying this technique so as to be able to warn them if at some point it begins creating almost twice the penalty period expected.
Technique: If the client needs long term care immediately and wants to accelerate eligibility by transfers, consider transferring an amount small enough to leave sufficient savings to pay living expenses during the penalty period. This is sometimes called the "half-a-loaf" technique, because the amount transferred may be approximately half of countable resources. The exact optimum amount to transfer depends on the amount of living expenses and the amount of income and can be calculated algebraically, preferably on a computer spreadsheet; or you can work it out by trial and error.
One advantage of this technique over transferring all countable resources, either monthly or all at once, is that the client incurs only approximately half the penalty period. An additional advantage over transferring all at once is that the client maintains control of enough resources to pay living expenses during the penalty period without having to rely on someone else. Given the risks involved in gifting (discussed below), it is hard to justify exposing the client to a penalty period in which he or she must rely on someone else for living expenses.
Practice Note: Medicaid planning requests commonly come in the form of requests for advice on how to give away property so as to become eligible for Medicaid--and the person calling is usually a potential donee. If the attorney represents the potential donor (which the author advocates doing, unless the donor already has qualified legal counsel), the attorney should present clearly and forcefully the potential costs and risks of gifting. Here is my list, along with some techniques for reducing (but never eliminating) the risks:
1. The donees may squander the property (no matter how earnestly they plead they won't, nor how firmly the client believes they won't). (Partial safeguard: put it in a joint accounting requiring more than one signature, thus increasing risk #2 below.)
2. The donees' creditors (present or future, known or unknown, in or out of bankruptcy) may seize it. (Always ask about solvency and possible exposure of potential donees to creditors.)
3. The donees may refuse to return funds to the donor on request, in the donor's "best interests." The donor must absolutely and finally part with legal control over the property.
4. A spouse of a donee may take it, either directly or through divorce proceedings as a result of intermingling with community funds.
5. A donee may die before the donor, leaving the property to an inappropriate person. (This risk can be minimized by having the donee execute a will with a special needs trust funded by an amount equal to the value of the property transferred.)
6. If the transfer is of appreciated property (e.g., stocks or real estate), the donee takes the donor's basis, rather than taking a stepped-up basis at the donor's death. Thus, the capital gains tax ultimately generated by the transaction may be quite substantial.
7. Family jealousy and conflict may result from the way the property is distributed and/or the way it is managed by the donees. Complaints of undue influence and exploitation may be made against all involved in the transaction--including the attorney.
8. The law may change at any time, lengthening the lookback period or otherwise increasing the penalty, and it may be applied retroactively.
9. Medicaid eligibility has certain inherent disadvantages in any case. See II.A. for a discussion.
The bottom line: In the author's experience, gifting that creates a substantial penalty period is usually not advisable--even apart from the risk of criminal prosecution (which is at this writing, but perhaps only temporarily, abated).
3 Application of the transfer penalty to purchase of annuities
See VII.E.5. above.
11 What Happens To Client Income After Eligibility
1 The Process Of “Determining Applied Income”
After eligibility is established, the DHS caseworker determines what is to be done with the client's income.[161] DHS calls this "determining applied income," because that part of the client's income that must be paid to the nursing facility or other provider is called "applied income." Ordinarily, the applied income is less than the Medicaid-approved rate charged by the nursing facility, and the Medicaid program pays the balance.
A similar process occurs in the Community Based Alternatives program, in which the amount paid by the client is called a “copayment.” Essentially, under that program, the client may keep the an amount equal to the income cap ($1,500 in 1999); and in addition, if the client is married to an ineligible person, the spouse can have a spousal allowance equal to the SSI federal benefit rate ($500 in 1999) minus income paid in the name of the spouse.[162] Any additional income must be paid as a copayment. Since a client with more than $1,500 per month income can be eligible only by use of a Miller Trust (unless the income can be shifted with a QDRO, which would ordinarily reduce it to below the income cap), it appears that the copayment provisions apply only in Miller Trust cases.
Practice Note: In cases with a community spouse, it is often critical to anticipate what DHS will do in the applied income determination. As discussed above, this is the process in which it is determined how much (if any) of the institutionalized spouse's income the community spouse may keep. That in turn may determine whether or not the Protected Resource Amount can be increased in order to give the community spouse the full minimum monthly maintenance needs allowance (currently, $2,049 per month).
2 Calculation of Net Income
To the extent applicable, the following mandatory deductions are disregarded (treated as already distributed) in the applied income determination: income tax, Social Security tax, required retirement withholdings, and required uniform expenses. (Note that these deductions are not made when calculating income for the eligibility determination.)
3 Unmarried Clients
Income of unmarried clients is distributed according to the following priorities:
1. Personal needs allowance ($30, except for certain veterans’ benefits capped at $90 per month)
2. Guardian fee allowance, if any
3. "Incurred medical expenses" (Medicare and other general health insurance premiums, deductibles and coinsurance; and cost of medical care and services not covered by Medicaid, such as dental care)
4. Applied income
5. If any income remains, the client has the option of using it for his or her own needs. (This last category is likely to apply only when a Miller Trust is being used to allow a person with income over the income cap to qualify.) There is no limit on the amount that can be used for medical services (including services of a private health aide). Amounts used for other purposes count as income so cannot exceed in any calendar month the amount of the income cap (presently $1,500 per month). The trustee may allow it to accumulate in the trust (as long as this monthly contribution does not exceed $2,511 per month).[163]
4 Couples With Both Spouses Eligible
Where both spouses are Medicaid eligible and reside in the same nursing home, their income is aggregated and distributed according to the following priorities:
1. Personal needs allowance ($60, except for certain veterans benefits capped at $90 per month per person)
2. Guardian fee allowance, if any
3. "Incurred medical expenses" (Medicare and other general health insurance premiums, deductibles and coinsurance; and cost of medical care and services not covered by Medicaid, such as dental care)
4. Home maintenance allowance if applicable
5. Applied income
6. Any needs of the couple or other dispositions discussed above
5 Spousal Impoverishment Cases
Where there is an ineligible spouse in the community, only the net income of the institutionalized spouse is considered. The community spouse can keep all income coming in his or her name, without limit (although the amount of it will affect the amount of the institutionalized spouse's income the community spouse may keep). The institutionalized spouse's income is allocated according to the following steps:
1. Determine the net earned and gross unearned income of the institutionalized spouse.
2. Subtract the personal needs allowance of $30 and guardian fee allowance if any.
3. Add in the community spouse's net earned and gross unearned income.
4. Subtract the minimum monthly needs allowance (in 1999, $2,049).
5. If there are dependents, determine the dependent needs allowance.[164]
6. Subtract "incurred medical expenses" (Medicare and other general health insurance premiums, deductibles and coinsurance; and cost of medical care and services not covered by Medicaid, such as dental care)
7. Pay applied income to the nursing home.
8. Any remaining income should be paid to the community spouse.[165]
12 Trusts Affecting Medicaid Eligibility
1 General Rules on Trusts "Established By" The Client
1 History and purpose of trusts established by the client
In the past, the term "Medicaid Qualifying Trust" was sometimes used to refer to a trust into which the client transferred his or her property in order to qualify for Medicaid, while giving the trustee authority to distribute assets for the client's benefit for needs not met by Medicaid. The federal statute was then amended, using that term to apply to any self-settled trust in which the trustee had the discretion to transfer funds back to the settlor, and providing that all assets of such a trust would be treated as "available resources" of the settlor. Thus, such trusts became in reality Medicaid disqualifying trusts. The current statute (known popularly as "OBRA 93"), continues and refines this principle.[166]
Practice Note. The first thing to ask about a trust or proposed trust is, "Did the Medicaid applicant contribute the assets?" The second question is, "Does the trustee have authority to distribute to the Medicaid applicant?" If the answers to both questions are "Yes," the trust will not help with Medicaid eligibility, because the assets will be counted as resources of the applicant--unless the trust falls within one of the exceptions discussed below.
2 Definition of "established by" the client
A trust is "established by" an individual "if the assets of the individual were used to form all or part of the corpus of the trust and if any of the following individuals established such trust other than by will: (1) the individual; (2) the individual's spouse; (3) a person, including a court or administrative body, with legal authority to act in place of or on behalf of the individual or the individual's spouse; or (4) a person, including any court or administrative body, acting at the direction or upon the request of the individual or the individual's spouse." (emphasis added)[167]
Practice Note: The foregoing definition was probably intended to bring settlements of lawsuits within the restrictive rules governing trusts "established by" the Medicaid applicant. Therefore, the only way of reliably insulating such recoveries (primarily in personal injury suits) from consideration by Medicaid is to draft them as "Under-65 Supplemental Needs Trusts" (if the client is under age 65), or to contribute to a "Pooled Supplemental Needs Trust" (if the client is age 65 or over). Those "exception" trusts are discussed below.
A trust established with property owned by the spouse of a Medicaid recipient would seem at first glance not to be subject to these rules, because it is property of the spouse rather than the Medicaid recipient. However, under Medicaid law, the term “assets” is defined to include assets of the spouse as well.[168] Therefore, the language “by will” in the statute quoted above may be critical, and property in a supplemental needs trust created in a revocable trust may be treated as available to the surviving spouse. The preferable technique is, therefore, to use wills rather than a revocable trust for estate planning for a couple with one spouse who is likely to be on Medicaid, and make the gift of the other spouse to a supplemental needs trust rather than to the survivor (Medicaid-eligible) spouse directly.
Technique: If there is a community spouse, consider transferring all the institutionalized spouse's property to the community spouse in a marital property agreement (with deeds if real property is involved), and provide for a supplemental needs trust (discussed below) for the institutionalized spouse in the community spouse's will. If the community spouse dies first, the property will be available for the benefit of the institutionalized spouse, because it will fall under the "except by will" exception above. That is, the trust will be treated as having been established by someone other than the applicant. Another advantage of this arrangement is that it will probably avoid the risk of estate recovery (discussed below) at the death of the institutionalized spouse, in the event the community spouse dies first, because the trust property will not be in the institutionalized spouse's probate estate.
3 Rules applying to revocable trusts established by the client.[169]
(1) Corpus. The corpus is considered an available resource for Medicaid purposes. The statute could be interpreted to mean this includes even the home, which would otherwise be excluded from consideration as a resource.[170] However, the current practice of DHS (which is not contained in any rule) is to extend the residence exemption to a client's home even though the legal owner is a revocable trust.
(2) Income. Both income and assets withdrawn from a trust are treated as “income” for Medicaid purposes.
Practice Note: A revocable trust has the following potential disadvantages as an estate planning device if the grantor (or either spouse) applies for Medicaid:
1. The home, if there is one, may at some time in the future be found to lose its exclusion status.
2. A supplemental needs trust established in the revocable trust by a community spouse for the institutionalized spouse may be counted as a resource (although it should not be if established by will, as discussed immediately above).
3. Withdrawals of corpus are treated as “income.”
4. A gift from the trust is subject to a 60 month lookback period.
If the Medicaid planning client already has a revocable trust, consider carefully whether one or more of these considerations indicate it should be revoked and replaced with a will-based estate plan. If that is not currently necessary, be sure someone has a power of attorney giving the agent the authority to revoke the trust, in the event it becomes advisable in the future.
4 Rules applying to irrevocable trusts established by the client.[171]
1. Corpus. Any portion of the corpus from which payments may be made to the client is considered an available resource.
2. Income. Any portion of the income from which payments may be made to the client is also considered an available resource.
3. Payments from the trust. Payments from any portion of the corpus or income from which payments may be made to the applicant are considered income, if paid to the client; or if paid to anyone else, are subject to the transfer rules with a 60 month lookback period.
4. Transfer to the trust may be penalized. To the extent that the corpus or income may not be paid to or for the benefit of the client, transfers to the trust are subject to a transfer penalty (probably 60 months, as discussed above under "Transfer Rules").
5. Hardship exception. The federal statute requires States to establish procedures under which the agency waives these trust rules if the individual establishes that their application would "work an undue hardship" on the client.[172] HCFA defines this as follows: "Undue hardship exists when application of the trust provisions would deprive the individual of medical care such that his/her health or his/her life would be endangered. Undue hardship also exists when application of the trust provisions would deprive the individual of food, clothing, shelter, or other necessities of life."[173]
2 Exceptions to General Rules Governing Trusts "Established By" The Client
1 Under-65 Supplemental Needs Trusts.[174]
1. Purposes. The most common purpose of this type of trust is to insulate from consideration by Medicaid the proceeds of an award or settlement based on a legal claim, most commonly for personal injury. Another important purpose, especially where home care is involved, is simply to make the assets of the client go further by qualifying for Medicaid benefits before they are all used up.
2. Client eligibility requirements. This "exception" to the self-settled trust rules is available only to persons meeting the following requirements:
Under age 65 at the time the trust is established. After the client reaches age 65, the trust's "exception" status continues as to assets transferred into it before age 65, but assets cannot be added after the client turns 65.
Disabled as defined in the requirements for Social Security Disability or SSI benefits.
3. Trust requirements. The trust must meet the following requirements:
Established for the benefit of the client by a parent, grandparent, legal guardian of the client, or a court.
The State will receive all amounts remaining in trust upon the death of the client, up to an amount equal to the total Medicaid payments made for the client.
DHS currently requires the Medicaid lien to be satisfied before the trust is funded.
Although the statute is silent as to provisions for distributions of corpus to or for the beneficiary, it is probably necessary that such distributions either be entirely discretionary with the trustee, or limited to distributions that will “supplement and not supplant” public benefits.[175] If “support” requirements are included, Social Security or DHS may argue that the corpus is “available” because the beneficiary could compel distributions.
Although the statute allows funding of the trust with any property owned by the beneficiary, agency representatives in some states have sometimes erroneously allowed such trusts to be funded only with personal injury awards and not with inheritances and property owned by the beneficiary.[176]
The trust must be irrevocable to comply with the general trust rules discussed above, and in the case of Supplemental Security Income (SSI) recipients, to comply with the SSI rules.
Comment: Distinguish these self-funded Supplemental (or “Special”) Needs Trusts from similarly named instruments funded by persons other than the client, which need not have the “remainder to Medicaid” provision. See 3. below for a discussion of the requirements for traditional Supplemental Needs Trusts not funded by the client.
Forms for the self-funded trusts are in Appendices 6-15 below. Forms for trusts funded with assets not owned by the beneficiary are in Appendices 3-5.
2 Miller Trusts.[177]
Because the Miller Trust was discussed at VII.E.4. above as a technique for attaining income eligibility, there is no need for further discussion here. See Appendix 1 for a form Miller Trust.
3 Pooled Supplemental Needs Trusts.[178]
1 Purposes. These trusts have essentially the same purpose as the Under-65 Supplemental Needs Trust. However, the "pooled" trusts do not have a maximum age requirement (but see the discussion below of possible applicability of the transfer rule if the client is 65 or over). Also, pooled trusts may offer more professional and efficient management and lower per-client setup costs.
(2) Client eligibility requirements. This "exception" to the self-settled trust rules is available only to persons meeting the following requirements:
No age requirement. There has been some question as to whether a transfer penalty might apply to a transfer by a client age 65 or over.[179] However, Texas DHS representatives have stated in a written memorandum that they do not intend to penalize such transfers, with no reference to an age limitation.[180]
Disabled as defined in the requirements for Social Security Disability or SSI benefits.
(3) Trust requirements. The trust must meet the following requirements:
The trust is established and managed by a non-profit association.
A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.
Accounts are established in the pooled trust only for individuals who are disabled (as defined for Socials Security and SSI benefits) by a parent, grandparent, or legal guardian of such individuals, by the individuals themselves, or by a court.
To the extent that amounts remaining in the client's account upon the death of the beneficiary are not retained by the trust, the State will receive all amounts remaining in trust upon the death of the client, up to an amount equal to the total Medicaid payments made for the client.
(4) The ARC Pooled Trust. The Association for Retarded Citizens (ARC) has recently established a pooled trust that accepts contributions from persons residing anywhere in Texas.[181] The Texas Department of Mental Health and Mental Retardation has indicated (in a letter to the author) that at least in cases in which funding comes from someone other than the beneficiary, a contribution to the ARC Pooled Trust is not treated as the beneficiary’s asset by the Department. (The Department declines to share with members of the public its policies with regard to other issues not addressed in the statutes.)
Practice Note: The ARC pooled trust provides professional management at less than the cost charged by many corporate trustees. Its effectiveness for sheltering certain assets has been pre-established by negotiation with DHS--a process not available to individuals. And it does not require paying an attorney fee to establish the trust (although legal counsel is definitely needed to determine whether or not this is the best disposition of the assets and to provide independent advice as to the alternatives).
To the extent the remainder may exceed reimbursements for Medicaid, the trust can pay the remainder to other designated beneficiaries (usually family members); and at the option of the grantor, the trust may retain all or a portion of the remainder before reimbursement to the Medicaid program. Although DHS representatives have stated that they believe Medicaid should be reimbursed before the trust receives anything, the trust instrument says otherwise. In the author’s opinion, DHS is clearly wrong on this, but this issue may yet be tested in an application for nursing home Medicaid or the Community Based Alternatives program.
The issue just discussed “muddies the water” somewhat in the decision as to whether a client should designate relatives to receive the remainder, or direct some or all of it to the trust. The latter choice is likely to be more attractive if the alternative is that Medicaid will take most or all of it otherwise. However, if it were clear that Medicaid got its cut first, it would be more difficult to decide to direct some or all of the remaining assets to the trust and away from family members. What is clear is that any proportion of the remainder directed to the trust will not go to family members, and attorneys giving advice on this need to make that clear, documenting clearly that they have done so.
3 Rules Affecting Trusts Not "Established By" the Client
1 Nature and purpose of third-party-settled Supplemental Needs Trusts
This section discusses a class of public benefits-related trusts not affected by the OBRA 93 rules discussed above-- Supplemental Needs Trusts (sometimes called "Special Needs Trusts") established and funded by someone other than the client.
Such trusts may, for example, be established by parents or other relatives of disabled persons receiving SSI; by wills of community spouses of nursing home residents; or (by will) by recipients of gifts in the planning process. They may also be established by defendants in personal injury cases (or their insurers), for recipients of SSI and/or Medicaid; but while such trusts will not affect the right to monetary benefits of SSI, they may preclude Medicaid eligibility if they do not comply with the rules discussed above for trusts established by the client.[182]
Trusts established by someone other than the client need not have provisions for repaying Medicaid benefits to the State, nor are they affected by the age restrictions nor other provisions discussed above. Instead, they have their own requirements, which are found nowhere in the statutes or regulations but have been developed by 50 years of common law.[183]
The purpose of such trusts is to provide for needs of the beneficiary not met by public benefits programs. Accordingly, if the client receives Medicaid through SSI, distributions from them are highly restricted, as discussed below. The public policy supporting such trusts is to encourage private support for disabled persons eligible for public benefits.
2 Requirements for third-party-created Supplemental Needs Trusts
The following requirements have been created by the case law:
(1) Source of corpus. As discussed above, someone other than the client must have contributed the corpus.
(2) Restrictions on trustee discretion. Discretion of the trustee to utilize corpus and income for support and maintenance may not make the corpus an available resource. If the client receives Medicaid in conjunction with SSI, the trust probably should not contain mandatory “support” language (such as “health, education, maintenance and support”) and should either be totally discretionary, or should state clearly that trust assets are to be used to supplement, not supplant, governmental benefit programs.[184] However, in Texas, the Long Term Care Medicaid program will not count the corpus of a non-grantor trust as a resource, even if the trust contains “support” requirements. Rather, all distributions of income or principal are treated as “income” for Medicaid purposes, except distributions for “medical or social purposes.”[185]
(3) Irrevocability. The trust must be irrevocable.[186]
13 Possible Recovery Of Medicaid Benefits From Estates Of Medicaid Recipients
1 Purpose and Scope of the Federal Requirement
OBRA 93 requires States as a condition of participation in the Medicaid program to seek to recover from the estates of certain Medicaid recipients at their deaths the amounts correctly paid on their behalf by the program.[187] Texas is presently out of compliance with this requirement, because it has not adopted any such “Estate Recovery” program. Therefore, at this writing, practitioners need not become familiar with it in great detail.
1 Beneficiaries affected
Such recovery is required from the estates of persons of any age who are residents of nursing homes or other medical institutions, if after notice and a hearing it is determined that they cannot reasonably be expected to return home. In addition, recovery for most Medicaid expenditures is required from the estates of all persons age 65 or over when they receive medical assistance.
2 Remedies required and allowed
Only recovery from the probate estate is required. The State has the option of recovering from the non-probate estate (e.g., trust interests terminating on death and accounts subject to rights of survivorship). It also has the option of placing liens on real property to secure its claim before death. Recovery may be made only after the death of the client's surviving spouse, if any, and only at a time when there is no surviving child who is under the age of 21 or blind or disabled. A lien on the home can be foreclosed only when no sibling or son or daughter who meet certain qualifications is residing in the home.
3 Hardship exception
The State is required to establish procedures for waiving Estate Recovery if it "would work an undue hardship as determined on the basis of criteria established by the Secretary [HCFA]."[188]
2 Status in Texas
The Attorney General of Texas has advised that implementation of Estate Recovery requires legislation, and HCFA accordingly determined that it would not take enforcement action until the Legislature had an opportunity to act. However, subsequently, the 1995 and 1997 sessions of the Texas Legislature came and went without so much as a bill proposing such legislation.
Technique: If Estate Recovery is a concern and Medicaid is not yet needed, the client may want to consider conveying the home and retaining a life estate. Unless the Legislature opts to include nonprobate assets in Estate Recovery, the remainder interest would pass free of the State's claim. There may be a transfer penalty, but it will be less than if a full conveyance were made. The amount of the transfer penalty depends on the value of the property and the age of the client.[189] (As with any gifting, be sure the client is well protected during the penalty period.) To be relatively safe from criminal penalties and to avoid an unlimited lookback period, the client may want to wait at least 36 months to apply for Medicaid.
Another (riskier) strategy would be to transfer the residence (probably but not necessarily retaining a life estate), apply immediately, and argue that there is no penalty because the transfer was not done for the purpose of Medicaid eligibility. Since the residence is exempt, there is no need to transfer any interest in it to achieve eligibility--only to avoid estate recovery. This is likely to require a hearing, and the Department may make extra effort to be creative in finding a reason to apply the transfer penalty; but logically, this would seem to be an allowable strategy under the rules at this time.
Practice Note: If the client is considering purchasing a home or making home improvements to convert countable resources to exempt resources, be sure they understand that the home may eventually be sold to pay the State back for Medicaid payments. On the other hand, if you are suggesting transactions in anticipation of Estate Recovery, it would be prudent to let the client know that we do not know exactly what the program will look like nor whether there will ever be a program. Here are some of the uncertainties at present:
1. If there is a community spouse who survives the institutionalized spouse, it is unlikely that Estate Recovery will ever reach the home--especially if it is taken out of the probate estate of the institutionalized spouse in a marital property agreement. By directing it into a supplemental needs trust in the community spouse's will (or otherwise directing it away from the institutionalized spouse), you can also avoid Estate Recovery in the event the institutionalized spouse is the survivor.
2. We do not yet know the scope of the "hardship exception," nor whether terminable (nonprobate) interests will be included, nor whether liens will be utilized.
3. The Estate Recovery program may not be aggressively administered (which is said to be the case in many States that already have such programs).
4. Will the Legislature ever pass such a program? At this writing, in the author’s opinion, the answer is probably not, for the foreseeable future. And if a “Medicaid block grant” program is ever implemented, it appears likely that Texas will opt not to have estate recovery.
14 Procedural Matters In Medicaid Practice
1 Rulemaking by the Texas Department of Human Services
The rulemaking process offers the following opportunities for insight into and participation in policy formation:
1 Aged and Disabled Advisory Committee
This committee of agency and public representatives meets several times per year. Among other matters, it reviews drafts of proposed rules before they are published in the Texas Register. Members of the public may be placed on the mailing list for the agenda (including rule drafts) and may attend meetings.
2 Publication of proposed and final rules in the Texas Register
Like all other agencies, DHS must publish proposed rules in the Texas Register and invite public comment before they become final.
Practice Note: Reading ADAC rule drafts and Texas Register notices (under 40 T.A.C. Chapter 15, Medicaid Eligibility) is a valuable way of keeping current. There are usually important rule changes between publications of the West paperback edition of 40 T.A.C., and many changes go into effect in practice even before and during the rulemaking process.
Another way of keeping up (and obtaining rules that can be searched by key word) is to make an open records request for the full text of the current version of 40 T.A.C. Chapter 15 on computer disk, which at this writing is provided at no cost. It can be ordered from Texas Department of Human Services Rules & Handbook Unit, P.O. Box 149030, Austin, Texas 78714-9030. Call 512/438-3706 for an order form. At the same time, you can obtain on the same disk additional chapters of 40 T.A.C., especially Chapter 19 (Nursing Facility regulation), Chapter 48 (Home Care programs), and Chapter 79 (Hearings).
The rules may be found on the Internet at lamb.sos.state.tx.us/tac, and the Texas Register is at lamb.sos.state.tx.us/texreg. Much useful (though often outdated) information may also be gleaned from the Texas Department of Human Services website at .
2 Fair Hearings
1 Purpose
The client has a right to appeal any DHS action or inaction on a claim for assistance to a "fair hearing."[190]
2 Procedure[191]
(1) Requesting hearing. The request must made within 90 days of the effective date of the decision appealed from or from notice of the adverse action, whichever is later.[192] To preserve benefits that are being threatened, however, the request must be postmarked or delivered within 10 days of the mailing of the DHS notice.[193] The request for hearing may be any clear expression of a desire to appeal, and time limits run from the date of the request even if the written petition for fair hearing on the DHS form is filed later.[194]
(2) Discovery. The appellant has the right to examine evidence to be used in the fair hearing, obtain a copy of all medical evidence in the file, file interrogatories, and have a prehearing conference regarding medical information.[195]
(3) Rules of evidence. The hearing is informal, and the rules of evidence do not apply.[196]
(4) Record. All hearings are recorded by tape recorder or stenographer. Tapes are kept at least 90 days, and appellants may copy them at their own expense.[197]
(5) Hearing Officer’s Authority. DHS regulations provide, “The hearing officer...may not reverse a decision based on DHS policy an appellant alleges is contrary to law or unconstitutional (the recommendation to reverse a decision must come from the office of the general counsel.” However, the hearing officer “decides if actions are in compliance with current statutes, policies, or procedures.”[198]
Practice Note: DHS hearing officers seem to understand this to mean that if a DHS policy specialist (who usually participates in the hearing via speaker phone) says a particular course of action is in accord with DHS policy, the agency wins on that issue. This reduces the hearing officer’s role from quasi-judicial to that of a fact-finder (essentially, a one-person jury), with the policy specialist (and ultimately the general counsel’s office) deciding whether agency policy is lawful. Therefore, advocacy on legal issues should be directed not just to the hearing officer but to the policy specialist and/or the DHS attorney involved in the case.
3 Administrative Review
The hearing officer's decision may be reviewed by the agency's legal staff in "administrative review."[199] This is done by the Regional Counsel. If the Regional Counsel was not involved in the case at or before the hearing stage, this may be useful.
Practice Note: In view of the hearing officer’s apparent lack of authority to find agency policy unlawful, and the severe limits on judicial review, appeal to the legal staff may be the only appeal in many cases. On matters of state law, there appears at present to be no way of challenging even the most blatant violations of rights if accomplished as agency “policy,” unless the courts can be persuaded that they have inherent constitutional authority to alter this arrangement. As suggested below, loss of federal entitlement status could deprive citizens of all recourse against any policy the agency may choose to establish.
4 Judicial Review
There is no right to judicial review of a DHS fair hearing under Texas law.[200] However, because Medicaid is an entitlement under federal law, violation of rights based on the federal statute and regulations is actionable by suit .[201]
One of the major features of the proposed Medicaid block grant program (vetoed by President Clinton) would be to remove “entitlement” status for Medicaid. That would appear to supersede the cases providing for federal judicial review; and as indicated above, there has never been a provision for judicial review (or even review by hearing officers, where an agency policy is challenged) of the application of state law. Thus, Texans would be left with no apparent legal recourse in the event of agency error, no matter how clear or willful. Given the Texas Legislature’s proclivity for underfunding human needs programs, that is a troubling prospect for aged and disabled Texans and their families.
Because the Clinton Administration opposed Medicaid block grants, the re-election of President Clinton is generally believed to have ensured continuation of federal guarantees at least through this Administration. However, the Administration's acquiescence in "welfare reform," in which federal guarantees were revoked for dependent children in favor of block grants and most legal aliens with disabilities were denied SSI and food stamps, suggests that the whole program could change radically at any time.
food stamps
Comment: Elderly and disabled people account for 11.7% of food stamp recipients in Texas. Because it is available to many disabled persons who are eligible for no other benefits, this program is frequently overlooked as a vital source of support.
1 Eligibility
1 Resources
Maximum allowable resources for all members of the household is $2,000; provided, for households including a member or members age 60 or over, the maximum is $3,000. 7 C.F.R. §273.8.
Resources that are countable include fair market value of all assets that can be converted to cash, other than exempt assets. Some important assets exempted from the definition of “resources” are the following:
Home and surrounding property
Household goods, personal effects, one burial plot per household member, and cash value of life insurance policies
Cash value of pension plans or funds, except IRA’s and certain Keogh plans
Licensed vehicles of any value if they are income-producing or “equity exempt” under certain rules; otherwise, value exempt is limited to a maximum of $4,650 wholesale value, and value above that amount is counted
Income-producing property as determined by specified standards
Property in irrevocable trusts meeting certain requirements
7 C.F.R. §273.8
2 Trust Rules
Trust rules for food stamps are the same as for Temporary Assistance for Needy Families. See IX.A.2. below.
3 Transfer Rules
Knowing transfer of resources for the purpose of qualifying or attempting to qualify for food stamps is penalized by disqualification of the household for up to one year from the date of discovery (by the Texas Department of Human Services) of the transfer. The length of the disqualification period is based on the amount by which nonexempt transferred resources, when added to other countable resources, exceeds the allowable resource limits. If the nonexempt resources that are transferred exceed the resource limit by $5,000 or more, the full one-year period of disqualification is assessed. 7 C.F.R. §273.8(I); 40 T.A.C. §3.706(b).
The penalty is the same whether the transfer was before or after application. However, there is a “lookback period” of only 3 months. That is, an applicant who waits at least 3 months after the transfer to apply for food stamps will not be denied eligibility as a result of the transfer.
4 Income
Both eligibility for and amount of benefits (food stamp “allotments”) depends upon household income. If the household has an elderly (age 60 or over) or disabled member, net income after certain deductions is used. Otherwise, gross income is used. 7 C.F.R. §273.9(d); 40 T.A.C. §3.1002(b), §3.1003(b).
5 Citizenship/Immigration Status
Only U. S. citizens and aliens lawfully admitted for permanent or temporary residence can be eligible for food stamps. 40 T.A.C. §3.601(b); 7 C.F.R. §273.4(a).
Moreover, even permanent resident aliens are excluded from the food stamp program unless they fall into one of the following categories:
An asylee, refugee or person whose deportation is withheld, for the first 5 years after being granted that status; or for the first 5 years, a Cuban, a Haitian, an Amerasian, certain Native Americans from Canada, and the noncitizen children of a battered parent
Active duty troops, their spouses, their unremarried surviving spouses, unmarried dependent children, and honorably discharged veterans meeting the minimum service requirement (generally, 24 months active duty)
Persons who have earned 40 qualifying quarters of Social Security coverage, or who can be credited with such quarters due to the work of a parent or spouse under certain specified rules. 8 U.S.C. §1612.
Resident aliens who do not fall into the categories above are excluded from the food stamp program, even if they resided in the United States on August 22, 1996, and even if they are receiving SSI benefits. 8 U.S.C. §1612(a)(2)(E). (As this article went the press, it had just been announced that the President planned to ask Congress to restore food stamp benefits for lawful permanent resident aliens.) However, all aliens receiving SSI are eligible for Medicaid. 8 U.S.C. §1612(b)(2)(F).
6 Work Requirements
Generally, food stamp benefits will be available for no more than 3 months in any 36-month period, unless the recipient is working or participating in a work program at least 20 hours per week. However, persons in the following categories are not subject to this rule:
Under 18 or over 50 years of age
Medically certified as physically or mentally unfit for employment
A parent or other member of a household with responsibility for a dependent child
A pregnant woman
7 U.S.C. §2015.
2 Benefits
Beneficiaries receive plastic debit cards (“Lone Star Cards”) that can be used to purchase food at participating stores. (Literal food “stamps” or coupons are no longer used in Texas.)
3 Application
Application for food stamps is made to the Texas Department of Human Services in the county of residence of the applicant.
Temporary assistance for needy families (TANF, formerly afdc)
1 Eligibility
1 Resources
The resource limit for the certified household group is $1,000 in nonexempt resources. All property that can be readily converted to cash is a resource, but resources in the following categories (among others) are exempt from consideration:
Income-producing property
One burial plot
The residence and surrounding property without limit
Personal possessions
One vehicle used by the certified household group, to the extent that the equity in the vehicle does not exceed $4,650
2 Trust Rules
The corpus of a trust is not counted as a resource, even if a household member is a beneficiary, if (1) no household member can revoke the trust or change the beneficiaries; (2) the trustee is a court, institution, corporation or organization not controlled by a household member, or is court-appointed; and (3) trust investments do not help nor involve any business or corporation under control of a household member. In addition, if the trust was established with the household’s own funds, (4) it must allow for payments only for educational or medical expenses of the beneficiary. TDHS Income Assistance Handbook §535.2.
3 Transfer Rules
A household is ineligible if within three months before application, or at any time after certification, anyone in the household group transferred a countable resource for less than its fair market value so that they could qualify for TANF or increase their grant. Length of time of ineligibility depends upon amount transferred, with a one-year maximum that takes effect if more than $5,000 is transferred. 40 T.A.C. §3.706; the Texas Department of Human Services Income Assistance Handbook §5.61.
If a beneficiary anticipates receipt of a lump sum that may need to be transferred, see the discussion at 4.b. below of “lump sum income.”
4 Income
1 How income affects eligibility
In essence, DHS determines how much income is required to meet the “basic needs” of household members. If all household members together have less than 185% of the income necessary for those needs, it is potentially eligible. Certain deductions are then taken from countable income. If net income after deductions is then below 25% of the household’s “basic needs,” the household is awarded a cash grant sufficient to bring net income up to 25% of “basic needs.” 40 T.A.C. §§3.1002-3.1004.
Income includes cash gifts and contributions, as well as earned and unearned receipts. All cash income of all “mandatory” household members is counted, including even those that may be disqualified (for example, because of citizenship status or refusal to comply with work registration requirements). The following are some of the most important exclusions from countable income (to determine whether the 185% test is met, before application of “deductions”):
The first $50 of child support received
Earned income of a full-time student, or of a part-time student employed less than 30 hours per week
Disability payments resulting from Agent Orange Settlement Agreements or the Radiation Exposure Compensation Act
Income of VISTA volunteers, payments under the Domestic Volunteer Service Act
Earned income credits (payments from IRS)
Certain educational assistance payments
Value of food stamps
Unearned in-kind assistance
Noneducational loans
SSI income
40 T.A.C. §§3.901, 3.902.
If the 185% test is met, DHS then applies the following “deductions” to earned household income:
$90 of work-related expenses
Actual cost of care of dependents receiving TANF, not to exceed $200 per month for dependents under age 2 and $175 per month for dependents age 2 or older
Earned-income disregard of $30 for the first 12 months, plus, only for the first 4 months, 1/3 of the remainder
Net income is then compared to 25% of need, and the cash grant is the amount necessary to bring the household up to 25% of need. For example, a family of 3 with no net income receives a cash grant of $188 per month. If they have $100 in net income, they receive $88 per month. A family of 2 with no income receives $163 per month, and a family of 7 with no income receives $313 per month. 40 T.A.C. §3.1003; 45 C.F.R. §233.20(a)(11)(ii)(B).
2 Lump sum income
Nonrecurring “lump sum” income to a family member results in ineligibility of the family for the full number of months derived by dividing the total of the lump sum income by the monthly need standard for a family that size. Not included in the lump sum income are sums earmarked and actually used for a specific purpose, such as medical bills resulting from an injury. 45 C.F.R. §233.20(a)(3)(ii)(F); 40 T.A.C. §3.902(a)(13).
Practice Note: Because of this harsh rule, a family anticipating a lump sum such as a personal injury settlement or inheritance may be well advised to voluntarily disenroll from TANF before receiving the lump sum. Otherwise, they may be disqualified for a very long time.
5 Citizenship/Immigration Status
With the exceptions noted below, only U. S. citizens and aliens lawfully admitted for permanent or temporary residence can be eligible for TANF. 8 U.S.C. §1611, 1612.
Even permanent resident aliens are excluded from the TANF program unless they fall into one of the following categories:
Entered the United States before August 22, 1996 (otherwise, an alien entering the U. S. on or after that date is ineligible for 5 years from the date the alien was both in the U. S. and achieved permanent resident alien status)
An asylee, refugee or person whose deportation is withheld, for the first 5 years after being granted that status; or for the first 5 years, a Cuban, a Haitian, an Amerasian, certain Native Americans from Canada, and the noncitizen children of a battered parent
Active duty troops, their spouses, their unremarried surviving spouses, unmarried dependent children, and honorably discharged veterans meeting the minimum service requirement (generally, 24 months active duty)
Persons who have earned 40 qualifying quarters of Social Security coverage, or who can be credited with such quarters due to the work of a parent or spouse under certain specified rules. 8 U.S.C. §1612.
Resident aliens who do not fall into the categories above are excluded from the food stamp program, even if they resided in the United States on August 22, 1996, and even if they are receiving SSI benefits. 8 U.S.C. §1612(a)(2)(E). However, all aliens receiving SSI are eligible for Medicaid. 8 U.S.C. §1612(b)(2)(F).
6 Deprivation of Parental Assistance
To receive TANF, a child must be “deprived” because of the death of parent(s), absence of parent(s) from the home, or physical or mental incapacity of a parent. Deprivation is determined in regard either to the child’s legal parent or to a stepparent.
7 Time Limitation on Eligibility
Unless an exception applies, benefits are cut off after a time limit of 12 to 36 months, depending on the recipient’s combination of work history and education. Exceptions are made for personal hardship and local community economic factors. The following are illustrative:
1 year of benefits: caretaker with a high school diploma or better or at least 18 months of recent work history. In addition to 1 year of cash benefits, the caretaker receives an additional year of “transitional benefits” (Medicaid, Child Care and Transportation)
2 years of benefits: caretaker with 3 years of high school or 6 to 18 months of recent work history. Includes an additional 1 year of transitional benefits.
3 years of benefits: caretaker with less than 3 years of high school and less than 6 months of recent work history. Includes an additional 1 year of transitional benefits.
When the time limit has expired, the caretaker is no longer eligible to receive the cash benefit for 5 years. However, the children continue to receive benefits.
The foregoing time limitations on benefits are pursuant to H. B. 1863, 1995 Texas Legislature, whose provisions were accepted as a “waiver program” by the U. S. Department of Health & Human Services. These provisions differ in important respects from the federal “welfare reform” requirements, but they are effective at least until the “waiver” expires in the year 2002.
2 Benefits
The discussion of income above includes a summary of how benefits are determined.
3 Application
Application is made to the Texas Department of Human Services.
mhmr programs
The programs described below are those administered and/or funded by the Texas Department of Mental Health and Mental Retardation (TDMHMR) and by the various community MHMR centers around the State of Texas. As the name implies, these programs provide services for persons with mental health needs, and for persons with mental retardation.
The Texas statutes and rules generally refer to persons with mental health needs as “patients” and to mental health institutions as “hospitals” or “outpatient facilities.” They refer to persons with mental retardation as “residents” and to their residential facilities as “schools.” Persons utilizing local outpatient facilities are referred to as “clients,” and the outpatient facilities are more commonly called “centers.”
The author gratefully acknowledges the contributions of Renée C. Lovelace in the preparation of the following discussion of TDMHMR benefits. The author is solely responsible for the final product.
1 Eligibility
1 Medicaid-Funded Services
Medicaid does not cover services for patients between the ages of 21 and 65 in an “institution for mental diseases.” 42 U.S.C. §1396d(a); 42 C.F.R. §§ 440.1 - 440.180; Connecticut Department of Income Maintenance v. Heckler, 471 U.S. 524 (1985). Apparently for that reason, many MHMR services, particularly in the mental health area, are not funded by Medicaid and therefore are governed only by State laws.
Except as otherwise indicated, the discussion below will assume that Medicaid funding is either not involved or does not affect the general principles discussed. If Medicaid funding is involved, see the more comprehensive discussion of the Medicaid rules in VII. Above.
Practice Note: The first step in planning for an MHMR client is to determine whether or not Medicaid funding is involved, or is likely to be involved in the future. As will be shown below, the Medicaid rules are far clearer and more objective than the State rules. They therefore lend themselves more readily to coordinating all resources of the family, community and government with long-term planning for the client’s benefit.
2 Non-Medicaid-Funded Services
1 Right to Mental Health Services
State law requires the State to support, maintain and treat both indigent and nonindigent patients at the expense of the state. However, the state is entitled to reimbursement for the support, maintenance and treatment of a nonindigent patient. Moreover, a patient who does not own a “sufficient estate” is to be maintained at the expense of the patient’s spouse, if able to do so; or, if the patient is younger than 18 years of age, of the patient’s father or mother, if able to do so. Texas Health & Safety Code §552.013.
A “patient” is defined as an individual who is receiving voluntary or involuntary services under the Texas Mental Health Code. Such services may be provided in a “mental hospital,” which is for inpatient care and treatment for persons with “mental illness.” “Mental illness” is defined as an illness, disease or condition, other than alcoholism or mental deficiency, that (a) substantially impairs a person’s thoughts, perception of reality, emotional process or judgment; or (b) grossly impairs behavior as demonstrated by recent disturbed behavior. Such services may also be provided in a “community center” or other “mental health facility,” which are not defined as necessarily serving only persons with “mental illness.” Texas Health & Safety Code §571.003.
2 Right to Mental Retardation Services
The right to services extends to “persons with mental retardation.” “Mental retardation” is defined as “significantly subaverage general intellectual functioning that is concurrent with deficits in adaptive behavior and originates during the developmental period.” A “person with mental retardation” is defined as a person determined by a psychologist licensed in Texas or certified by TDMHMR to have subaverage general intellectual functioning with deficits in adaptive behavior. Texas Health & Safety Code §591.003(13),(16); §593.005.
3 Responsibility to Pay for Services
The same rules regarding client and family responsibility for payment apply both to mental health and to mental retardation services (assuming Medicaid is not paying). In general, the client and/or the client’s spouse or parents (if under 18) are responsible for paying part or all of the cost of support, maintenance and treatment (“SMT”) on a sliding scale, based on their ability to pay, as determined by TDMHMR. Texas Health & Safety Code §§552.012-552.019; Texas Health & Safety Code §593.0072-593.0081. That determination is “guided” by rules of the Department at 25 T.A.C. §403.74 (for residential facilities) and at 25 T.A.C. §403.49 (for community-based services).
A person responsible for payment may appeal the department’s determination for consideration by a hearing officer. 25 T.A.C. §403.75.
The requirement of payment is enforceable by a civil suit to be filed by a county or district attorney, or alternatively by the Attorney General. Texas Health & Safety Code §552.019(a),(f).
This requirement is also enforceable by the department or a community center placing a lien on all nonexempt real and personal property owned or later acquired by a client or by a person legally responsible for a client’s or patient’s support. Texas Health & Safety Code §533.004.
2 Benefits
1 Mental Health Facilities
There are “state hospitals” in Austin, Big Spring, Kerrville, Rusk, San Antonio, Terrell, Vernon, Waco and Wichita Falls. They provide a broad range of in-patient and out-patient mental health services.
2 Mental Retardation Services
State law requires the Texas Department of Mental Health and Mental Retardation to make “all reasonable efforts consistent with available resources” to:
assure that each person with mental retardation who needs mental retardation services is given quality care, treatment, training and rehabilitation appropriate to their needs
initiate, carry out and evaluate procedures to guarantee to persons with mental retardation their rights under this subtitle (Subtitle D, Title 7, Texas Health & Safety Code )
carry out the requirements of this subtitle, including planning, initiating, coordinating, promoting and evaluating all programs
provide, either directly or by cooperation, negotiation, or contract with other agencies, a continuum of services to persons with mental retardation, including treatment and care, education and training, sheltered workshop programs, counseling and guidance, and develop community residential facilities (including group homes, halfway houses and day-care facilities)
Texas Health & Safety Code §591.011.
The “state schools” for persons with mental retardation are located in Abilene, Austin, Brenham, Corpus Christi, Denton, Lubbock, Lufkin, Mexia, Richmond, San Angelo, and San Antonio. The Department also funds and provides administrative and support services to numerous group homes, halfway houses and day-care facilities throughout the state.
3 Community Services
TDMHMR approves and to some extent supervises local MHMR organizations that operate “community centers” for mental health, mental retardation, or both. Such organizations are for most purposes governmental entities, though they may have substantial funding from nongovernmental sources. Texas Health & Safety Code §534.001.
The local MHMR centers are intended to provide a continuum of services to Texans who have mental illness or mental retardation, and they may provide services to persons with chemical dependency. Texas Health & Safety Code §534.0015. They are required to provide screening services for admission to TDMHMR facilities and to provide continuing mental health services to persons referred by facilities.
State law provides that a community center shall charge reasonable fees for its services if not prohibited by other laws or contracts, and it may not deny services to a person because of inability to pay. A center “has the same rights, privileges, and powers for treating patients and clients that the department has by law,” and the county or district attorney of the center’s county is to represent the center in collecting fees. Texas Health & Safety Code §534.017.
Community centers are required by law to ensure that the following services, at a minimum, are available in their service areas:
24-hour emergency screening and rapid crisis stabilization services
community-based crisis residential services or hospitalization
community-based assessments, including the development of interdisciplinary treatment plans and diagnosis and evaluation services
family support services, including respite care
case management services
medication-related services, including medication clinics, laboratory monitoring, medication education, mental health maintenance education, and the provision of medication
psychosocial rehabilitation programs, including social support activities, independent living skills, and vocational training
appropriate community-based services, including the assignment of a case manager, for each person discharged from a department facility who is in need of care
to the extent resources are available, the department is required to ensure that the services listed above are available to children, including adolescents, as well as adults, in each service area; emphasize early intervention services for children, including adolescents, who meet the department’s definition of being at high risk of developing severe emotional disturbances or severe mental illnesses; and ensure that services are available to certain criminal defendants required to submit to mental health treatment.
Texas Health & Safety Code 534.053.
4 Support Services
The department provides assistance to clients and families of clients with mental disabilities for the following expenses necessary for living independently in the community:
purchase or lease of special equipment or architectural modifications to improve or facilitate the care, treatment, therapy, or general living conditions
medical, surgical, therapeutic, diagnostic and other health services made necessary by the person’s mental disability
counseling and training programs
attendant care, home health aid services, homemaker services, and support with training, routine body functions, dressing, preparation of food, and ambulation
respite support for a family that is the client
transportation services
transportation, room and board costs for evaluation or treatment, if preapproved by the department
Texas Health & Safety Code §535.004.
Assistance for the above needs is limited to not more than $3,600 per year, except the client may receive in addition a one-time grant of not more than $3,600 for architectural renovation or other capital expenditure to improve or facilitate the care, treatment, therapy, general living conditions, or access of a person with mental disability. Texas Health & Safety Code §535.007.
Comment: While the services described in the statutes appear to be broad and appropriate, funds for State programs do not cover all Texans who qualify for services. Estimates vary, but as many as 16,000 to 20,000 Texans around the State may qualify for services yet remain on lengthy waiting lists, not receiving services. Advocates say that is the tip of the iceberg--as the number of Texans who qualify for MHMR services but who do not even keep their names on a waiting list is likely to be a much higher number.
3 Trust Rules
If a TDMHMR patient is the beneficiary of a trust that has an aggregate principal of $50,000 or less, the corpus or income of the trust is not considered to be the property of the patient and is not liable for the patient’s support. If the aggregate principal of the trust exceeds $50,000, only the portion exceeding that amount and the income attributable to that portion can be considered the patient’s property and liable for the patient’s support. Texas Health & Safety Code §552.018. Essentially the same rule applies to residents (persons with mental retardation) (under §593.081) and to community center clients (under §534.0175).
Under the statutes just cited, the following are not considered “trusts” and are not entitled to the exemption:
a guardianship established under the Texas Probate Code
a trust established under Chapter 142, Texas Property Code (by a trial court for an incapacitated plaintiff)
a facility custodial account established under Texas Health & Safety Code §551.003
the provisions of a divorce decree or other court order relating to child support obligations
an administration of a decedent’s estate
an arrangement in which funds are held in the registry or by the clerk of a court
There are few reported cases dealing with these trust statutes or litigation between the State and trustees of trusts. While State claims and litigation are likely on-going, there is not a readily-available method for following such cases. Many attorneys around the State have had negotiations and even handled litigation between trusts and the State, but it is difficult for attorneys to locate other attorneys who have handled similar cases.
The case apparently cited most frequently for the State's authority to proceed against trusts is State v. Rubion, 308 S.W.2d 4 (Tex. 1958). Rubion held that the State did not have a right at common law to demand payment from third-party trusts, but that such authority could be provided by statute. The Texas statutes now include the Health & Safety Code statute provisions addressing trusts, which are referenced above.
Because of the paucity of reported cases, a number of "understandings" and attorney comments are included here. Attorneys have reported to this author that they understand certain TDMHMR positions to include the following:
The State almost always wins or settles favorably to the State claims for reimbursement from trusts where the trust distribution standards include "support" and "maintenance." This appears to be true where the trustee is mandated to make distributions for support and/or for maintenance--and even when the trust terms provide that support and maintenance distributions are within the sole discretion of the trustee.
There are no reported cases dealing with State claims against fully discretionary trusts, although the State appears willing to litigate cases against fully discretionary trusts, even where such trusts are created by third parties who have no duty to support the beneficiary. State support for their position apparently includes (a) Rubion,, (b) the Health & Safety Code trust statutes discussed above, and (c) analogies to child support obligations. Texas Family Code Sec. 154.005(b) provides that child support obligations of a trust beneficiary can be enforced against the income of a discretionary trust. Cases have indicated that this encroachment into third- party-created discretionary trusts is warranted given the public policy interests. The State has apparently taken the same position, making the argument that recovery from discretionary trusts support public policy interests. Note also the language in the Health & Safety Code. The department is authorized to seek reimbursement from the "property" of those who receive services. Several of the trust statutes then go on to define the person's property as including all amounts in a trust that exceed $50,000.
To the author's knowledge, the State has not sought reimbursement from third-party supplemental care or special needs trusts that do not reference support and maintenance.
An attorney with Department has indicated in a letter to the author that the Department does not seek reimbursement from the ARC Pooled Trust (discussed at VII.L.2.c. above); but it appears there is uncertainty as to whether reimbursement may be sought in the future from self-funded accounts with that trust.
The opinions and statements above are based on reports from other attorneys, and are not statements of policy by the department. The department's positions are, of course, subject to change at any time.
Another issue not expressly addressed in the TDMHMR trust statutes is whether or not the $50,000 protection applies to a trust created by or on behalf of the beneficiary with his or her own property. The “142 trust,” created by a trial court under Texas Property Code §142, is arguably of this type, because it is funded by assets that otherwise would have gone to the beneficiary (or to his or her guardianship estate). Property of self-settled trusts is not insulated from the claims of creditors of the beneficiary, even if they have a “spendthrift” clause, so may be regarded as not insulated from TDMHMR’s statutory claims. Moreover, public policy as expressed by the Medicaid laws and the cases in other states indicates that such trusts will not protect the beneficiary’s assets from consideration by providers of public benefits, lest all who seek such benefits throw the cloak of a self-settled trust over their property. By contrast, respecting the wishes of a third party who creates a supplemental needs or discretionary trust has the effect of promoting policies favoring assistance of disabled persons by family members and others, with assets that otherwise would be denied to them. Accordingly, it is the author’s opinion that self-settled trusts are likely not to provide protection from TDMHMR’s reimbursement claims.
If the benefit being sought is “Long Term Care Medicaid” in a TDMHMR facility, involving only Medicaid funds, then a very different set of trust rules comes into play. The $50,000 dollar limitation does not apply to a trust settled by a third party, and the corpus is not counted as a resource, even if the trust requires payments of “support.” 40 T.A.C. §15.415(d), Medicaid Eligibility Handbook §2313.2.
Contrast this with the more restrictive SSI/Community Medicaid rules pertaining to a third-party-settled trust, discussed at II.C.1. above. Among other matters, these rules may require that even a third-party-settled trust be of the “supplemental needs” or “discretionary” variety.
Regarding self-settled trusts, Medicaid does allow a beneficiary under age 65 to transfer his or her own assets into a trust that will be disregarded by the Medicaid program, provided (among other requirements) it provides for reimbursement of the program from trust assets at the death of the beneficiary. 42 U.S.C. §1396p(d)(4)(a),(c). See II.C.2. and VII.L.2. above for additional information.
For a thorough discussion of how similar issues have been dealt with in many jurisdictions, see Clifton B. Kruse, Jr., Third-Party and Self-Created Trusts, 2d ed., p. 68 (American Bar Association 1998). Also see the bibliography at the end of this article for citations to related materials.
Dallas attorney Renée Lovelace has worked with many families who seek to plan for family members with serious disabilities, and has concluded that in most cases two trusts are needed in order to provide adequate flexibility and protection of the trusts. Her approach is addressed in Appendix 16.
4 Transfer Rules
The statutes and rules governing TDMHMR and its community centers contain no provisions as to the effect of a beneficiary’s transferring assets in order to avoid claims for reimbursement.
The author has been told by agency representatives that in establishing the charges for support, maintenance and treatment (“SMT”), they consider only assets owned by clients at the time they seek or receive services (e.g., at the time of voluntary or involuntary commitment to a state hospital). Under this view, a transfer may result in the agency’s disregarding such assets, if the transfer is made before services are applied for or received. However, depending on the evidence of intent, the agency may take the position that such transfers are in fraud of creditors and seek to recover the assets from transferees on that ground. If the person waits until he or she is receiving MHMR services or has an outstanding bill for such services, the agency is highly likely to treat the transfer as a fraudulent conveyance.
In short, advice regarding transfers for the purpose of avoiding financial responsibility for TDMHMR or local MHMR services should be given under the same constraints as any other advice regarding transfers of assets with protection from creditors in mind. A transfer is fraudulent as to a creditor, whether the creditor’s claim arose before or within a reasonable time after the transfer, if the debtor made the transfer with actual intent to hinder, delay or defraud any creditor. Tex. Bus. & Comm. C. §24.005(a). Moreover, it is unethical for an attorney to assist or counsel a client to engage in conduct the attorney knows is fraudulent. Texas Disciplinary Rules of Professional Conduct Rules 1.02(c), 8.04(a)(3).
Different rules appear to apply to transfers to qualify for public benefits for which there is no right of reimbursement to the governmental entity, in which case the provider is probably not a “creditor” under the laws governing fraudulent conveyances. In particular, refer to the Medicaid laws if the benefit sought is financed entirely by Medicaid. Unless the statute purporting to make criminal the giving of advice is valid and applicable, it is probably permissible to advise and assist in transfers to qualify for Medicaid. See the materials for this seminar on “Advanced Medicaid Planning” for a more complete discussion.
veterans’ benefits
The discussion below is quite general. It is based primarily on the pamphlet “Federal Benefits for Veterans and Dependents” (1998 ed.) and on workshop materials prepared by Jerome I. Solkoff, CELA and Scott Solkoff for the 1997 Symposium of the National Academy of Elder Law Attorneys. More information about benefits for a particular veteran can be obtained by calling 800/827-1000, which will provide a referral to a local benefits counseling office.
The following are primary sources of law on veterans’ benefits: U.S. Code Title 38 and regulations at 38 C.F.R. §§ 3.1(a), (h); 3.12(a); 3.1(d),(e); 3.203; 3.301; 3.303; 3.303(a); 3.307(b); 3.309; 3.301; 3.302.
Comment: The U. S. Department of Veterans Affairs is staffed by personnel who are generally oriented toward finding benefits for applicants, rather than denying or obscuring them. Therefore, although legal assistance is sometimes needed for appeals involving difficult issues, the involvement of attorneys is less likely to be necessary than for dealing with the civilian programs.
This summary does not include benefits such as education and training, home loans, and benefits for survivors that are available to non-disabled veterans as well as to those with disabilities.
1 Disability Compensation
1 Eligibility
Monthly disability compensation is payable to veterans disabled by injury or disease incurred or aggravated during active military service. The service of the veteran must have been terminated through separation or discharge under conditions that were other than dishonorable.
2 Benefits
An eligible veteran with no dependents and no offsetting military income (such as military retirement pay, disability severance pay or separation incentive payments) receives approximately $100 per month for a 10% disability, graduated up to approximately $2,000 per month for a 100% disability (increasing with inflation).
Veterans with service-connected disabilities rated at least 30% are entitled to additional allowances for dependents, with the amount determined according to the number of dependents and degree of disability. In addition, a disabled veteran with a disability of at least 30%, and whose spouse is in need of aid and attendance of another person, is entitled to an additional allowance.
The following other benefits are available to some disabled veterans:
Grants to buy or remodel homes to obtain adaptations to disabilities
One-time payment of not more than $5,500 toward purchase of an automobile or other conveyance adapted for use by the disabled veteran
Clothing allowance of $491 for use of prosthetic or orthopedic appliance
Disability compensation for chronic disabilities resulting from undiagnosed illnesses suffered by Persian Gulf veterans
Under a special program for “unemployable veterans,” a veteran awarded 100% disability compensation who nevertheless participates in a vocational rehabilitation program and secures employment will continue to receive disability compensation without reduction until he or she has worked continuously for 12 months.
2 VA Pensions
1 Eligibility
Veterans with low incomes and not more than $1,500 in countable assets may be eligible for a monthly pension, if they meet the following conditions:
90 days or more of active military service, one day of which was during a period of war
Discharge from active duty under conditions other than dishonorable
Permanent and total disability for reasons traceable neither to military service nor to willful misconduct
Income below the applicable maximum pension rate, after unreimbursed medical expenses are paid
2 Benefits
The following were the “improved pension rates” in effect in 1997. A veteran with no income received the amount indicated, with the pension amount reduced dollar-for-dollar for countable income:
|Status |Max. Annual |
| |Pension |
| | |
|No dependent spouse or child |$8,665 |
| | |
|One dependent spouse or child |$11,349 |
| | |
|Permanently housebound with no dependents | |
| |$10,591 |
| | |
|Permanently housebound with one dependent | |
| |$13,275 |
| | |
|In need of regular aid and attendance, no | |
|dependents |$13,859 |
| | |
|In need of regular aid and attendance, one | |
|dependent |$16,542 |
| | |
|Two veterans married to one another, neither | |
|housebound nor in aid of attendance | |
| |$11,349 |
| | |
|Increase for each additional dependent child | |
| |$1,476 |
If a VA pension beneficiary is furnished hospital or nursing home care by the VA, the United States or a political subdivision thereof, or the Medicaid program, the pension may be reduced substantially. See 38 C.F.R. §5503. For example, in the case of a veteran with neither a spouse nor a dependent child, who is furnished domiciliary care by the Department of Veterans Affairs, the disability pension is reduced to $90 per month after the end of the third full calendar month following the month of admission. 38 C.F.R. §5503(a)(1) Likewise, a veteran with neither a spouse nor a dependent child who is in a nursing facility on Medicaid will have his or her VA pension reduced to $90 per month. However, the veteran is allowed to keep the full $90 per month, rather than being limited to a $30 personal needs allowance like other Medicaid beneficiaries. 38 C.F.R. §5503(f)(2),(3).
Practice Note: This potential reduction in non-service-connected VA pension is important to take into account in determining whether or not a “Miller Trust” is required to secure Medicaid eligibility for a veteran. You don’t want to charge the client for this service, then find out that it was not needed due to the reduction to $90. At the same time, if you need eligibility immediately, it may be better to establish a Miller Trust for just 2 or 3 months than to lose eligibility until the paperwork goes through to reduce the VA income. Bear in mind that the reduction does not apply to service-connected VA disability compensation, nor to military retirement pay; nor does it apply at all if the veteran is married or has a dependent child.
3 Vocational Rehabilitation
1 Eligibility
Veterans and servicemembers are eligible for monthly payments for training if they meet the following conditions:
Service-connected disability rated at least 20% (or 10% if there is a “serious employment handicap”)
Discharge or release other than dishonorable, or hospitalized awaiting separation for a service-connected disability
Need vocational rehabilitation to overcome an employment handicap caused by the service-connected disability
2 Benefits
Amount of monthly benefits depends on the number of dependents, type of training, and whether the training is full-time or a fraction thereof. In 1997, benefits for a veteran with no dependents ranged from $99.59 for 1/4-time training to $396.22 for full-time training. The same range for one with two dependents was $145.06 and $579.17, respectively.
4 Health-Care Benefits
1 Hospital and Outpatient Care
VA hospital and outpatient care is divided into two categories: “mandatory” coverage, which the VA is required to provide to the extent Congress appropriates funds; and “discretionary” coverage, provided to the extent resources are available in exchange for a copayment.
1 Mandatory coverage
The mandatory category covers veterans who meet any of the following requirements:
Care is needed for a service-connected condition
The veteran has a compensable service-connected condition
Discharge or release from active military service was for a compensable service-connected disability
Former prisoners of war
Veterans of the Mexican Border period or World War I
Veterans exposed to Agent Orange in Vietnam, ionizing radiation, or environmental hazards in the Persian Gulf
Veterans whose annual income and net worth is below the “means test” threshold. In 1997, that was $19,912 per year for a single veteran with no dependents or $23,896 if married (or single with one dependent). The income level was raised $1,330 for each additional dependent.
2 Discretionary coverage
All veterans not eligible for mandatory hospital and outpatient coverage are eligible for hospital care, medical services, and nursing home care “to the extent resources and facilities are available.” 38 U.S.C. §1710(a)(3). Such services are further conditioned on payment of the Medicare deductible ($768 in 1999) for the first 90 days of care during any 365-day period; and for each additional 90 days of hospital care, the patient is charged one-half the Medicare deductible. In addition, the patient is charged $10 per day for hospital care and $5 per day for VA nursing home care, and a copayment for outpatient care of 20% of the cost of an average outpatient visit.
2 Nursing Home & Assisted Living Care
Nursing home care is always furnished, if at all, on a “space-available” basis, even to persons who meet the “mandatory” criteria for hospital and outpatient care. Veterans with a service-connected disability may be given first priority.
The following veterans may be provided nursing home care without regard to income eligibility:
With service-connected disability
Exposed to herbicides while serving in Vietnam
Exposed to ionizing radiation
With a condition related to an environmental exposure in the Persian Gulf
Former prisoners of war
On VA pension
Eligible for Medicaid
When a copayment is charged for nursing home care, it is the amount of the Medicare deductible for inpatient hospital care ($768 in 1999), for every 90 days of nursing home care or fraction thereof.
Veterans are sometimes transferred from VA hospitals or nursing facilities to private nursing homes under contract with the VA. However, such care normally is not provided for more than six months, except for veterans who need nursing home care for a service-connected disability or for veterans who were hospitalized primarily for treatment of a service-connected disability.
Direct admission to private nursing homes at VA expense is limited to (1) a service-connected disability requiring nursing care; (2) transfer from a military hospital prior to discharge; and (3) post-discharge from a VA medical center.
Practice Note: Medicaid requires that an applicant apply for VA nursing home care as well as all other benefits for which he or she may be eligible. This sometimes creates anxiety in clients, who fear they will lose Medicaid eligibility and be forced to move to a facility far from home and/or less desirable than a local Medicaid home. However, under the foregoing rules, it is quite rare for a Medicaid applicant to qualify for VA nursing home care. Moreover, even if such qualification does occur, the VA benefit should be treated as a “third-party resource” and Medicaid eligibility established in the meantime, so there will be no need to reapply when the VA entitlement ends (usually after 6 months).
The VA also may provide “domiciliary care,” a level of care below that provided in a nursing facility that appears to correspond generally to assisted living care. It is available to veterans with annual incomes not exceeding the annual rate of VA pension and to veterans who have “no adequate means of support.”
3 Miscellaneous Medical Services
The following services are available to veterans in various categories of service-connected disability, low income, war-related exposure, etc.:
outpatient pharmacy services
outpatient dental treatment
examination and treatment of conditions relating to Persian Gulf service, Agent Orange and ionizing radiation
travel costs for VA care
alcohol and drug dependence treatment
prosthetic services
services and aids for blind veterans
home improvements and structural alterations
readjustment counseling
medical care for dependents and survivors
benefits for homeless veterans
5 Application
Call 800/827-1000 for the location of the nearest VA benefits office.
OTHER PUBLIC BENEFITS
The following is a list of benefits not discussed above.
1 Subsidized Housing
Housing subsidies are provided in the form of public housing (“projects”), low-income housing built with tax breaks to the developer (such as “235 housing”), and rent subsidies (usually “Section 8 housing”). Some units with assisted living are available to persons with disabilities. Information is usually available from the local housing authority, which administers most of these programs.
2 Local Medical Assistance Programs
In some areas, there are medical programs providing physician care and other services to persons who “fall through the cracks” because they cannot afford medical care, do not have adequate insurance, and do not qualify for Medicaid or Medicare. An example is the City of Austin Medical Assistance Program.
3 Emergency Room Assistance
Hospitals are required to provide emergency care to persons in need regardless of ability to pay. Although some individuals unfortunately utilize this as their sole source of medical assistance, it should be viewed as a last resort.
4 Indigent-Care Responsibilities of Hospitals
Under the federal Hill-Burton Act and other laws, hospitals are required to provide some services without compensation to indigent persons. Some such services are reimbursed indirectly under the Medicaid program’s “Disproportionate Share Hospital Funds.” These programs are of little use for planning purposes, as they are ordinarily utilized as payers of last resort when indigent patients have failed to respond to collection efforts.
5 Local Nonprofit Agencies
Many areas have private nonprofit agencies that assist persons with disabilities, often in situations in which they would otherwise “fall through the safety net.” Although they often receive some funding from public agencies, their benefits are not usually “entitlements” in a legal sense. For a list of such agencies, contact your local Area Agency on Aging, Alzheimers Association, Association for Retarded Citizens or similar organization serving persons with disabilities.
6 Unlisted Agencies & Benefits
This section is here just to emphasize that the benefits discussed above are not by any means all the benefits available to persons with disabilities, but only the major national programs. One of the lesser-known programs may offer just the help you or your client need, but only with diligent work and advocacy will you find it. In addition to the referral agencies named above, you may want to call the Texas Department of Human Services, Texas Department of MHMR, a local MHMR agency, the Texas Department of Aging, Legal Aid, veterans’ organizations or relevant advocacy groups.
Agencies and groups serving persons with disabilities truly form a “network.” You can find almost anything available, no matter where you start, if you are persistent and diligent. And you will meet some very remarkable people on the way.
appendices
APPENDIX 1: Miller Trust (Qualified Income Trust)--Trust Instrument
For discussion of the legal background and purposes of this form, see VII.F.4. above.
TRUST DECLARATION
OF
«Client Name:LIKE THIS»
This declaration of trust is made by «Client Name:LIKE THIS», hereinafter referred to as the Settlor, who is also a beneficiary of this trust.
ARTICLE I
NAME OF TRUST AND TRUST PURPOSE
This trust shall be known as the «Client Name:LIKE THIS» INCOME TRUST. The Settlor of this trust requires continuing medical and nursing supervision and is dependent upon others for «Client Gender:his/her» personal care. The overriding purpose of this trust is obtain the necessary care from whatever sources may be available. To that end this trust is designed to assist the Settlor in meeting the requirements of eligibility for benefits under the Medical Assistance Program in the State of Texas, under the provisions of 42 U.S.C.A. Sec. 1396p(d)(4)(B) as amended by The Omnibus Budget Reconciliation Act of 1993 (effective August 10, 1993) and all other applicable laws, regulations and administrative procedures.
ARTICLE II
SETTLOR
«Client Name:LIKE THIS» and the Texas Department of Human Services shall be the sole beneficiaries of the trust. Settlor «Client Name:LIKE THIS» has Social Security number «SSN». «Client Name:LIKE THIS» presently resides at «Street Address», «City», «State» «Zip Code».
ARTICLE III
APPOINTMENT OF TRUSTEE
Settlor hereby appoints «Miller Trustee1:LIKE THIS» as the Trustee of this trust. Trustee shall serve without bond or supervision of any court.
ARTICLE IV
TRUST ESTATE
Section 1. Income Trust. «IF All Income»It is the settlor's intent to transfer all of «Client Gender:his/her» income into the trust, to be held and managed as the trust estate.«END IF»«IF All Income = FALSE»It is the settlor's intent to transfer all of the following income into the trust, and settlor directs «Client Gender:his/her» agents to transfer this income and only this income into the trust: «Income to Trust».«END IF» Only “income” of the settlor, as defined by the rules and laws governing the Medical Assistance Program in Texas, may be transferred to the trust. «IF All Income»The trustee and all persons who may act as the settlor’s agents are hereby instructed that all the settlor’s income from whatever source shall be transferred to the trust for so long as the settlor is eligible for benefits under the Medical Assistance Program (Medicaid) or seeking such eligibility.«END IF» The income to be deposited is from the following sources: «Income».
Section 2. When Income Transferred. Income of the settlor to be transferred to the trust shall be so transferred in the same month in which it is received by the settlor, unless a longer time is authorized by regulation or written directive by the agency administering the Medical Assistance Program. Income may be transferred directly from the income source to the trust.
«IF All Income = FALSE»
Section 3. All Income From Same Source. When income from any source is transferred to the trust in a given month, all income from that source shall be transferred to the trust in the same month. For example, the trustee may not transfer to the trust only a part of the settlor’s Social Security income in any given month; either all or none must be transferred in that month.
«END IF»
ARTICLE V
DISPOSITION OF PRINCIPAL AND INCOME
Section 1. Maintenance of Qualification for Public Benefits. The overriding purpose of this trust is to assure eligibility of the Settlor for Medical Assistance Program benefits. Therefore, the Trustee shall make distributions from the trust in amounts and for the purposes necessary to maintain such eligibility, notwithstanding any other provision of this document. Among the requirements of the Medical Assistance Program at the time of establishment of this trust, which the Trustee shall meet as long as and to the extent required, is the requirement that the trustee make payments from the trust in the following priority:
a. A monthly personal needs allowance ($30.00 per month as of this date); then
b. In the event the Beneficiary is married, a sum to the spouse of the Beneficiary sufficient to provide the minimum monthly maintenance needs allowance for the spouse. All trust funds that can be paid to the Settlor's spouse, if any, without reduction or loss of the Settlor's eligibility for public benefits, shall be used by the Trustee for the benefit of the Settlor's spouse. The Trustee may exercise discretion in determining the purposes for which such payments are made but shall have no discretion to make such payments to or for the benefit of any person or entity other than the Settlor's spouse. The trust cannot be terminated and distributed to any other individuals or entities for any other purpose. Then,
c. From the funds remaining, the cost of medical assistance provided to the Beneficiary. To the extent required by the Medical Assistance Program, income placed in the trust must be paid out of the trust for medical care provided to the Settlor, including nursing facility or ICF/MR or home/community-based waiver services provided to the Settlor.
Section 2. Miscellaneous Distributions. Subject to the requirements of the previous sections of this article and of the Medical Assistance Program, in the event that funds are available, the Trustee may make other distributions of principal and/or interest for the Settlor’s health, education, maintenance and support, as the Trustee may in the Trustee's discretion deem advisable. Such other distributions may include, without limitation, payment of the administrative fees of the trust, income tax owed by the trust, attorney fees which the trust is obligated to pay (in proportion to whatever part of the trust benefits the Settlor), food or clothing for the individual, or mortgage payments for the Settlor’s home.
Section 3. When Payments Made. Required payments must be made by the trust not later than the last day of the month following the month of receipt of the income, or within any other time period that may be required by the Medicaid program.
ARTICLE VI
TERMINATION OF TRUST
Section 1. Irrevocability. This trust is irrevocable.
Section 2. Events of Termination. This Trust shall terminate upon the settlor's death. Upon termination, the remaining trust property shall be distributed as set forth in Article VI. Sec. 3 below.
Section 3. Distribution Upon Termination. At the settlor's death, the Trustee shall distribute to the Texas Department of Human Services or its successor agency any remaining trust property up to an amount equal to the total medical assistance paid on behalf of «Client Name:LIKE THIS» by the Texas Medical Assistance Program, as reimbursement. Provided, in the event that «Client Name:LIKE THIS» shall have lived in more than one State, the funds remaining in the trust shall be distributed to each State in which «Client Name:LIKE THIS» has received assistance under the Medical Assistance Program, based on the State’s proportionate share of the total amount of Medical Assistance benefits paid by all of the States on «Client Name:LIKE THIS»’s behalf. All trust property remaining thereafter shall be distributed to the named beneficiaries of the last will and testament of «Client Name:LIKE THIS» in the amounts and/or proportions therein required, as if the trust property were part of the probate estate; and in the event «Client Name:LIKE THIS» dies intestate, the trust property shall be distributed to «Client Gender:his/her» heirs at law as provided by Texas law at the time of «Client Gender:his/her» death.
ARTICLE VII
TRUST ADMINISTRATIVE AND PROTECTIVE PROVISIONS
Section 1. Jurisdiction. This trust shall be administered expeditiously and consistently with its terms, free of any judicial intervention and without order, approval or other action by a court, subject only to the jurisdiction of a court which is invoked by the trustee or other interested parties or as otherwise provided by law.
Section 2. Reports. Periodic reports shall not be made unless required by the regulations of the Texas Department of Human Services. The trust records shall be open at all reasonable times to inspection by the Settlor of the trust, the Texas Department of Human Services, and their properly appointed representatives.
ARTICLE VIII
POWERS OF TRUSTEE
Section 1. Property Code Title 9 Trust Provisions. In addition to all of those powers specifically granted herein, the Trustee may exercise those powers set forth in Texas Property Code Title 9, Trusts Sec. 101.001-115.017, together with any amendments to such Code after the date of this document, including without limitation the power to establish and manage a checking account in a bank, credit union, savings & loan or other similar financial institution.
ARTICLE IX
TRUSTEE SUCCESSION AND ADMINISTRATIVE PROVISIONS
Section 1. Resignation or Death of the Trustee. Any Trustee may resign by giving thirty days written notice to the Settlor, or to the guardian, conservator or other legal representative of the Settlor. Such resignation shall be effective 30 days from the date notice is given. In the event the Trustee resigns, becomes legally incapacitated or dies while holding office, «Miller Trustee2:LIKE THIS» shall serve as successor Trustee. «IF Second Alternate»In the event that «Miller Trustee2:LIKE THIS» resigns, becomes legally incapacitated or dies while holding office, without having appointed a successor, «Miller Trustee3:LIKE THIS» shall serve as successor Trustee. «END IF»Any trustee may, while serving as trustee, appoint one or more successor trustees and may thereby alter the plan for succession of trustees set out herein. If any trustee resigns or dies while holding office, at a time when no successor trustee who is able and willing to serve has been appointed, any interested person may apply to be appointed successor trustee as set forth in Texas Property Code Sec. 113.083.
Section 2. Representative of Settlor. The guardian of a Settlor under legal disability or, if none, the agent acting under general power of attorney or, if none, the person having the right of custody of a minor Settlor, may act for such Settlor for all purposes under the administrative provisions of this trust.
Section 3. Rights of Successors. Every successor Trustee shall have all the title, rights, powers, privileges and duties conferred on or imposed upon the original Trustee, without any conveyance or transfer. No successor Trustee shall be responsible for any act or omission to act on the part of any previous Trustee.
Section 4. No Bond. No Trustee, or any successor, shall be required to give any bond in any jurisdiction, and if, notwithstanding this direction, any bond is required by any law, statute or rule of court, no sureties shall be required.
ARTICLE X
DEFINITIONS
Section 1. Reference to Codes. Except as otherwise provided, definitions of terms in this trust shall be in accordance with the Texas Probate Code and Texas Property Code, as amended.
Section 2. Successor Agencies and Programs. All references in this trust to the Texas Department of Human Services and the Medical Assistance Program shall include any successor public agency or program.
ARTICLE XI
CONSTRUCTION
Section l. Conformity with Statutes. In case of ambiguity or conflict, this trust should be construed so as to comply with the provisions of Texas Property Code, Title 9 Trusts, as amended.
Section 2. Applicable Law. The validity of this trust shall be determined by reference to the laws of Texas. Questions of construction and administration of this trust shall be determined by reference to the laws of Texas.
Section 3. Headings of Articles and Sections. The headings of articles and sections are included solely for convenience of reference, and shall have no significance in the interpretation of this agreement.
Section 4. Construction of Number and Gender. Unless the context requires otherwise, words denoting the singular may be construed as denoting the plural, and words of the plural may be construed as denoting the singular, and words of one gender may be construed as denoting such other gender as is appropriate.
Signed by «Client Name:LIKE THIS», settlor herein, and by «Miller Trustee1:LIKE THIS», who accepts the office of Trustee, on this day of , 199 .
«Client Name:LIKE THIS», Settlor
«Miller Trustee1:LIKE THIS», Trustee
THE STATE OF TEXAS
SUBSCRIBED AND ACKNOWLEDGED before me by «Client Name:LIKE THIS» and «Miller Trustee1:LIKE THIS», on this ______ day of ___________________, 19____.
Notary Public, State of Texas
APPENDIX 2: Miller Trust (Qualified Income Trust)--Sample Letter
of Instruction to Trustee
For discussion of the legal background and purposes of this form, see VII.F.4. above.
«TODAY:July 4, 1976»
«Miller Trustee1:Like This»
«Miller Trustee1 Street:Like This»
«Miller Trustee1 City/State/Zip:Like This»
Re: The «Client Name:Like This» Income Trust
Dear «Miller Trustee1 Salutation:Like This»:
This is to provide you instructions for establishing and managing the above-referenced trust, of which you have agreed to be trustee.
Purpose of the Trust
The purpose of this trust is to make «Client Description:like this» eligible for Medicaid long term care benefits by reducing the amount of income that is "counted" for eligibility purposes. Under the law, any income that goes through the trust is not counted. If any income accumulates in the trust, then at «Client Gender:his/her» death, it will be paid to the state to reimburse the Medicaid program for benefits «Client Gender:he/she» has received. This allows «Client Description:like this» to receive more in benefits than «Client Gender:his/her» income would otherwise buy, if it went directly to pay «Client Gender:his/her» living expenses.
Steps Required to Establish the Trust
1. Sign the trust document: This should be done before the first day of the month in which «Client Description:like this» plans to become eligible for Medicaid. Both you and «Client Description:like this» should sign. «IF TP51 Case = FALSE»Make a copy to go with the Medicaid application. «END IF»Be sure to have the signatures acknowledged before a notary, because some banks require this.
2. Open a bank account: Go to the bank or credit union of your choice and open whatever account is most convenient for writing a few checks per month--probably not more than five, ordinarily. It can be the same type of account an individual would use, but the bank will need to see the trust instrument and will need «Client Description:like this»’s Social Security number to associate with the account. Only you should be authorized to draw on the account, and there should be no survivorship provision. It should be in the name of the trust only.
3. Transfer income to the bank account: This must be done in the same month in which the income is received. Even if the income is initially paid directly to the beneficiary or is direct deposited to another account, you can transfer it to the trust, as long as you transfer it into the trust account during the same month. For convenience, and to be sure it goes into the trust account during the month of receipt, I suggest you arrange for direct deposit of the income into the trust's bank account.
Deposit only income of the beneficiary into the trust’s account. Do not, for example, deposit funds received before the month the trust is established.
«IF All Income»
Transfer all the beneficiary’s income into the trust’s account in the same month in which the income is received.
«END IF»
«IF Certain Income Only»
Transfer only the beneficiary’s «Certain Income to Miller Trust:pension/social security» income into the trust’s account. Do not transfer only a part of the «Certain Income to Miller Trust:pension/social security» income; and do not transfer any other income into the trust’s account.
«END IF»
How to Write Checks on the Trust’s Bank Account
Mechanically, this is just like writing checks on your own account. However, it is very important that you administer the trust according to the rules of the Medicaid program, to maintain «Client Description»’s eligibility of the trust beneficiary. If you make a payment in the wrong amount or for the wrong purpose, «Client Gender:he/she» may lose eligibility for a month or more.
In general, «Client Description»’s income (including that which goes through the trust and that which does not, if any) should be paid in the priority indicated below. The "income" referred to below is «Client Description»’s income, not the income of the trust.
(Note: This summary is just to help explain the system, not to replace the caseworker's instructions in the particular case.)
First priority: "Deductions from applied income." This includes, in order of priority, the following: (1) a personal needs allowance for any needs of «Client Description» (currently, $30 per month); (2) an allowance for «Client Description»’s dependants and/or spouse, if any; and (3) all unreimbursed medical expenses, including the Medicare Part B premium if any (usually deducted from the Social Security check), medical insurance premiums if any, and medical expenses not covered by public benefits or insurance
Second priority: "Applied income." This is income that must be "applied" to «Client Description»’s care--ordinarily, for nursing home expenses.
The Texas Department of Human Services caseworkers usually recommend that until they have done all the necessary calculations, you pay all the income to the nursing home each month. Then, after eligibility is established, you should be able to obtain a refund from the nursing home for any excess payments. That is the safest way to do it. «IF Client Married»However, if it is important to begin making payments to the applicant’s spouse immediately, I believe (but do not guarantee) that it will be sufficient to pay «Applied Income» to the nursing home each month, with the rest going to the spouse, medical insurance and the $30 per month personal needs allowance.
«END IF»
«IF Client Married = NOT TRUE»
Third Priority: Needs of «Client Description». If any income remains for the month, it can be used for any needs of «Client Description»--provided that not more than $1,500 is made available in any month, including both income coming out of the trust to «Client Description» and income going directly to «Client Description». Any amount in excess of $1,500 in a given month must be paid for needs of «Client Description» other than food, clothing and shelter. Any amount that is paid for medical needs of «Client Description» (such as, for example, nursing home expenses) is not counted toward the $1,500 per month income limit. (Note: The dollar amount of the income limit changes every January 1. You may call the Texas Department of Human Services or my office to determine the current amount at any time.)
«END IF»
«IF Client Married»
Third Priority: Needs of the beneficiary's spouse. If any income remains for the month, it must be distributed to or for the benefit of «Client Description»'s spouse, if any. You have the discretion either to pay it directly to the spouse or to use it to pay for goods or services or debts of the spouse.
«END IF»
Make a record of all checks written: Record in your checkbook or computer record, as to each check, the following: check number, date, payee, purpose, amount. This is essential for making sure you can prove that the checks have been made for permissible purposes.
Records you should keep: If you write in your checkbook all the information indicated above, that and your monthly statements from the bank will be all the records you need to keep--as long as the trust is not generating enough income to require filing an income tax return. You will, of course, want to have a file with the trust instrument, a copy of the Medicaid application and related documents, and correspondence from DHS, me and others.
Income tax on trust income: Because «Client Description:like this» is both the creator (“grantor”) of the trust and its beneficiary, any income the trust may have should be reported on the income tax return, if any, of «Client Description:like this». There is no need to obtain a tax number nor to file an income tax return for the trust. Just use the Social Security number of «Client Description:like this» as the tax number of the trust when you open the bank account. Because some bank officers believe erroneously that it is necessary to obtain a new tax number for the trust, a copy of a letter from the IRS indicating this is not necessary is enclosed.
What happens if «Client Description:like this» is no longer a Medicaid beneficiary: If this occurs, the money in the trust can be used for any needs «Client Description:like this» may have. However, if any money is left in the trust at «Client Gender:his/her» death, it will go to the State to the extent of unreimbursed Medicaid expenses.
I hope these instructions are helpful. If you have any questions, don't hesitate to call me.
Sincerely yours,
[ATTORNEY]
APPENDIX 3: Testamentary Contingent Trust With Short-Form
Supplemental Needs Provision
For discussion of the legal background and purposes of this form, see II.C.1. and VII.L.3. above.
Comment on form: This is for a testamentary contingent trust intended to avoid loss of eligibility of a person who but for the distribution would be eligible for disability benefits (such as SSI and Medicaid). This is simply an extension of a contingent trust form commonly used to avoid the need for a guardianship to manage assets for a minor or an incapacitated adult. In addition to avoiding a guardianship, this form is intended to avoid the loss of benefits; and it is meant to do so for an adult who although not mentally incapacitated, is "disabled" within the meaning of the SSI law. If the client prefers that the supplemental needs feature not be provided, the paragraph providing for it can simply be omitted. Provisions applicable generally to trusts created under the will, such as management powers, waiver of bond and appointment of trustee, are assumed to be located elsewhere in the will.
Contingent Trusts. Any portion of my estate, or of a trust estate upon the trust's termination, which would be distributable to a beneficiary who is under age «Age for Distribution», who is under a legal disability, or who is (or, apart from this distribution, could be) a recipient of any public benefits by reason of disability, instead shall be distributed to the trustee of a Contingent Trust. Each beneficiary's portion so distributed shall be held and administered as a separate trust for the beneficiary.
Distributions to Beneficiary. The trustee may distribute to or for the benefit of the beneficiary, from time to time, so much or all of the trust estate as, in the trustee's discretion, is in the beneficiary's best interests, taking into account the age of the beneficiary, the beneficiary’s needs, any income the beneficiary may have from other sources to the knowledge of the trustee, the effect of any distribution upon the income and transfer tax liability of the beneficiary or of the trust, and any other factors deemed relevant by the trustee.
Termination of the Trust. The trust shall terminate when the beneficiary attains age «Age for Distribution» or dies before that age (or, in the case of a beneficiary who is under a legal disability other than minority, when the disability is removed or the beneficiary dies). Provided, in the case of a beneficiary who is or becomes a recipient of public benefits, the trust shall not terminate until the beneficiary dies or the trustee, in his or her absolute discretion, determines that termination would be in the best interests of the beneficiary. Upon termination, the trust estate shall be distributed as follows:
1. To the beneficiary, but if the beneficiary is not then living, to the beneficiary’s descendants.
2. If none of the beneficiary's descendants is then living, to my descendants.
3. If none of my descendants is then living, to the persons who would have taken property under this will, in the portions they would have received, had I died at the time of termination of the trust.
Maximum Term of Trust. Notwithstanding any other provision herein, no trust shall continue for a period longer than 21 years after the death of the last to die of all the descendants of my parents and grandparents «IF Married»and my «Gender of Client:wife/husband»'s parents and grandparents «END IF»who were living at my death. Any trust still in force at that time shall terminate, and the trust estate shall be distributed to the beneficiary.
Protection of Trust Assets (Spendthrift Provision). No beneficiary shall have the power to anticipate, encumber or transfer his or her interest in the trust estate in any manner. No part of any trust estate shall be liable for or charged with any debts, contracts, liabilities or torts of a beneficiary or subject to seizure or other process by any creditor of a beneficiary.
«IF SNT Clause»
Supplemental Needs Trust. It is not my intention to displace public or private financial assistance that may otherwise be available to any beneficiary. No beneficiary has any entitlement to the income or corpus of this trust, except as my Trustee, in my Trustee's complete, sole, absolute and unfettered discretion, elects to disburse. In this regard, my Trustee may act unreasonably and arbitrarily, as I could myself if I were living and in control of these funds. Provided, distributions shall be limited so that no beneficiary is disqualified from receiving public benefits to which he or she is otherwise entitled, and this trust shall be administered so as to supplement and not supplant such benefits. My trustee may, however, make distributions that would reduce public benefits without terminating them completely such as, for example, by providing food, clothing and shelter to a beneficiary eligible for Supplemental Security Income in exchange for a reduction of benefits under the "Presumed Value Rule," when the trustee in his uncontrolled discretion determines such distributions to be in the best interests of the beneficiary.
«END IF»
APPENDIX 4: Long-Form Testamentary Supplemental Needs Trust
For discussion of the legal background and purposes of this form, see II.C.1. and VII.L.3. above.
Comment on form: Where the need for disability benefits is known in advance, it may be preferable to use this longer form rather than the "catch-all" short form. It demonstrates that the testator gave consideration to the needs of the particular beneficiary and precludes all doubt as to the intent that the trust should be administered so as to qualify the beneficiary for public benefits if possible. If aside from the trust the beneficiary would not be eligible for public benefits, then by its terms it can be used as a discretionary trust for any needs the beneficiary may have. Provisions applicable generally to trusts created under the will, such as management powers, waiver of bond and appointment of trustee, are assumed to be located elsewhere in the will.
THE «Special Child:LIKE THIS» TRUST. The share of my estate that is set aside for «Special Child:LIKE THIS» shall be held by my Trustee, «Trustee1:LIKE THIS», or a successor trustee, in a trust for the benefit of «SNT Beneficiary:LIKE THIS» in a Special Supplemental Needs Trust in accordance with the following provisions:
Statement of intent. It is my intention by this trust to create a purely discretionary supplemental needs fund for the benefit of «SNT Beneficiary:LIKE THIS». It is not my intention to displace public or private financial assistance that may otherwise be available to «Gender of SNT Beneficiary:him/her». My primary intent is to preserve the Beneficiary’s eligibility for public benefits, while making available funds to provide for supplemental needs not provided by public benefits. Any provision herein that is found or construed to lead to disqualification of the beneficiary for public benefits shall be deemed void or shall be construed in such a manner as to accomplish this purpose.
Distribution standards. I do not want this trust eroded by my beneficiary’s creditors nor do I want «Gender of SNT Beneficiary:his/her» public or private assistance benefits to be made unavailable to «Gender of SNT Beneficiary:him/her» or terminated. Distributions shall be limited so that no beneficiary is disqualified from receiving public benefits to which he or she is otherwise entitled, and this trust shall be administered so as to supplement and not supplant such benefits. My trustee may, however, make distributions that would reduce public benefits without terminating them completely such as, for example, by providing food, clothing and shelter to a beneficiary eligible for Supplemental Security Income in exchange for a reduction of benefits under the "Presumed Value Rule," when the trustee in his, her or its uncontrolled discretion determines such distributions to be in the best interests of the beneficiary.
Trustee's discretion. The Trustee’s discretion in making supplemental disbursements as provided for in his instrument is final as to all interested parties, including the state or any governmental agency or agencies, even if the Trustee elects to make no disbursements at all. The Trustee’s sole and independent judgment, rather than any other parties’ determination, is intended to be the criterion by which disbursements are made. No court or any other person should substitute its or their judgment for the discretionary decision or decisions made by the Trustee.
Examples of permissible distributions. The following are examples of the kinds of supplemental disbursements that are appropriate for my Trustee to make from this trust. Such examples are not exclusive: medical, dental and diagnostic work and treatment for which there are no private or public funds otherwise available; medical procedures that are desirable in my Trustee’s discretion, even though they may not be necessary or life-saving; supplemental nursing care and rehabilitative services; differentials in cost between shared and private rooms in institutional settings; expenditures for travel, companionship, cultural experiences, and expenses in bringing my beneficiary’s relatives and others for visitation; and any other care and other benefits that assistance programs may not otherwise provide.
Income added to principal. Any income received by the Trustee not distributed to or for the benefit of the trust beneficiary shall be added annually to the trust’s principal.
Interests of remainder beneficiaries secondary. My Trustee shall consider all resource and income limitations that affect my beneficiary’s right to public assistance programs. Distribution to or for the benefit of my beneficiary shall be limited so that the beneficiary is not disqualified from receiving public benefits to which «Gender of SNT Beneficiary:he/she» is otherwise entitled. My beneficiary’s probable and possible future supplemental care needs should be considered by my Trustee in connection with the disbursements made by my Trustee from this trust. The interests of remainder beneficiaries are of only secondary importance.
Protection of trust assets. My Trustee should resist any request for payments from this trust for services that any public or private agency has the obligation to provide to my beneficiary. My Trustee may not be familiar with the federal, state and local agencies that have been created to financially assist disabled persons. If this is the case, my Trustee should seek assistance in identifying public and private programs that are or may be available to the beneficiary.
Spendthrift provisions. This is a spendthrift trust. No interest in the principal or income of this trust shall be anticipated, assigned or encumbered or shall be subject to any creditor's claim or to legal process, prior to its actual receipt by the beneficiary. Furthermore, because this trust is to be conserved and maintained for the special needs of the beneficiary for life, no part of the corpus thereof, neither principal nor undistributed income, shall be construed as part of the beneficiary’s "estate" or be subject to the claims of voluntary or involuntary creditors for the provision of care and services, including residential care, by any public entity, office, department or agency of the State of Texas, or any other state or governmental entity, or the United States, or any other governmental agency.
Trustee Authority to Terminate Trust. If the existence of this supplementary needs trust adversely affects the beneficiary from receiving public or private support benefits, my Trustee may arbitrarily terminate this trust. If this occurs, the remainder interest will be accelerated, and the remainder beneficiaries shall receive the accrued and undistributed income and corpus then held by the Trustee in the event of voluntary termination, as provided for in this paragraph. It would be my hope and expectation that the remainder beneficiaries will continue to provide for the nonsupport care needs of the beneficiary. This request is an expression of my wishes. It is not binding on the remainder beneficiaries.
Termination of Trust. If not previously terminated, this trust shall terminate upon the death of «SNT Beneficiary:LIKE THIS». Thereupon, the trustee shall distribute and deliver all of the principal and income of the trust estate to the same persons, and in the same proportions, as would have taken all my property if I had died on the date of the trust's termination, not survived by «SNT Beneficiary:LIKE THIS».
Trustee’s Powers. My Trustee shall have all rights, privileges and powers now or hereafter granted to trustees by statute in Texas, in addition to all other powers granted trustees in this will. No Trustee shall be required to post surety or personal bond while serving in this capacity. The Trustee may take whatever legal steps may be necessary to initiate or continue any public-assistance program for which the beneficiary is or may become eligible. The Trustee may bring such action in any court or regulatory agency having jurisdiction over the matter, to secure a ruling or order that the Trust described in this article is not available to the beneficiary for any purpose. Any expense of the Trustee, including reasonable attorney fees, specifically incurred in connection with matters relating to determination of eligibility of the beneficiary for public or private support, but not limited to such services, shall be a proper charge to the Trust.
Trustee's Power to Direct Trust Corpus to a Pooled Trust. The trustee shall have the power to direct the corpus of this trust, or whatever portion of the corpus of this trust the trustee deems appropriate, into a pooled trust managed by a non-profit organization, should the trustee, in the trustee's sole discretion, believe that such arrangement is in the best interests of «SNT Beneficiary:LIKE THIS».
Choice of Law. This agreement is entered into and executed in the state of Texas and shall be administered in accordance with the laws of that state.
«END IF»
APPENDIX 5: Inter Vivos Supplemental Needs Trust Created by Third Party
For discussion of the legal background and purposes of this form, see II.C.1. and VII.L.3. above.
Source of forms: This form, and all the forms below pertaining to court-created trusts, are reprinted (with minor changes by the author) with permission from Deborah A. Green, Special Trusts: §§867, 142, 1396 Supplemental Needs Trusts- When and How to Use Them, State Bar of Texas Advanced Estate Planning and Probate Law Course, 1998 (available for downloading at ). Ms. Green acknowledges substantial contributions to these forms by Glenn M. Karisch, whose publication Court-Created Trusts, State Bar of Texas Advanced Drafting: Estate Planning and Probate Course, 1995 (available for downloading at ) should also be consulted. Like most forms in this field, all the "supplemental needs trust" forms in this publication include some language from forms originally developed by Clifton B. Kruse, Jr. However, they have been substantially modified to conform to Texas law and practice. For Mr. Kruse's forms and extensive commentary, see Clifton B. Kruse, Jr., Third-Party and Self-Created Trusts, 2d ed., p. 68 (American Bar Association 1998). Also see the bibliography at the end of this article for citations to related materials. The author has modified the forms somewhat, for example, to expressly allow distributions to utilize the benefits of the "presumed value rule" in the SSI program. Each form should be tailored to the particular client's needs.
An additional option is provided by The Association for Retarded Citizens (in Austin), which has recently developed a “pooled trust” as authorized by 42 U.S.C. §1396p(d)(4)(c) that meets the requirements discussed above for a self-settled Medicaid trust. This can apparently be used pursuant to an order in a guardianship case under Probate Code §867. It may be more problematic if the order is from a trial court because of the requirement of Property Code §142.005(b)(1) that the minor or incapacitated person be the "sole beneficiary of the trust;" but it would seem that a "subaccount" in the pooled trust should considered the functional equivalent of a trust with a single beneficiary, as the "pooling" is for investment purposes only. For more information, call the ARC at 800/252-9729 (454-6694 in the Austin area).
| |
|This is not a court-created trust, nor does it meet the requirements of 42 U. S. C. §1396p(d)(4)(A). Rather, this is a form of trust which may |
|be used by a parent or other relative as a means of transferring property from the parent or relative for the benefit of a person receiving |
|governmental assistance without disqualifying that person from receiving such assistance. The most significant distinction between this trust |
|and a (d)(4)(A) trust is that this trust contains no provision for reimbursing the state upon the death of the beneficiary, since reimbursement |
|is not required for a trust holding a third party’s funds (rather than the beneficiary’s funds). |
SUPPLEMENTAL NEEDS TRUST FOR __________________
This trust agreement is made by and between ____________________ (“Settlor”) as settlor and __________________ (“Trustee”) as trustee in order to create a trust (the “Trust”) for the primary benefit of _____________ (“Beneficiary”).
1. Transfer to Trust. Settlor transfers to Trustee the property described on Schedule "A" attached hereto as the initial trust estate of the Trust. The Trustee accepts such property. Additional property acceptable to the Trustee may be transferred to the Trust from time to time by anyone and added to the trust estate.
[2. Trust Irrevocable. This trust is irrevocable.][2. Trust Revocable. This trust may be revoked or amended in whole or in part by Settlor during Settlor’s lifetime. After Settlor’s death, this Trust shall become irrevocable.]
3. Distributions During Term of Trust. The following provisions shall govern distributions from the Trust during the term of this Trust:
A. Purpose and Intent. This Trust is intended to be construed and administered as a “supplemental needs” trust. Without limiting the foregoing, neither the corpus of the Trust nor distributions from the Trust shall ever cause the Beneficiary to be disqualified to receive those public benefits or assistance under a state or federal program to which the Beneficiary then may be entitled but for the existence of this Trust or but for the distributions from this Trust.
B. Distribution Standard. During the term of this Trust, the Trustee shall apply for the benefit of the Beneficiary those amounts of the principal and/or income of the Trust for the satisfaction of the Beneficiary’s supplemental needs (defined below), as the Trustee, in the Trustee's sole and absolute discretion, may from time to time deem appropriate, subject to the strict limitations set out in this instrument. Any income of the trust not distributed shall be added to the principal.
C. Supplemental Needs. As used in this instrument, "supplemental needs" refers to the requisites for maintaining the Beneficiary’s health, safety, and welfare when the Trustee determines, in its discretion, that such needs are not being provided for by any public or private agency, including any state, the United States, or any insurance carrier with insurance policies covering the Beneficiary. The Trustee is prohibited from expending any of the trust principal or income for any property, services, benefits, or medical care which are being received by, or which are otherwise available to, the Beneficiary from any governmental source or from any insurance carrier required to cover the Beneficiary. Further, the Trustee is prohibited from expending any of the trust principal or income for any such property, services, benefits, or medical care if that restriction is necessary in order to qualify the Beneficiary for such governmental or insurance carrier benefits because an application for such property, services, benefits, or medical care has been filed with an applicable governmental agency or insurance carrier on the Beneficiary's behalf. The trustee may, however, make distributions that would reduce public benefits without terminating them completely such as, for example, by providing food, clothing and shelter to a beneficiary eligible for Supplemental Security Income in exchange for a reduction of benefits under the "Presumed Value Rule," when the trustee in his, her or its uncontrolled discretion determines such distributions to be in the best interests of the beneficiary. The Trustee may pay any deductible amounts for the Beneficiary on any insurance policies covering the Beneficiary so long as that payment does not disqualify the Beneficiary from receipt of benefits. The Trustee shall cooperate with the Beneficiary’s conservator, guardian, or legal representative to seek support and maintenance for the Beneficiary from all available resources, including but not limited to, the Supplemental Social Security Income Program (SSI), Supplemental Income Program (SIP) of Texas, the Old Age Survivor and Disability Insurance Program (OASDI), the Medicaid Program, and any additional similar or successor programs, and from any private sources. The Trustee may supplement, but shall not supplant, services, benefits, and medical care received or requested by or on behalf of the Beneficiary that are available through any governmental or private resource.
D. Payment of Income Taxes. The Trustee shall pay any income tax liability of the Beneficiary which results from income received by the Trust but reported on the income tax return of the Beneficiary. The funds used to pay this income tax liability shall be paid directly to the appropriate taxing authority and shall not be available to the Beneficiary. The Beneficiary shall not have any right to or interest in any of these funds paid by the Trustee. Further, these funds are not a resource of the Beneficiary and shall not be treated as a distribution of cash for purposes of Medicaid qualification.
4. Facility of Payment. Notwithstanding anything to the contrary in this instrument, the Trustee, in its sole discretion, may make any distribution required or permitted to be made under this instrument in any of the following ways (regardless of whether or not the Beneficiary is a minor or is incapacitated): (a) To the Beneficiary directly; (b) To the guardian of the Beneficiary’s person or estate; (c) By reimbursing the person who is actually taking care of the Beneficiary, even though the person is not the legal guardian, for expenditures made by the person for the benefit of the Beneficiary; or (d) By paying for a good or service directly to the provider of that good or service.
5. Termination of Trust. The Trust will terminate on the death of the Beneficiary.
6. Distribution Upon Termination of Trust. Upon termination of the Trust, the trustee shall distribute the principal and any undistributed income of the Trust to the Beneficiary’s descendants, per stirpes, and if the Beneficiary has no descendants who are then living, to Settlor’s descendants, per stirpes, and if none of such persons is then living, to Settlor’s heirs at law.
7. Compensation of the Trustee. The Trustee shall be entitled to reasonable compensation, which compensation shall not exceed that customarily charged by corporate fiduciaries in ____________, Texas. In addition, the Trustee may be reimbursed from the trust estate for expenses it reasonably incurs.
8. Powers of Trustee. The Trustee shall have all of the powers of trustees under the Texas Trust Code. The terms and provisions of the Texas Trust Code shall apply to this Trust, to the extent they are not in conflict with the terms of this instrument.
9. No Bond Required. The Trustee shall serve without giving a bond.
10. Successor Trustees. If the Trustee resigns, ________________ shall become successor Trustee. Each successor trustee shall have all of the rights, powers and duties of the Trustee.
11. Spendthrift Trust. To the extent permitted by law, the interest of the Beneficiary shall be held subject to a spendthrift trust as provided in Section 112.035 of the Texas Property Code.
Signed this ____ day of _____________, ____.
___________________________________
Settlor
___________________________________
Trustee
APPENDIX 6: Application to Create 142 Trust
For discussion of the legal background and purposes of this form, and the forms in Appendices 7 through 15 below, see II.C.2. and VII.L.1.-2. above.
NO.
|__________________________, AS |§ |IN THE |
|GUARDIAN AD LITEM FOR |§ | |
|[A MINOR] [AN INCAPACITATED |§ | |
|PERSON |§ |DISTRICT COURT OF |
| |§ | |
|V. |§ | |
|__________________________, |§ | |
|DEFENDANT |§ |_____________COUNTY, TEXAS |
APPLICATION TO CREATE TRUST
UNDER SECTION 142.005 OF THE TEXAS PROPERTY CODE
___________ ("Guardian Ad Litem"), guardian ad litem for _____________ ("Plaintiff"), a [minor] [incapacitated person under Tex. Prop. Code §142.007], files this Application to Create Trust Under Section 142.005 of the Texas Property Code (the "Application"). In support of this Application, Guardian Ad Litem would show the Court as follows:
1. Plaintiff is entitled to judgment in the above entitled and numbered cause. [Describe other parties, nature of judgment, etc., if desired].
2. Plaintiff is [a minor] [a person who is impaired because of mental illness, mental deficiency, physical illness or disability, advanced age, chronic use of drugs, chronic intoxication, or other cause to the extent that Plaintiff lacks sufficient understanding or capacity to make or communicate responsible decisions concerning Plaintiff's person].
Plaintiff has no legal guardian.
4. Creation of a trust pursuant to Tex. Prop. Code §142.005 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of Plaintiff.
| |
|OPTIONAL SUPPLEMENTAL NEEDS TRUST PROVISION: |
| |
|5. It would be in the best interests of the Ward for the trust to be a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A). |
| |
|6. The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary to establish a special needs trust as |
|specified under 42 U.S.C. Section 1396p(d)(4)(A). |
5.[7.] ________________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the trust for Plaintiff's benefit.
6.[8.] Section 142.005 (b) (6) of the Texas Property Code provides that the trustee of a trust created pursuant to Tex. Prop. Code § 142.005 shall receive reasonable compensation paid from the trust’s income, principal, or both on application to and approval of the Court. Guardian Ad Litem asks the Court to approve the fees and compensation that are payable to Trustee under the terms of the trust instrument approved by the Court.
7.[9.] Upon entry of judgment and creation of the trust, the clerk of this court and/or all parties to this proceeding holding funds which are payable to or for the benefit of Plaintiff should be ordered to pay and deliver such funds to Trustee as part of the trust estate of such trust. [Modify as needed to fit settlement/judgment terms.]
8.[10.] Upon entry of judgment and creation of the trust, Guardian Ad Litem should be paid a reasonable fee for services rendered, should be reimbursed for expenses, and should be discharged as guardian ad litem for Plaintiff.
PRAYER
Guardian Ad Litem prays that the Court will make the findings and determinations described above, that the Court will create a trust for the benefit of Plaintiff under Tex. Prop. Code § 142.005 with those terms and provisions set forth in Exhibit "A" attached hereto and incorporated herein; that the Court will name Trustee as trustee of such trust; [that the trust shall be a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the clerk of this Court and/or any party to this proceeding holding funds which are payable to or for the benefit of Plaintiff shall be ordered to pay and deliver such funds to Trustee as part of the trust estate of such trust; that the Court shall order that the fees and compensation authorized to be paid to Trustee by the terms of the trust instrument are reasonable; that the Court will order that the Trustee is authorized to pay itself such fees and compensation and reimburse itself for expenses as provided in the trust instrument without further application to or order from this Court; that the Court will award Guardian Ad Litem a reasonable fee, to be paid by Trustee upon funding of the trust (if not sooner paid); that the Court will discharge Guardian Ad Litem; and that the Court will grant such other and further relief to which Plaintiff may be entitled.
Respectfully submitted,
GUARDIAN AD LITEM
APPENDIX 7: Order Creating 142 Trust
NO.
|__________________________, AS |§ |IN THE |
|GUARDIAN AD LITEM FOR |§ | |
|[A MINOR] [AN INCAPACITATED |§ | |
|PERSON |§ |DISTRICT COURT OF |
| |§ | |
|V. |§ | |
|__________________________, |§ | |
|DEFENDANT |§ |_____________COUNTY, TEXAS |
ORDER CREATING TRUST
UNDER SECTION 142.005 OF THE TEXAS PROPERTY CODE
On this day the Court considered the Application to Create Trust Under Section 142.005 of the Texas Property Code (the "Application") filed in this proceeding by ____________ ("Guardian Ad Litem"), guardian ad litem for _____________ ("Plaintiff"), a [minor] [incapacitated person under Tex. Prop. Code §142.007]. Based upon the Application, the pleadings of the parties in this proceeding, the evidence presented and the argument of counsel, the Court finds that:
1. Plaintiff is entitled to judgment in the above entitled and numbered cause.
2. Plaintiff is [a minor] [a person who is impaired because of mental illness, mental deficiency, physical illness or disability, advanced age, chronic use of drugs, chronic intoxication, or other cause to the extent that Plaintiff lacks sufficient understanding or capacity to make or communicate responsible decisions concerning Plaintiff's person].
1. Plaintiff has no legal guardian.
4. Creation of a trust pursuant to Tex. Prop. Code §142.005 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of Plaintiff.
| |
|OPTIONAL SUPPLEMENTAL NEEDS TRUST PROVISION: |
| |
|5. It would be in the best interests of Plaintiff for the trust to be a special needs trust as specified under 42 U.S.C. Section |
|1396p(d)(4)(A). |
| |
|6. The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary to establish a special needs trust as |
|specified under 42 U.S.C. Section 1396p(d)(4)(A). |
5.[7.] ______________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the trust for Plaintiff's benefit.
6.[8.] The fees and compensation that are payable to Trustee under the terms of the trust instrument are reasonable and should be approved by the Court.
7.[9.] That the clerk of this Court and/or all parties to this proceeding holding funds which are payable to or for the benefit of Plaintiff should be ordered to pay and deliver such funds to Trustee as part of the trust estate of such trust. [Modify as needed to fit settlement/judgment terms.]
7.[10.] Upon entry of judgment and creation of the trust, Guardian Ad Litem should be paid a reasonable fee for services rendered, should be reimbursed for expenses, and should be discharged as guardian ad litem for Plaintiff.
IT IS, THEREFORE, ORDERED that a trust for the benefit of Plaintiff under Tex. Prop. Code § 142.005 is hereby created with those terms and provisions set forth in Exhibit "A" attached hereto and incorporated herein; that [TRUSTEE] shall be trustee of such trust; [that the trust shall be a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the clerk of this Court and/or any party to this proceeding holding funds which are payable to or for the benefit of Plaintiff are ordered to pay and deliver such funds to Trustee as part of the trust estate of such trust; that the fees and compensation authorized to be paid to Trustee by the terms of the trust instrument are reasonable and are approved by the Court, and the Trustee is authorized to pay itself such fees and compensation and reimburse itself for expenses as provided in the trust instrument without further application to or order from this Court; that Guardian Ad Litem is awarded a fee of $_______, to be paid by Trustee upon funding of the trust (if not sooner paid); and that Guardian Ad Litem is hereby discharged, will be paid a reasonable fee, be reimbursed for costs, and be discharged.
Signed this ____ day of _______________, 199__.
_____________________________________
Judge Presiding
APPENDIX 8: Trust Instrument for 142 Trust
NO.
|__________________________, AS |§ |IN THE |
|GUARDIAN AD LITEM FOR |§ | |
|[A MINOR] [AN INCAPACITATED |§ | |
|PERSON |§ |DISTRICT COURT OF |
| |§ | |
|V. |§ | |
|__________________________, |§ | |
|DEFENDANT |§ |_____________COUNTY, TEXAS |
COURT-CREATED TRUST FOR _______________________
This declaration of trust creates a trust (the "Trust") for the benefit of ____________________ (the "Beneficiary"), [a minor][an incapacitated person (within the meaning of Tex. Prop. Code §142.007)] with __________________ (the "Trustee") as trustee.
a. Authority for Creation. This Trust is created by the order of the District Court of _____________ County, Texas, ____ Judicial District (the "Court") in Cause No. _________, styled ___________________________, as Guardian Ad Litem for ________________________, [a Minor][an Incapacitated Person], v. ________________________________, pursuant to Tex. Prop. Code § 142.005.
b. Transfer to Trust. The initial trust estate of the Trust shall be the property described on Schedule "A" attached hereto. Additional property acceptable to the Trustee may be transferred to the Trust from time to time and added to the trust estate.
c. Distributions During Term of Trust. The Beneficiary shall be the sole beneficiary of the Trust. Prior to termination of the Trust, the Trustee may disburse that amount of the Trust's principal, income, or both as the Trustee in its sole discretion determines to be reasonably necessary for the health, education, support, or maintenance of the Beneficiary. Distributions, payments, uses, and applications of all trust funds may be made to the legal or natural guardian of the Beneficiary or to the person having custody of the Beneficiary or may be made directly to or expended for the benefit, support, or maintenance of the Beneficiary without the intervention of any legal guardian or other legal representative of the Beneficiary. The income of the Trust that the Trustee does not disburse or under this section must be added to the principal of the Trust.
d. Termination of Trust. The Trust will terminate on the earlier of: (a) the death of the Beneficiary; or (b) [on the Beneficiary’s twenty-fifth (25th) birthday][when the Beneficiary regains capacity (within the meaning of Tex. Prop. Code §142.007]. The Trust also may be terminated in whole or in part at any time by order of the Court.
e. Distribution Upon Termination of Trust. Upon termination of the Trust, the trustee shall distribute the principal and any undistributed income of the Trust to the Beneficiary, outright and free of trust, or, if the Beneficiary is then deceased, to the representative of the deceased Beneficiary’s estate.
| |
|If This is a (d)(4)(A) trust, use the following alternative paragraphs c., d. and e. instead |
|c. Distributions During Term of Trust. The following provisions shall govern distributions from the Trust during the term of this Trust: |
| |
|1. Purpose and Intent. This Trust is created pursuant to 42 U. S. C. §1396p(d)(4)(A). It is intended to be construed and administered as a |
|“supplemental needs” trust under 42 U. S. C. §1396p(d)(4)(A). Without limiting the foregoing, neither the corpus of the Trust nor distributions|
|from the Trust shall ever cause the Beneficiary to be disqualified to receive those public benefits or assistance under a state or federal |
|program to which the Beneficiary then may be entitled but for the existence of this Trust or but for the distributions from this Trust. |
| |
|2. Distribution Standard. During the term of this Trust, the Trustee shall apply for the benefit of the Beneficiary those amounts of the |
|principal and/or income of the Trust for the satisfaction of the Beneficiary’s supplemental needs (defined below), as the Trustee, in the |
|Trustee's sole and absolute discretion, may from time to time deem appropriate, subject to the strict limitations set out in this instrument. |
|Any income of the trust not distributed shall be added to the principal. Distributions, payments, uses, and applications of all trust funds may|
|be made to the legal or natural guardian of the Beneficiary or to the person having custody of the Beneficiary or may be expended directly for |
|the benefit of the Beneficiary without the intervention of any legal guardian or other legal representative of the Beneficiary. |
| |
|3. Supplemental Needs. As used in this instrument, "supplemental needs" refers to the requisites, as allowed for in 42 U. S. C. |
|§1396p(d)(4)(A), for maintaining the Beneficiary’s health, safety, and welfare when the Trustee determines, in its discretion, that such needs |
|are not being provided for by any public or private agency, including any state, the United States, or any insurance carrier with insurance |
|policies covering the Beneficiary. The Trustee is prohibited from expending any of the trust principal or income for any property, services, |
|benefits, or medical care which are being received by, or which are otherwise available to, the Beneficiary from any governmental source or from|
|any insurance carrier required to cover the Beneficiary. The trustee may, however, make distributions that would reduce public benefits without |
|terminating them completely such as, for example, by providing food, clothing and shelter to a beneficiary eligible for Supplemental Security |
|Income in exchange for a reduction of benefits under the "Presumed Value Rule," when the trustee in his, her or its uncontrolled discretion |
|determines such distributions to be in the best interests of the beneficiary. Provided, the Trustee is prohibited from expending any of the |
|trust principal or income for any such property, services, benefits, or medical care if that restriction is necessary in order to qualify the |
|Beneficiary for such governmental or insurance carrier benefits because an application for such property, services, benefits, or medical care |
|has been filed with an applicable governmental agency or insurance carrier on the Beneficiary's behalf. The Trustee may pay any deductible |
|amounts for the Beneficiary on any insurance policies covering the Beneficiary so long as that payment does not disqualify the Beneficiary from |
|receipt of benefits. The Trustee shall cooperate with the Beneficiary’s conservator, guardian, or legal representative to seek support and |
|maintenance for the Beneficiary from all available resources, including but not limited to, the Supplemental Social Security Income Program |
|(SSI), Supplemental Income Program (SIP) of Texas, the Old Age Survivor and Disability Insurance Program (OASDI), the Medicaid Program, and any |
|additional similar or successor programs, and from any private sources. To the extent required by 42 U. S. C. §1396p(d)(4)(A) and other |
|applicable laws and regulations regarding trusts of this type, the Trustee may supplement, but shall not supplant, services, benefits, and |
|medical care received or requested by or on behalf of the Beneficiary that are available through any governmental or private resource. |
| |
|4. Payment of Income Taxes. The Trustee shall pay any income tax liability of the Beneficiary which results from income received by the Trust |
|but reported on the income tax return of the Beneficiary. The funds used to pay this income tax liability shall be paid directly to the |
|appropriate taxing authority and shall not be available to the Beneficiary. The Beneficiary shall not have any right to or interest in any of |
|these funds paid by the Trustee. Further, these funds are not a resource of the Beneficiary and shall not be treated as a distribution of cash |
|for purposes of Medicaid qualification. |
| |
|d. Termination of Trust. The Trust will terminate on the death of the Beneficiary. The Trust also may be terminated in whole or in part at any|
|time by order of the Court. |
| |
|e. Distribution Upon Termination of Trust. Upon termination of the Trust, the trustee shall distribute the principal and any undistributed |
|income of the Trust as follows: |
|1. First, the Trustee shall pay all amounts required to be reimbursed pursuant to 42 U. S. C. §1396p(d)(4)(A). The Trustee shall reimburse |
|those states where the Beneficiary has received Medical Assistance payments from the state, based upon the state's proportionate share of the |
|total amount of Medicaid benefits paid by all of the states on the Beneficiary’s behalf, the smallest amount (if any) as applicable law then |
|requires the Trust to pay. The Trustee's duty to reimburse the state upon termination shall apply to the extent there are remaining assets in |
|this trust and shall apply irrespective of any other provision of this instrument. The Trustee shall reimburse the state only for those |
|benefits provided to the Beneficiary which are subject to such reimbursement claim. |
| |
|2. After the satisfaction of these obligations, the Trustee shall distribute the remaining property, if any, to the Beneficiary, outright and |
|free of trust, or, if the Beneficiary is then deceased, to the representative of the deceased Beneficiary’s estate. |
f. Compensation of the Trustee. The Trustee is entitled to reasonable compensation paid from the Trust’s income, principal, or both on application to and approval of the Court. Unless otherwise ordered by the Court, the fees and other charges described on the Trustee’s then-current fee schedule are hereby approved by the Court as reasonable compensation to the Trustee, and the Trustee is entitled to pay itself such fees and other charges without further application to or approval of the Court. In addition, the Trustee may be reimbursed from the trust estate for expenses it reasonably incurs in connection with the Trust.
g. Powers of Trustee. The Trustee shall have all of the powers of trustees under the Texas Trust Code. The terms and provisions of the Texas Trust Code shall apply to this Trust, to the extent they are not in conflict with Tex. Prop. Code § 142.005 or with the terms of this instrument.
h. No Bond Required. The Trustee shall serve without giving a bond.
i. Successor Trustees. In the event of the corporate reorganization, merger or acquisition of the Trustee, the resulting successor organization shall automatically become the successor trustee. The Trustee may resign with the approval of the Court and may be removed by order of the Court. Upon the resignation or removal of the Trustee, the Court shall appoint a successor trustee. Each successor trustee shall have all of the rights, powers and duties of the Trustee.
j. Spendthrift Trust. To the extent permitted by law, the interest of the Beneficiary shall be held subject to a spendthrift trust as provided in Section 112.035 of the Texas Property Code.
k. Amendment, Modification or Revocation. The Court may amend, modify, or revoke the Trust at any time before the date of the Trust's termination. Neither the Beneficiary nor the guardian of the Beneficiary's estate may revoke the Trust.
l. Effective Date. This Trust shall be effective upon the last to occur of (A) the entry of an order creating the Trust by the Court, (B) the execution of this Declaration of Trust by the Trustee indicating its acceptance of the Trust; and (C) the receipt by the Trustee of the initial trust estate.
TRUSTEE'S ACCEPTANCE:
By:_______________________
Name:_____________________
Title:______________________
APPENDIX 9: Application for Guardianship and/or Creation of
Guardianship Management Trust (867 Trust)
NO.
|Guardianship of |§ |In the Probate Court |
| |§ | |
| |§ |of |
|«Ward:Like This», [An Incapacitated Person] [A Minor] |§ | |
| |§ |______________ County, Texas |
| | | |
APPLICATION FOR GUARDIANSHIP AND/OR CREATION OF
GUARDIANSHIP MANAGEMENT TRUST
______________ (“Applicant”) files this application for the appointment of a guardian and/or for creation of a guardianship management trust for the benefit of ____________ (the “Proposed Ward”), [a minor][an incapacitated person], pursuant to Tex. Prob. Code Ann. §867. In support of this application, Applicant would show the Court as follows:
1. The Proposed Ward is [a minor][an incapacitated person]. The Proposed Ward’s name, sex, date of birth and address are as follows:_______________.
2. Applicant’s name, address and relationship to the Proposed Ward are as follows: __________.
3. Applicant is seeking the creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867. Only if required by the Court for creation of a guardianship management trust, or, alternatively, only if the Court refuses to create a guardianship management trust, Applicant seeks the appointment of a guardian of the estate and person of the Proposed Ward.
4. The nature and degree of the Proposed Ward’s incapacity, the specific areas of protection and assistance requested, and the limitation of rights requested to be included in the Court’s order are as follows:___________________.
5. The facts requiring the guardianship management trust to be created and the interest of Applicant in such creation are as follows: The Proposed Ward needs the assistance of a trustee in managing the Proposed Ward’s estate. Creation of a guardianship management trust, rather than a guardianship of the estate, is in the best interests of the Proposed Ward. Applicant believes that creation of a guardianship management trust is in the Proposed Ward’s best interests. [Add more facts as desired or appropriate.]
6. No guardianship exists for the Proposed Ward, to the knowledge of Applicant.
7. The name and address of any person or institution having the care and custody of the Proposed Ward is as follows:_______________.
8. The approximate value and description of the Proposed Ward’s property, including any compensation, pension, insurance, or allowance to which the Proposed Ward may be entitled, to the knowledge of Applicant, is as follows:_______________.
9. The requested term of the guardianship management trust is as stated in the proposed form of the trust attached hereto as Exhibit “A” and incorporated herein.
10. The name and address of any person whom the applicant knows to hold a power of attorney signed by the Proposed Ward and a description of the type of power of attorney is as follows:___________.
11. [If the Proposed Ward is a minor, include the names of the parents and next of kin of the Proposed Ward and a statement as to whether either or both of the parents are deceased.]
12. [If the Proposed Ward is a minor, include a statement as to whether the minor was the subject of a legal or conservatorship proceeding within the preceding two-year period and, if so, the court involved, the nature of the proceeding, and the final disposition, if any, of the proceeding.]
13. [If the Proposed Ward is 60 years of age or older, include the names and addresses, to the best of Applicant’s knowledge, of the Proposed Ward’s spouse, siblings, and children, or, if there is no spouse, sibling, or child, the names and addresses of the Proposed Ward’s next of kin.]
14. This Court has venue over this proceeding because the Proposed Ward is a resident of and is domiciled in ______________ County, Texas.
15. Creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of the Proposed Ward. [If desired, state the reasons for creation of the 867 Trust.]
| |
|OPTIONAL SUPPLEMENTAL NEEDS TRUST PROVISIONS: |
| |
|16. It would be in the best interests of the Proposed Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section |
|1396p(d)(4)(A). |
| |
|17. The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Proposed Ward|
|to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Proposed Ward. |
18. _________________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the guardianship management trust for the Proposed Ward’s benefit.
19. The Court should direct that, upon creation of the guardianship management trust, each person holding property of the Proposed Ward [including, but not limited to, ____________________ (specifically identify third parties holding the Proposed Ward’s funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust.
20. No guardianship of the Proposed Ward’s person or estate is necessary, and the Court should order than none be created. However, if the Court refuses to create a guardianship management trust for the Ward, or, alternatively, if the Court requires the appointment of a guardian of the estate and/or guardian of the person of the Proposed Ward as a condition to the creation of the guardianship management trust, Applicant asks that _________ (the “Proposed Guardian”) be appointed the guardian of the estate and/or guardian of the person of the Proposed Ward. The Proposed Guardian is qualified and is not disqualified to serve as guardian of the person and/or estate of the Proposed Ward.
PRAYER
Applicant prays that, after proper notice and service of citation, the Court will appoint an attorney ad litem for the Proposed Ward; that the Court will make the findings and determinations described above and necessary for the creation of a guardianship management trust for the benefit of the Proposed Ward; that the Court will create a guardianship management trust for the benefit of the Proposed Ward pursuant to Tex. Prob. Code Ann. §867 with those terms and provisions set forth in Exhibit "A" attached hereto and incorporated herein; that the Court will name Trustee as trustee of such trust; [that the trust shall be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the Court will order each person holding property of the Proposed Ward to deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; that the Court will find that no guardianship of the estate and/or person of the Proposed Ward is necessary, or, alternatively, that the Court will appoint the Proposed Guardian as guardian of the person and/or estate of the Proposed Ward; and that the Court will grant such other and further relief to which Plaintiff may be entitled.
Respectfully submitted,
ATTORNEY FOR APPLICANT
APPENDIX 10: Application for Creation of Guardianship Management Trust (867 Trust)
With Supplemental Needs Provisions
NO.
|Guardianship of |§ |In the Probate Court |
| |§ | |
| |§ |of |
|, [An Incapacitated Person] [A Minor] |§ | |
| |§ |______________ County, Texas |
APPLICATION FOR CREATION OF GUARDIANSHIP MANAGEMENT TRUST
________________________ (“Applicant”), attorney ad litem for _____________________ (the “Proposed Ward”), [a minor][an incapacitated person], files this application for the creation of a guardianship management trust for the benefit of the Proposed Ward pursuant to Tex. Prob. Code Ann. §867. In support of this application, Applicant would show the Court as follows:
1. The Proposed Ward is [a minor][an incapacitated person]. The Proposed Ward’s name, sex, date of birth and address are as follows:_________________.
2. Applicant is the court-appointed attorney ad litem for the Proposed Ward. Applicant’s name and address are as follows:_________________.
3. Applicant seeks neither a guardianship of the person or estate of the Proposed Ward; rather, Applicant seeks the creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867.
4. The nature and degree of the Proposed Ward’s incapacity, the specific areas of protection and assistance requested, and the limitation of rights requested to be included in the Court’s order are as follows:_____________.
5. The facts requiring the guardianship management trust to be created and the interest of Applicant in such creation are as follows: The Proposed Ward needs the assistance of a trustee in managing the Proposed Ward’s estate. Creation of a guardianship management trust, rather than a guardianship of the estate, is in the best interests of the Proposed Ward. Applicant is the court-appointed attorney ad litem for the Proposed Ward and believes that creation of a guardianship management trust is in the Proposed Ward’s best interests. [Add more facts as desired or appropriate.]
6. No guardianship exists for the Proposed Ward, to the knowledge of Applicant. _____________ has filed an application for appointment of a guardian, and that application is pending in this Court under this cause number. [If accurate: _________________ consents to the creation of a guardianship management trust in lieu of a guardianship of the estate pursuant to Tex. Prob. Code Ann. §867.]
7. The name and address of any person or institution having the care and custody of the Proposed Ward is as follows:________________.
8. The approximate value and description of the Proposed Ward’s property, including any compensation, pension, insurance, or allowance to which the Proposed Ward may be entitled, to the knowledge of Applicant, is as follows:_____________.
9. The requested term of the guardianship management trust is as stated in the proposed form of the trust attached hereto as Exhibit “A” and incorporated herein.
10. The name and address of any person whom the applicant knows to hold a power of attorney signed by the Proposed Ward and a description of the type of power of attorney is as follows:___________.
11. [If the Proposed Ward is a minor, include the names of the parents and next of kin of the Proposed Ward and a statement as to whether either or both of the parents are deceased.]
12. [If the Proposed Ward is a minor, include a statement as to whether the minor was the subject of a legal or conservatorship proceeding within the preceding two-year period and, if so, the court involved, the nature of the proceeding, and the final disposition, if any, of the proceeding.]
13. [If the Proposed Ward is 60 years of age or older, include the names and addresses, to the best of Applicant’s knowledge, of the Proposed Ward’s spouse, siblings, and children, or, if there is no spouse, sibling, or child, the names and addresses of the Proposed Ward’s next of kin.]
14. This Court has venue over this proceeding because the Proposed Ward is a resident of and is domiciled in ______________ County, Texas.
15. Creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of the Proposed Ward. [If desired, state the reasons for creation of the 867 Trust.]
| |
|OPTIONAL SUPPLEMENTAL NEEDS TRUST PROVISIONS: |
| |
|16. It would be in the best interests of the Proposed Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section |
|1396p(d)(4)(A). |
| |
|17. The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Proposed Ward|
|to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Proposed Ward. |
18. _______________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the guardianship management trust for the Proposed Ward’s benefit.
19. The Court should direct that, upon creation of the guardianship management trust, each person holding property of the Proposed Ward [including, but not limited to, _____________ (specifically identify third parties holding the Proposed Ward’s funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust.
20. No guardianship of the Proposed Ward’s estate is necessary.
21. [If desired: No guardianship of the Proposed Ward’s person is necessary.]
22. Upon entry of the Court’s order creating the guardianship management trust, Applicant, attorney ad litem for the Proposed Ward, should be paid a reasonable fee from the trust and should be discharged.
PRAYER
Applicant prays that the Court will make the findings and determinations described above and necessary for the creation of a guardianship management trust for the benefit of the Proposed Ward; that the Court will create a guardianship management trust for the benefit of the Proposed Ward pursuant to Tex. Prob. Code Ann. §867 with those terms and provisions set forth in Exhibit "A" attached hereto and incorporated herein; that the Court will name Trustee as trustee of such trust; [that the trust shall be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the Court will order each person holding property of the Proposed Ward to deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; that the Court will award Applicant a reasonable fee as attorney ad litem, to be paid by Trustee upon funding of the trust (if not sooner paid); that the Court will discharge Applicant as attorney ad litem; and that the Court will grant such other and further relief to which Plaintiff may be entitled.
Respectfully submitted,
ATTORNEY AD LITEM
APPENDIX 11: Order Creating Guardianship Management Trust (867 Trust)
With Supplemental Needs Provisions
NO.
|Guardianship of |§ |In the Probate Court |
| |§ | |
| |§ |of |
|«Ward:Like This», [An Incapacitated Person] [A Minor] |§ | |
| |§ |______________ County, Texas |
ORDER CREATING GUARDIANSHIP MANAGEMENT TRUST
On this day the Court considered the Application for Guardianship And/Or Creation of Guardianship Management Trust filed by __________________ (“Applicant”) and the Application for Creation of Guardianship Management Trust filed by ___________________ (“Attorney Ad Litem”), attorney ad litem, regarding _______________________ (“the Ward”), [a minor][an incapacitated person]. [The Ward attended the hearing on the above applications.][The Court finds that the Ward’s attendance at the hearing on the above applications is not necessary.] After considering the above applications, the evidence presented, and the arguments of counsel, the Court finds by clear and convincing evidence that the Ward is an incapacitated person; that it is in the best interest of the Ward for the court to create a guardianship management trust for the Ward pursuant to Tex. Prob. Code Ann. §867; that the rights of the Ward or the Ward’s property will be protected by the creation of a guardianship management trust; and that, if a guardianship management trust is created for the Ward, no guardianship of the estate and/or person of the Ward is necessary. The Court further finds by a preponderance of the evidence that the Court has venue of this matter because the Ward resides in this county; [that the Ward is a minor][that the Ward is totally without capacity as provided by the Texas Probate Code to care for himself or herself and to manage the Ward’s property][that the Ward lacks the capacity to do some, but not all, of the tasks necessary to care for himself or herself or to manage the Ward’s property]; that the Ward’s incapacity is evidenced by recurring acts or occurrences within the preceding six-month period and not by isolated instances of negligence or bad judgment; that creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of the Proposed Ward; [that it would be in the best interests of the Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A); that the terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Ward;] that ____________________________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the guardianship management trust for the Ward’s benefit; that the Court should direct that, upon creation of the guardianship management trust, each person holding property of the Ward [including, but not limited to, ____________________________ (specifically identify third parties holding the Ward’s funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; and that upon entry of the Court’s order creating the guardianship management trust, Attorney Ad Litem, should be paid the amount stated below from the trust as a reasonable fee for serving in such capacity and should be discharged.
IT IS, THEREFORE, ORDERED that:
1. The Ward is an incapacitated person;
2. A guardianship management trust for the benefit of the Ward is established pursuant to Tex. Prob. Code Ann. §867 with the terms and provisions set forth on Exhibit “A” attached hereto and incorporated herein;
3. No guardianship of the estate and/or person of the Ward is necessary;
4. [The Ward is a minor][The Ward is totally without capacity as provided by the Texas Probate Code to care for himself or herself and to manage the Ward’s property][The Ward lacks the capacity to do the following actions: ______________________________________________];
5. [It is in the best interests of the Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A), and the terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Ward;]
6. ____________________________ ("Trustee"), a trust company or a state or national bank having trust powers in Texas, is appointed as trustee of the guardianship management trust and is ordered to administer such trust in accordance with applicable law and in accordance with the terms and provisions of the trust instrument attached hereto as Exhibit “A;”
7. Upon creation of the guardianship management trust, each person holding property of the Ward [including, but not limited to, ____________________________ (specifically identify third parties holding the Ward’s funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; and
8. Attorney Ad Litem is awarded a fee in the amount of $_________________ from the trust as a reasonable fee for serving in such capacity and is hereby discharged.
SIGNED this ____ day of ______________, _____.
_________________________________________
Judge Presiding
APPENDIX 12: Application for Creation of 867 Trust in Existing Guardianship
NO.
|Guardianship of |§ |In the Probate Court |
| |§ | |
| |§ |of |
|«Ward:Like This», [An Incapacitated Person] [A Minor] |§ | |
| |§ |______________ County, Texas |
APPLICATION FOR CREATION OF GUARDIANSHIP MANAGEMENT TRUST
________________________ (“Applicant”), [guardian of the estate of][attorney ad litem for] _____________________ (the “Ward”), [a minor][an incapacitated person], files this application for the creation of a guardianship management trust for the benefit of the Ward pursuant to Tex. Prob. Code Ann. §867. In support of this application, Applicant would show the Court as follows:
1. The Ward is [a minor][an incapacitated person]. A guardianship of the estate of the Ward exists in this Court.
2. Creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of Plaintiff. [If desired, state the reasons for creation of the 867 Trust.]
| |
|OPTIONAL SUPPLEMENTAL NEEDS TRUST PROVISIONS: |
| |
|3. It would be in the best interests of the Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section |
|1396p(d)(4)(A). |
| |
|4. The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Ward to be |
|eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Ward. |
3.[5.] __________________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the guardianship management trust for the Ward’s benefit.
4.[6.] The Court should direct that, upon creation of the guardianship management trust, the guardian of the estate of the Ward and any other person holding property of the Ward [including, but not limited to, ____________________________ (specifically identify third parties holding the Ward’s funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust.
5.[7.] Upon creation of the guardianship management trust and upon the transfer of all assets in the possession or control of the guardian of the estate of the Ward to Trustee, the Court should discharge the guardian of the ward’s estate pursuant to Tex. Prob. Code Ann. §868A.
6.[8.] [If desired or appropriate:]Upon entry of the Court’s order creating the guardianship management trust, __________________, attorney ad litem for the Ward, should be paid a reasonable fee from the guardianship estate or the trust and should be discharged.
PRAYER
Applicant prays that the Court will make the findings and determinations described above, that the Court will create a guardianship management trust for the benefit of the Ward pursuant to Tex. Prob. Code Ann. §867 with those terms and provisions set forth in Exhibit "A" attached hereto and incorporated herein; that the Court will name Trustee as trustee of such trust; [that the trust shall be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the Court will order the guardian of the estate of the Ward and any other person holding property of the Ward to deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; that upon creation of the guardianship management trust and upon the transfer of all assets in the possession or control of the guardian of the estate of the Ward to Trustee, the guardian of the Ward’s estate shall be discharged pursuant to Tex. Prob. Code Ann. §868A; [that the Court will award _______________, attorney ad litem, a reasonable fee, to be paid by the guardian of the estate of the Ward or by Trustee upon funding of the trust (if not sooner paid)]; that the Court will discharge said attorney ad litem; and that the Court will grant such other and further relief to which Plaintiff may be entitled.
Respectfully submitted,
ATTORNEY FOR APPLICANT
APPENDIX 13: Order Creating 867 Trust in Existing Guardianship
NO. _______
GUARDIANSHIP OF § IN THE PROBATE COURT
§
_________________________, § OF
§
[A MINOR][AN INCAPACITATED PERSON] § ______________ COUNTY, TEXAS
ORDER CREATING GUARDIANSHIP MANAGEMENT TRUST
On this day the Court considered the Application for Creation of Guardianship Management Trust filed by ___________________, [attorney ad litem for ___________________ (“the Ward”)][guardian of the estate of ______________________ (“the Ward”)], [a minor][an incapacitated person]. After considering the above applications, the evidence presented, and the arguments of counsel, the Court finds that the Ward is an incapacitated person; that it is in the best interest of the Ward for the Court to create a guardianship management trust for the Ward pursuant to Tex. Prob. Code Ann. §867 containing the terms and provisions of the trust instrument attached hereto as Exhibit “A” and incorporated herein; [that it would be in the best interests of the Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A); that the terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Ward;] that ____________________________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the guardianship management trust for the Ward’s benefit; that the Court should direct that, upon creation of the guardianship management trust, the guardian of the estate of the Ward and each person holding property of the Ward [including, but not limited to, ____________________________ (specifically identify third parties holding the Ward’s funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; that, upon creation of the guardianship management trust and the transfer of all assets in the possession and control of the guardian of the estate of the Ward to the Trustee, no guardianship of the estate of the Ward is necessary and _____________ should be discharged as guardian of the estate; and that upon entry of the Court’s order creating the guardianship management trust, _________________, attorney ad litem, should be paid the amount stated below from the trust as a reasonable fee for serving in such capacity and should be discharged.
IT IS, THEREFORE, ORDERED that:
1. A guardianship management trust for the benefit of the Ward is established pursuant to Tex. Prob. Code Ann. §867 with the terms and provisions set forth on Exhibit “A” attached hereto and incorporated herein;
2. [It is in the best interests of the Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A), and the terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Ward;]
3. ____________________________ ("Trustee"), a trust company or a state or national bank having trust powers in Texas, is appointed as trustee of the guardianship management trust and is ordered to administer such trust in accordance with applicable law and in accordance with the terms and provisions of the trust instrument attached hereto as Exhibit “A;”
4. The guardian of the estate of the Ward and each person holding property of the Ward [including, but not limited to, ____________________________ (specifically identify third parties holding the Ward’s funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust;
5. Upon creation of the guardianship management trust and the transfer of all assets in the possession and control of the guardian of the estate of the Ward to the Trustee, no guardianship of the estate of the Ward is necessary and _____________ should be discharged as guardian of the estate[; and
6. ______________________, attorney ad litem, is awarded a fee in the amount of $_________________ from the trust as a reasonable fee for serving in such capacity and is hereby discharged.]
SIGNED this ____ day of ______________, _____.
_________________________________________
Judge Presiding
APPENDIX 14: Trust Instrument for Guardianship (867) Trust
An alternative to creating a new trust is to utilize the ARC Pooled Trust, discussed at VII.L.2.c. above. It can be used either as a self-funded or third-party-funded supplemental needs trust; and, with the court’s permission, it can be used an 867 trust.
NO.
|Guardianship of |§ |In the Probate Court |
| |§ | |
| |§ |of |
|_____________, [An Incapacitated Person] [A Minor] |§ | |
| |§ |______________ County, Texas |
GUARDIANSHIP MANAGEMENT TRUST FOR _______________________
This declaration of trust creates a management trust (the "Trust") for the benefit of ____________________ (the "Beneficiary") with __________________ (the "Trustee") as trustee.
1. Authority for Creation. This Trust is created by the order of the Probate Court of _____________ County, Texas (the "Court") in Cause No. _________, Guardianship of the Estate of the Beneficiary, pursuant to Sections 867 -- 873 of the Texas Probate Code.
2. Transfer to Trust. The initial trust estate of the Trust shall be the property described on Schedule "A" attached hereto. Additional property acceptable to the Trustee may be transferred to the Trust from time to time and added to the trust estate.
3. Distributions During Term of Trust. The Beneficiary shall be the sole beneficiary of the Trust. Prior to termination of the Trust, the Trustee may disburse that amount of the Trust's principal or income as the Trustee determines is necessary to expend for the health, education, support, or maintenance of the Beneficiary. In addition, the Trustee may make a distribution, payment, use, or application of trust funds for the health, education, support, or maintenance of the Beneficiary or of another person whom the Beneficiary is legally obligated to support, as necessary and without the intervention of a guardian or other representative of the Beneficiary, to: (A) the Beneficiary’s guardian; (B) a person who has physical custody of the Beneficiary or another person whom the Beneficiary is legally obligated to support; or (C) a person providing a good or service to the Beneficiary or another person whom the Beneficiary is legally obligated to support. The income of the Trust that the Trustee does not disburse under this section must be added to the principal of the Trust.
4. Termination of Trust. The Trust will terminate on the earlier of: (a) the death of the Beneficiary; or (b) [on the Beneficiary’s eighteenth (18th) birthday, unless the Court orders that the trust shall terminate on a date later than the Beneficiary’s eighteenth (18th) birthday, which date may not be later than the Beneficiary’s twenty-fifth (25th) birthday][on the date the Court determines that continuing the trust is no longer in the Beneficiary’s best interests]. The Trust also may be terminated in whole or in part at any time by order of the Court.
5. Distribution Upon Termination of Trust. Upon termination of the Trust, the trustee shall prepare and file the final account required by Tex. Prob. Code Ann. § 873 and, upon approval of the Court and unless otherwise provided by the Court, shall distribute the principal and any undistributed income of the Trust to the Beneficiary, outright and free of trust, or, if the Beneficiary is then deceased, to the representative of the deceased Beneficiary’s estate.
| |
|If This is a (d)(4)(A) trust, use the following alternative paragraphs 3., 4. and 5. instead |
| |
|3. Distributions During Term of Trust. The following provisions shall govern distributions from the Trust during the term of this Trust: |
| |
|A. Purpose and Intent. This Trust is created pursuant to 42 U. S. C. §1396p(d)(4)(A). It is intended to be construed and administered as a |
|“supplemental needs” trust under 42 U. S. C. §1396p(d)(4)(A). Without limiting the foregoing, neither the corpus of the Trust nor distributions|
|from the Trust shall ever cause the Beneficiary to be disqualified to receive those public benefits or assistance under a state or federal |
|program to which the Beneficiary then may be entitled but for the existence of this Trust or but for the distributions from this Trust. |
| |
|B. Distribution Standard. During the term of this Trust, the Trustee shall apply for the benefit of the Beneficiary those amounts of the |
|principal and/or income of the Trust for the satisfaction of the Beneficiary’s supplemental needs (defined below), as the Trustee, in the |
|Trustee's sole and absolute discretion, may from time to time deem appropriate, subject to the strict limitations set out in this instrument. |
|Any income of the trust not distributed shall be added to the principal. The Trustee may apply such trust funds for the benefit of the |
|Beneficiary, as necessary and without the intervention of a guardian or other representative of the Beneficiary, to: (A) the Beneficiary’s |
|guardian; (B) a person who has physical custody of the Beneficiary; or (C) a person providing a good or service to the Beneficiary. |
| |
|C. Supplemental Needs. As used in this instrument, "supplemental needs" refers to the requisites, as allowed for in 42 U. S. C. |
|§1396p(d)(4)(A), for maintaining the Beneficiary’s health, safety, and welfare when the Trustee determines, in its discretion, that such needs |
|are not being provided for by any public or private agency, including any state, the United States, or any insurance carrier with insurance |
|policies covering the Beneficiary. The Trustee is prohibited from expending any of the trust principal or income for any property, services, |
|benefits, or medical care which are being received by, or which are otherwise available to, the Beneficiary from any governmental source or from|
|any insurance carrier required to cover the Beneficiary. The trustee may, however, make distributions that would reduce public benefits without |
|terminating them completely such as, for example, by providing food, clothing and shelter to a beneficiary eligible for Supplemental Security |
|Income in exchange for a reduction of benefits under the "Presumed Value Rule," when the trustee in his, her or its uncontrolled discretion |
|determines such distributions to be in the best interests of the beneficiary. Provided, the Trustee is prohibited from expending any of the |
|trust principal or income for any such property, services, benefits, or medical care if that restriction is necessary in order to qualify the |
|Beneficiary for such governmental or insurance carrier benefits. The Trustee may pay any deductible amounts for the Beneficiary on any insurance|
|policies covering the Beneficiary so long as that payment does not disqualify the Beneficiary from receipt of benefits. The Trustee shall |
|cooperate with the Beneficiary’s conservator, guardian, or legal representative to seek support and maintenance for the Beneficiary from all |
|available resources, including but not limited to, the Supplemental Social Security Income Program (SSI), Supplemental Income Program (SIP) of |
|Texas, the Old Age Survivor and Disability Insurance Program (OASDI), the Medicaid Program, and any additional similar or successor programs, |
|and from any private sources. To the extent required by 42 U. S. C. §1396p(d)(4)(A) and other applicable laws and regulations regarding trusts |
|of this type, the Trustee may supplement, but shall not supplant, services, benefits, and medical care received or requested by or on behalf of |
|the Beneficiary that are available through any governmental or private resource. |
| |
|D. Payment of Income Taxes. The Trustee shall pay any income tax liability of the Beneficiary which results from income received by the Trust |
|but reported on the income tax return of the Beneficiary. The funds used to pay this income tax liability shall be paid directly to the |
|appropriate taxing authority and shall not be available to the Beneficiary. The Beneficiary shall not have any right to or interest in any of |
|these funds paid by the Trustee. Further, these funds are not a resource of the Beneficiary and shall not be treated as a distribution of cash |
|for purposes of Medicaid qualification. |
| |
|4. Termination of Trust. The Trust will terminate on the death of the Beneficiary. The Trust also may be terminated in whole or in part at any|
|time by order of the Court. |
| |
|5. Distribution Upon Termination of Trust. Upon termination of the Trust, the trustee shall distribute the principal and any undistributed |
|income of the Trust as follows: |
| |
|A. First, the Trustee shall pay all amounts required to be reimbursed pursuant to 42 U. S. C. §1396p(d)(4)(A). The Trustee shall reimburse |
|those states where the Beneficiary has received Medical Assistance payments from the state, based upon the state's proportionate share of the |
|total amount of Medicaid benefits paid by all of the states on the Beneficiary’s behalf, the smallest amount (if any) as applicable law then |
|requires the Trust to pay. The Trustee's duty to reimburse the state upon termination shall apply to the extent there are remaining assets in |
|this trust and shall apply irrespective of any other provision of this instrument. The Trustee shall reimburse the state only for those |
|benefits provided to the Beneficiary which are subject to such reimbursement claim. |
| |
|B. After the satisfaction of these obligations, the Trustee shall distribute the remaining property, if any, to the Beneficiary, outright and |
|free of trust, or, if the Beneficiary is then deceased, to the representative of the deceased Beneficiary’s estate. |
6. Annual Accountings. The Trustee shall prepare and file with the court an annual accounting of transactions in the Trust in the same manner and form that is required of a guardian of the estate under the Texas Probate Code. The Trustee shall provide a copy of the annual account to the Guardian of the Beneficiary's Estate and Person. The annual account is subject to review and approval by the Court in the same manner that is required of an annual account prepared by a guardian of the estate under the Texas Probate Code.
7. Compensation of the Trustee. The Trustee, on annual application to the Court and subject to the Court's approval, is entitled to receive reasonable compensation for services that the Trustee provided to the Beneficiary as the Beneficiary's Trustee that is (A) to be paid from the Trust's income, principal, or both and (B) determined in the same manner as compensation of a guardian of the estate under Section 665 of the Texas Probate Code; provided, however, that the Trustee shall not be entitled to compensation based on distributions to the Guardian of the Estate of the Beneficiary for purposes of making gifts pursuant to Section 865 of the Texas Probate Code. The Trustee may be reimbursed from the trust estate for expenses it reasonably incurs with the approval of the Court.
8. Powers of Trustee. The Trustee shall have all of the powers of trustees under the Texas Trust Code. The Trustee may invest the trust estate in investments permitted under the Texas Trust Code without further order of the Court and is not required to invest the trust estate in investments permitted by Section 855 of the Texas Probate Code. The terms and provisions of the Texas Trust Code shall apply to this Trust, to the extent they are not in conflict with Tex. Prob. Code Ann. §§ 867-873 or with the terms of this instrument.
9. No Bond Required. The Trustee shall serve without giving a bond. Neither the Guardian of the Estate of the Beneficiary nor the surety on the Guardian's bond (if any) shall be liable for an act or omission of the Trustee.
10. Successor Trustees. In the event of the corporate reorganization, merger or acquisition of the Trustee, the resulting successor organization shall automatically become the successor trustee. The Trustee may resign with the approval of the Court and may be removed by order of the Court. Upon the resignation or removal of the Trustee, the Court shall appoint a successor trustee. Each successor trustee shall have all of the rights, powers and duties of the Trustee.
11. Spendthrift Trust. To the extent permitted by law, the interest of the Beneficiary shall be held subject to a spendthrift trust as provided in Section 112.035 of the Texas Property Code.
12 Amendment, Modification or Revocation. The Court may amend, modify, or revoke the Trust at any time before the date of the Trust's termination. Neither the Beneficiary nor the guardian of the Beneficiary's estate may revoke the Trust.
13. Effective Date. This Trust shall be effective upon the last to occur of (A) the entry of an order creating the Trust by the Court, (B) the execution of this Declaration of Trust by the Trustee indicating its acceptance of the Trust; and (C) the receipt by the Trustee of the initial trust estate.
TRUSTEE'S ACCEPTANCE:
By:_______________________
Name:_____________________
Title:______________________
APPENDIX 15: Under-65 Supplemental Needs Trust Created by Parent or Grandparent
THE «Beneficiary Name:LIKE THIS» SUPPLEMENTAL NEEDS TRUST
This trust agreement is made by me, «SNT Settlor:Like This», of «SNT Settlor Address», as Grantor, with «SNT Trustee1:Like This», of «SNT Trustee1 Address», who, with all successors in trust, is called the "Trustee."
ARTICLE ONE
NAME OF THE TRUST
The Trust established under this Agreement shall be known as THE «Beneficiary Name:LIKE THIS» SUPPLEMENTAL NEEDS TRUST. It is established pursuant to 42 U.S.C.A. §1396p, as amended effective August 10, 1993.
ARTICLE TWO
TRUST ESTATE, TRUSTEE AND BENEFICIARY
Grantor hereby appoints «SNT Trustee1:Like This» as Trustee of this trust. Grantor hereby grants and assigns to «SNT Trustee1:Like This» (hereinafter referred to as Trustee) the sum of One Hundred Dollars ($100.00) as the initial corpus of the Trust. Such property, together with any additions acceptable to the Trustee, plus any interest, income and other accruals received on this corpus, shall constitute the Trust Estate.
The primary beneficiary of the Trust, who is referred to in this document as Beneficiary, shall be «Beneficiary Name:Like This» of «Street Address», «City», «State» «Zip Code». Grantor is the Beneficiary’s «Grantor Relationship».
Prior to any other remaining assets going to the beneficiary or «Beneficiary Gender:his/her» estate, the TEXAS DEPARTMENT OF HUMAN SERVICES and any other agency providing benefits to the Beneficiary under a Medical Assistance Program shall have a vested remainder interest in and shall be a recipient of assets remaining in the trust at the death of the Beneficiary to the extent set forth herein.
ARTICLE THREE
DISPOSITION OF PRINCIPAL AND INCOME
Payments. The Trustee shall pay or apply for the benefit of «Beneficiary Name» during «Beneficiary Gender:his/her» lifetime, those amounts from the principal or income, or both, of the Trust, for the satisfaction of the Beneficiary’s supplemental needs, as the Trustee, in the Trustee’s sole and absolute discretion, may from time to time deem reasonable or necessary subject to the strict limitations set out in this instrument. Any income of the Trust not so distributed shall be added to principal.
The Trustee is prohibited from expending any of the Trust principal or income for the property, services, benefits or medical care otherwise available to «Beneficiary Name» from any governmental or from any private insurance carrier required to cover the Beneficiary. The Trustee may, but is not required to, pay any deductible amounts for «Beneficiary Name» on any insurance policies covering «Beneficiary Gender:him/her». To the extent required by the Statutes and other applicable laws and regulations regarding trusts of this type, the Trustee may supplement, but may not supplant, services, benefits, assistance and medical care, as described above, that is available through any governmental or private resource. The trustee may, however, make distributions that would reduce public benefits without terminating them completely such as, for example, by providing food, clothing and shelter to a beneficiary eligible for Supplemental Security Income in exchange for a reduction of benefits under the "Presumed Value Rule," when the trustee in his, her or its uncontrolled discretion determines such distributions to be in the best interests of the beneficiary.
Supplemental Needs. As used in this instrument, “supplemental needs” refers to the requisites for maintaining «Beneficiary Name»’s health, safety and welfare when the Trustee determines, in the Trustee’s discretion, that the means for satisfying such needs are not available from any public or private agency, including any state or the United States.
The Trustee should cooperate with the Beneficiary’s conservator, guardian or legal representative to seek assistance and services for «Beneficiary Gender:him/her» from all available resources, including but not limited to, the Supplemental Security Income Program (SSI), Supplemental Income Program (SIP) of Texas, the Old Age Survivor and Disability Program (OASDI), the Medicaid Program, and any additional, similar and successor programs, and from any private sources if such assistance would be beneficial to «Beneficiary Name».
Court approval not required. Unless otherwise directed by a court of competent jurisdiction, distributions may be made from this Trust without prior court approval.
ARTICLE FOUR
TRUST TERMINATION: PAYMENT AND
DISTRIBUTIONS ON DEATH OF THE BENEFICIARY
Trust Termination. Unless sooner terminated by exhaustion of corpus or otherwise, this trust shall terminate upon the death of «Beneficiary Name». At the time of termination, any remaining assets in this Trust shall be distributed as follows:
Payment of Debts, Estate Taxes & Expenses. Subject to the provisions below, the Trustee shall first reimburse those states where «Beneficiary Name» has received unreimbursed Medical Assistance payments from the state, based on the state’s proportionate share of the total amount of unreimbursed Medical Assistance benefits paid by all of the states on «Beneficiary Name»’s behalf, for only those benefits provided to the Beneficiary during the Beneficiary’s lifetime which are subject to such reimbursement claim. The Trustee’s duty to reimburse the state(s) upon termination shall apply only to the extent there are remaining assets in this Trust and shall apply irrespective of any other provision of this Trust.
Because «Beneficiary Name» is currently a resident of the State of Texas, for this purpose the Texas Department of Human Services, or other successor or applicable state agency administering the State of Texas’ Medical Assistance Program, and/or any other state where «Beneficiary Name» may hereafter receive such medical assistance benefits, shall have a vested remainder interest in this Trust if it is conclusively determined that «Beneficiary Name» has received benefits from the state for which a governmental claim for benefit reimbursement against trusts of this type is then allowed. The Trust shall reimburse only those benefits provided to the Beneficiary during «Beneficiary Gender:his/her» lifetime which are subject to such reimbursement claim.
After satisfaction of these obligations, if termination has occurred due to the Beneficiary’s death, the Trustee is authorized to pay all inheritance or other similar taxes which may be imposed upon the Beneficiary’s estate, together with any expenses of «Beneficiary Gender:his/her» last illness, funeral and burial costs, enforceable debts, and reasonable administration expenses.
«IF Named Remaindermen»
Distribution of Residue. If any Trust assets remain after the satisfaction of the provisions above, the residue of this Trust shall be distributed as follows:
1) To «Remainder Beneficiaries»
2) If the person or persons named in (1) predecease the Beneficiary, to those persons who would be entitled to the Beneficiary’s estate under the laws of descent and distribution of decedents who have died intestate in the state of residence of «Beneficiary Name» at the time of «Beneficiary Gender:his/her» death;
«END IF»
«IF Named Remaindermen = FALSE»
Distribution of Residue. If any Trust assets remain after the satisfaction of the provisions above, the residue of this Trust shall be distributed to the estate of «Beneficiary Name»
«END IF»
Provided, however, this balance shall not be liable to creditors of «Beneficiary Name» except to the extent provided herein.
ARTICLE FIVE
TRUST ADMINISTRATION
AND PROTECTIVE PROVISIONS
Spendthrift Trust. This is a Discretionary Non-Support Spendthrift Trust. None of the principal or income of the Trust Estate or any interest therein shall be anticipated, assigned, encumbered or be subject to creditors’ claims or to any legal process. This Trust is to be conserved and maintained only for the supplemental needs of the Beneficiary. No part of the of the Trust Estate shall be construed as part of the Beneficiary’s estate, or be subject to the claims of voluntary or involuntary creditors of the Beneficiary. No part of the Trust Estate shall be liable nor available to the Beneficiary’s creditors during «Beneficiary Gender:his/her» lifetime or after «Beneficiary Gender:his/her» death. Further, neither the Beneficiary nor any creditor of the Beneficiary may compel a distribution from this trust.
Payment for Supplemental Needs only. No part of the Trust shall be used to supplant or replace public assistance benefits of any county, state or federal agency that has a legal responsibility to serve and provided assistance for persons with disabilities that are the same or similar to the Beneficiary’s. If the Trustee is required to release any of the Trust Estate to the Beneficiary to pay for benefits that public assistance programs are authorized to provide, if not for the existence of the Trust, or if the Trustee is requested to petition a court or any administrative agency for the release of the Trust principal or income for such purpose, the Trustee is authorized to deny such request, and is authorized, in the Trustee’s sole discretion, to take whatever administrative or judicial steps the Trustee deems necessary to continue public assistance program eligibility for the Beneficiary.
Payment of Income Taxes and Expenses. The Trustee shall pay any income tax liability of the Beneficiary that results from income received by the Trust but properly reported on the income tax return of «Beneficiary Name». This amount is to be specified in writing and delivered by the Beneficiary’s accountant or tax preparer to the Trustee. The Trustee shall solely and conclusively rely on this amount. The funds used to pay this income tax liability shall be paid directly to the appropriate tax authority and shall not be available to the Beneficiary or be counted as a disqualifying financial resource against the Beneficiary. The Beneficiary shall not have any right to or interest in any of these funds paid by the Trustee. Further, these funds are not a resource of the Beneficiary and should not be treated as a distribution of income for purposes of Medical Assistance qualification or continuation.
Trustee’s fees and expenses. Any Trustee acting under the terms of this instrument shall be entitled to reasonable fees for Trustee services according to the compensations allowed by the Texas Probate Code for Trustees of trusts of this type. The Trustee shall also be entitled to reimbursement of reasonable costs expended by the Trustee. «IF Approval of Expenses»Provided, Trustee’s reimbursement shall be subject to prior approval of such reimbursement by the «Court Name» of «County» County, Texas.«END IF»
Professional Fees and Expenses. All reasonable expenses in establishing, maintaining, administering, and defending this Trust, including but not limited to reasonable attorney fees, accounting fees, Trustee fees, and costs shall be a proper charge to the Trust.
ARTICLE SIX
POWERS AND DUTIES OF THE TRUSTEE
Powers. The situs of this Trust is Texas, and the Trustee may exercise all the powers awarded to Trustees in the Texas Trust Code and through the applicable provisions of the Texas Probate Code, as amended, subject to the limitations created in this Trust Instrument. In addition, the Trustee may invest in non-income producing assets where such investment is appropriate in the Trustee's opinion for the proper management of trust assets. The validity of this Trust shall be determined by the laws, including valid regulations, of the United States and the State of Texas.
No power enumerated in this instrument shall be construed to enable any person to purchase, exchange, or otherwise deal with or dispose of the principal or income of this trust for less than adequate and full consideration in money or money’s worth.
Duties. The Trustee shall provide accountings annually to the Court and to the Beneficiary’s conservator, guardian or legal representative when requested. These accountings shall set forth all receipts and distributions made during the reporting period and assets held in Trust at the end of the period.
Identification of appropriate public benefits. It is recognized that the Trustee may not be licensed nor skilled in identifying programs of public assistance. The Trustee may seek the counsel and assistance of any guardian or conservator of the Beneficiary, or others, including any state and local agencies that are established to assist persons with disabilities. The Trustee should use available resources to assist in identifying programs that may be of social, financial, developmental or other assistance to the Beneficiary. The Trustee shall not in any event, however, be liable to any beneficiary, or the remainder beneficiaries of the Trust or to any other party, for such acts undertaken as Trustee in good faith. The Trustee shall not be liable for failure to identify all programs or resources that may be available to the Beneficiary because of the Beneficiary's disabilities.
ARTICLE SEVEN
TRUSTEE'S SUCCESSION AND
ADMINISTRATIVE PROVISIONS
If «SNT Trustee1:LIKE THIS» fails or ceases to serve as Trustee at any time, «SNT Trustee2:LIKE THIS», of «SNT Trustee2 Address» shall serve as successor Trustee. Any person who serves as Trustee or Successor Trustee shall have the authority to appoint a successor Trustee, which appointment will supersede the order of succession herein prescribed. To be binding and effective, a designation of successor trustee must be in writing and must be acknowledged. The instrument of designation must be executed during the time that person is actually serving as Trustee. Any successor Trustee shall have the authority vested in a Trustee by original appointment.
Any Trustee may resign by giving thirty days prior written notice to the Beneficiary and his conservator, guardian, or legal representative, if any.
ARTICLE EIGHT
IRREVOCABLE NATURE OF THE TRUST
AND BOND REQUIREMENT
This Trust shall be irrevocable. The Beneficiary shall have no right or power, whether alone or in conjunction with others, in whatever capacity, to alter, amend, revoke or terminate this Trust, or any of the terms of this Trust Agreement, in whole or in part, or to designate the persons who shall possess or enjoy the Trust Estate, except as is set out specifically in this instrument.
Except as may otherwise be required by order of a Court, the Trustee shall not be required to give any bond or other security for the faithful performance of the Trustee’s duties under this Trust. No Trustee shall be liable for any loss of Trust assets, except for any loss caused by the Trustee’s bad faith or negligence.
IN WITNESS WHEREOF, «SNT Settlor:Like This», Grantor, and «SNT Trustee1:Like This», Trustee, have signed this document the day of , 19 .
«SNT Settlor:LIKE THIS», Grantor
«SNT Trustee1:LIKE THIS», Trustee
THE STATE OF TEXAS
SUBSCRIBED AND ACKNOWLEDGED before me by «SNT Settlor:LIKE THIS», as Grantor, and by «SNT Trustee1:LIKE THIS», as Trustee, on this ______ day of ___________________, 19____.
Notary Public, State of Texas
APPENDIX 16: Third-Party-Funded Supplemental Needs Trusts--A Multiple-Trust Approach
or, "The Renée C. Lovelace Texas Two-Trust Waltz"
The Law Office of
Renée C. Lovelace, p.c.
A Professional Corporation
P.O. Box 38387
Dallas, Texas 75238
Renée Colwill Lovelace, M.B.A., J.D., C.E.L.A.* Fax: (214) 503-7695
Telephone: (214) 503-7694 E-mail: ReneeLovel@
*Certified as an Elder Law Attorney
by the National Elder Law Foundation Our Reference Number
15816-001
M E M O R A N D U M
TO: H. Clyde Farrell
FROM: Renée Lovelace
DATE: May 5, 1999
RE: Third-Party Trust Planning for Persons With Serious Disabilities
This memorandum discusses briefly, in general terms only (without statutory cites), how I address the following issues in my practice when working with parents of a seriously disabled adult or minor child:
• Framework for Third-Party SNT Planning
• Protecting Advocates--a Scarce Resource--Helps to Protect the Beneficiary
• Factors In Selecting and Using the Two-Trust Approach
• Components of Planning That Includes the SNT and the “Annual-Cap” Discretionary Trust
• Components of the SNT
• Components of the “Annual-Cap” Discretionary Trust
My planning approach and the planning approaches of others are discussed in more detail in:
The Texas Attorneys’ Planning Guide
for Representing Families With Disabled Family Members:
*Starting Points*
In Helping Caregivers Build Networks of Care
The guide is on computer disk (WordPerfect 5.1) and was a project of Planned Living Assistance Network of North Texas, Inc., a non-profit private case management organization in Dallas. Production of the Guide was funded by The Texas Bar Foundation, The Hogg Foundation for Mental Health, and The Dallas Bar Foundation. Ordering information (there are still free copies available as of this date, but there may not be by the end of the summer) may be obtained by sending an e-mail to . After the free copies are gone, I expect that copies will be sold for $10.00.
As you and I have discussed, we should consider working with the next Texas Legislative Session to “put ourselves out of work” by seeking support for a statute that would protect all qualifying trusts for persons with disabilities--like the statutes already on the books in Illinois, Maryland, and New York. (But in Texas, we could do it even better. .. . )
The Framework I Recommend to Most Clients for Third-Party SNT Planning
In planning for beneficiaries with serious disabilities, in all but the smallest testamentary estates, I recommend using two trusts. I believe this approach provides the most flexibility and protection for beneficiaries with serious disabilities, for whom careful planning is critical.
While clients with large estates often carefully plan to protect transfers of wealth, I believe that it is a serious mistake to do less than comprehensive and tailored planning for family members with disabilities--even (or especially) with modest estates.
Healthy heirs, if wealth is wasted by poor planning, often are simply “not as wealthy.” But heirs with serious disabilities, if proper planning is not a priority, may lose significant once-in-a-lifetime opportunities--that will greatly reduce their quality of life options for the rest of their lives.
The alternative--careful and tailored planning--even where we are talking about “only $50,000" or “only $75,000," but especially with higher dollar values, may give the person with disabilities an enormously improved quality of life, with more interesting and more healthy options, better living conditions, better job opportunities, and enhanced social opportunities. Providing a good plan for family members with disabilities helps everyone in the family have a better quality of life--perhaps for generations.
Thus I recommend that most clients carefully examine their overall planning and tailor a plan that appears to position their loved one--and the rest of their family--in the best possible way for the future.
Protecting Advocates--a Scarce Resource--Helps to Protect the Beneficiary
Good planning for the person with disabilities may--in our overly stressful and busy world--enable other family members to have a more pleasant and healthy relationship with the beneficiary.
Friends and advocates for the person with disabilities are critical to the person receiving consistently good care and opportunities, and this is a component that is often not emphasized strongly enough. Because committed advocates are scarce and valuable (whether family or friends), it is critical, I believe, to do planning where the time and emotional resources of the advocates are less likely to be “used up” with the technical administrative and search-for-resources duties.
But because great advocates can, unfortunately, sometimes “move on” or even become exploitive as the circumstances of their own lives change, I believe it is critical that “checks and balances” be built into the plan.
Clyde, as you know, I have a step-son with serious mental illness, and I have a son and daughter who I hope will be his life-long advocates and friends. I want Corley, Bryan, and Jessie--all three of them--to have good lives, with trust structures that do not unnecessarily complicate their lives or cause any of them anguish (in the many, many years ahead) that I can avoid by careful planning. I cannot guarantee that Bryan and Jessie will always keep Corley’s needs as a priority, but I truly believe that they will--and thus I have worked to give them tools to assist Corley in a manner that lets them enjoy Corley as a brother, without the guilt and pressure of feeling that their entire lives must be focused on providing for his care.
Good planning now is the best “gift” that families can give to the beneficiary--and to each other.
Factors In Selecting and Using the Two-Trust Approach
There are many pieces to the “trust planning” and “long-term care planning” puzzle, if the objective is to make the most of scarce resources for a person with disabilities--perhaps for fifty years or more-- and if the chaotic field of public benefits plays a role (and public benefits almost always play a role--even as a last-ditch safety net for very wealthy clients).
Some of the factors to consider in planning to use two trusts, a Supplemental Care Trust and an Annual-Cap Discretionary Trust, are the following:
• With larger estates, it is likely not significantly more expensive to administer two trusts than one. Because the trusts are designed to work together, some corporate trustees charge fees only slightly more than the fees for one trust.
• Where an individual is a trustee, the benefactor could utilize the Arc Pooled Trust as the Supplemental Care Trust, and the individual could administer the Annual-Cap Discretionary Trust.
• Trusts continue to be attacked by those entities seeking payment from trusts. I understand that some medical chains have hired attorneys to consolidate information on trust invasion, and I believe that in the future un-paid medical creditors will be likely to pursue large trusts under any available theory.
• Different public benefits programs have different trust rules. At the present time, I believe that it may not be possible to effectively draft a trust in Texas that has sufficient flexibility in supplementing support costs where supplemental support is necessary, without putting the trust at risk (1) to the State as a creditor for services authorized by the Texas Department of Mental Health and Mental Retardation (TDMHMR) in State Hospitals or State Schools, (2) to MHMR Community Centers for services provided by such centers, (3) creditors who provide “necessaries,” and (4) medical creditors for “emergencies.” I think that the cost of having two trusts is small compared to the additional flexibility and the reduction in risks.
• As you know, the State (TDMHMR) has indicated that it will rely on (1) the Health & Safety Code statutes that provide that trust funds in excess of $50,000 are available for repayment for State services, and (2) public policy arguments analogous to the cases where income from discretionary trusts was held to be available to pay the trust beneficiary’s past-due child support obligations (which is now a statutory trust invasion right). I believe it is important to have a trust plan in place in which the equities are on the side of the trust beneficiary, even if a limited amount of trust corpus is available to repay the State for services. I view this, as most of my clients view this, as “insurance” that may prevent an attack, and as a defense if the trust is attacked by creditors. This trust approach does not “refuse to pay a dime” to creditors such as the State when valuable services are provided at taxpayer expense, but may--in those circumstances where other discretionary trusts are found to be available--be available for repayment as well, but only up to a capped annual amount.
• SSD and other programs that are not currently means-tested may be means tested in the future, and thus even where it does not now appear that an SNT is necessary, the protection an SNT would provide may be necessary in the future.
• If the SNT is completely unnecessary at some point in the beneficiary’s life, the trust is structured so that it likely can be amended and/or merged with the Discretionary Trust.
• While many of the nation’s top estate planners are anguished over the view that discretionary trusts--which in theory should be the best protected trusts--are inferior to SNT’s for public benefits protection, I believe discretionary trusts are more at risk. One nationally-recognized estate planner told me he feared the “social worker attorneys had moved into trusts and mucked them up.” However it has happened, the collision of money and staggering medical needs has made trust issues complicated.
Components of Planning That Includes the SNT and the “Annual-Cap” Discretionary Trust
In representing clients who seek to plan for beneficiaries who are elderly or who have disabilities, there is often a difficult combination of social and legal issues. Ideally, the benefactor/client would bring the following information--in addition to all the typical family information and resources inventory--to the attorney at the planning meeting:
• a summary of the disabilities of the beneficiary
• a listing of current public benefits the beneficiary is receiving (source of benefit, amount, frequency, restrictions, etc.), as well as the types of benefits to which the beneficiary may be entitled upon the retirement, disability, or death of a parent or other benefactor
• if the beneficiary is currently working (with or without social and medical supports provided by the family) and is not receiving benefits, the types of benefits (and amounts) that the beneficiary would receive if he or she were to stop working and qualify for benefits
• if the beneficiary is currently working, a description of the social and medical supports that are important to his or her independence
• a feasibility analysis of future job opportunities and living options for the beneficiary
• names of three or more advocates close in age to the beneficiary who can serve as trust protectors, or in other advocacy roles
• a description of other members of the beneficiary’s support network--family, friends, and others
In “real life,” most clients bring none of this information to the attorney.
I do not believe that it is possible for the attorney to do adequate (i.e, the “best possible”) planning for his or her clients without this information. Non-profit advocacy groups provide a wide variety of valuable information to their members, but most have not yet developed the resources that would enable members to bring to the attorney the information that the attorney needs to best protect the interests of the disabled family member.
When the attorney turns around and tries to obtain or develop the information needed, costs escalate. Sometimes the client pays these additional costs--sometimes the attorney pays these additional costs. But someone pays.
In order to keep costs down, many clients agree to only do the type of planning that I believe should be done on one’s death-bed, simple and inexpensive planning such as including only an SNT in the plan.
The components of planning that I typically use, which are affected by the type of information gathered above, include the following:
1. A testamentary Supplemental Care Trust that is prohibited from making support distributions and which can be amended or terminated by the trustee under the provisions of the trust in order to better satisfy the intentions of the grantor.
2. A testamentary “Annual-Cap” Discretionary Trust that may be able to make support distributions for the beneficiary under some circumstances (limited to an annual cap), and which may be amended and “spent down” but not terminated. In addition to having an annual maximum amount over which the trustee has full discretion, there are several ways in which the maximum annual “full discretion” amount may be exceeded: First, the trustee has authority to buy a house/condo (or an interest in a house or condo) as an asset of the trust, or buy a house/condo (or an interest) and distribute it to the beneficiary, or may pay for additions or modifications to the house of another if the beneficiary will benefit from such expenditures. Second, several persons are selected to hold special non-fiduciary powers of appointment which can be used to make additional distributions. I understand from Noel Ice that this is a technique he believes to be very effective, although the power holders must be carefully selected (lest someone who is inattentive to the public benefits ramifications directs the trustee to make disqualifying distributions).
3. An Additional Provision in the Power of Attorney that permits funding of trusts for the disabled child during the parents’ lifetimes if the parents need nursing home Medicaid or if other catastrophic events occur. As you know, transfers to qualifying trusts for persons with disabilities are not transfers that are penalized (resulting in a period of ineligibility) for Medicaid. This “gift from Congress” should be used in virtually every modest estate where there is a disabled child--yet this provision is frequently not used.
4. Further diversifying risks to the “beneficiary’s share” of property by considering investments such as the following, depending on the facts of the case (which is why the collection of information is so important):
a. Directing a small to modest amount of the “beneficiary's share” directly to other trusted family or friends from the outset either during the grantor’s life or at the grantor’s death (whether by Will or trust), with the hope that these trusted family members or friends will hold such funds in reserve and use the funds for the beneficiary in case of temporary shortfalls or gaps in services.
b. To the extent that the grantor provides other family or friends with a portion of what the grantor considers to be the “beneficiary’s share,” requesting that such advocates put the funds into a separate bank account and consider funds in such accounts to be set aside for the beneficiary's future care, if necessary. If possible, the grantor could request that the advocates use a “payable on death” account that directs the funds to the beneficiary’s supplemental care trust at such person’s death. If such a transfer would generate estate tax costs (by using up some of the person’s unified credit), the person could withhold from the account an amount necessary to compensate his or her heirs.
c. Consider purchasing life insurance policies (and establishing insurance trusts) on the grantor’s life and the lives of various advocates for the beneficiary to stagger funding into the trusts over the beneficiary’s lifetime. In that way the beneficiary's trusts may be replenished over time, when the beneficiary loses advocates or caregivers. Life insurance trusts can be extremely valuable in planning for persons with disabilities. The grantor’s funds are are less likely to be exhausted during the grantor’s life, either through normal expenses or through a catastrophic event. Further, life insurance proceeds have creditor protection that could be very valuable in the future.
d. Consider creating another trust that is fully discretionary for the benefit of the beneficiary and others. A "pot trust" likely will reduce the risk that there will be State claims against the trust.
e. If the grantor’s assets include retirement benefits, consider using a trust that qualifies as a “designated beneficiary” for those benefits. This structure could be enormously valuable as this arrangement would avoid the problem of having a huge trust sitting out there, begging for creditor attack, plus funding the trust with proceeds that are typically exempt from creditor claims.
f.. Preparing another trust for funding by other family members or otherwise ensuring that others in the family--both up and down and sideways in the family tree--do not inadvertently leave assets to the beneficiary in a manner that destroys all of the parents’ careful planning.
g. Considering charitable remainder trusts that fund the supplemental care trust or the discretionary trust. Again, the technique would stagger funding into the beneficiary’s trust(s) over the beneficiary’s lifetime, creating a more protective plan. Further, where the parent/grantor holds a large block of low-basis stock, the charitable remainder trust planning sometimes can result in higher payments going into the beneficiary’s trusts than the parent could generate by selling the stock, paying capital gains, and reinvesting the proceeds.
h. Paying for a good Personal Care Assessment for the beneficiary, so that the trustees and advocates have a good grasp on the beneficiary’s strengths and needs for assistance, and understand how to make the most of future opportunities.
As you know, the “people” factors in this planning are as important as the “numbers” factors. And both sets of factors lead to an analysis of planning steps that are often difficult to quantify. By trying to quantify these factors, however, I believe that we will get much closer to a “best possible” plan for the person with disabilities.
5. Using funds to prevent other costly steps such as:
a. Having parents or grandparents establish a simple “under-65 disability trust” so that if the beneficiary inherits a small amount later in his or her life, that amount can be protected without requiring a court or guardian
b. Establishing a sub-account in the Arc of Texas Master Pooled Trust to benefit from the unique and valuable information distributed by the trust administrators, even if the sub-account is not used.
c. Paying for the services of an attorney who will represent the family member with disabilities in their own advance medical and business planning, so that a costly guardianship will not be necessary later.
Components of the SNT
Prohibitions.
The trust permits distributions for the beneficiary’s “supplemental care” only and prohibits payments for (a) food, (b) clothing, (c) housing, (d) claims for medical care otherwise available from Medicare, Medicaid, or other source, or that is covered by private insurance, and (e) claims for medical care--whether or not provided in an emergency--that is not pre-approved by the trustee.
Selecting the Trustee of the Trust.
If the client has children or other family members who have the skills of a CPA, the compassion of Mother Teresa, and a great deal of time on their hands, I suggest the parent name that person as trustee.
Similarly, if the parent has a family member who will hire assistance as necessary to administer the trust, that person may also be a good choice as trustee.
While children and other family members may in some cases be good choices for trustee, it is important that the selection not be automatic, as in many cases family members are very poor choices to serve as trustee of SNTs.
Tax Risks to Trustees Who Are Vested Remainder Beneficiaries.
Because of the broad discretion in the trust, I believe that there is likely a risk that a trustee who is a remainder beneficiary could be found to have a general power of appointment over trust assets, causing includability in the trustee’s estate, or causing trust distributions to be re-cast as taxable gifts by the trustee to the beneficiary.
By the way, while many highly-respected estate planners with whom I have discussed this issue believe this is a near-ludicrous concern, others agree that the combination of broad discretion + a trustee who is a vested remainder beneficiary = a potentially serious problem. I suggest using a corporate trustee or at least a trustee who is not a remainder beneficiary. If clients are adamant that the trustee be a remainder beneficiary, perhaps the risk could be reduced by (1) having the trustee/remainder beneficiary’s interest distributed into another trust where distributions are subject to an ascertainable standard, or (2) giving the beneficiary a special power of appointment so that the trustee/remainder beneficiary’s interest is not vested, or (3) having the trustee subject to removal from the position by a Trust Protector.
I suggest that trustees obtain current advice before accepting the position of trustee (lest there be a technical problem with the “release” of a general power of appointment) as well as advice on distributions at the time that distributions are made.
Trust Protector.
Because of the extremely broad discretion in these trusts, most trusts could benefit from a “check and balance” structure where another person (who is not eligible to serve as trustee, but who may be a good advocate) has the power to remove and replace the trustee. I almost always recommend that clients have separate trustees and Trust Protectors.
Amendment and Termination Provisions.
The Supplemental Care Trust can be terminated by the trustee under certain conditions and the trustee also has the authority to amend the trust, in the trustee's discretion, to achieve the grantor’s intentions for the trust. If creditors’ claims attach to the trust corpus (which we do not anticipate) it is possible that the termination provisions cannot be used (fraud on creditors issues).
Annuities As Trust Assets.
Both the Discretionary Trust and Supplemental Care Trust permit the trustee to purchase an irrevocable annuity based on the beneficiary's life expectancy. In the case of the Discretionary Trust, the value of the annuity (to the extent the value exceeds the $50,000 protected amount under the Texas Health and Safety Code) may still be considered available to the State for reimbursement of services (with the biggest risks being expensive State hospital (psychiatric) care or State school services), but would achieve several other objectives:
1. The funds available in the trust would be paced over the expected term of the beneficiary's life, providing guidance to the trustee and the beneficiary on distributions from the trust.
2. Should the beneficiary incur large bills for his or her medical or support needs and should the State or a creditor pursue reimbursement from the trust, at least an equitable argument will have been established for limiting reimbursement. While a $100,000 to $1,000,000 trust looks huge to a creditor and possibly to a judge or jury, one can perhaps better argue for the preservation of the trust throughout one's life if funds available to be paid from the trust are limited and paced throughout the beneficiary's life; annuity payments do not appear to be nearly so generous.
Certainly the purchase of an annuity in a trust could have undesirable tax ramifications and the trustee should obtain advice before making that type of trust investment decision. This is a trade-off to be reviewed during trust administration.
Other Components.
Not all components of the Supplemental Care Trust are included in this memorandum.
For other components, look at the Supplemental Care Trust form that follows--both sections of the trust and also the “boxes” of comments, discussion points, requests for additional information, and caveats.
Components of the “Annual-Cap” Discretionary Trust
In addition to the provisions of the Supplemental Care Trust described above, the Discretionary Trust provides as follows:
Limited “Full Discretion” Distribution Provisions.
In the Supplemental Care Trust, restrictions on payments for the beneficiary’s support are warranted to reduce the likelihood that the trusts will be subject to creditor's claims, or that distributions from the trusts will cause the beneficiary to be ineligible for benefits. But where clients also would like for the beneficiary to be productive (which most clients and also most beneficiaries want) and be encouraged to work, it is important that trust distributions be permitted for support under some circumstances.
In the trust form that I often use, the “full discretion” component of the trust is subject to an annual cap. The full discretion provisions and calculations to determine the cap are located in Sections B-4(c)(4) and B-4(c)(5).
Let me explain why I think we are walking on such a narrow “sort-of-safe-harbor” path.
In addition to goods and services that can be purchased under the terms of the Supplemental Care Trust, many people need access to trust funds that can be used for food, clothing and shelter if and when those items need to be supplemented. Say, for example, the trustee of the beneficiary’s trusts could provide a satisfactory arrangement for him or her that costs $1,500 per month. Yet the Supplemental Care Trust cannot supplement basic support. This is the key difficulty in planning for these circumstances. If basic support payments are permitted from the trust, the trust then becomes “available” for many state and federal purposes--i.e., in order for the funds to be protected, use of the funds cannot be as flexible as you would like.
Thus this second trust that is referred to as a “Discretionary Trust,” which is still structured to protect public benefits, has a little more flexibility to supplement basic support. That flexibility, of course, brings more risk that the State will seek reimbursement for services, and thus I have structured this type of trust to attempt to restrict the amounts that can be paid out of the trust annually. Thus even if the State were to seek reimbursement for services, that reimbursement should arguably be limited to an “annuitized” amount--meaning the amount an annuity would pay if the full amount of the trust were invested in an annuity equal to the beneficiary’s life expectancy.
This type of trust has not been tested in Texas and there is no guarantee that it will work or will always solve the problems faced by the trustee, but I believe this step to be the best that families can do to attempt to adequately and appropriately provide for the long-term care of family members with disabilities.
The Discretionary Trust is to a great extent duplicative of the Supplemental Care Trust and, together with the other planning components addressed above, is part of a client’s risk diversification strategy that I believe will be helpful to their child’s future protection.
If the flexibility included in the Discretionary Trust causes the beneficiary to lose benefits, then the trustee could distribute funds from this trust first (before using the funds from the Supplemental Care Trust) and then terminate this trust.
Amendment But No Termination.
The Discretionary Trust provisions permitting the trustee to amend the trust are slightly more flexible than the amendment provisions of the Supplemental Care Trust. The Discretionary Trust is the client’s “first line of defense” in meeting the beneficiary’s basic needs if public benefits become insufficient, and the Trustee may need to move quickly under some circumstances to preserve that trust. There are cases in which the Discretionary Trust should be funded with fewer dollars than the Supplemental Care Trust, with the intent of putting less at risk.
The termination provision is a two-edged sword; some planners for beneficiaries with disabilities always use termination or “explosion” clauses--some never use them. I tend to keep the termination provision in Supplemental Care Trusts where there is a close and warm family, but still not include that provision in the Discretionary Trust. The Discretionary Trust permits advance payments, payments for housing, and includes non-fiduciary powers of appointment so that additional unrestricted distributions can be made (see Section B-4(c)(7)). With these extra layers of protection, I feel more comfortable knowing that there is not an “explosion” clause in that trust.
Other Components.
Not all components of the Discretionary Trust are included in this memorandum.
For other components, look at the Discretionary Trust form that follows--both sections of the trust and also the “boxes” of comments, discussion points, requests for additional information, and caveats.
Conclusion
To protect families with seriously disabled family members who already face daunting day-to-day challenges, we along with other advocates should consider seeking the adoption of a statute in Texas that will permit families to do less complicated long-term planning yet not risk loss of critical public benefits. Until we have such a protective statute, however, I believe that the two-trust approach is warranted.
| This form is provided for discussion purposes only. |
| |
|The author makes no warranty that this trust will achieve the objectives that the author has so diligently (and exhaustively) sought to |
|achieve. The author would be grateful for any comments on this form or suggestions for improvement; please direct such comments by e-mail |
|to . |
| |
|This Supplemental Care Trust form is drafted: |
| |
|* To be used as a component in a carefully-structured plan, and not to be used as the only planning component for a person with serious |
|disabilities. |
| |
|* To be used in conjunction with the discretionary trust form that follows. |
| |
|* To be included in a parent’s carefully and thoroughly drafted Will, incorporating trustee and administrative provisions of the other |
|trusts created by the Will (with definitions and structure here following the “Hobie M. Gates” Will form of Professor Stanley Johanson). |
| |
|* With broad trustee discretion controlled through the use of a Trust Protector. |
Supplemental Care Trust
B-3 The *Beneficiary* [full name of Beneficiary] Supplemental Care Trust.
Any property that is directed to my *son/daughter*, *Bene* [Beneficiary’s First Name], or that would otherwise be distributable to *Bene*, or that is directed to the trustee of the *Beneficiary* Supplemental Care Trust (the "*B.I.* [Beneficiary’s Initials] Supplemental Trust") shall be distributed to the trustee of the *B.I.* Supplemental Trust and shall be held, administered, and distributed in accordance with the following provisions:
(a) Intent of Grantor. It is my intention in creating and funding this trust to create a purely discretionary non-support supplemental care fund for the benefit of my *son/daughter*, *Bene*, and not to displace financial assistance from any other private or public source that may otherwise be available to *him/her*. My intentions are further clarified below.
|Read the section below and point out ways to better tailor this provision to fit *Bene* |
(1) *Bene*'s Needs Are Long Term. My *son/daughter* *Bene*, for whose primary benefit this trust is created, has from time to time suffered from [*describe illness or disability*] serious mental illness and mental and physical disabilities that sometimes have and may throughout *his/her* future require special medical care, treatment, social, advocacy, and custodial services. Because of the constant advances that are being made in brain research and the development of new therapeutic drugs and procedures, [*modify for relevant information here*] it is my hope that *Bene* may be able throughout *his/her* life to live as [*independent, comfortable, productive and self-fulfilling*] a life as possible. The purpose of this trust is to maximize all available resources and apply them so that *Bene* may have the best possible chance of becoming and remaining happy, comfortable, and as self-sufficient as possible. In view of the potentially enormous expense of providing quality care for a person who has [*describe disability or illness*] a serious mental illness and mental and physical disabilities, I am unable to meet my objectives for *Bene* solely from my own resources and to provide for other family members. Therefore it is my intention not to disqualify *Bene* from other benefits, but to enable *Bene* to remain qualified for funds and services available to *him/her* from all other sources including private, federal, state, county, and local benefits and services (such other sources, whether funds or goods or services, will be referred to collectively as "public benefits") to the greatest extent possible.
(2) Access to Supplemental Funds Is Vital and Public Benefits Are Uncertain. It is important that *Bene* maintain a high level of human dignity and that *his/her* care be humane. Public benefits and other public and charitable programs are often helpful, but the future of public benefits programs is unpredictable and such programs are likely to sustain numerous changes throughout *Bene*'s life. My intention is to establish a trust for *Bene* that is capable of lasting and providing supplemental care throughout *Bene*'s entire life. If this trust were to be eroded by creditors, subjected to liens or encumbrances, or cause public benefits to be unavailable or terminated, it is likely that the trust corpus would be depleted prior to *Bene*'s death, especially if the cost of care is high. In such event there would be no reserve for supplementing basic needs throughout the remainder of *Bene*'s life.
(3) My Intent Should Control Interpretation of This Trust. The provisions contained in this trust should be interpreted by the trustee in light of the concerns and intent set out in Sections B-3(a)(1) and B-3(a)(2) above. If any provision of the trust could possibly be construed as disqualifying *Bene* from benefits such as Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), Medicaid, Medicare, county services, or other similar or successor benefits programs during periods of time when *Bene* would otherwise qualify for such benefits, or if any provision of the trust could possibly be construed as subjecting the trust’s income or principal to the claims of federal, state, county, local or other entities that would otherwise provide services without charge, the trust shall be construed as having been intended to not disqualify *Bene* for such benefits and to not be available to *Bene*'s creditors. The language of this trust shall be interpreted or automatically modified accordingly.
(b) Trust Estate. The trust estate shall consist of all property, real or personal, transferred to the trustee by anyone or any entity with the consent of the trustee. All such property may be referred to herein as the "trust estate." The trust estate shall not include any property that the trustee refuses to accept, any earnings of *Bene*, any public benefits paid to *Bene*, or any other funds that have belonged to *Bene*.
(c) Discretionary Supplemental Care Distributions. Constrained only by the specific provisions set forth in this trust and other applicable laws and regulations, the trustee may distribute for the benefit of *Bene* for *his/her* lifetime such amounts from the principal or income, or both, of this trust up to the whole thereof, as the trustee in the trustee's sole, absolute, complete, and unfettered discretion may from time to time deem advisable to provide for *Bene*'s special non-support supplemental care. Any income not distributed annually shall be added to principal.
(1) Purpose of Trust Is for Supplemental Care. I am aware that while many public benefits programs include funds for food, clothing, shelter, and certain medical care, such public benefits funds do not provide for many of the goods and services that may be needed by *Bene* in order for *him/her* to have a happy, productive, and comfortable life. The purpose of this trust is to make distributions for *Bene*’s supplemental care during *his/her* life and not to provide basic support. No distributions from or part of the trust shall be used to supplant or replace any public benefits or any benefits due from any insurance carrier or under any other insurance policy covering *Bene*.
|Review the supplemental care suggestions below and add specific types of distributions that may benefit *Bene*. Also, delete any |
|references that are clearly inapplicable. Further, where a beneficiary may otherwise be eligible for special education funds, consider |
|deleting references to educational services. |
(A) Examples of Supplemental Care. Illustrative of the kinds of supplemental, non-support disbursements that would be appropriate for the trustee to make from this trust, if the trustee in the trustee’s sole discretion determines such distributions to be in *Bene*’s best interests, include, but are not limited to, the following: vocational, college, or other education costs; private rehabilitation training; sophisticated medical or dental or diagnostic work or treatment that is not covered by public benefits, including plastic surgery or other non-necessary medical or therapeutic procedures; experimental or other non-traditional medical or health-related goods or services that are not covered by Medicaid, Medicare, or insurance, or are not otherwise available to *Bene*; dental care if not otherwise available; recreation and transportation; differentials in costs between shared and private rooms in institutional and other settings (but only where distributions would not reduce benefits that would otherwise be available to *Bene*); supplemental nursing or case management care and similar care that assistance programs may not otherwise provide; telephone and television service, travel and companions for travel; reading, driving and cultural experiences; payments to bring *Bene*'s family members or friends for visits; or supplemental care assistance of any kind the trustee deems appropriate and reasonable. The trustee may also pay any premium or deductible amounts for *Bene* on any insurance policies covering *him/her* if the trustee in his or her sole discretion deems such payments to be in *Bene*’s best interests.
(B) Purchase of Goods for Supplemental Care. The trustee may purchase goods the ownership of which does not jeopardize public benefits and may distribute such goods to *Bene* when the trustee in the trustee's sole and absolute discretion determines that distribution of such items will not jeopardize public benefits. The trustee may in the trustee's sole and absolute discretion purchase and hold personal and/or real property as assets of the trust.
(C) Limitations on Trustee's Discretion.
(i) Prohibited Expenditures. The trustee shall not make distributions for food, clothing, or shelter, or for medical care that is covered by or provided by Medicaid, Medicare, insurance, or other public benefits or charitable programs. The trustee shall not make distributions directly to *Bene* when distributions of cash or property would result in a reduction of public benefits or when the trustee knows that distributions of cash or property will have a significant negative impact on other benefits that *Bene* is receiving or for which *he/she* is otherwise eligible. The trustee shall deny any request by any public or private entity to disburse trust funds for support or other care or services if the trustee believes such entity has the obligation to provide such services to *Bene*, or if the trustee believes that such entity would provide services to *Bene* but for the existence of trusts established for *him/her*.
|The provision below re marriage may not be enforceable; there is a possibility that it may be void as against public policy. But here |
|again, the purpose is to show the grantors’ intent for the trust and to permit the grantors’ intent to be achieved to the greatest extent |
|possible. |
| |
|Let me know if you are opposed to this provision. |
(ii) Marital Agreement With Spouse Required. If *Bene* marries, the trustee may not distribute any trust principal or income unless and until *Bene* and *his/her* spouse have entered into a marital property agreement (i) in which *Bene* and *his/her* spouse agree that all distributions from the trust shall be *Bene*'s separate property, and (ii) in which *Bene*'s spouse waives any and all community property claims, if any, to trust principal and income, whether or not distributed.
(2) Obtaining Public Benefits. In the event that *Bene* is unable to maintain and support *him/her*self independently, the trustee may seek, or hire assistance in seeking, support and maintenance for *Bene* from all available public and private resources. The trustee shall take into consideration the applicable resources and income limitations of any public benefits program for which *Bene* is or could become eligible. I acknowledge that the trustee is not an expert in public benefits programs and the trustee shall not be liable for the trustee’s failure to locate and access all programs of support for which *Bene* may be eligible. Further, the trustee may cooperate with any conservator, guardian, legal representative of, or other advocate for, *Bene* to seek support and maintenance for *Bene* from all available resources, including but not limited to, Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), any supplemental income program of any state, Medicaid, Medicare, U.S. Civil Service Commission, Veterans Administration benefits, and any additional, similar or successor programs, and from any private support sources. All references in this instrument to "Medicaid" include any other state's Medicaid program equivalent or any medical assistance program that in the future may supplement or replace Medicaid.
(3) Intention Is to Not Disqualify *Bene* from Receiving Public Benefits. This trust is not created with the intention of qualifying *Bene* for public benefits, but is expressly created with the intention of not disqualifying *Bene* for benefits to which *Bene* would be entitled but for the existence of this trust and other trusts for *his/her* benefit. I hope and intend that this trust will be used to assist *Bene* when *he/she* [*is unable to work and*] must rely on public benefits, although I also hope and intend that this trust be used to assist *Bene* whenever possible to develop and retain a healthy and productive life that would not require *his/her* dependence on public benefits. To further my intention that this trust not displace public benefits for *Bene* when *Bene* would otherwise be entitled to public benefits, I direct that no income or principal of this trust shall be used to supplant or replace public benefits that any local, state, federal or other governmental agency has a responsibility to provide to persons with disabilities that are the same as or similar to the disabilities that *Bene* may be experiencing and to which *Bene* would be entitled but for the existence of this trust and other trusts established for *him/her*. For purposes of determining *Bene*'s public benefits eligibility, no part of the principal or undistributed income of the trust shall be considered available to *him/her*. If the trustee is required to release principal or income of the trust to or on behalf of *Bene* to pay for benefits or services that assistance programs are otherwise authorized to provide were it not for the existence of this trust or other trusts, or in the event the trustee is required to petition the court or any other administrative agency for the release of trust principal or income for such purposes, the trustee is authorized, in the trustee's sole discretion, to take whatever administrative or judicial steps may be necessary to continue the public benefits program eligibility for *Bene*, including obtaining instructions from a court of competent jurisdiction ruling that the trust corpus is not available to *Bene* for either eligibility or repayment purposes.
|Consider relationships in the Section below: We need to discuss remainder beneficiary issues and options. In general, permitting the |
|trustee to consider the interests of remainder beneficiaries is often good from the standpoint of enhancing protection from creditors |
|during *Bene*'s lifetime. |
| |
|At the same time, such a provision could be detrimental (in that it could arguably permit a costly dispute) if remainder beneficiaries |
|pressure the trustee to spend less on *Bene* so that more can be preserved for them. |
(4) *Bene*'s Interests Are Primary. In carrying out the provisions of this trust, the trustee shall be mindful of *Bene*’s probable future supplemental care needs, but shall not consider the interests of the trust remainder beneficiaries [*option*] unless the trustee determines that modest trust expenditures could be made to greatly enhance the remainder beneficiaries’ interest. For example, if there are steps that could be taken to significantly reduce transfer taxes or similar costs that would otherwise substantially reduce the remainder beneficiaries’ interests, and if such steps do not significantly reduce or impair *Bene*’s interests, then the trustee may in the trustee’s sole and absolute discretion consider the remainder beneficiaries’ interests and take such steps.
(5) Trustee's Discretion Is Sole and Absolute. The trustee's discretion in making distributions and in administering this trust to further my intentions and the purposes of this trust shall be sole, absolute, complete, and unfettered. No person or entity, including any governmental entity or agency, shall have any power or ability whatsoever to question the discretion of the trustee in making distributions from this trust. Under no circumstances can *Bene* compel a distribution from the trust for any purpose. The trustee's discretion in making supplemental, non-support disbursements as provided for in this instrument is final as to all interested parties, even if the trustee elects to make no disbursements at all. Further, the trustee may be arbitrary and unreasonable. The trustee's sole and independent judgment, rather than any other parties' determination, is intended to be the criterion by which disbursements are made. No court or any other person should substitute its or their judgment for the decision or decisions made by the trustee.
|It is important to discuss trustee options and issues. Consider trustee provisions carefully. I strongly encourage you not to leave your |
|*other child name* as a trustee due to possible tax risks to *him/her. Given the size of your estate, I view the tax risks to *name* as |
|too great. The annual trustee fees for *Bene*’s trusts may be a small price to pay for "insurance" that *name*’s remainder interest will |
|not be considered a taxable interest. However, because you have decided that your family wishes to accept these risks and to leave *name* |
|as trustee, this trust provides that *Bene* have at least a special power of appointment (to appoint among your descendants, Contingent |
|Beneficiaries named in your Will, or *option, charities* to at least reduce the possibility that *name*'s interest would be considered a |
|vested interest in this trust (causing tax problems for *her/him). We will discuss this issue further when we meet. |
(d) Trustee Appointment. Except where the provisions of the *B.I.* Supplemental Trust are inconsistent with the other provisions of my Will affecting trustees, the provisions of my Will shall apply to the trustees of the *B.I.* Supplemental Trust and are incorporated into this trust by reference. [*Option*] However, no person or entity who is a current or contingent remainder beneficiary of the trust may serve as trustee of the *B.I.* Supplemental Trust. Such person or entity may, if next in succession, appoint another trustee.
(e) Trustee's Powers and Duties. Except where the terms of the *B.I.* Supplemental Trust are inconsistent with other provisions of my Will, all other provisions in my Will that affect trusts shall apply to the *B.I.* Supplemental Trust. Where the terms of the *B.I.* Supplemental Trust and the terms of my Will are inconsistent, the terms of the *B.I.* Supplemental Trust shall control. The following provisions specifically apply to the *B.I.* Supplemental Trust.
(1) Nonproductive Property, Annuities. The trustee shall specifically have the power (A) to invest in and to retain non-income producing assets, and (B) to purchase an annuity or annuities for terms equal to or less than *Bene*'s life expectancy.
(2) Authority to Amend or Restate Trust. In order to accomplish my intentions and the purposes of this trust, the trustee shall explicitly have the power and authority to request a court order to amend or restate the trust, or without court approval to amend or restate the trust, should the trustee have reason to believe that *Bene* would qualify for significant public benefits but for the existence of the *B.I.* Supplemental Trust (or other provisions that I or others have made for *Bene*) under the trust's current terms, or that the assets of the trust are likely to be found liable for expenses of care or services associated with *Bene*'s disabilities.
(A) Opinion of Counsel Required. In such case, the trustee must rely on an opinion of counsel that *Bene* would likely qualify for significant public benefits but for the existence of this trust (and other trusts that I or others have established), or that this trust is likely to be found liable for expenses of care or services associated with *Bene*'s disabilities, unless the trust is amended.
(B) Trustee or Court Action. Upon obtaining such opinion of counsel as described above in Section B-3(e)(2)(A), the trustee may request that a court order amendment or restatement of this trust, or the trustee may itself amend or restate this trust without court involvement, so that the terms of this trust permit *Bene* to qualify for such benefits and/or so that this trust will not be liable for the expenses of care or services associated with *Bene*'s disabilities.
(C) Additional Amendment or Restatement Purposes. The trustee may also amend or restate this trust, subject to the limitations stated herein, in order to permit the trustee:
(i) to cope with tax and/or other circumstantial changes that may otherwise significantly impair or reduce *Bene*'s interests, and
(ii) to take advantage of changed trust drafting approaches to coping with potential trust problems (or to otherwise improve the clarity and administerability of the trust provisions)
in whatever ways the trustee, in the exercise of the trustee's sole discretion, may deem appropriate in *Bene*'s best interests, as interpreted by the trustee alone. [*option*] Benefits to remainder beneficiaries may be considered if steps can be taken to enhance their interests without significantly reducing or impairing *Bene*’s interests. The trustee shall be guided by what, in the judgment of such trustee, would apparently be my original intent for this trust in light of the then circumstances.
|Again, depending on the amount funding the trusts and the family composition and objectives, remainder beneficiaries’ interests may be |
|considered as they are above. There are benefits and risks in including the remainder beneficiaries’ interests in the provision above. |
(D) Limitations. The amendment or restatement must not:
(i) extend the period of the trust's existence beyond the already applicable rule against perpetuities limitation period specified in Section *__ of my Will,
(ii) disqualify the trust from significant deductions, credits, exclusions, or other tax benefits for which the trust was qualified prior to amendment,
(iii) reduce the likelihood of achieving my intentions for the trust, or
(iv) reduce the restrictions or limitations on the trustee's limited power of amendment under this section.
(E) Exculpation. No trustee shall be liable for any exercise of or failure to exercise this limited power of amendment and restatement (or for a release of this power) if such trustee acted in good faith in taking or failing to take any such action (whether or not requested to do so by *Bene*, any of *Bene*’s representatives, any creditor of *Bene*, or any provider of goods or services to *Bene*).
(3) Trustee's Power to Direct Trust Corpus to a Pooled Trust. The trustee will explicitly have the power to direct the corpus of this trust, or whatever portion of the corpus of this trust as the trustee deems appropriate, into a pooled trust managed by a non-profit organization, should the trustee, in the trustee's sole discretion, believe that such arrangement is in *Bene*'s best interests. In such case, the trustee shall explicitly have my permission to establish in my name and on my behalf, even though I may then be deceased, an account to benefit *Bene*. [*option*] If the pooled trust currently being established by the Arc of Texas (the “Arc of Texas Master Pooled Trust”) has been operational for two years, then unless the Arc of Texas has stated its intention to discontinue operation of the trust, the trustee shall direct the entire corpus of this trust to the Arc of Texas Master Pooled Trust. [*end option*] If the Arc trust sub-account for *Bene* is terminated at a future time due to discontinuation of the Arc of Texas Master Pooled Trust or for any other reason, the funds in *Bene*’s sub-account that were originally directed from this trust shall be distributed to a new trust, which will have provisions that are substantially identical to the *B.I.* Supplemental Trust.
|Consider whether the Arc transfer covered above should be optional or mandatory. |
| |
|If trusted friends or family with a long and consistent history of acting in *Bene*’s best interests are to be trustees, you may wish to |
|have the transfer be discretionary. There are also circumstances where you would prefer that the transfer be mandatory. |
| |
|I suggest you establish a sub-account at this time to complete the forms, and ensure that if the Arc trust is used in the future that the |
|use is in accordance with your desires. Further, the Arc routinely publishes useful planning information to its members. Also, even |
|though the language above authorizes the trustee to establish a sub-account, that may not be possible and in some cases court involvement |
|or a guardianship would be needed to establish the sub-account. Thus there could be significant benefits from establishing a sub-account |
|during your lifetime. |
(4) Trustee Authority to Terminate Trust. Notwithstanding anything to the contrary contained in this trust, in the event that this trust has the effect of rendering *Bene* ineligible for any significant public benefits, or if assets of the trust are likely to be found to be liable for expenses of care or services associated with *Bene*'s disabilities, then the trustee is authorized, but not required, to terminate this trust.
(A) Administrative or Judicial Proceedings. In determining whether the existence of this trust has the effect of rendering *Bene* ineligible for any program of public benefit or whether the assets of the trust may be found to be liable for expenses of care or services associated with *Bene*'s disabilities, the trustee is granted full and complete discretion to initiate either administrative or judicial proceedings, or both, for the purpose of determining eligibility or liability, respectively. All costs relating thereto, including reasonable attorney fees, shall be a proper charge to the trust.
(B) Opinion of Counsel Required. In making the determination of whether the existence of this trust has the effect of rendering *Bene* ineligible for any program of public benefit, the trustee shall obtain from competent counsel an opinion that but for this trust, and/or other trusts established for *Bene*’s benefit, *he/she* is likely to be eligible for at least one public benefits program that will provide her with significant and needed goods and services. In making the determination of whether the assets of the trust are likely to be liable for expenses of care or services associated with *Bene*'s disabilities, the trustee shall obtain from competent counsel an opinion that the existence of the trust is likely to result in such liability.
|There are many possible options for distribution here, which should be discussed when we meet. It would be preferable to not have all the |
|funds distributed outright to other family members due to the perceived conflicts of interest involved. CONFIRM THIS. |
(C) Distribution Upon Termination. In the event the trustee terminates this trust during *Bene*’s lifetime, the undistributed balance of the trust shall be distributed one half to *Bene*'s descendants who survive *him/her*, or if none, then one half in accordance with Section *__ of my Will, determined as the date of my death is the date of the trust’s termination. The other one half shall be distributed for *Bene*'s benefit under such terms and conditions as the trustee, in the trustee's sole discretion, believes to be in *Bene*'s best interests.
|There is a concern that the latter half “best interests” distribution may potentially be a general power of appointment in the trustee. |
|Review the facts of the case (especially the size of the trust and the size of the trustee’s estate) carefully prior to using. Also, it |
|may be inadvisable to use where the trustee is a remainder beneficiary. |
(D) Request of Grantor. It is my wish that after the termination of this trust, if *Bene* is still living and if there has been a voluntary termination of the trust in accordance with the provisions of this section, that to the extent legally permissible the persons or entities receiving the proceeds of this trust, will conserve, manage and distribute the proceeds of the former trust for the benefit of *Bene* to ensure that *Bene* receives sufficient funds for *his/her* basic living and supplemental needs when public benefits are unavailable or insufficient. This request pertaining to the use and management of trust proceeds after the termination of the trust is not mandatory, but is an expression of my wishes only.
(5) Use of the Planned Living Assistance Network of North Texas, Inc. or Other Case Management or Care Organizations. It is my wish but not my directive that my trustee become familiar with the Planned Living Assistance Network of North Texas, Inc. ("PLAN") or any similar or successor corporation that provides services to people with disabilities, and that the trustee consider services offered by PLAN or such other care, advocacy, or case management organization when the trustee in the trustee's discretion believes that such services would benefit *Bene*. To the extent the trustee deems it to be in *Bene*'s best interests, advance payments for services, in whatever amounts the trustee in its discretion determines, may be made.
|Whether PLAN or other case management organization is named here, remember that advocacy and private case management services are often key|
|to weaving the network of support and care that results in a good quality of life for the Beneficiary. We want the trustee to always be |
|mindful that advocacy and case management are not just “additional and optional services” but that these may be the most important services|
|funded by the trust. |
(f) Beneficiaries of Trust Residue Upon *Bene*'s Death. Unless sooner terminated, the trust created for *Bene* shall terminate upon *his/her* death.
(1) Expenses. Upon *Bene*'s death, the trustee may pay inheritance, estate, or other death taxes that are incurred due to assets of this trust passing in accordance with these provisions or otherwise, funeral expenses, and expenses related to administration and distribution of the trust estate if, in the trustee's discretion, other satisfactory provisions have not been made for the payment of such expenses.
|There are multiple options for final distribution. When we meet, we may discuss trustee and beneficiary issues, and some of the tax |
|concerns where trustees are remainder beneficiaries. |
(2) Distribution of Remainder. Any trust corpus and undistributed income not disposed of at *Bene*’s death shall be distributed to *Bene*'s descendants who survive *him/her*, [*option*] provided, however, that for purposes of the *B.I.* Supplemental Trust, *Bene*'s descendants shall not include any person adopted by *him/her*. If *Bene* has no descendants who survive *him/her* the remaining trust amounts shall be distributed in accordance with Section ___ of my Will, under the terms stated in that section, except that if alternate beneficiaries must be determined, they will be determined as of the date of *Bene*'s death rather than as of the date of my death.
*Alternative*
|Consider the final distribution provisions carefully in estates in which GSTT issues are a factor. Consider the pros and cons of including|
|a general power of appointment as well as other tax-planning techniques, while also considering creditor and estate recovery issues. |
(2) Distribution of Remainder.
(A) Special Power of Appointment. *Bene* shall have a special power to appoint the remainder of this trust not disposed of under Section B-3(f)(1) above to any of my descendants or Contingent Beneficiaries on such terms and conditions, and either in trust or outright, as *he/she* shall elect.
(B) Alternate Disposition. In default of the exercise of such power of appoint, any remaining trust corpus and undistributed income not disposed of under Section B-3(f)(1) above shall be distributed one-half to *Bene*'s descendants who survive *him/her* provided, however, that for purposes of the *B.I.* Supplemental Trust, *Bene*'s descendants shall not include any person adopted by *him/her*. The other one-half, or if *Bene* has no descendants who survive *him/her* then all, of remaining trust amounts shall be distributed in accordance with Section *___ of my Will, under the terms stated in that section, except that if alternate beneficiaries must be determined, they will be determined as of the date of *Bene*'s death rather than as of the date of my death.
|Texas statutes permit invasion of certain trusts for purposes of past-due child support payment obligations of the trust beneficiary. |
|While the provision that “*Bene*’s descendants shall not include any person adopted by *him/her*” may not prevent such invasion from |
|happening (if, for example, *Bene* were to adopt the children of a spouse), the provision is included to reduce the possibility of *Bene* |
|being exploited, to the extent possible. This provision certainly is optional. |
(g) Unsupervised Administration. The *B.I.* Supplemental Trust may be administered by the trustee of the *B.I.* Supplemental Trust free from the control of any court that may otherwise have jurisdiction over any portion of my estate.
(h) General Administration. The trustee is authorized and encouraged to obtain competent legal and accounting services, as necessary. All reasonable expenses in establishing, maintaining, administering, amending, and defending this trust, including but not limited to reasonable attorney fees, accounting fees, trustee fees, and costs, shall be a proper charge to the trust.
(i) Spendthrift Trust. This is a spendthrift trust. No interest in the principal or income of this trust shall be subject to anticipation or assignment by *Bene* or attachment by or the interference by or control of any creditor of *Bene* or be taken or reached by any legal or equitable process in satisfaction of any debt or liability of *Bene* prior to its actual receipt by *him/her*. Creditors and claimants, for purposes of the spendthrift provisions of this trust, shall specifically include governmental or tort claims, and any person or agency seeking spousal or child support or payment for services or goods deemed to be necessities. This trust is not a resource to *Bene*. Principal and income of this trust may become available to *Bene* or for *his/her* benefit only in the trustee's discretion, as provided for in this trust.
--end of Supplemental Care Trust insert section--
| This form is provided for discussion purposes only. |
| |
|The author makes no warranty that this trust will achieve the objectives that the author has so diligently (and exhaustively) sought to |
|achieve. The author would be grateful for any comments on this form or suggestions for improvement; please direct such comments by e-mail |
|to . |
| |
|This Discretionary Trust form is drafted: |
| |
|* To be used as a component in a carefully-structured plan, and not to be used as the only planning component for a person with serious |
|disabilities. |
| |
|* To be used in conjunction with the supplemental care trust form immediately preceding (note that this form is almost identical to the |
|supplemental care trust, but for certain distribution provisions). |
| |
|* To be included in a parent’s carefully and thoroughly drafted Will, incorporating trustee and administrative provisions of the other |
|trusts created by the Will (with definitions and structure following the “Hobie M. Gates” will form of Professor Stanley Johanson). |
| |
|* With broad trustee discretion controlled through the use of a Trust Protector. |
Discretionary Trust
B-4. *Beneficiary* Discretionary Trust.
Any property that is directed to the trustee of the *Beneficiary* Discretionary Trust (the "*B.I.* Discretionary Trust") shall be distributed to the trustee and shall be held, administered, and distributed in accordance with the following provisions:
(a) Intent of Grantor. It is my intention in creating and funding this trust to create a purely discretionary supplemental fund for the benefit of my *son/daughter* *Bene* and not to displace financial assistance from any other private or public source that may otherwise be available to *him/her*. My intent is further clarified below.
|Read the section below and point out ways to better tailor this provision to fit *Bene* |
(1) *Bene*'s Needs Are Long Term. My *son/daughter* *Bene*, for whose primary benefit this trust is created, has from time to time suffered from [*describe illness or disability*] serious mental illness and mental and physical disabilities that sometimes have and may throughout *his/her* future require special medical care, treatment, social, advocacy, and custodial services. Because of the constant advances that are being made in brain research and the development of new therapeutic drugs and procedures, [*modify for relevant information here*] it is my hope that *Bene* may be able throughout *his/her* life to live as [*independent, comfortable, productive and self-fulfilling*] a life as possible. The purpose of this trust is to maximize all available resources and apply them so that *Bene* may have the best possible chance of becoming and remaining happy, comfortable, and as self-sufficient as possible. In view of the potentially enormous expense of providing quality care for a person who has [*describe disability or illness*] a serious mental illness and mental and physical disabilities, I am unable to meet my objectives for *Bene* solely from my own resources and to provide for other family members. Therefore it is my intention not to disqualify *Bene* from other benefits, but to enable *Bene* to remain qualified for funds and services available to *him/her* from all other sources including private, federal, state, county, and local benefits and services (such other sources, whether funds or goods or services, will be referred to collectively as "public benefits") to the greatest extent possible.
(2) Access to Supplemental Funds Is Vital and Public Benefits Are Uncertain. It is important that *Bene* maintain a high level of human dignity and that *his/her* care be humane. Public benefits and other public and charitable programs are often helpful, but the future of public benefits programs is unpredictable and such programs are likely to sustain numerous changes throughout *Bene* life. My intention is to establish a trust for *Bene* that is capable of lasting and providing supplemental care throughout *Bene* entire life. If this trust were to be eroded by creditors, subjected to liens or encumbrances, or cause public benefits to be unavailable or terminated, it is likely that the trust corpus would be depleted prior to *Bene*'s death, especially if the cost of care is high. In such event there would be no reserve for supplementing basic needs throughout the remainder of *Bene*'s life.
(3) My Intent Should Control Interpretation of This Trust. The provisions contained in this trust should be interpreted by the trustee in light of the concerns and intent set out in Sections B-4(a)(1) and B-4(a)(2) above. If any provision of the trust could possibly be construed as disqualifying *Bene* from benefits such as Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), Medicaid, Medicare, county services, or other similar or successor benefits programs during periods of time when *Bene* would otherwise qualify for such benefits, or if any provision of the trust could possibly be construed as subjecting the trust income or principal to the claims of federal, state, county, local, or other entities that would otherwise provide services without charge, the trust shall be construed as having been intended to not disqualify *Bene* for such benefits and to not be available to *Bene*'s creditors. The language of this trust shall be interpreted or automatically modified accordingly.
(b) Trust Estate. The trust estate shall consist of all property, real or personal, transferred to the trustee by anyone or by any entity with the consent of the trustee. All such property may be referred to herein as the "trust estate." The trust estate shall not include any property that the trustee refuses to accept, any earnings of *Bene*, any public benefits paid to *Bene*, or any other funds that have belonged to *Bene*.
(c) Supplemental and Discretionary Distributions. Constrained only by the specific provisions set forth in this trust or other applicable laws or regulations, the trustee may distribute for the benefit of *Bene* for *his/her* lifetime such amounts from the principal or income, or both, of this trust up to the whole thereof, as the trustee in the trustee's sole, absolute, complete, and unfettered discretion may from time to time deem advisable to provide for *Bene*'s comfort and happiness. Any income not distributed annually shall be added to principal.
|It is important to understand the relationship between the family members and prospective remainder beneficiaries in order to properly |
|advise on the provisions below. |
|Consider relationships here; we need to discuss remainder beneficiary issues and options. In general, permitting the trustee to consider |
|the interests of remainder beneficiaries is good from the standpoint of enhancing protection from creditors during *Bene*'s lifetime. |
| |
|At the same time, such a provision could be detrimental (in that it could arguably permit a costly dispute) if the remainder beneficiaries |
|pressure the trustee to spend less on *Bene* so that more can be preserved for them. |
(1) *Bene*'s Interests Are Primary. In carrying out the provisions of this trust, the trustee shall be mindful of *Bene*'s probable future supplemental care needs, but not of the interests of the trust remainder beneficiaries [*option*] unless the trustee determines that modest trust expenditures could be made to greatly enhance a remainder beneficiary’s interests. For example, if there are steps that could be taken to significantly reduce transfer taxes or similar costs that would otherwise substantially reduce a remainder beneficiary’s interest, and if such steps do not significantly reduce or impair *Bene*’s interests, then the trustee may in the trustee’s sole and absolute discretion consider the remainder beneficiaries’ interests and take such steps.
(2) Trustee's Discretion Is Sole and Absolute. The trustee's discretion in making distributions and in administering this trust to further my intentions and the purposes of this trust shall be sole, absolute, complete, and unfettered, subject only to the express purposes and limitations contained in this trust. No person or entity, including any governmental entity or agency, shall have any power or ability whatsoever to challenge the discretion of the trustee in making distributions from this trust. Under no circumstances can *Bene* compel a distribution from the trust for any purpose. The trustee's discretion in making disbursements as provided for in this instrument is final as to all interested parties, even if the trustee elects to make no disbursements at all. Further, the trustee may be arbitrary and unreasonable. The trustee's sole and independent judgment, rather than any other parties' determination, is intended to be the criterion by which disbursements are made. No court or any other person should substitute its or their judgment for the decision or decisions made by the trustee.
(3) Limitations On Distributions.
(A) Prohibited Expenditures. The trustee shall not make distributions for food, clothing, or shelter, or for medical care that is covered by or provided by Medicaid, Medicare, insurance, or other public benefits or charitable programs. The trustee shall not make distributions directly to *Bene* when distributions of cash or property would result in a reduction of public benefits or when the trustee knows that distributions of cash or property will have a significant negative impact on other benefits that *Bene* is receiving or for which *he/she* is otherwise eligible. The trustee shall deny any request by any public or private entity to disburse trust funds for support or other care or services if the trustee believes such entity has the obligation to provide such services to *Bene*, or if the trustee believes that such entity would provide services to *Bene* but for the existence of trusts established for *him/her*.
|The provision below re marriage may not be enforceable; there is a possibility that it may be void as against public policy. But here |
|again, the purpose is to show the grantors’ intent for the trust and to permit the grantors’ intent to be achieved to the greatest extent |
|possible. Let me know if you want to change this provision. |
(B) Marital Agreement With Spouse Required. If *Bene* marries, the trustee may not distribute any trust principal or income unless and until *Bene* and *his/her* spouse have entered into a marital property agreement in which (i) *Bene* and *his/her* spouse agree that all distributions from the trust shall be *Bene*'s separate property, and (ii) *Bene*'s spouse waives any and all community property claims, if any, to trust principal and income, whether or not distributed.
(4) Exception to Limitations. Notwithstanding the provisions of Section B-4(c)(3)(A) above or other provisions contained in this trust, the trustee in the trustee’s sole discretion may make distributions disregarding the provisions of this trust that would otherwise prohibit certain distributions even if such distributions may result in an impairment or diminution of *Bene*'s receipt of or eligibility for public benefits or assistance, but only if the trustee determines (i) that *Bene*'s best interests cannot be met adequately without such distributions, and (ii) that it is in *Bene*'s best interests to suffer the consequent effects, if any, on *Bene*'s eligibility for or receipt of public benefits. Provided, however, that if the mere existence of the trustee's authority to make distributions pursuant to this subparagraph shall result in *Bene*'s loss of public benefits, regardless of whether such authority is actually exercised, this subparagraph shall be null and void and the trustee's authority to make such distributions shall cease and shall be limited as provided in Section B-4(c)(3)(A) above, without exception. To the extent that the trustee determines that it is in the beneficiary’s best interests to make distributions for purposes that could risk the loss of public benefits and to suffer the consequent loss in public benefits, if any, such distributions shall specifically be subject to the limitation set forth in Section B-4(c)(5) below.
(5) Annual “Cap” On Non-Supplemental Expenses or Accrual of Creditors’ Claims. I intend for this trust to benefit *Bene* throughout *Bene*’s entire life. Thus if the trustee decides to use the provisions of Section B-4(c)(4) above and to make distributions that would otherwise not be permitted by this trust, I direct that the following types of distributions or claims be limited to an annual maximum (an aggregate annual maximum for all distributions and claims of the type that follow) or “cap”:
(A) distributions made pursuant to the trustee’s full discretion under Section B-4(c)(4) above that would otherwise not be permitted under the terms of this trust, and
(B) claims of creditors for that year for goods and services provided to *Bene* with the trustee’s consent that would not be permitted under the terms of this trust except for the trustee’s full discretion under Section B-4(c)(4) above.
The annual maximum or “cap” for the distributions described above shall be equal to the “amount that an annuity would have paid during that year,” which in turn shall be defined as follows: If the trust corpus is invested completely in an annuity or annuities, then the “cap” will be equal to annuity income paid into the trust that year. If, however, the trust is funded with assets other than annuities, the annual “cap” shall equal an amount that an annuity would have paid during that year had the entire corpus of the trust been invested in annuities. Calculation of the “amount that an annuity would have paid during that year” shall be made by the trustee in good faith, based on quotations from at least three annuity providers for an annuity that would pay for a term certain equal to *Bene*’s life expectancy determined as of January 1 of that year. I recognize and acknowledge that the limitation provided under these terms may not be exact, and that the trustee in good faith will endeavor to limit claims against the trust such that the trust will reimburse creditors only to the extent that the trust terms permit reimbursement. It is my intention that both distributions from and claims against the trust be pro-rated throughout *Bene*’s life to the extent that the trustee is reasonably able to accomplish this objective, so that the trust funds are more likely to benefit *Bene* for *Bene*’s entire life. The trustee is specifically authorized to make such distributions on a monthly, quarterly, or once-a-year basis, as the trustee in his or her sole discretion determines to have the least negative impact on public benefits for which *Bene* would otherwise be eligible.
(6) Additional Specific Exception to Limitations. Should the trustee in the trustee’s sole discretion determine that it is in *Bene*’s best interests to purchase a house or condominium or rights in an appropriate residential facility that would be distributed to *Bene*, the annual limitation on creditor’s claims or expenditures shall not apply. This provision is permissive only, and the trustee shall not be required to purchase housing or to provide other support or shelter to *Bene* solely due to the existence of this provision. Further, the trustee may, at the trustee’s election, purchase real property as an asset of the trust or may pay for improvements to the home of another, without regard to the benefit to such person, in order to provide present or future housing to *Bene*, if the trustee believes that it is in *Bene*’s best interests to do so. It shall not be deemed a breach of a trustee’s fiduciary duty, nor an incident of self dealing, for the trustee to permit any person selected by the trustee (including the trustee) to join in the purchase of a residence or to co-own property for the purpose of providing housing for *Bene* if the trustee in the trustee’s sole discretion determines that such purchase is made in *Bene*’s best interests.
|This provision below re a special non-fiduciary power of appointment may offer extra protection to *Bene*. It is important to know who can|
|be trusted with this type of power, and to give this power only to persons who will act cautiously, with good judgment, and who are |
|inclined to seek the advice of competent counsel. A inappropriate use of this power could cause problems with public benefits to which |
|*Bene* may otherwise be entitled. Also, if *Bene* is younger than the those to whom the powers are provided, then there may be no one with |
|this power when *Bene* is older. |
| |
|It is also important to carefully consider the risks if the person holding the power becomes a trustee of this trust. |
(7) Distribution by Non-Fiduciaries. In addition to the trustee’s authority to make distributions, *____________________________ and *________________________ are each hereby granted a special non-fiduciary power (in each person’s individual capacity and not in any person’s capacity as trustee) to appoint so much of the trust estate for *Bene*’s benefit as either one chooses. [*option*] The cumulative amount that can be appointed under this provision shall be the “amount that an annuity would have paid during that year” as defined in Section B-4(c)(5) above. Such amount may be appointed despite any other distributions made in the same year by the trustee, and shall not reduce the amount that the trustee may distribute under Sections B-4(c)(4) and B-4(c)(5) above. [*end option*] I suggest but do not require that such persons obtain counsel and carefully coordinate such distributions. Such persons shall never have an obligation to any person or entity, for any reason, to make such appointment. Each person named in this Section shall have the right to designate a successor to *himself or herself* by executing a written document, duly acknowledged, and delivering such document to the trustee. No person with a possible duty to provide support to *Bene* (such as a spouse) may be granted nor may exercise this power.
|As with the Supplemental Care Trust, it is important to determine trustee options and discuss issues. |
| |
|Consider the trustee provisions carefully. |
| |
|I strongly encourage you not to leave your *other child name* as a trustee due to possible tax risks to *him/her. Given the size of the |
|estate that you are leaving your family, I view the tax risks to *name* as too great. The annual trustee fees for *Bene*’s trusts may be a|
|small price to pay for the "insurance" that *name*’s remainder interest will not be considered a taxable interest. |
| |
|However, because you have decided that your family wishes to accept these risks and to leave *name* as trustee, this trust provides that |
|*Bene* have at least a special power of appointment (to appoint among your descendants or any other of your Contingent Beneficiaries |
|[*option, or charities] named in your Will) to at least reduce the possibility that *name*'s interest could ever be considered a vested |
|interest in this trust (causing tax problems for *her/him). We will discuss this issue further when we meet. |
(d) Trustee Appointment. Except where the provisions of the *B.I.* Discretionary Trust are inconsistent with the other provisions of my Will affecting trustees, the provisions of my Will shall apply to the trustees of the *B.I.* Discretionary Trust and are incorporated into this trust by reference.
[*Option*] However, no person or entity who is a current or contingent remainder beneficiary of the trust may serve as trustee of the *B.I.* Discretionary Trust. Such person or entity may, if next in succession, appoint another trustee.
(e) Trustee's Powers and Duties. Except where the terms of the *B.I.* Discretionary Trust are inconsistent with my Will, the other provisions of my Will shall apply to the *B.I.* Discretionary Trust. Where the terms of the *B.I.* Discretionary Trust and my Will are inconsistent, the terms of the *B.I.* Discretionary Trust shall control. The following provisions specifically apply to the *B.I.* Discretionary Trust.
(1) Nonproductive Property, Annuities. The trustee shall specifically have the power (A) to invest in and to retain non-income producing assets, and (B) to purchase an annuity or annuities for terms equal to or less than *Bene*’s life expectancy.
(2) Authority to Amend or Restate Trust. In order to accomplish my intentions and the purposes of this trust, the trustee shall explicitly have the power and authority to request a court order to amend or restate the trust, or without court approval to amend or restate the trust, under the following provisions:
(A) Purposes. The trustee may amend or restate the trust, subject to the limitations stated herein, in order to achieve the following objectives:
(i) to enable *Bene* to qualify for significant public benefits for which *he/she* is not qualified under the current terms of the trust,
(ii) to better protect and preserve the trust estate for *Bene*'s long-term needs,
(iii) to cope with tax and/or other circumstantial changes that may significantly affect *Bene*'s interests, and
(iv) to take advantage of changed trust drafting approaches to coping with potential trust problems (or to otherwise improve the clarity and administerability of the trust provisions) in order to better achieve my intentions for and the purposes of this trust
in whatever ways the trustee, in the exercise of the trustee's sole discretion, may deem appropriate in *Bene*'s best interests. Benefits to remainder beneficiaries may be considered if steps can be taken without reducing or impairing benefits to *Bene*. The trustee shall be guided by what, in the judgment of such trustee, would apparently be my original intentions for this trust in light of the then circumstances.
(B) Limitations. The amendment or restatement must not:
(i) extend the period of the trust's existence beyond the already applicable rule against perpetuities limitation period specified in Section __ of my Will,
(ii) give a trustee any powers or discretions that would result in adverse transfer tax consequences,
(iii) disqualify the trust from significant deductions, credits, exclusions, or other tax benefits for which the trust was qualified prior to amendment,
(iv) reduce the likelihood of achieving my intentions for the trust, or
(v) reduce the restrictions or limitations on the trustee's limited power of amendment under this section.
(C) Exculpation. No trustee shall be liable for any exercise of or failure to exercise this limited power of amendment and restatement (or for a release of this power) if such trustee acted in good faith in taking or failing to take any such action (whether or not requested to do so by *Bene*, *Bene*’s representative, any creditor of *Bene*, or any provider of goods or services to *Bene*).
(3) Trustee's Power to Direct Trust Corpus to a Pooled Trust. The trustee will explicitly have the power to direct the corpus of this trust, or whatever portion of the corpus of this trust as the trustee deems appropriate, into a pooled trust managed by a non-profit organization, should the trustee, in the trustee's sole discretion, believe that such arrangement is in *Bene*'s best interests. In such case, the trustee shall explicitly have my permission to establish in my name and on my behalf, even though I may then be deceased, an account to benefit *Bene*. If the pooled trust sub-account for *Bene* is terminated at a future time due to discontinuation of the trust or for any other reason, the funds in *Bene*’s sub-account that were originally directed from this trust shall be distributed to a new trust, which will have provisions substantially identical to the *B.I.* Discretionary Trust.
|In the Supplemental Care Trust, the pooled trust transfer may be optional or mandatory. That option is inadvisable in the Discretionary |
|Trust because the terms of the Discretionary Trust (with the provisions permitting full discretion, the purchase of housing, and special |
|non-fiduciary powers of appointment) do not have counterparts in the Arc Master Pooled Trust, which is currently the only pooled trust |
|generally available in Texas. I believe it is still a good idea to retain this provision as an option. |
| |
|I suggest you establish a sub-account at this time to complete the forms, and ensure that if the Arc trust is used in the future that the |
|use is in accordance with your desires. Further, the Arc routinely publishes useful planning information to its members. Also, even |
|though the language above authorizes the trustee to establish a sub-account, that may not be possible and in some cases court involvement |
|or a guardianship would be needed to establish the sub-account. |
| |
|Thus there could be significant benefits from establishing a sub-account during your lifetime. |
(4) Use of the Planned Living Assistance Network of North Texas, Inc. or Other Case Management or Care Organizations. It is my wish but not my directive that my trustee become familiar with the Planned Living Assistance Network of North Texas, Inc. ("PLAN") or any similar or successor corporation that provides services to people with disabilities, and that the trustee consider the services offered by PLAN or such other care, advocacy, or case management organization when the trustee in the trustee's discretion believes that such services would benefit *Bene*. To the extent the trustee deems it to be in *Bene*'s best interests, advance payments for services, in whatever amounts the trustee in its discretion determines, may be made.
|Whether PLAN or other case management organization is named here, remember that advocacy and private case management services are often key|
|to weaving the network of support and care that results in a good quality of life for the Beneficiary. We want the trustee to always be |
|mindful that advocacy and case management are not just “additional and optional services” but that these may be the most important services|
|funded by the trust. |
(f) Beneficiaries of Trust Residue Upon *Bene*'s Death. Unless sooner terminated, this trust shall terminate upon *Bene*’s death.
(1) Expenses. Upon *Bene*'s death, the trustee may pay inheritance, estate, or other death taxes that are incurred due to assets of this trust passing in accordance with these provisions or otherwise, funeral expenses, and expenses related to administration and distribution of the trust estate if, in the trustee's discretion, other satisfactory provisions have not been made for the payment of such expenses.
|There are multiple options for final distribution. When we meet, we may discuss trustee and beneficiary issues, and some of the tax |
|concerns where trustees are remainder beneficiaries. |
(2) Distribution of Remainder. Any trust corpus and undistributed income not disposed of at *Bene*’s death shall be distributed to *Bene*'s descendants who survive *him/her*, [*option*] provided, however, that for purposes of the *B.I.* Discretionary Trust, *Bene*'s descendants shall not include any person adopted by *him/her*. If *Bene* has no descendants who survive *him/her* the remaining trust amounts shall be distributed in accordance with Section ___ of my Will, under the terms stated in that section, except that if alternate beneficiaries must be determined, they will be determined as of the date of *Bene*'s death rather than as of the date of my death.
*Alternative*
|Consider the final distribution provisions carefully in estates in which GSTT issues are important. Consider the pros and cons of |
|including a general power of appointment as well as other tax-planning techniques, while also considering creditor and estate (or trust?) |
|recovery issues. |
(2) Distribution of Remainder.
(A) Special Power of Appointment. *Bene* shall have a special power to appoint the remainder of this trust not disposed of under Section B-4(f)(1) above to any of my descendants or Contingent Beneficiaries on such terms and conditions, and either in trust or outright, as *he/she* shall elect.
(B) Alternate Disposition. In default of the exercise of such power of appoint, any remaining trust corpus and undistributed income not disposed of under Section B-4(f)(1) above shall be distributed to one-half to *Bene*'s descendants who survive *him/her* provided, however, that for purposes of the *B.I.* Discretionary Trust, *Bene*'s descendants shall not include any person adopted by *him/her*. The other one-half shall be distributed in equal shares to my descendants or, if I have no descendants, to my Contingent Beneficiaries, determined as if I had died on the date of *Bene*'s death.
|Texas statutes permit invasion of certain trusts for purposes of past-due child support payment obligations of the trust beneficiary. |
|While the provision that “*Bene*’s descendants shall not include any person adopted by *him/her*” may not prevent such invasion from |
|happening (if, for example, *Bene* were to adopt the children of a spouse), the provision is included to reduce the possibility of *Bene* |
|being exploited, to the extent possible. This provision certainly is optional. |
(g) Unsupervised Administration. The *B.I.* Discretionary Trust may be administered by the trustee of the *B.I.* Discretionary Trust free from the control of any court that may otherwise have jurisdiction over any portion of my estate.
(h) Administration Costs. The trustee is authorized and encouraged to obtain competent legal and accounting services, as necessary. All reasonable expenses in establishing, maintaining, administering, amending, and defending this trust, including but not limited to reasonable attorney fees, accounting fees, trustee fees, and costs, shall be a proper charge to the trust.
(i) Spendthrift Trust. This is a spendthrift trust. No interest in the principal or income of this trust shall be subject to anticipation or assignment by *Bene* or attachment by or the interference by or control of any creditor of *Bene* or be taken or reached by any legal or equitable process in satisfaction of any debt or liability of *Bene* prior to its actual receipt by *him/her*. Creditors and claimants, for purposes of the spendthrift provisions of this trust, shall specifically include governmental or tort claims, and any person or agency seeking spousal or child support or payment for services or goods provided to *Bene*, even if deemed to be necessities. This trust is not a resource to *Bene* Principal and income of this trust may become available to *Bene* or for *his/her* benefit only in the trustee's discretion, as provided for in this trust.
--end of Discretionary Trust insert section--
APPENDIX 17: Summary of Public Benefits Financial Eligibility Requirements in Texas
|Resources |Effective 1-1-98 |Effective 1-1-99 |
| |(except as otherwise stated) |(except as otherwise stated) |
|Individual Limit- SSI & MAO Medicaid |$2,000.00 |$2,000.00 |
|Couple Limit-SSI or both spouses in NH on |$3,000.00 |$3,000.00 |
|Medicaid | | |
|QMB/SLMB Individual Limit |$4,000.00 |$4,000.00 |
|QMB/SLMB Couple Limit |$6,000.00 |$6,000.00 |
|MAO Minimum PRA Limit |$16,152.00 |$16,392 |
|MAO Maximum PRA Limit |$80,760.00 |$81,960 |
|Income/Allowances |Effective 1-1-98 |Effective 1-1-99 |
|SSI- Individual |$484.00 + 20= $504.00 |$500.00 + 20=$520 |
|SSI- Couple |$741.00 + 20 = $761.00 |$750.00 + 20= $770.00 |
|MAO Maximum- Individual |$1,482.00 |$1,500.00 |
|MAO Maximum- |$2,964.00 |$3,000.00 |
|Couple | | |
|Ineligible Spouse Income Allowance |$2,019.00 |$2,049.00 |
|(MAO) | | |
|Medicare Part B Premium |($43.80) |$45.50 |
|(usually) | | |
|1/3 Federal Benefit Amount- Individual |$164.67 |$166.67 |
|1/3 Federal Benefit Amount- Couple |$247.00 |$250.00 |
|1/3 Federal Benefit Amount + 20- Individual|$184.67 |$186.67 |
|1/3 Federal Benefit Amount+20- Couple |$267.00 |$270.00 |
|QMB- Individual |$671.00 +20 = $691.00 |$687.00 + 20= $707.00 |
|QMB- Couple |$904.00 + 20 = $924.00 |$922.00 + 20= $942.00 |
|QMB Deeming- Allowed for Spouse |$227.00 | |
|SLMB- Individual |$805.00 + 20 = $825.00 |$824.00 +20= $844.00 |
|SLMB- Couple |$1,085.00 + 20 = $1,105.00 |$1,106.00 + 20= $1,126.00 |
|Transfer Penalty Amount |Until 5/1/99: $2,498.00 |Beginning 5/1/99: $2,511.00 |
QMB: Qualified Medicare Beneficiary (Medicare premiums, deductibles & copayments paid)
SLMB: Specified Low-Income Medicare Beneficiary (Medicare Part B premium paid)
MAO: Medical Assistance Only Medicaid (for long term care)
Federal Benefit Amount: Maximum SSI payment ($500 in 1999)
APPENDIX 18: Calculation of "In-Kind Support" Income by SSI (& Other Planning Issues)
This appendix is used with the kind permission of its authors, Renée C. Lovelace and Roger Gette. It is from a draft of Renée C. Lovelace (Project Director), The Texas Attorney's Planning Guide for Representing Families With Disabled Family Members: Starting Points In Helping Caregivers Build Networks of Care (to be published in mid-1999). See the Bibliography in Appendix 23 below for ordering information.
For discussion of the legal rules these examples illustrate, see II.A.3.(d) above.
Family With an Adult Child With Disabilities
(1) *General Issues for the Family With An Adult Child With Disabilities
In addition to all typical estate planning issues (which we suggest be handled by an experienced estate planning attorney), consider the following:
(a) Future Plans. Are there “second generation caregivers” in place to facilitate the transition of care responsibilities or advocacy assistance?
(i) If so, consider the capacity and level of functioning of the person with disabilities.
1. Guardianship? Consider whether it would be appropriate to establish a guardianship prior to the deaths of both parents, in order to facilitate changes in residence and issues relating to health care.
2. Powers and Directives? Consider whether it would be appropriate for the person with disabilities to execute powers of attorney and health care powers of attorney naming the parents and/or second generation of caregivers as agents.
(ii) If not, what are the family’s plans for the child’s living arrangements after their deaths?
3. Encourage Planning. If they have no plans, consider encouraging them to find a non-profit organization that will assist them in making plans for residential and social care in the future.
4. Default Planning. If there are no plans in place, consider specifying that a trustee has authority to hire caregivers or advocates to assist with living and social changes. Consider how quickly such persons could be hired after the parents’ deaths so that crisis can be avoided at that time.
(b) Future Benefits. If the child was determined to be disabled prior to age 22, it is likely that the child will be eligible for SSD benefits based on a parent’s work history. Such benefits typically begin when a parent (or sometimes other qualifying family members) retires, becomes disabled, or dies.
The family should contact SSA to determine the expected amount of SSD payment. If the SSD payment is likely to cause ineligibility for SSI, contact DHS to determine whether one of the Medicaid continuation programs apply. (If the clients contact DHS and do not get the answer they want, they should persist in finding out why the family member would not qualify.)
(c) Trusts and Estate Planning. Carefully analyze whether the child with disabilities has adequate coverage for support (versus supplemental) needs, and whether trusts or planning should be focused on separating future supplemental and support needs, or whether it is more appropriate to plan only for supplemental needs.
(2) Issues Specific to Certain Situations, Such As Child. . .
(a) Living At Home
(b) Living Independently
(c) Living In an Institution
(a) Living At Home. In addition to the general considerations above, consider whether the family wishes to plan for the child with disabilities to stay in the home after the death of the parents. Also consider whether current benefits the child with disabilities is receiving and whether there are changes that could improve the family’s benefits and living situation.
(i) Future Living Arrangements. If the family would like for the adult child with disabilities to be able to live in the home after their deaths, consider the feasibility of this arrangement. The family should bring to you (after working on this themselves or with assistance of an advocacy group) at least an informal “feasibility analysis” and budget.
(ii) Future Benefits. If the child was determined to be disabled prior to age 22, it is likely that the child will be eligible for SSD benefits based on a parent’s work history. Such benefits typically begin when a parent (or sometimes another qualifying family member) retires, becomes disabled, or dies. The family should contact SSA to determine the expected amount of SSD payment. If the SSD payment is likely to cause ineligibility for SSI, contact DHS to determine whether one of the Medicaid continuation programs apply. (If the clients contact DHS and do not get the answer they want, they should persist with questions until it is clear why the family member would not qualify--and whether there are steps that can be taken to protect qualification.)
(iii) Current Benefits. If the child is receiving SSI, is the monthly SSI check being reduced by one-third because the child is considered to be “living in the household of another?”
Also, watch for situations where the family tells you that the child is ineligible for SSI but the child does receive SSD. Make a special note to watch for situations where the SSD amounts are between $353.33 and $520.00. Usually SSD eligibility in that range without SSI eligibility indicates that SSI eligibility is only 2/3 of the FBR--meaning (by deductive reasoning. . . ) that the child is considered to be living in the household of another.
In each case where an adult child with disabilities is deemed by SSA to be “living in the household of another,” and hence eligible only for 2/3 of the typical maximum SSI payment (the FBR, $500 in 1999) consider whether the person may be able to enter into a sharing or rent/room and board arrangement with the family, and become entitled to the full SSI maximum benefit.
(iv) Trusts. The facts of the case may indicate that a discretionary or support trust is warranted in the specific case, either alone or in conjunction with an SNT. Depending on the costs of the housing arrangement, income level of the child (is he or she likely to work?), informal support systems, etc., it may be worth the risk to public benefits to permit the trusts to provide more support.
Example--Mary
Mary is 25 and has mild mental retardation. She lives with her parents and walks to her job at a Kroger grocery store. Because she lives with her parents and neither shares expenses nor pays rent, her SSI eligibility amount will be reduced by the “One-Third Reduction Rule.” She has no impairment-related work expenses. She earns approximately $400 per month. Both parents are living and neither parent is retired or disabled. Thus she does not yet receive an SSDI monthly benefit based on their work histories. She has insufficient past earnings to qualify for SSDI on her own record.
The key “financial components” in calculating Mary’s SSI benefits are (1) $400 per month of earned income, + (2) one-third reduction of the federal benefit rate (FBR) based on her “living in the household of another.”
Mary’s DATA:
Current Federal Benefit Rate (FBR is the maximum monthly SSI payment) $ 500.00
Gross monthly income from wages and self-employment 400.00
Total unearned income, not counting in-kind support & maintenance .00
Expenses of self-employment .00
Impairment-related work expenses of a wage earner .00
Excludable infrequent or irregular income (maximum of $10 per month) .00
Excludable earned income of blind or disabled child in school (maximum of $400) .00
General exclusion from income (applied first against unearned income) 20.00
Apply One-Third Reduction Rule (yes=1, no=0) 1
Apply Presumed Maximum Value (PMV) Rule (yes=1, no=0) 0
Calculations Relating To Earned Income:
Amount of $20 exclusion applied against earned income $ 20.00
Net earned income after $20 exclusion (and other exclusions, if any) 380.00
Earned income exclusion (maximum $65 per month) 65.00
Remaining earned income 315.00
Exclusion of ½ of remaining earned income 157.50
Countable earned income 157.50
Calculations Relating To Unearned Income:
Amount of $20 exclusion applied against unearned income $ .00
Total countable unearned income, not counting in-kind support & maintenance .00
Increase from one-third reduction rule 166.67
Increase from presumed maximum value rule .00
Countable unearned income 166.67
Calculations of SSI Benefit:
Federal Benefit Rate $ 500.00
Less countable earned income 157.50
Less countable unearned income 166.67
Net Monthly SSI Benefit 175.83
Mary’s total actual income (SSI benefit--$175.83 [minus] impairment-related work expenses--$0.00 [plus] other income--$400.00) $575.83
Comments:
5. For example, if her parents wished to supplement Mary’s quality of life, but increase overall family income, they could consider having Mary use of portion of her income to pay her pro rata share of household expenses.
6. If, under the calculations that follow below, Mary paid $275 per month under a sharing arrangement with her parents, her SSI monthly benefit payment would increase by $166.67 (the amount of the one-third reduction--which would no longer apply) and she would receive a monthly benefit of $343.50 rather than $175.83.
Determination of Cost of Pro Rata Share of Household Expenses
Annual cost to all household members of food $6,000.00
Annual cost to all household members of rent or mortgage payments .00
Annual cost to all household members of property taxes 600.00
Annual cost to all household members of heating fuel, gas & electricity 2,400.00
Annual cost to all household members of water, sewage, & garbage 900.00
Total annual household expenses $9,900.00
Total monthly household expenses $ 825.00
Number of household members 3
Pro rata share of household expenses $ 275.00
(b) Living Independently. In addition to the general considerations above, consider whether the family believes that an arrangement can be structured to continue the independent arrangement that is currently established.
(i) Future Plans. Are there “second generation caregivers or advocates” in place?
If so, consider whether it would be appropriate for the person with disabilities to execute powers of attorney and health care powers of attorney naming the parents and/or second generation of caregivers as agents to prevent some of the potentially costly delays in obtaining services or addressing disputes and/or business matters.
.If not, what are the family’s plans for assisting the child’s living arrangements after their deaths? If they have no plans, consider encouraging them to find a non-profit organization that will assist them in making plans.
If there are no plans in place, consider specifying that a trustee has authority to hire caregivers or advocates to assist with living and social changes. Consider how quickly such persons could be hired after the parents’ deaths so that crisis can be avoided at that time.
The Planned Living Assistance Network of North Texas, Inc. (“PLAN”) was formed by parents in the Dallas area to assist with exactly this type of situation. A private case manager, with whom the child with disabilities develops a relationship during the parents’ lives, is prepared to assist with transitions at the parents’ deaths or disability. To protect this arrangement, the trustee of a trust may be specifically directed to consider whether continuing the arrangement is in the best interests of the disabled child. If no such organization exists in your client’s area, consider including language in the trust to encourage the trustee to seek out and pay advocates. Many geriatric care managers also work with adults with disabilities.
(ii) Future Benefits. If the child was determined to be disabled prior to age 22, it is likely that the child will be eligible for SSD benefits based on a parent’s work history. Such benefits typically begin when a parent (or sometimes another qualifying family member) retires, becomes disabled, or dies. The family should contact SSA to determine the expected amount of SSD payment. If the SSD payment is likely to cause ineligibility for SSI, contact DHS to determine whether one of the Medicaid continuation programs apply. (If the clients contact DHS and do not get the answer they want, they should persist with questions until it is clear why the family member would not qualify--and whether there are steps that can be taken to protect qualification.)
(iii) Current Benefits. If the child is receiving SSI, is the family supplementing expenses in a manner that results in a decrease in SSI benefits?
Where an SSI beneficiary or applicant is not technically “living in the household of another” but another person is supplementing the SSI beneficiary’s or applicant’s “food, clothing, or shelter,” then the “presumed maximum value” (PMV) reduction in benefits will apply. See the discussion above on PMV (Section *). Generally, when the family becomes aware of how the rules work, they will find that it is better for the person with disabilities when the family supplements many of the other numerous needs that the person will have--and budgets carefully to cover as much of the food, clothing and shelter components as possible with the SSI payment. Remember that by using the Diaz case (see Section ** above), benefactors may be able to supplement an individual’s rent without loss of SSI benefits.
Consider whether there is a way in which the family may supplement quality of life without reducing benefits. See the example on “David” which follows below:
(iv) Trusts. The facts of the case may indicate that a discretionary or support trust is warranted in the specific case, either alone or in conjunction with an SNT. Depending on the child’s monthly average living costs, income level (is he or she likely to continue to work?), informal support systems, etc., it may be worth the risk to public benefits to permit the trusts to provide more support.
Example No. 2--David
David is 30 and has schizophrenia. He lives with a roommate in a small apartment, spending about $525 per month on his rent, food, and clothing. He has flexible hours working only a few hours a week for a local business doing computer programming. He makes about $400 per month and spends $150 on impairment-related work expenses in connection to his computer.
David was not found to be disabled prior to age 22, so he will not receive benefits based on his parents’ work history. He receives a small SSD payment ($130 per month) based on his own past work history. His parents do not subsidize his basic living expenses, but they recently purchased a car for him. They have arranged with a local gas station to be billed for David’s monthly gas purchases. There is no reduction to David’s benefits based on these supplemental contributions by his parents since the payments do not pay for David’s food, clothing, or shelter.
In David’s case, he is living nearly at a subsistence level ($525 of his total income of $577.50--see calculations below--is spent monthly on food, clothing, and shelter). Fortunately for David, he likes his roommate and can share expenses. Also, his parents’ contribution of a car makes his life more pleasant.
By keeping Medicaid through his SSI eligibility, his medication and other medical costs--exceeding $1,000 per month, are covered.
Note that if David had a greater income, losing SSI but not gaining health insurance, he would fall into the “black gap” of having too much income to qualify but not nearly enough to cover basic living plus needed medical costs. What would typically happen in that scenario is that with medical benefits gone, David could decompensate to a point where he could not work at all, and at that time he would likely re-qualify for benefits again. It is quite possible, however, that he could, without medication, decompensate to a level where tens of thousands of tax-payers’ dollars would be consumed prior to the time that he returned to living independently.
David’s DATA:
Current Federal Benefit Rate (FBR is the maximum monthly SSI payment) $ 500.00
Gross monthly income from wages and self-employment 400.00
Total unearned income, not counting in-kind support & maintenance 130.00
Expenses of self-employment .00
Impairment-related work expenses of a wage earner 150.00
Excludable infrequent or irregular income (maximum of $10 per month) .00
Excludable earned income of blind or disabled child in school (maximum of $400) .00
General exclusion from income (applied first against unearned income) 20.00
Apply One-Third Reduction Rule (yes=1, no=0) 0
Apply Presumed Maximum Value (PMV) Rule (yes=1, no=0) 0
Calculations Relating To Earned Income:
Amount of $20 exclusion applied against earned income $ .00
Net earned income after $20 exclusion (and other exclusions, if any) 250.00
Earned income exclusion (maximum $65 per month) 65.00
Remaining earned income 185.00
Exclusion of ½ of remaining earned income 92.50
Countable earned income 92.50
Calculations Relating To Unearned Income:
Amount of $20 exclusion applied against unearned income $ 20.00
Total countable unearned income, not counting in-kind support & maintenance 110.00
Increase from one-third reduction rule .00
Increase from presumed maximum value rule .00
Countable unearned income 110.00
Calculations of SSI Benefit:
Federal Benefit Rate $ 500.00
Less countable earned income 92.50
Less countable unearned income 110.00
Net Monthly SSI Benefit 297.50
David’s total actual income (SSI benefit--$297.50 [minus] impairment-related work expenses--$150.00 [plus] other income--$400.00 + $130.00) $ 677.50
Comments: A key role for attorneys in working with families is to look carefully at the SSI “numbers” and determine how benefits can be increased currently and maintained in a position where the person with disabilities can live as independently and as comfortably as possible.
If, for example, David’s parents bought him his food rather than contributing to a car, then his SSI payments would be reduced by the PMV, or at least dollar for dollar (up to the PMV) by the amount of food contributed to David by his parents. By supplementing David’s needs with items that are not “food, clothing, or shelter,” David suffers no reduction in monthly benefits. If the parents have limited resources, it is important that their money be used to enhance David’s life--helping him maintain his independence and ability to work--rather than displacing public benefits dollar for dollar--with the possible result of the entire arrangement “crashing” and David losing the fragile structure that enables him to work and live independently.
Take special note of the fact that we are NOT talking here about “mining for gold” in taxpayer dollars--with the objective of “exploiting taxpayer resources.”
Far, far from it. What we are seeking is an approach to the illogical and frustrating “numbers game” that responsible attorneys, families, and caregivers will “play” in order to prevent catastrophic losses of the fragile network of benefits that may keep a person with serious disabilities in a living situation that is as comfortable, productive, and independent as possible.
Keep in mind how fragile the network of support can be--due to some of the convoluted public benefits rules.
Try to find someone in your community--attorney or non-attorney--who has decided to become a “public benefits expert” as it will generally not be economical for an attorney who has overhead to pay to try to fully master this area while making a living in other legal fields; unless one is salaried, it is difficult to “make a living” mastering enormous bodies of information that apply primarily to persons who may not even have enough money to live on; paying an attorney is out of the question. It is unlikely that most attorneys will represent enough third-party benefactors to pay for the acquisition of a useful level of expertise in public benefits.
(c) Living In an Institution. In addition to the general considerations above, consider whether the family believes that the institutional arrangement will continue indefinitely into the future, and who the advocates and “monitors” of care will be in the future.
(i) Future Plans. Are there “second generation caregivers or advocates” in place?
If so, consider whether it would be appropriate to establish a guardianship prior to the death of both parents, in order to ensure continued care and to address issues relating to health care.
If not, what are the family’s plans for having the child’s quality of care monitored after their deaths? If they have no plans, consider encouraging them to find a non-profit organization that will assist them in making plans. If there are no plans in place, consider specifying that a trustee has authority to hire caregivers or advocates to assist with social needs and any changes that may be necessary in the future.
(ii) Future Benefits. If the child is receiving services in a State facility, it is likely that the facility will monitor public benefits eligibility. Whether the child receives SSI, SSD, Medicaid, or other benefits will usually not affect the child’s care in the facility. These issues may, however, become important if the family wishes to consider residential care arrangements outside of the facility. If that is the case, the family should contact SSA to determine the expected amount of SSD payment. If the SSD payment is likely to cause ineligibility for SSI, contact DHS to determine whether one of the Medicaid continuation programs would apply to the family member under the facts of their situation. It may be worth an investment by the family to pay for a careful analysis of future benefits and the impact of their current situation (institutional care) on the child’s future benefits, if any.
(iii) Current Benefits. Medicaid pays for certain services provided by the State, but not for others. If Medicaid does not pay for services, the child’s estate (or the estate of other responsible persons) may be required to reimburse the State for services. If a family member is required to reimburse the State for services provided to a child over age 18, investigate the basis for the requirement to determine if steps can be taken to terminate the reimbursement requirement. This may be the case, for example, where an agreement such as a child support obligation causes a parent to have continuing liability for a child when the obligation would otherwise terminate at the child’s 18th birthday. (Funds saved could be directed to a supplemental care trust and used to supplement, rather than supplant, services provided by the State.)
(iv) Trusts. The facts of the case may indicate that a discretionary or support trust is warranted in the specific case, either alone or in conjunction with an SNT. Depending on the possible need for better private care arrangements, costs of such an arrangement, benefits levels, and other factors, it may be worth the risk to public benefits to permit the trusts to provide more support. But be careful. Right now, to the best of the authors’ knowledge, all funds in discretionary trusts (and, in the future, possibly supplemental care trusts as well) are at risk of being counted as available to pay for State care by TDMHMR. With costs at State hospitals and schools of $5,000, $10,000 or more each month, funds in the trust could be depleted at a rate of $60,000 - $120,000 (or more) each year. Thus if the trusts are discretionary, it may be advisable to limit the amount that is discretionary to an annual cap, so that trust funds are paced through an individual’s life. While even this type of trust structure may not protect the trust, it would likely at least make a case that would be more difficult for a court to decide adversely: as the grantor’s intent to have funds paced throughout the life of the beneficiary would be clearly stated in the trust.
However, if the clients believe that the child will always be institutionalized, the family may wish to establish only a supplemental care trust, seeking specifically to forbid payments for food, clothing, shelter, and medical care.
Family With a Minor Child With Disabilities
(1) General Issues for the Family With A Minor Child With Disabilities
In addition to all typical estate planning issues (that we suggest be handled by an experienced estate planning attorney), consider the following:
(a) Understanding the Disability and Lifetime Medical and Social Needs. It is important in drafting the long-term plan and trusts that the family and the attorney understand what it is likely that the child will need in the future. Ideally, the family should bring this type of information to the attorney. The attorney could perhaps suggest web sites (see the web sites in this attorney guide) on specific disabilities, to gather information about future needs, such as: (i) is it likely that the child will be able to work in the future? (ii) are medical costs likely to be high or modest? (iii) is it possible that the child may someday be able to live independently? (iv) is the disability the type that is typically covered by Medicare? Medicaid? The State? (Remember that the trust rules differ, and thus the trust components may shift based on the facts of the specific case.)
(b) Current Crisis Plans. It is, of course, imperative that parents have Wills. It is especially important that planning be done for the survivor of the parents, if one parent should unexpectedly die or become disabled. Well this is true of all persons, especially those with small children, it is critical in families where there is so little “margin for error” that the family would retain as much security and structure as possible if one parent died or became disabled.
(c) Future Plans. Are there “second-generation caregivers” in place to facilitate the transition of care responsibilities or advocacy assistance?
If so, the parents’ wills and trusts should support the available caregiving and advocacy options by naming guardians and trustees (consider recommending that guardians and trustees not be the same persons to provide “checks and balances”), and to clearly permit or direct use of trust funds for advocacy and caregiving.
If the family has not identified second-generation caregivers, what are the family’s plans?
7. Encourage Planning. If they have no plans, consider encouraging them to find a non-profit organization that will assist them in making plans for residential and social care in the future.
8. Default Planning. If there are no plans in place, consider specifying that a trustee has authority to hire caregivers or advocates to assist with living and social changes. Consider how quickly such persons could be hired after the parents’ deaths so that crisis can be avoided at that time.
(d) Future Benefits. If the child meets the Social Security definition of “disabled” prior to age 22, it is likely that the child will be eligible for SSD benefits based on a parent’s work history. Such benefits typically begin when a parent (or sometimes other qualifying family members) retires, becomes disabled, or dies.
The family should contact SSA to determine the expected amount of SSD payment. If the SSD payment is likely to cause ineligibility for SSI, contact DHS to determine whether one of the Medicaid continuation programs apply. (If the clients contact DHS and do not get the answer they want, they should persist in finding out why the family member would not qualify.)
(e) Current Benefits.
(i) SSI. If parental income and resources are low enough, children who are determined by SSA to be disabled may receive SSI. If one or more of the parents is working, it is often difficult for the child to qualify for SSI given that parental income is usually “deemed” to the child with disabilities.
When a child will not qualify for SSI and hence SSI-linked Medicaid (or TANF-linked Medicaid, or another direct Medicaid-access program), there is the possibility of qualifying for a Medicaid waiver program. There are programs designed to assist parents of children with disabilities, but they may be difficult to locate. See the DHS web site at under the section “***” for programs for children. Clients should also contact MHMR, local non-profit organizations, and the local DHS office to look for and apply for benefit programs. These programs must generally be tracked down (as they tend to change frequently) and hence it often requires a diligent search to access benefits.
Medicaid pays for certain services provided by the State, but not for others. If Medicaid does not pay for services, the parents may be required to reimburse the State for services, based on the State’s assessment of the family’s financial resources. If the child is receiving services in a State facility, the facility may monitor public benefits eligibility. Where the child is found not to be eligible for SSI or Medicaid, parents may want to follow up to determine why the child is not eligible (often the child will not be eligible for other public benefits, but it is worth a follow-up by the family). If the family’s funds are preserved through public benefits eligibility (and the family does not have a right of reimbursement), the family could direct the saved funds into a supplemental care trust for the child’s future quality of life needs.
(ii) Special Education. Special education is sometimes referred to as the “only public benefit truly available to all children with disabilities.” Many parents, having struggled to obtain special education services, would find that statement laughable. Other parents, having accessed excellent and comprehensive services, would say that special education services and benefits made “all the difference in the world.” What factors determine who is able to access the best special education services, and who is unable to “find the key”?
Suggest that clients heed this advice: Parents should become as immersed in special education provisions and information as they possibly can. If they are too busy and exhausted to focus on the key strategic issues, suggest that they access support groups and organizations--early in their child’s life--to get into a pipeline of information. Suggest that they determine if there is a compassionate and responsible relative or friend (sometimes early retirees, especially those with business backgrounds, are perfect) and see if that person will become the special education expert.
Alternatively, suggest that the clients find an attorney who concentrates in special education (or you may elect to become such an attorney)--at the earliest possible time--to understand how many of the hardest and most well-intentioned steps that parents can take may “backfire” and preclude access to special education services.
The strategic issues are far beyond the scope of this guide, other than to provide a warning that, again, the provision of services sometimes seems illogical and unfair--with the most intensely committed and hardest working families being denied services. Why? Sometimes, with everyone in the family “working their fingers to the bone,” a “satisfactory” arrangement can be maintained for a period of time. If the family is not careful, their past successes (achieved at staggering costs to all) can actually become the basis for denying them assistance in the future--with a finding that the family has managed well enough alone--and does not need assistance.
Bottom Line: Parents of young children with serious disabilities are well advised to become pro-active experts in special education services--or to link up with persons or groups that have this expertise. While families with resources may decide that they would rather private pay for services--and many choose to do so, given the flexibility private arrangements provide to the family--it is sometimes difficult for families to obtain all the data that they need to make that choice.
(f) Trusts. The facts of the case may indicate that a discretionary or support trust is warranted in the specific case, either alone or in conjunction with an SNT. Depending on the child’s monthly average living costs, income level (is he or she likely to continue to work?), informal support systems, etc., it may be worth the risk to public benefits to permit the trusts to provide more support.
Keep in mind that if State or community MHMR services are provided to the child, it is likely that the State will seek reimbursement from support trusts and also from discretionary trusts--even trusts established by third parties with no duty of support. Thus if one believes that the child will always be institutionalized, the family may decide to establish only a supplemental care trust. If, however, the family wishes to retain the option of having a trust that could pay a limited amount toward support, then your client may wish to consider a discretionary trust as well. In that case, consider limiting the amounts available for support under the trustee’s full discretion, so that principal distributions would be pro-rated throughout the child’s life expectancy. It is possible that the State will seek reimbursement from the fully discretionary portion of any trust.
Not researched for this guide is the issue of whether trust assets can be reached where the trusts were established by a person who has a duty of support to the beneficiary. There are two situations where this issue could arise: (a) where the grantor is alive and the support obligation continues, and (b) where the grantor is deceased, and arguably the support obligation has ceased as well.
(2) Issues Specific to Certain Situations, Such As Child Living. In addition to the general considerations listed above, consider the following:
(a) At Home. If there are second-generation caregivers identified, then there is an opportunity for the family and attorney to structure planning so that the child’s living and care structure remains as secure as possible, and so that the transitioning of care can be almost seamless. The caregivers and trustees would be identified in advance, with trusts drafted to become effective upon death. Generally it the structure is less cumbersome if there is an informal network of support, such as family or even the caregivers, who can cover modest expenses until the Will is filed and probate initiated--which should be a soon as possible. While the executor is able to select whichever attorney he or she would like to use, the drafting attorney may wish to suggest to clients that they pre-select an attorney to handle the probate and to retain a copy of the file (either the drafting attorney or another attorney of their choice) so that the probate can be handled quickly.
(b) In an Institution--State School, ICF/MR Facility, or Other. Under many circumstances, a child who is living for extended periods of time outside the home may be found to be his or her “own household” for purposes of SSI or Medicaid eligibility. Where a minor child is living in an institution or residential care facility, the clients may be well advised to pay for an analysis of public benefits eligibility, to determine the conditions under which a child may become eligible for various benefits and to assess what may happen with those benefits in the future. Otherwise there is a risk that eligibility for SSD may, with little warning, bump a child out of eligibility for a program when a parent dies, retires, or becomes disabled.
“Intermediate Care Facilities/Mental Retardation” are typically referred to as “ICF/MR facilities.” While the facilities are licensed by TDMHMR, services are funded by MAO Medicaid. The income and resource rules are the same as for nursing home Medicaid.
Family In Which a Primary Income Earner Becomes Disabled Under Age 65
(1) Completely Disabling Catastrophic Medical Events. One of the most complex, perplexing, and traumatic situations is the disability of an adult under age 65, where the disability occurs in a catastrophic medical event.
There is not a good planning solution in this Guide. The scenario is included here to provide general comments only.
For persons under age 65, there is a 29-month gap between disability and Medicare coverage. Medical costs associated with the initial event may be $100,000 or more. Costs incurred in the first 29 months can be staggering. There are gaps and caps in private insurance that will sometimes leave these costs uncovered. The authors have seen, for example, high costs that continued after even very large private insurance policies were depleted.
Where the catastrophic medical event results in a medical condition that requires hospital care (for example, medical care that would generally be covered by Medicare and supplemental or “medi-gap” policies), the hospital and medical providers may be creditors who will make claims against the assets of the patient and his or her spouse.
Where the catastrophic medical event results in a medical condition that requires long-term custodial care (for example, the care provided in a nursing home), a different set of issues exist. If the person who is now disabled does not have long-term care insurance, the planning may be very similar to planning for MAO (medical assistance only, not SSI-linked) Medicaid coverage for a person of any age.
Persons who experience a catastrophic medical event after carefully planning for retirement--following the most responsible and prudent financial planning principles--may be hit especially hard unless they had purchased long-term care insurance.
Take the following example:
9. Prior to the disabling event, Bill and Janet, both age 45, had a house worth $200,000 with a $100,000 mortgage, $100,000 in liquid savings, and $400,000 in IRA’s and other retirement vehicles. Bill and Janet consider the $100,000 in liquid savings as having been “set aside” for the children’s educations.
10. Bill had a catastrophic medical event 12 months ago. There is no personal injury claim, and his insurance is reaching the lifetime limit. If he needs continuing medical care, the hospital may be a creditor and seek repayment from the family’s assets.
11. While Bill has been disabled for 12 months, he has only been eligible for SSD for seven months, as SSD eligibility begins 5 months after disability. He is not, however, eligible for Medicare for another 19 months--which is 24 months after he became eligible for SSD, and 29 months since the date of disability. (If the person was age 65 or over, for example, Medicare coverage would already be in place).
12. In the next 17 months, Bill’s uncovered medical bills may be in the multiple $100,000's. The family is likely to be ineligible for any public assistance, for they are far too “wealthy.” While IRA’s and other retirement benefits may be protected under some circumstances, most public benefits programs require that one liquidate resources that can be liquidated. Retirement benefits that are liquidated may incur costs, even if penalties are waived under hardship provisions.
The answer to this case is not in this guide. Recognize that this is an enormously difficult situation. Recognize that it may be well worth the family’s investment to permit you to co-counsel with one or more of the most experienced elder law attorneys in the country--very quickly as medical debts accumulate rapidly. Conducting the analysis and planning may require the services of an experienced elder law attorney and either a tax attorney or CPA in order to best protect the family from complete financial destitution.
If the individual ends up needing custodial care, note that the analysis is similar to nursing home Medicaid eligibility. There are usually several practical differences, however. These include the fact that retirement benefits tend to be higher, more varied, and more complex than one sees with nursing home Medicaid cases, and the spouse in the community is more likely to have children at home. Treatment of retirement benefits is not always consistent. In these types of cases, it would be wise to consult with an attorney would is familiar with retirement benefits and under-age 65 MAO Medicaid eligibility.
In these types of cases, extreme measures may be considered, including divorce or transfers of assets from one spouse to another. No measures may be taken in fraud of creditors; it is absolutely worth no one’s time or effort to “hide” or “circumvent” the system. If, however, assets could be protected in an under-65 disability trust (or perhaps the Arc pooled trust), it is possible that Bill could qualify for Medicaid for future medical services. This may be extremely complicated planning to properly address and where legally possible to avoid creditor issues, and to maximize protection for the spouse and family.
(2) Gradually Disabling Conditions. The two financial components in these cases tend to be (1) medical expenses, and (2) lost income.
13. If a person is impoverished and not working, that person may become eligible for SSI when he or she meets the disability determination. SSI would provide a monthly payment for support costs ($500 per month for an individual in 1999), and linkage to Medicaid would provide medical coverage.
14. If a person or their spouse is working and covered by private health insurance, it is possible that all medical costs will be covered. If the person with the disabling condition has long-term disability insurance, some level of income replacement is possible. Many families arrange their lives, and often extended family rearrange their lives, so that the family can continue with no public benefits and little outside assistance, other than perhaps some home health care when Medicare coverage becomes available. If this is a client’s situation, consider the scope of their health insurance coverage and when it is likely that they will approach the caps on coverage. If there are not ongoing high medical costs, it is possible in some situations to pay privately for whatever care the individual needs in addition to that provided by Medicare. Private coverage of costs should always be considered because of the flexibility and freedom the family will enjoy by not being dependent on public benefits.
15. If a family has disqualifying resources (i.e., in excess of a few thousand dollars) but limited health care coverage (either due to termination of coverage or reaching a cap on coverage), they face some of the most difficult decisions in this area. They may have a choice between liquidating resources for care costs and avoiding dependence on public benefits for as long as possible, or seeking to obtain public benefits through one of the federally-blessed approaches. For example, (1) exchanging non-exempt property (stock) for exempt property (certain home improvements, medical devices, specially-equipped automobile, etc.) and transferring funds into an Under-65 Disability Trust once the person meets a determination of disability.
Note: a person can have extremely high medical costs yet not meet the definition of “disabled.”
(3) Ability to Work With Supports While Disabled. There are other disabling illnesses and conditions that impair a person’s capabilities, but where the person is still able to work with supports.
There are many situations in which persons with disabilities can work enough so that they lose benefits, but not enough to cover their medical and support costs. It is important to be aware that this is yet another “black gap” where there are not always solutions.
There are, however, some steps that can be taken to protect the fragile systems of support and care that permit a person with disabilities to work.
Example No. 3--Karen
Karen is 35 and has a mental illness known as bi-polar disorder. With medication and social supports, Karen lives comfortably and most months during the year works very creatively and productively.
But Karen goes through periods of time when she is unable to work at all. She is self-employed and does not have health insurance. Her medication costs exceed $500 per month. Karen aims for the time when she can obtain health insurance, but is unable to afford the policies that will cover her at this time.
Karen is in the process of purchasing her own home. Karen inherited about $35,000 when her mother died, and used those funds for a down payment on a small house. Her monthly mortgage and other house and living expenses are approximately $600 per month. Karen is excited about the level of independence and comfort that she has worked so hard to build. But she worries that she could lose her home if she is unable to work for several months and cannot pay her bills. With the $2,000 limit on countable resources, she is unable to save a “nest egg” to cover all her monthly expenses if she would be unable to work for an extended period of time.
Karen’s DATA:
Current Federal Benefit Rate (FBR is the maximum monthly SSI payment) $ 500.00
Gross monthly income from wages and self-employment 1,150.00
Total unearned income, not counting in-kind support & maintenance 0.00
Expenses of self-employment 100.00
Impairment-related work expenses of a wage earner .00
Excludable infrequent or irregular income (maximum of $10 per month) .00
Excludable earned income of blind or disabled child in school (maximum of $400) .00
General exclusion from income (applied first against unearned income) 20.00
Apply One-Third Reduction Rule (yes=1, no=0) 0
Apply Presumed Maximum Value (PMV) Rule (yes=1, no=0) 0
* Take special care to seek to extend Medicaid benefits through one of the continuation programs (promptly call SSA and DHS) if income exceeds $500, which is often the threshold level for determining whether an individual can engage in “substantial gainful activity,” and thereby determine if the person meets the definition of “disabled”
* Keep in mind that individuals must separately meet all of the SSI eligibility requirement including the definition of (1) disability, and (2) having low income. One risk in “working with the numbers” is that even though a person may remain eligible by having sufficiently low countable income, the increased income may “bump” the individual out of the “disabled” category. More on this in the comments at the end of Karen’s case, immediately below.
Calculations Relating To Earned Income:
Amount of $20 exclusion applied against earned income $ 20.00
Net earned income after $20 exclusion (and other exclusions, if any) 1,030.00
Earned income exclusion (maximum $65 per month) 65.00
Remaining earned income 965.00
Exclusion of ½ of remaining earned income 482.50
Countable earned income 482.50
Calculations Relating To Unearned Income:
Amount of $20 exclusion applied against unearned income $ .00
Total countable unearned income, not counting in-kind support & maintenance .00
Increase from one-third reduction rule .00
Increase from presumed maximum value rule .00
Countable unearned income .00
Calculations of SSI Benefit:
Federal Benefit Rate $ 500.00
Less countable earned income 482.50
Less countable unearned income .00
Net Monthly SSI Benefit 17.50
Karen’s total actual income (SSI benefit--$17.50 [minus] expenses of self employment--$100 [plus] other income--$1,150.00) $1,067.50
Comments:
A reasoned response to Karen’s situation might be: “Why is she consuming taxpayer dollars??!!”
Karen would prefer not to consume taxpayer dollars, but she cannot afford the medical “supports” she needs to enable her to function “successfully.” Without the public benefits she receives, she could be homeless and completely off the taxpayer roles. **Take special note of these facts:
16. Karen risks the loss of all her benefits--not because of the earned income calculations which, you will note, still permit her to receive a small SSI check as well as the Medicaid benefits upon which she depends--but because she may be re-classified as “not disabled” due to her earnings (which exceed $500 per month).
17. As social, emotional, and medical supports have advanced in assisting persons with serious disabilities to lead productive lives in our society, the “disability” definitions have not changed to reflect a key issue--which is that without such supports the person remains unable to earn enough money to risk being bumped off the disability definition.
18. Restatement of the preceding paragraph: A person who would consume staggering medical goods and services--and who would be completely unproductive due to his or her disability, can be “bumped out” of the disability category by working. Simply by earning over $500 per month and being re-classified as “not disabled” due to the person’s ability to participate in a “substantial gainful activity,” they can lose the very benefits that enable them to work.
19. When they are no longer classified as “disabled” and the supports that helped them earn income are lost, they will likely once again--very rapidly--become unable to work and meet the definition of “disabled.”
20. Thus if a family spends $1,000 per month on medication and social supports, enabling an individual to earn $700, they are already $300 “in the red,” even before paying for food, clothing, and shelter, because at that point the public benefits will likely be lost, and what the individual is able to earn--which exceeds the disability definition--is not enough to pay for the supports to keep them working.
21. Recognizing this circular problem is very, very important for practitioners. There are limited but very useful Medicaid and Medicare continuation programs available. When an SSI or SSD recipient’s work earnings increase, the consumer or parent or other advocate should immediately contact SSA and the DHS office to ensure that Medicaid and/or Medicare will continue when cash payments are lost.
22. A person who is “disabled but working” should become expert on the special rules for Impairment Related Work Expenses, which can cover broad range of expenses and hence reduce the “earnings” that are countable as income.
APPENDIX 19: Calculation of Increased Protected Resource Amount
For discussion of the purposes of this form, see VII.I.4.(c) above.
APPENDIX XXVII
WORKSHEET FOR EXPANDED PRA ON APPEAL
| |Enter the minimum monthly maintenance needs | |
|STEP 1 |allowance (MMMNA). |$ |
| STEP 2 |Enter community spouse’s non-resource- | |
|*(See footnotes below) |produced (non-investment) income, including diversion from the | |
| |institutionalized spouse, if | |
| |any (minimum diversion is $1). |- $ |
| STEP 3 |Subtract Step 2 from Step 1 and enter the | |
| |difference here. |= $ |
| STEP 4 |If Step 3 is $0 or a negative number, STOP. | |
| |PRA may not be expanded (except for financial duress). | |
| | | |
| |If Step 3 is greater than $0, proceed to Step 5 | |
| STEP 5 |Multiply the amount in Step 3 by 12 | X 12 |
| | | |
| |Enter the product here. |= $ |
| STEP 6 |Multiply the amount in Step 5 by 100. | X100 |
| | | |
| |Enter the product here. |= $ |
| STEP 7 |Enter the interest rate (number not percentage) | |
| |for a 1-yr. CD here. |__________ |
| | | |
| |Divide the amount in Step 6 by the above number and enter the quotient| |
| |here. |= $_________ |
If Step 7 is GREATER THAN the original PRA, this amount becomes the new PRA.
If Step 7 is EQUAL TO OR LESS THAN the original PRA, use original PRA.
* Footnotes to Step 2:
1) The client must divert at least $1 per month to the community spouse.
2) If community spouse’s non-investment income exceeds the MMMNA, no expansion of the PRA is
Allowed (except for financial duress).
Source: Medicaid Eligibility Handbook
Texas Dept. of Human Services
MEH 98-18
APPENDIX 20: Texas Department of Mental Health and Mental Retardation Fee Guidelines
I. CHARGES FOR SUPPORT, MAINTENANCE AND TRAINING (“SMT”)
IN MENTAL RETARDATION AND MENTAL HEALTH FACILITIES
25 T.A.C. § 403.74. Determination and Notification of Fees
(a) Assessment of fees for services charged to parents of minor clients.
(1) The following fee computation chart is used as a guideline in determining
fees charged to parents of minor clients for SMT provided by department mental
retardation and mental health facilities, as authorized by the Texas Health and
Safety Code, s552.017 and s593.075.
The parents of a client who is under 18 years of age will pay, if able to do
so, the portions of the cost of SMT for that client as may be applicable
under the following formula:
If the amount shown as "Net Taxable The monthly fee
Income" of the parents as reported on per client
their latest current financial shall be:
statement or on their latest federal
income tax return, at the election of
the parent, is:
Less than $4,000 $ 0
4,000-4,999 10
5,000-5,999 20
6,000-6,999 30
7,000-7,999 40
8,000-8,999 50
9,000-9,999 60
For each additional $1000
of taxable income Add $10
(2) A judgment in a divorce proceeding that provides for child support
payments does not limit the fee that may be set, nor does the judgment exempt
either parent from liability for SMT charges of the client.
(3) Failure of a parent to provide current income information may result in a
determined fee equal to the facility's current maximum rate.
(4) A guardian's personal finances/assets are not considered in determining a
fee for a minor client.
(b) Assessment of fees for services charged to adult clients and spouses of
clients or other responsible entities.
(1) Clients and their spouses or other responsible entity who possess
sufficient property to reimburse the state for the cost of the client's SMT and
who are able to pay the cost shall be charged the facility's current maximum
rate. Clients and their spouses or other responsible entities whose property is
not sufficient to reimburse the state for the cost of the client's SMT and who
are not able to pay the cost shall be charged less than the facility's current
maximum rate, based upon their ability to pay as determined in accordance with
this section.
(2) The following provisions apply to the determination of a fee for the SMT
of a client who is a beneficiary of a trust or trusts.
(A) In accordance with the Texas Health and Safety Code, s552.018 and
s593.081, no portion of the corpus or income of a trust or trusts, with an
aggregate principal amount not to exceed $50,000, of which a client is the
beneficiary, is considered to be the property of the client or the client's
estate, and no portion of the corpus or income of the trust(s) is liable for
the SMT of the client, regardless of the client's age.
(B) A trust or trusts established prior to January 1, 1978, for a person
with mental retardation and which otherwise meet the requirements of the law
and this section is deemed entitled to the benefit of this section in the same
manner as if the trust(s) had been established on or after January 1, 1978. A
trust or trusts established for a person with mental illness and which
otherwise meets the requirements of the law and this section is deemed entitled
to the benefit of this section for charges for services provided on and after
September 1, 1989.
(C) The ascertainment of income and principal with respect to any trust(s)
subject to this section and the apportionment of the receipts and expenses of
the trust(s) is, unless otherwise legally directed, governed by the Texas Trust
Act, Texas Property Code, s111.001, et seq.
(D) If a client is a beneficiary of a trust or trusts with an aggregate
principal amount which exceeds $50,000, then only that portion of the corpus of
the trust(s) which exceeds $50,000, and the income attributable to such excess
corpus, is liable for the SMT of the client.
(i) If a client is a beneficiary of two or more trusts with an aggregate
principal amount which exceeds $50,000, then that portion of the corpus of
the trust or trusts established first in time which equals $50,000, and the
income attributable to such corpus, is exempt from liability for the SMT of the
client.
(ii) If a client is a beneficiary of a trust or trusts with an aggregate
amount which increases from an amount which is equal to or less than $50,000,
to an amount which exceeds $50,000, then that portion of the corpus of the
trust(s) which exceeds $50,000, and the income attributable to that excess
portion of the corpus, is liable for the SMT of the client from the date on
which the aggregate principal amount of the trust(s) exceeds $50,000 and
continues to be liable for the SMT provided until the aggregate principal
amount of the trust(s) does not exceed $50,000.
(E) In order to qualify for the exemption granted by the Texas Health and
Safety Code, s552.018 and s593.081, a trust must be created by a written
instrument and a copy of the trust instrument must be provided to the
department. A trustee of the trust must, upon request, provide the department
with a current financial statement which reflects the value of the trust estate.
(F) The following are not entitled to the exemption granted by statutes:
(i) a guardianship established pursuant to the Texas Probate Code;
(ii) a trust established pursuant to Texas Property Code, Chapter 142;
(iii) the facility custodial account established pursuant to the Texas
Health and Safety Code, Chapter 551;
(iv) the provisions of a divorce decree or other court order relating to
child support obligations;
(v) an administration of a decedent's estate; or
(vi) an arrangement whereby funds are held in the registry or by the clerk
of a court.
(G) The collection of charges assessed against any portion of the corpus or
income of a trust or trusts liable for the SMT of a client may be deferred in
the discretion of the department when the deferral of the collection is deemed
to be in the best interest of the State of Texas.
(3) In addition to income as described in paragraph (4) of this subsection,
other factors considered in determining a fee are:
(A) the ownership of real and personal property;
(B) expected duration of the client's stay in the facility;
(C) insurance coverage;
(D) benefits from governmental and nongovernmental agencies and
institutions; and
(E) exceptional financial hardship.
(4) Income is considered in the determination of fees.
(A) The following fee computation chart is used as a guide in determining
fees for the SMT provided to clients in department mental health facilities.
Gross family monthly income: Less $400 per month for each income producing
member of the family, $100 per month for each nonincome-producing member of
the family (exclude client), except when a nonincome-producing member of the
family is attending a college or university, $200 per month may be deducted.
If balance is between: The monthly fee is between:
$ 0-249 As agreed, not to exceed $25
250-499 25-75
500-749 75-125
750-999 125-175
1,000-1,249 175-225
1,250-1,499 225-275
1,500-1,749 275-325
1,750-1,999 325-375
2,000-2,249 375-425
2,250-2,499 425-475
2,500-2,749 475-525
2,750-2,999 525-575
formula continues formula continues
in increments of $250 in increments of $50
(B) The following fee computation chart is used as a guide in determining
fees for the SMT provided to clients in department mental retardation
facilities who receive work earnings.
The following table is based solely upon projected monthly income from work
earnings.
If the projected monthly The monthly fee
income from work charged against
earnings is between: work earnings is:
$0-65 $ 0
66-75 5
76-85 10
86-95 15
96-110 25
111-125 35
126-140 45
141-160 60
161-180 75
181-200 90
For each additional $20 Add $15
(5) A guardian's personal finances/assets are not considered in determining a
fee for an adult client.
(c) Absences from facility. The day of admission, death, or return from an
absence is considered a full day at the facility. The day of discharge,
transfer, or departure for an absence is considered a full day away from the
facility. Except when payment is prohibited by law or contract, charges
continue:
(1) for the entire period of an absence when the client remains under the
care, custody, and control of facility personnel;
(2) for the entire period when the client is absent from the facility for
admission to an inpatient medical facility and charges for the medical
services are not paid by a third-party payor; and
(3) for the first three days of any other absence from the facility from
which a return is planned.
(d) Revision of fees. A new fee may be determined each time the reimbursement
manager receives information indicating a change in property ownership or
income.
(e) Information upon admission. Upon admission, or shortly afterward, the
reimbursement manager or designee provides the client, family member, and/or
person responsible for payment with:
(1) information regarding the facility's current maximum rate;
(2) information on the department's policy for determining a fee based upon
an ability to pay; and
(3) the appropriate property/financial/expenses forms, referred to in s403.77
of this title (relating to Exhibits) as Exhibit A.
(f) Notification of fee. After a fee has been determined, the person
responsible for payment is notified in writing. The notice includes:
(1) the name of the client receiving SMT from the facility;
(2) the fee determined to be charged per month;
(3) the source of funds upon which the determined fee was based;
(4) the effective date of the fee;
(5) a statement of the recipient's right to appeal if the recipient disagrees
with the fee and information on how to initiate an appeal;
(6) instructions to notify the facility's reimbursement manager if property
ownership or income changes; and
(7) information on possible payments from a third party payor.
Source: The provisions of this s403.74 adopted to be effective August 18, 1995,
20 TexReg 5865.
CHARGES FOR COMMUNITY-BASED SERVICES
40 T.A.C. § 403.49. Monthly Ability-To-Pay Fee Schedule
The Monthly Ability-To-Pay Fee Schedule, referenced as Exhibit A, copies of
which are available by contacting TDMHMR, Policy Development, P.O. Box 12668,
Austin, Texas 78711-2668, is based on 150% of the current Federal Poverty
Guidelines. The department may revise the Monthly Ability-To-Pay Fee Schedule,
based on any changes in the Federal Poverty Guidelines, to be effective on
September 1 of the next state fiscal year. The department will distribute the
revised fee schedule to:
(1) all local MHMR authorities, who are responsible for ensuring that their
affected contractors are provided a copy; and
(2) its designated providers.
TEXAS DEPARTMENT OF MENTAL HEALTH AND MENTAL RETARDATION MONTHLY ABILITY-TO-PAY FEE SCHEDULE
-------------------------------------------------------------------------------
Maximum Monthly Fee by Family Size
-------------------------------------------
Annual Monthly 1 2 3 4 5 6 7 8 9+ % Monthly
Gross Gross Income
Income Income (Size =1)
-------------------------------------------------------------------------------
$ 7,870 $ 622 $0 $0 $0 $0 $0 $0 $0 $0 $0 2.00%
-------------------------------------------------------------------------------
9,330 777 0 0 0 0 0 0 0 0 0 2.25%
-------------------------------------------------------------------------------
11,190 932 23 0 0 0 0 0 0 0 0 2.50%
-------------------------------------------------------------------------------
13,050 1,087 30 23 0 0 0 0 0 0 0 2.75%
-------------------------------------------------------------------------------
14,910 1,242 37 30 23 0 0 0 0 0 0 3.00%
-------------------------------------------------------------------------------
16,770 1,397 45 37 30 23 0 0 0 0 0 3.25%
-------------------------------------------------------------------------------
18,630 1,552 54 45 37 30 23 0 0 0 0 3.50%
-------------------------------------------------------------------------------
20,490 1,707 64 54 45 37 30 23 0 0 0 3.75%
-------------------------------------------------------------------------------
22,350 1,862 74 64 54 45 37 30 23 0 0 4.00%
-------------------------------------------------------------------------------
24,210 2,017 86 74 64 54 45 37 30 23 0 4.25%
-------------------------------------------------------------------------------
26,070 2,172 98 86 74 64 54 45 37 30 23 4.50%
-------------------------------------------------------------------------------
27,930 2,327 111 98 86 74 64 54 45 37 30 4.75%
-------------------------------------------------------------------------------
29,790 2,482 124 111 98 86 74 64 54 45 37 5.00%
-------------------------------------------------------------------------------
31,650 2,637 138 124 111 98 86 74 64 54 45 5.25%
-------------------------------------------------------------------------------
33,510 2,792 154 138 124 111 98 86 74 64 54 5.50%
-------------------------------------------------------------------------------
35,370 2,947 169 154 138 124 111 98 86 74 64 5.75%
-------------------------------------------------------------------------------
37,230 3,102 186 169 154 138 124 111 98 86 74 6.00%
-------------------------------------------------------------------------------
39,090 3,257 204 186 169 154 138 124 111 98 86 6.25%
-------------------------------------------------------------------------------
40,950 3,412 222 204 186 169 154 138 124 111 98 6.50%
-------------------------------------------------------------------------------
42,810 3,567 241 222 204 186 169 154 138 124 111 6.75%
-------------------------------------------------------------------------------
44,670 3,722 261 241 222 204 186 169 154 138 124 7.00%
-------------------------------------------------------------------------------
46,530 3,877 281 261 241 222 204 186 169 154 138 7.25%
-------------------------------------------------------------------------------
48,390 4,032 302 281 261 241 222 204 186 169 154 7.50%
-------------------------------------------------------------------------------
50,250 4,187 324 302 281 261 241 222 204 186 169 7.75%
-------------------------------------------------------------------------------
52,110 4,342 347 324 302 281 261 241 222 204 186 8.00%
-------------------------------------------------------------------------------
53,970 4,497 371 347 324 302 281 261 241 222 204 8.25%
-------------------------------------------------------------------------------
55,830 4,652 395 371 347 324 302 281 261 241 222 8.50%
-------------------------------------------------------------------------------
57,690 4,807 421 395 371 347 324 302 281 261 241 8.75%
-------------------------------------------------------------------------------
59,550 4,962 447 421 395 371 347 324 302 281 261 9.00%
-------------------------------------------------------------------------------
61,410 5,117 473 447 421 395 371 347 324 302 281 9.25%
-------------------------------------------------------------------------------
64,270 5,272 501 473 447 421 395 371 347 324 302 9.50%
-------------------------------------------------------------------------------
65,130 5,427 529 501 473 447 421 395 371 347 324 9.75%
-------------------------------------------------------------------------------
66,990 5,582 558 529 501 473 447 421 395 371 347 10.00%
-------------------------------------------------------------------------------
68,850 5,737 588 558 529 501 473 447 421 395 371 10.25%
-------------------------------------------------------------------------------
70,710 5,892 619 588 558 529 501 473 447 421 395 10.50%
-------------------------------------------------------------------------------
72,570 6,047 650 619 588 558 529 501 473 447 421 10.75%
-------------------------------------------------------------------------------
74,430 6,227 685 650 619 588 558 529 501 473 447 11.00%
-------------------------------------------------------------------------------
76,290 6,357 715 685 650 619 588 558 529 501 473 11.25%
-------------------------------------------------------------------------------
78,150 6,512 749 715 685 650 619 588 558 529 501 11.50%
-------------------------------------------------------------------------------
80,010 6,667 783 749 715 685 650 619 588 558 529 11.75%
-------------------------------------------------------------------------------
81,870 6,822 819 783 749 715 685 650 619 588 558 12.00%
-------------------------------------------------------------------------------
83,730 6,977 855 819 783 749 715 685 650 619 588 12.25%
-------------------------------------------------------------------------------
85,590 7,132 891 855 819 783 749 715 685 650 619 12.50%
-------------------------------------------------------------------------------
87,450 7,287 929 891 855 819 783 749 715 685 650 12.75%
-------------------------------------------------------------------------------
89,310 7,442 967 929 891 855 819 783 749 715 685 13.00%
-------------------------------------------------------------------------------
91,170 7,597 1,006 967 929 891 855 819 783 749 715 13.25%
-------------------------------------------------------------------------------
93,030 7,752 1,047 1,006 967 929 891 855 819 783 749 13.50%
-------------------------------------------------------------------------------
94,890 7,907 1,087 1,047 1,006 967 929 891 855 819 783 13.75%
-------------------------------------------------------------------------------
96,750 8,062 1,129 1,087 1,047 1,006 967 929 891 855 819 14.00%
-------------------------------------------------------------------------------
98,610 8,217 1,171 1,129 1,087 1,047 1,006 967 929 891 855 14.25%
-------------------------------------------------------------------------------
100,470 8,372 1,214 1,171 1,129 1,087 1,047 1,006 967 929 891 14.50%
-------------------------------------------------------------------------------
APPENDIX 21: Limits On Eligibility Of Aliens For Public Benefits
See next page for definitions of alien classifications (A-D) and types of benefits (1-3)
| |“Emergency Benefits”|“Resident-Alien-Only|SSI |Food Stamps |TANF |Medicaid |Soc. Svc. Block |
|Classification of Alien |(1) |” Benefits (2) | | | | |Grants (3) |
| | | | | | | | |
|I. “Qualified” (A), entered U.S. before 8/22/96, with either | | | | | | | |
|“SS status” (B) or “veteran status” (C) |Yes |Yes |Yes |Yes |Yes |Yes |Yes |
| | | | | | |SSI-Linked; | |
|II. “Qualified” (A), entered U.S. before 8/22/96, with “refugee| | | |Benefits 5 Years |Benefits 5 Years, |Otherwise, Benefits|Benefits 5 Years, |
|status” (D) |Yes |Yes |Yes |Only |(then state option) |7 Years, Then State |Then State Option |
| | | | | | |Option | |
| | | | | | |SSI-Linked; | |
|III. “Qualified” (A), entered U.S. before 8/22/96, not “refugee| | | | |State Option |Otherwise, |State Option |
|status” (D) |Yes |Yes |Yes |No |(Yes in Texas) |State Option | |
| | | | | | |(Yes in Texas) | |
| | | | | | | | |
|IV. “Qualified” (A), entered U.S. on or after 8/22/96, with | | | | | | | |
|either “SS status” (B) or “veteran status” (C) |Yes |Yes |Yes |Yes |Yes |Yes |Yes |
| | | |Benefits 7 Years, |Benefits 5 Years, |Benefits 5 Years |SSI-Linked; |Benefits 5 Years |
|V. “Qualified” (A), entered U.S. on or after 8/22/96, with | | |(then ineligible if |(then ineligible if |(then state option) |Otherwise, |(then state option) |
|“refugee status” (D) |Yes |Yes |not citizen) |not citizen) | |Benefits 7 Years | |
| | | | | | |(then state option) | |
| | | | | |Ineligible 5 Years |SSI-Linked; |Ineligible 5 Years |
|VI. “Qualified” (A), entered U.S. on or after 8/22/96, no | | | | |(then state option) |Otherwise, |(then state option) |
|special status |Yes |Yes |No |No | |Ineligible 5 Years | |
| | | | | | |(then state option) | |
| | | | | | | | |
|VII. Not “Qualified” (A) |Yes |No |No |No |No |No |No |
| Definitions Pertaining to Classifications of Aliens |Definitions Pertaining to Types of Benefits |
| | |
|A. “Qualified Alien”: any alien who is lawfully admitted for permanent residence is a “qualified alien.” |1. “Emergency Benefits”: (a) Medicaid benefits for an emergency medical condition other than organ |
|The term also applies to the following classes of aliens lawfully present in the U.S.: asylees, refuges, |transplant, if Medicaid requirements are otherwise met, other than the requirement for SSI eligibility; (b) |
|those paroled into the U.S. for at least one year, certain aliens whose deportation is being withheld, and |short-term, non-cash, in-kind emergency disaster relief; (c) public health (non-Medicaid) immunizations for |
|certain aliens granted conditional entry. 8 U.S.C. §431. The term is somewhat misleading, because |communicable diseases and testing and treatment for symptoms of such diseases; (d) community-level, in-kind,|
|“qualified aliens” are disqualified for many benefits unless additional requirements are met. |non-means-tested services that are necessary for the protection of life or safety, as designated by the |
| |Attorney General; (e) certain HUD programs, to the extent the alien was receiving such benefits on 8/22/96; |
|B. “SS Status”: lawfully admitted for permanent residence; and has worked 40 qualifying quarters of coverage|(f) Title II Social Security benefits to an lien lawfully present in the U.S., if the alien is entitled to |
|as defined by the Social Security Act or can be credited with such coverage; and, with respect to any |the benefit under an international agreement, or under Title II if the application was filed in or before |
|qualifying quarter for any period after December 31, 1996, did not receive any federal means-tested benefit.|August, 1996; (g) Medicare Part A benefits payable to an alien lawfully resident in the U.S., who was |
|8 U.S.C. §1612(a)(2)(B). |authorized to be employed with respect to the wages on which benefits are based; and (h) railroad retirement|
| |benefits payable to an alien lawfully present in the U.S. or residing outside the U.S. 8 U.S.C. §1611(b). |
|C. “Veteran Status”: (a) an honorably discharged veteran who is an alien and who fulfills the active service| |
|requirements of 38 U.S.C. §5303A(d); (b) an alien on active duty in the U.S. armed forces; or (c) the |2. “Resident-Alien-Only Benefits”: (a) National School Lunch Act benefits; (b) Child Nutrition Act of 1966 |
|spouse, unremarried surviving spouse, or unmarried dependent child of an alien in category (a) or (b). |benefits; (c) foster care and adoption assistance, if the foster or adoptive parent(s) is/are qualified |
| |alien(s); (d) certain programs of student assistance under the Higher Education Act of 1965; (e) Head Start |
|D. “Refugee Status”: certain aliens admitted as refugees, asylees, whose deportation is withheld, Cuban and |benefits; (f) Job Training Partnership Act benefits. 8 U.S.C. §1612(b)(3)(B). |
|Haitian entrants, and Amerasian immigrants. 8 U.S.C. §1612 (a)(2)(A), §1612(b)(2)(A), §1613(b)(1). |3. “Soc. Svc. Block Grants”: the program of block grants to states for social services under Title XX of the|
| |Social Security Act. 8 U.S.C. §1112(b)(3)(B). |
This chart is offered as an educational overview only and is not intended as legal advice to any person. Advice regarding eligibility of particular individuals for benefits should be given only after consulting all applicable laws, including without limitation 8 U.S.C. §1611 et seq.
APPENDIX 22: Comparison of 142 Trusts, 867 Trusts and Guardianships
This chart was prepared by Glenn M. Karisch and is used with his permission. Minor changes have been made by the author, who is solely responsible for its content.
| | | | |
| | | |Guardianship/ |
| |142 Trust |867 Trust |Estate |
| | | | |
|Can be created if lawsuit is pending |Yes |Yes |Yes |
| | | | |
|Can be created if lawsuit is not pending |No |Yes |Yes |
| | | | |
|Can be created if a guardianship is pending |No (except possibly for |Yes |Yes |
| |incapacitated persons) | | |
| | | | |
|Can be funded with litigation proceeds |Yes |Yes |Yes |
| | | | |
|Can be funded with property other than litigation proceeds |No |Yes |Yes |
| | | | |
|Can be requested by guardian ad litem or next friend |Yes |No |Yes |
| | | | |
|Can be requested by guardian |No |Yes |Yes |
| | | | |
|Can be requested by attorney ad litem |No |Yes |Yes |
| | | | |
|Can be requested by any interested person or created on |No |No |Yes |
|court’s own initiative | | | |
| | | | |
|Can exist while guardianship is in existence |Yes, if it was created when |Yes |n/a |
| |guardianship did not exist | | |
| | | | |
|Can exist while guardianship of the estate is not in existence|Yes |Yes, but guardian of the |No |
| | |person may be required | |
| | | | |
|Tex. Prop. Code § 142.007 definition of “incapacitated person”|Yes |No |No |
|applies | | | |
| | | | |
|Tex. Prob. Code Ann. § 601(13) definition of “incapacitated |No |Yes |Yes |
|person” applies | | | |
| | | | |
|Physician’s certificate regarding incapacity required |No |Yes |Yes |
| | | | |
|Incapacity must be proven by clear and convincing evidence at |No |Yes |Yes |
|a hearing where an attorney ad litem represents the proposed | | | |
|ward/beneficiary | | | |
| | | | |
|Corporate trustee/guardian required |Yes* |Yes* |No |
| | | | |
|Health, education, maintenance and support distribution |Yes, except for (d)(4)(A) |Yes, except for (d)(4)(A) |No |
|standard mandatory |trusts |trusts | |
| | | | |
|Trustee/guardian can be ordered not to make support |Probably no |Probably yes |Yes |
|distributions to minors if minor’s parents have the ability to| | | |
|support minor | | | |
| | | | |
|Principal distributions for health, education, maintenance and|Yes |Yes |No (see Tex. Prob. Code |
|support authorized without further court order | | |Ann. § 776) |
| | | | |
|Distributions permitted to person whom the ward/beneficiary is|Probably not |Yes |Yes |
|legally obligated to support | | | |
| | | | |
|Spendthrift provision may protect the estate or trust from the|Maybe |Maybe |No, but ward may not have |
|creditors of the ward/beneficiary | | |the power to contract |
| | | | |
|Trust-type investments (securities, etc.) permitted without |Yes |Yes |No |
|prior court approval | | | |
| | | | |
|Investments limited to Tex. Prob. Code Ann. §855-approved |No |No |Yes |
|investments (U. S. bonds, FDIC-insured accounts, etc.) without| | | |
|prior court approval | | | |
| | | | |
|Trustee/guardian may make tax-motivated gifts |No |Yes, with the help of a |Yes, with court approval |
| | |guardian and with court | |
| | |approval | |
| | | | |
|Must terminate when minor ward/beneficiary attains age 18 (if |No |No |Yes |
|minority is his or her only incapacity) | | | |
| | | | |
|Terminates when minor ward/beneficiary attains age 18 unless |No |Yes |No |
|extended by court order (not to exceed age 25) | | | |
| | | | |
|Terminates when minor ward/beneficiary attains age 25 unless |Yes |No |No |
|shortened by the terms of the trust | | | |
| | | | |
|Terminating distributions may be made to someone other than |No, except for (d)(4)(A) |Yes |No |
|the ward/beneficiary or the ward/beneficiary’s estate |trusts | | |
| | | | |
|Trustee compensation based on Tex. Prob. Code Ann. § 665 (5% |No |Yes |Yes |
|of income plus 5% of disbursements) | | | |
| | | | |
|Annual application and approval of trustee compensation |No |Yes |Yes |
|required | | | |
| | | | |
|Filing and approval of annual account required |No |Yes |Yes |
| | | | |
|Filing and approval of final account required |No |Yes |Yes |
| | | | |
|Guardianship-style accountings required |No |Yes |Yes |
| | | | |
|Bank-trust-department-style accountings permitted |Yes |No |No |
| | | | |
|Trustee/guardian has powers of trustee under the Texas Trust |Probably |Yes |No |
|Code | | | |
| | | | |
|Texas Trust Code applies (to the extent not in conflict) |Maybe |Yes |No |
| | | | |
|Court creating trust/guardianship may modify or terminate |Yes |Yes |Yes |
|trust/guardianship | | | |
| | | | |
|Court creating trust/guardianship may hold trustee/guardian |District court and statutory |Yes |Yes |
|liable for breach of fiduciary duty |probate court: Yes; county | | |
| |court: Maybe | | |
| | | | |
|Court creating trust/guardianship may hear trustee/guardian’s |District court and statutory |Yes |Yes |
|motion for instructions |probate court: Yes; county | | |
| |court: Maybe | | |
| | | | |
|Can be used as a (d)(4)(A) Medicaid “supplemental needs” trust|Yes |Yes |No |
| | | | |
|Can be used as a (d)(4)(B) “Miller Trust” |No |Yes |No |
| | | | |
|Can use a (d)(4)(C) nonprofit pooled trust |Probably No |Probably Yes |N/A |
*At this writing (May 5, 1999), legislation has been introduced to remove the requirement of a corporate fiduciary. It is not expected to pass as to a trustee appointed under §142, but H.B. 3632, which would remove this requirement under §867 (in guardianships), has a reasonable chance of passage.
APPENDIX 23: Selected Bibliography
The author has found the following resources particularly helpful for finding information on public benefits. Numerous other secondary resources are available, as are many other ways of finding the applicable statutes and regulations. Although the treatises focus on Elder Law, virtually all the same benefits are available to the non-elderly disabled.
Treatises
Clifton B. Kruse, Jr., Third-Party and Self-Created Trusts, 2d ed., p. 68 (American Bar Association 1998
Mezzulo & Woolpert, Advising the Elderly Client (Clark, Boardman Callahan, Looseleaf)
Regan, Morgan & English, Tax, Estate & Financial Planning for the Elderly (Matthew Bender, Looseleaf).
Regan & Gilfix, Tax, Estate & Financial Planning for the Elderly: Forms & Practice (Matthew Bender, Looseleaf).
Renée C. Lovelace (Project Director), The Texas Attorney's Planning Guide for Representing Families With Disabled Family Members: Starting Points In Helping Caregivers Build Networks of Care (to be published in mid-1999). Order one of two ways: (1) by sending a request along with the attorney's bar number and a self-addressed, stamped post card to 203 Lake Ridge Village, Box 412, Dallas, Texas 75238 or (2) by e-mail to TexAttyGd@. There are 2800 free copies available while they last, after which they will be sold at cost. Attorneys will be notified as to whether free copies are available and, if not, the cost to order (expected to be about $10). Parties involved: Planned Living Assistance Network of North Texas, Inc., with funding by Texas Bar Foundation, Hogg Foundation for Mental Health, and Dallas Bar Foundation.
West Group, Estate & Elder Law Advisor (CD product with most state and federal statutes and rules, optionally including on the disk Advising the Elderly Client)
Articles
Clifton B. Kruse, Jr., Medicaid Trusts: Estate Planning Using Non-Medicaid Disqualifying Self-Settled and Third Party Trusts, State Bar of Texas, Advanced Estate Planning and Probate Course, 1995
Deborah A. Green, Special Trusts: §§867, 142, 1396 Supplemental Needs Trusts When and How to Use Them, State Bar of Texas Advanced Estate Planning and Probate Law Course, 1998 (available for downloading at )
Glenn M. Karisch, Court-Created Trusts, State Bar of Texas Advanced Drafting: Estate Planning and Probate Course, 1995 (available for downloading at )
Kathleen A. Miller, Third Party Recovery: The Right to Recover and Defending the Recovery Action, State Bar of Texas Elder Law Institute, 1996
Kathleen Ford Bay, Court Created Section 867 Trusts, Texas Bankers Association Personal Trust Seminar, 1998 (available for downloading at )
Mary T. Schmitt Smith, After the Wedding: Administration of Special Needs Trusts, Tuning Up the Trustee, National Academy of Elder Law Attorneys: NAELA Advanced Elder Law Institute November, 1997.
Roger M. Bernstein, Susan G. Haines & Mary Smith, Special Needs Trusts: Drafting and Administration, National Academy of Elder Law Attorneys: NAELA Advanced Elder Law Institute November, 1997
State Bar of Texas, Planning Strategies for Persons With Disabilities (CLE materials, 1998).
Internet Resources
AIDS publications and resources:
Elder Law as a profession:
Federal Medicaid and Medicare information:
Federal rules:
Federal statutes (including recent and proposed legislation):
Health-related information:
Social Security information:
Texas administrative code:
Texas and federal statutes and regulations (links to): http:/.utexas.edu/~suefaw/
Texas Department of Human Services program information:
Texas Medicaid rules:
Texas Probate website:
Texas statutes:
Bibliography
Best recent annotated bibliography on elder and disability law in Texas is Susan Whitman’s bibliography in the course materials for the University of Texas Elder Law Institute (2nd ed., 1998).
-----------------------
[1] However, in a recent contact with the Dallas Region Social Security office in preparation of this article, the author was told this is no longer the policy, and even the corpus of a support trust will be treated as a "resource" of a beneficiary by SSI. Because the case law and commentary to date is contrary, this does not appear a sufficient basis for leaving "supplemental needs" language out of trusts; but it opens the possibility of drafting less restrictive distribution powers and of utilizing existing support trusts that previously would have had to be amended to allow for SSI benefits.
[2] At this writing, Congress is considering H.R. 631, which would provide (at Section 107) for one month of ineligibility for every $500 transferred (or in future years, the amount will equal whatever the maximum monthly SSI benefit may then be). The look-back period would be 36 months. It would not apply to transfers to a trust created under 42 U.S.C. §1396p(d)(4) (self-settled under-65 SNT's and pooled trusts). Sec. 106 also provides for trust rules similar to those in the Medicaid law. That is, if a trust is established with assets of the individual or the individual's spouse, the corpus will be treated as a resource if the trustee can under any circumstances make a payment to the individual or the individual's spouse. If not (i.e., an irrevocable trust of which the settlor is not a beneficiary), the transfer will be penalized, apparently with a 36-month lookback period. If the bill passes, the transfer penalty provisions will be effective on the date of enactment. The trust provisions would go into effect January 1, 2000. At this writing, the bill has been reported out to the House Ways & Means Committee from the Subcommittee on Human Resources.
[3] Congressional Research Service, Medicaid: An Overview (IP 468M, September 30, 1997), pp. CRS-1 to 2.
[4] Medicaid: An Overview, p. CRS-3
[5] Texas Health and Human Services Commission, Texas Medicaid in Perspective, 2nd ed. (1997).
[6] See 40 T.A.C. Chapter 19 for services Medicaid-certified nursing facilities must provide and standards they must meet. For a brief overview of services covered, see Medicaid Eligibility Handbook Appendix XIII, Attachment II.
[7] For instructions to eligibility workers on how to do this, see Medicaid Eligibility Handbook §2461.2. Note that this says nothing about recovering payments made in the past. Therefore, it is important that the client be advised to notify the eligibility worker whenever possible in advance before making payments for these “incurred medical expenses.”
[8] 40 T.A.C. §48.2901 et seq. The regulations regarding the home care programs are so poorly organized that it is difficult to understand their meaning without reference to DHS summaries that are produced from time to time and are usually available from local DHS offices.
[9] See 40 T.A.C. §§48.6001-48.6020 for regulations governing the Community Based Alternatives Program. It is described generally at Medicaid Eligibility Handbook §4816.
[10] See 40 T.A.C. §§48.2101-48.2110 for regulations governing the CLASS Program. It is described generally at Medicaid Eligibility Handbook §4811.
[11] 40 T.A.C. §27.503.
[12] A word search of Chapter 48, T.A.C. yields approximately a dozen references to “home and community-based services,” none of which pertain to this program. It is apparently funded under §1915(c) of Title XIX to the Social Security Act as a “Medicaid waiver program.
[13] Medicaid Eligibility Handbook §4813.
[14] AARP brochure “Campaign for Nursing Home Reform Now,” September 30, 1995, citing Texas Department of Human Services as source.
[15] Austin American-Statesman, January 28, 1997, p. B-1.
[16] Nationally, Medicaid pays 80% of the private-pay rate according to one unattributed estimate. Analytical Text, Estate & Elder Law Advisor (West Group CD, 1999). No data expressly addressing this issue have been found, but the author calculates from data assembled for other purposes that the ratio may have been 85% in Texas in the early 1990’s. House Research Organization, Nursing Homes in Texas: A Guide to the Issues (1992).
[17] Similar opinions are expressed in Long-Term Care Planning: A Dollar and Sense Guide, p. 53 (United Seniors Health Cooperative, 1999 Edition).
[18] 40 T.A.C. §19.2322(d)(9), published in Texas Register on January 23, 1999 (effective February 1, 1999).
[19] Linton by Arnold v. Commissioner of Health and Environment, State of Tennessee, 65 F.3d 508 (6th Cir. 1995), cert. denied, St. Peter Villa, Inc. v. Linton, 116 S.Ct. 1542, 134 L.Ed.2d 646, 64 USLW 3705, 3707 (U.S., Apr 22, 1996). Federal Medicaid statutes cited Linton are 42 U.S.C.A. §§1396a(a)(23), 1396r(c)(4),(5). See also 42 U.S.C.A. §1396a(a)(10(a)(ii)(V).
[20] 40 T.A.C. §19.502(b)(5).
[21] Disciplinary Rules 3.04, 3.10, 4.01.
[22] 40 T.A.C. §15.431(d), Medicaid Eligibility Handbook §2322.6.
[23] Disciplinary Rules 3.04(a), 3.10, 4.01(b).
[24] Matter of Klapper, NYLJ , Aug. 9, 1994, p. 26, col. 1, Sup. Ct., Kings Co.
[25] In In re Guardianship of Connor, 525 N.E. 2d 214 (Ill. App. 1988), a guardian was held liable for damages for selling the ward’s home and spending the proceeds on nursing home care, when the home was an exempt resource under Medicaid law. See also Disciplinary Rule 1.01.
[26] Proceedings of the Conference on Ethical Issues in Representing Older Clients, 62 Fordham L. Rev. 1063 (1994), reprinted in The Criminal Statute: Understanding the Statute and Legislative Process, course materials (Tab 1) for the 1997 Advanced Institute of the National Academy of Elder Law Attorneys.
[27] Gouldy v. Metcalf, 12 S.W. 830 (Tex. 1889); but see Hanna v. Ladewig, 11 S.W. 133 (Tex. 1889) and other cases cited in a note arguing that this is not always the case, at 33 Real Estate, Probate & Trust Law Reporter 42 (October 1994).
[28] A form for assessing capacity is included as an appendix to an excellent article on this subject in the materials for the 1992 Symposium of the National Academy of Elder Law Attorneys. A more comprehensive form, together with extensive legal and medical discussion, is contained in Walsh, et al., Mental Capacity, 2nd ed. (Shepard’s/McGraw-Hill Tax and Estate Planning Series 1994, looseleaf).
[29] 40 T.A.C. §15.300(a),(b).
[30] 8 U.S.C. §1613.
[31] 40 T.A.C. §15.301(a).
[32] 40 T.A.C. §15.305(a).
[33] 40 T.A.C. §§19.601-19.604. For procedural safeguards regarding discharge of a resident already admitted, see 40 T.A.C. §19.302, 40 T.A.C. Chapter 79, and the DHS Fair Hearing, Fraud and Civil Rights Handbook.
[34] 40 T.A.C. §19.2402 et seq.
[35] 40 T.A.C. §48.2907
[36] 40 T.A.C. §15.501(f), Medicaid Eligibility Handbook §3213.
[37] 40 T.A.C. §15.501(g), Medicaid Eligibility Handbook §3213.
[38] 40 T.A.C. §15.503, Medicaid Eligibility Handbook §§4133-4133.7.
[39] 40 T.A.C. §15.410(a); Medicaid Eligibility Handbook §4213.
[40] 40 T.A.C. §15.100 (Medicaid Eligibility Handbook §§2410-2411).
[41] 40 T.A.C. §15.100, Medicaid Eligibility Handbook §2451, 2451.3 et seq.
[42] 40 T.A.C. §15.455(b)(1), Medicaid Eligibility Handbook §2451.1. The §1929(b) program (“Primary Home Care”) is not a waiver program.
[43] 40 T.A.C. §§15.417(c)(1), 15.417(f)(1); Medicaid Eligibility Handbook §§2313.42, 2313.45. The author has asserted this position in two cases involving self-funded trusts, in which the eligibility workers appear not to have been aware of Medicaid Eligibility Handbook §2451.1, but at this writing has not yet received a response from the Department.
[44] 40 T.A.C. §15.455(e)(7), Medicaid Eligibility Handbook §2453.7.
[45] 40 T.A.C. §15.100. See 40 T.A.C. §15.460, (Medicaid Eligibility Handbook §2420-2421) for income exemptions.
[46] 40 T.A.C. §15.465(e)(1) (Medicaid Eligibility Handbook §2435,2436).
[47] 40 T.A.C. §15.100. See 40 T.A.C. §§15.460-15.465 (Medicaid Eligibility Handbook §§2430-2439) for income exclusions.
[48] 40 T.A.C. §15.453(a),(b); Medicaid Eligibility Handbook §2441.
[49] 38 U.S.C.A. §5503(f)(2).
[50] One DHS representative has indicated that it is necessary first to ask the VA to stop sending checks at all, then reapply for the reduced monthly benefit after establishing Medicaid eligibility. Otherwise, you may be caught in a “chicken-or-egg” problem, because (in the absence of a Miller Trust) you will never be able to establish Medicaid eligibility on account of the VA income. The author has not had a case involving this problem and until hearing this statement was under the impression that DHS would disregard the VA income from the beginning on the ground that it would be reduced as soon as eligibility was established. This may be an area in which some workers apply more common-sense solutions than others.
[51] 42 U.S.C.A. §1396r-5(b)(2).
[52] 40 T.A.C. §15.215(b)(5); Medicaid Eligibility Handbook §1415.
[53] 40 T.A.C. §15.455(c)(3)(D); Medicaid Eligibility Handbook §2452.33.
[54] 40 T.A.C. §15.455(e)(4); Medicaid Eligibility Handbook §2453.4.
[55] This seems inconsistent with the established rule that fluctuating income is subjected to six-month averaging, at least in the applied income calculation (after eligibility is established). Medicaid Eligibility Handbook §2464. It also would seem more difficult to administer and less fair than 6-month averaging. For example, it would seem that the client could establish eligibility for any month in which a large payment for property tax or insurance were made, then lose it again in other months. A source in the Department says they will in fact continue to apply 6-month averaging in the discretion of the eligibility worker.
[56] 42 U.S.C.A. §1396r-5(b)(1).
[57] Internal Revenue Code §414(p)
[58] Texas Family Code §2.501(a).
[59] Internal Revenue Code §§71(b)(2), 408(d)(6).
[60] Texas Government Code Chapter 804.
[61] 40 T.A.C. §15.442(g), Medicaid Eligibility Handbook §2342.8, State Medicaid Manual sec. 3258.9B.
[62] Medicaid Eligibility Handbook Appendix IX. The same table is in Appendix 2 hereto, at §3258.9B.
[63] The more favorable treatment for an annuity purchased by and for a community spouse was effected by adding to the new annuity rule at 40 T.A.C. §15.442(g)(2) the qualification that the requirements in that subparagraph apply only to an annuity “purchased by or for the client” (emphasis added). A “client” is defined at 40 T.A.C. §15.100 as “either an applicant for or a recipient of medical assistance.” The redefinition of “client” in a later amendment to the transfer rules, at 40 T.A.C. §15.430(a), Medicaid Eligibility Handbook §2320.1, includes the spouse of an applicant. However, the general definition of “client” in §15.100 was not repealed, and the context of the later definition within the transfer rules indicates that its only purpose was to attribute transfers by an applicant’s spouse to the applicant. This interpretation is confirmed by the explanation of the annuity rule when it was adopted in the Texas Register. On behalf of the Texas Chapter of the National Academy of Elder Law Attorney, the author of this outline submitted to the Department the comment to the rulemaking that resulted in exemption of the community spouse from the “remainder-to-the state” requirement when purchasing an annuity.
[64] 42 U.S.C.A. §1396p(d)(4)(B).
[65] 746 F. Supp. 19 (D. Colo. 1990).
[66] 40 T.A.C. §15.417(f)(3)(D), adopted at 23 Texas Register 3021 (effective May 1, 1999).
[67] Any transfer of "resources" to the trust will make the trust “invalid,” except a small deposit of $10 or $20 of the client’s resources or another party’s funds, if required by the bank to open the account, will be disregarded. The Miller Trust rules are in the Medicaid Eligibility Handbook at §2313.45.
[68] This does not accurately state the required disposition of funds, as it excludes dispositions for Medicare Part B premiums, other medical insurance, unreimbursed medical expenses; and there is a possibility in some cases for a further disbursement to the spouse if money is left over after making full payment for the Medicaid-covered items. However, HCFA put this language in its Transmittal No. 64 (cited below), and DHS accordingly requires it in the trust. This clearly does not alter the scheme for "deductions from applied income," discussed below, which is required by law.
[69] DHS memo of October 30, 1996.
[70] 40 T.A.C. §15.17(e)(2), adopted at 23 Texas Register 3021 (effective May 1, 1999). This is based on HCFA’s misunderstanding of trust law, at State Medicaid Manual §3259.1A.5., from HCFA Transmittal No. 64 (November 1994) (Appendix 4 hereto)
[71] Texas Property Code § 112.054(a)(2); and in order to accommodate DHS and its beneficiaries, the Texas Legislature in 1997 specifically provided that trusts created by guardianship (probate) courts and trial courts as Supplemental Needs Trusts can be modified to allow the ward to be eligible for public benefits. Texas Probate Code §868(d); Texas Property Code §142.005(g).
[72] DHS memo, supra..
[73] 40 T.A.C. §15.611(a), Medicaid Eligibility Handbook §4113.
[74]40 T.A.C. §15.17(f)(3)(B), adopted at 23 Texas Register 3021 (effective May 1, 1999).
[75] Although the author has found no written authority on this, it comes from a usually reliable source in the department and has been applied consistently by eligibility workers in at least three cases.
[76] To obtain the precise amount the worker believes should be paid to the spouse, as applied income, etc., ask the worker for a copy of the Form 1275 that he or she prepared in the case. It is the worksheet on which the spousal allowance is calculated.
[77] State Medicaid Manual §3259.7C5c. This somewhat enigmatic passage appears to say that any amounts used for the benefit of the individual will count as income, and the new DHS rule at 40 T.A.C. §15.417(f)(3)(D) says so expressly. Assuming that all income goes into the Miller Trust and is therefore not counted (unless used in this way), that would provide for a maximum of $1,500 per month (currently) that could go back to the client--far more than an unmarried client is likely to have left after payment of deductions and applied income.
[78] 40 T.A.C. §15.455(d)(5)(A), Medicaid Eligibility Handbook §2452.4
[79] 40 T.A.C. §15.442(g), Medicaid Eligibility Handbook §2342.8.
[80] The HCFA policy at State Medicaid Manual §3258.9B states that the life expectancy of the individual must “coincide with” the life of the annuity. However, in the next paragraph, it states that a 10-year annuity for a person with a life expectancy of 14.96 years would be “actuarially sound.” Therefore, it does not appear that the intent is to require literally that a person with a life expectancy of 14.96 years must find an annuity that pays for 14.96 years, but only that it should not pay for longer than that time. Accordingly, in response to a comment to this effect from the Texas Chapter of the National Academy of Elder Law Attorneys, DHS revised the proposed rule to add the “or exceed” language.
[81] The DHS theory appears to be that non-negotiable notes have no market value, so the purchase of one is a transfer of the purchase price that is subject to a transfer penalty.
[82] In Medicaid terminology, the “client” is “either an applicant for or a recipient of medical assistance. 40 T.A.C. §15.100, Medicaid Eligibility Handbook §1120. A Community Spouse is by definition neither of these.
[83] This would violate 42 U.S.C.A. §1396p(c)(2)(B(ii), to the effect that a transfer penalty may not be imposed if assets are “transferred from the individual’s spouse to another for the sole benefit of the individual’s spouse.” See HCFA’s State Manual §§3257B6, 5258.10 (Appendix 4 hereto) for a critical definition of “sole benefit” requiring an annuity to be “actuarially sound” (i.e., will not pay longer than the actuarial life expectancy of the annuitant according to the tables provided). Arguably, a private annuity or non-negotiable installment note to the community spouse would also be protected by this provision, but the Department has indicated no willingness to extend it that far.
[84] “Balloon annuities” have already been declared dead in a memo from DHS General Counsel dated December 2, 1996, which provides that as of that date, “We will not consider an annuity to qualify under OBRA 93 which does not provide for even monthly payments to the annuitant which would result in recapture of the initial investment within the annuitant’s lifetime as determined from the life expectancy tables.”
[85] 42 U.S.C.A. §1396p(d)(6).
[86] See, e.g., Alexander Bove, Making Resources Disappear: The Magic of Annuities and Self-Canceling Notes, National Academy of Elder Law Attorneys Symposium 1996.
[87] For a summary of the possibilities of and limitations on litigation in this area, see IV. L. 4. of this outline.
[88] 40 T.A.C. §15.455(e)(7), Medicaid Eligibility Handbook §2453.7.
[89] 40 T.A.C. §15.435, published at 23 Texas Register 3028 (March 20, 1999, effective May 1, 1999).
[90] The rule speaks of “loans” and “property agreements” including even oral agreements, as potentially being “negotiable.” However, a negotiable instrument as defined in the Texas Business and Commerce Code is by definition an instrument in writing, with certain prescribed terms and other qualities. The intent therefore appears to be to classify assignable evidences of debt in the same category with negotiable instruments, for Medicaid purposes. That is, the test is, as stated in the rule, whether the client owns a “transferable instrument in the instrument that can be converted to cash or spent down properly.”
[91] The provision at 40 T.A.C. §15.435(g)(4) to the effect that any “negotiable” instrument is presumed worth its principal balance seems by its terms to apply without regard to whether it is secured or not. However, the intent of §15.435(g)(2) appears to be to require a discount routinely on unsecured instruments. The author suspects that the latter policy will be applied if the eligibility worker wants to assess a transfer penalty, while the client will have the burden of proving a discount if the worker wants to deny eligibility by valuing the asset at its full principal balance. Therefore, the prudent course of action for planning purposes would be to obtain an appraisal and assume the worst.
[92] 40 T.A.C. §15.100, Medicaid Eligibility Handbook §2310.
[93] 40 T.A.C. §15.455(e)(7), Medicaid Eligibility Handbook §2453.7.
[94] 40 T.A.C. §§15.400(a),(b), 15.435(b)(2), Medicaid Eligibility Handbook §2310.
[95] 40 T.A.C. §15.415(a),(b), Medicaid Eligibility Handbook §2313.
[96] 40 T.A.C. §15.415(e),(f); Medicaid Eligibility Handbook §2313.4.
[97] Some probate judges may, however, refuse such orders to independent executors on the ground that they are not within the limited scope of judicial action available in an independent administration.
[98] 40 T.A.C. §15.415(c), Medicaid Eligibility Handbook §2313.1.
[99] 40 T.A.C. §15.435(m), Medicaid Eligibility Handbook §2331.3. Although the regulation speaks only of "bank accounts," presumably the same rules would apply to other financial institutions such as credit unions, brokerages and mutual funds.
[100] Texas Probate Code § 438(a).
[101] 40 T.A.C. §15.415(g), Medicaid Eligibility Handbook §2313.5.
[102] 40 T.A.C. §§15.420, 15.440(c), Medicaid Eligibility Handbook §§2314, 2344.
[103] 40 T.A.C. §15.450(b), Medicaid Eligibility Handbook §2411.
[104] 40 T.A.C. §15.435(l), Medicaid Eligibility Handbook §2332.5.
[105] 40 T.A.C. §15.425(a),(b), Medicaid Eligibility Handbook §2315.
[106] 40 T.A.C. §15.441(b)(4), Medicaid Eligibility Handbook §2341.3.
[107] 40 T.A.C. §15.442(a)(2), Medicaid Eligibility Handbook §2341.11.
[108] 40 T.A.C. §15.441(a)(3), Medicaid Eligibility Handbook §2341.12.
[109] 40 T.A.C. §15.441(a)(4) (and see 40 T.A.C. §100 for definition of "relative"), Medicaid Eligibility Handbook §2341.13.
[110] 40 T.A.C. § 15.441(a)(2), Medicaid Eligibility Handbook §2341.11.
[111] 40 T.A.C. §15.441(a)(9), Medicaid Eligibility Handbook §2341.11.
[112] 40 T.A.C. §15.441(a)(6),(10), Medicaid Eligibility Handbook §2341.15, 2341.16.
[113] 40 T.A.C. §15.441(b)(6)(A),(B), Medicaid Eligibility Handbook §2341.5.
[114] 40 T.A.C. §15.442(e), Medicaid Eligibility Handbook §2342.5.
[115] 40 T.A.C. §15.435(h), Medicaid Eligibility Handbook §2331.9.
[116] 40 T.A.C. §15.442(a), Medicaid Eligibility Handbook §2342.1.
[117] 42 U.S.C.A. §1396r-5(c)(5), Medicaid Eligibility Handbook §2342.1.
[118] 40 T.A.C. §15.442(b), Medicaid Eligibility Handbook §2342.2.
[119] 42 U.S.C.A. §1396r-5(c)(5), Medicaid Eligibility Handbook §2342.2.
[120] 40 T.A.C. §15.442(d), Medicaid Eligibility Handbook § 2342.4.
[121] 40 T.A.C. §15.442(c), Medicaid Eligibility Handbook §2342.3.
[122] 40 T.A.C. §15.443(a), Medicaid Eligibility Handbook §2343.1.
[123] 40 T.A.C. §15.443, Medicaid Eligibility Handbook §2343.1-2343.4. See also 40 T.A.C. §15.451, and the definition of “materially participating” at 40 T.A.C. §15.100.
[124] 40 T.A.C. §15.443(b), Medicaid Eligibility Handbook §2343.2.
[125] 20 C.F.R. §416.1220.
[126] 40 T.A.C. §15.443(c)(1), Medicaid Eligibility Handbook §2343.3.
[127] 40 T.A.C. §15.410(a)(1), Medicaid Eligibility Handbook §2312.1; 20 C.F.R. §416.1202(a).
[128] This is arguably incorrect. Texas is an “SSI state,” which means that pursuant to 42 U.S.C.A. §1396a(a)(10)(A)(ii)(V), resource definitions should be the same as in the SSI rules, including 20 C.F.R. §416.1202(a). However, in Mistrick v. Division of Medical Assistance and Health Services, 1999 N.J. LEXIS 562 (June 8, 1999), the New Jersey Supreme Court reversed a lower appellate court’s decision at 690 A.2d 651 (1997) holding that the SSI rules applied. The state Supreme Court agreed with the agency that the spousal impoverishment rules, being later in time, superseded the SSI rules.
[129] 42 U.S.C.A. §1396-5.
[130] Except where otherwise noted, all the rules cited in the subsections that follow are contained in Except where otherwise noted, all the rules cited in the subsections that follow are contained in 40 T.A.C. §15.503 and Medicaid Eligibility Handbook §§3232.2, 4121, 4133. The federal statute is 42 U.S.C.A. §1396-5.
[131] 42 U.S.C.A. §1396r-5(h).
[132] 40 T.A.C. sec. 15.503 (b)(5).
[133] The Texas rules and handbook provisions until recently required that the "institution" must be Title XIX (Medicaid)-certified. 40 T.A.C. §15.503(b), Medicaid Eligibility Handbook §4133.1. However, the federal law mandates that any "medical institution" will do. This is important to clients who initially go into a nursing home that is not Medicaid-certified, then subsequently move to a Medicaid-certified nursing home and apply for Medicaid. Typically, they will have spent down many thousands of dollars in the meantime so would have a much lower protected resource amount under the rule in the handbook. Recently, DHS officials have become aware of this problem and amended the rule to provide that any “medical institution” will do.
[134] Medicaid Eligibility Handbook §4133.1.
[135] 40 T.A.C. §15.503(j), Medicaid Eligibility Handbook §4133.8 and Appendix XXVII (reproduced in Appendix 18 to this outline). An earlier version of this outline reported that DHS was considering a rule utilizing the cost of a single-premium annuity to measure the increased PRA, which would in most cases have prevented any increase in the PRA. That rule was never published, and has been supplanted by the rule just cited.
[136] 40 T.A.C. §15.503(j)(5), Medicaid Eligibility Handbook §4133.8.
[137] 40 T.A.C. §15.503, 23 Tex Reg 12890 (effective March 1, 1999). In the author's opinion, this rule is inconsistent with the federal statute and with good policy. If the Community Spouse receives an inheritance after the snapshot date and before the first annual review date, why should she be in a worse position than if she received it one day earlier or later? The federal statute may allow a second request in this case, as nothing in its language or purpose prevents a second application for PRA increase.
[138] The new rule does not expressly provide for this deduction, but it is implicit in the recognition in the rule that there is a need for an increased PRA when income diversion from the institutionalized spouse is insufficient, in combination with other income available to the community spouse, to provide for the total of $2,049 per month (in 1999).
[139] 42 U.S.C.A. §1396r-5(d)(1)(B).
[140] The better reasoned cases accept this argument. Kimnach v. Ohio Department of Human Services, 96 Ohio App.3d 640, discretionary appeal not allowed, 71 Ohio St.3d 1447; Gruber v. Ohio Department of Human Services, 98 Ohio App.3d 72 (1994), discretionary appeal not allowed, 71 Ohio 3d 1493; In addition, on 7/13/95, a federal district court granted a motion for partial summary judgment to the same effect in a class action: No. C-2-1094, U.S. Dist. Ct., S.D. of Ohio, Eastern Div. However, in several recent cases, courts have held otherwise. Cleary v. Waldman, 959 F. Supp. 22 (D.C.N.J. 1997), affirmed, 199 WL 53046 (3rd Cir. Feb. 8, 1999); Thomas v. Commissioner of the Division of Medical Assistance (Mass. Sup. Jud. Ct., SJC-07344, August 14, 1997); Golf v. New York State Department of Social Services, (N. Y. Ct. of Appeals, April 2, 1999); Chambers v. Ohio Department of Human Services, No. 96-3046 (6th Cir., May 27, 1999) (petition for certiorari filed August 25, 1999 in S. Ct. Dkt. No. 98-360).
[141] Medicaid Eligibility Handbook Appendix XXVII, “Step 2.” This is apparently based on correspondence from HCFA to the effect that the couple can give up income to protect resources, so long as at least $1.00 of income of the insitutionalized spouse goes to the community spouse.
[142] 42 U.S.C.A. §1396r-5(e)(2)(B); 40 T.A.C. §15.503(a)(3).
[143] 42 U.S.C.A. §1396r-5(c)(4).
[144] This practice may arise from a misinterpretation of the following language in the Texas regulations: “After the initial eligibility period (certification date to first annual review), only resources in the name of the institutionalized spouse are considered in the eligibility determination.” 40 T.A.C. §15.503(b), Medicaid Eligibility Handbook §4133.2 para. 4. It does not follow logically that the PRA should continue to limit the resources of the Community Spouse until that time, and that interpretation is flatly contrary to the federal law.
[145] 42 C.F.R. §435.217; 40 T.A.C. §48.6008. The author believes this policy is out of compliance with federal law and is subject to challenge.
[146] In 1997, the transfer rules were expanded (to include federal provisions added in 1993) and codified at 40 T.A.C. §15.430, Medicaid Eligibility Handbook §§2320-2329 .
[147] The original provision is in the “Kennedy Kassebaum” Act, Senate Bill 1028 (Health Insurance Reform Act) §217, to be codified at 42 U.S.C.A. §1320a-7b(a). The amendment is §4734 of H. R. 2015 (Balanced Budget Act of 1997).
[148] The judgment by its terms applies only to members of the State Bar of New York. However, in the author’s judgment, the risk that a future Attorney General would prosecute an attorney under a law subject to a permanent injunction by a federal court, that a previous A.G. refused to defend, seems minimal. The requirement of diligent and exclusive representation of our clients would seem to demand that if we choose to practice in this area, we accept whatever small risk may remain and do our jobs for our clients.
[149] Medicaid Eligibility Handbook §2320; 40 T.A.C. §15.430(a)(4).
[150] However, legislation is pending in Congress that would impose a transfer rule on SSI, and therefore, presumably, on “Community Medicaid” attached to SSI. See II.D. above.
[151] 42 U.S.C.A. §1396p(c)(1)(B); 40 T.A.C. §15.430(e), Medicaid Eligibility Handbook §2323. The federal statutory language refers only to transfers from a trust, but HCFA interprets this to include also transfers to a trust, if the trust is such that the corpus is not treated as a resource of the individual. State Medicaid Manual §3258.4E. The purpose of this appears to be to discourage establishment of irrevocable trusts that are not treated as resources of the grantor.
[152] 42 U.S.C.A. §1396p(c)(2); 40 T.A.C. §15.430(d); Medicaid Eligibility Handbook §2322.
[153] Medicaid Eligibility Handbook §2322.1; State Medicaid Manual §3258.10B. The term "solely for the benefit" contains a trap for the unwary. It is interpreted by HCFA to mean the trust instrument or other document must provide for the spending of the funds on the beneficiary during the beneficiary's actuarial life expectancy. State Medicaid Manual §3257B.6. Presumably, DHS would use the life expectancy table at Medicaid Eligibility Handbook Appendix IX, which it uses in evaluating annuities.
[154] If the asset transferred was an exempt resource, such as a residence, retroactive eligibility can be established (assuming all other requirements for retroactive eligibility are met). That is because the client would have been eligible earlier but for the transfer. However, if the asset transferred was not exempt, eligibility can be established only after it has been spent down. A return of only part of the transfer will reduce the transfer penalty only partially (for example, if half of the asset is return, half of the penalty period is eliminated). 40 T.A.C. §15.430(h), Medicaid Eligibility Handbook §2324.4.
[155] See IV.C.5. above
[156] Texas Probate Code § 865, 866; and §776A, eff. September 1, 1997.
[157] Medicaid Eligibility Handbook §2324.
[158] This number changes annually. The amount of $2,511 went into effect on 5/1/99. The number in effect on the date of application controls, regardless of the date of the transfer.
[159] 42 U.S.C.A. §1396p(c)(1)(E); 40 T.A.C. §430(f), Medicaid Eligibility Handbook §2324 .
[160] State Medicaid Manual §3258.5G-I; 40 T.A.C. §430(f)(5), Medicaid Eligibility Handbook §2324.
[161] Unless otherwise indicated, this section is based on Medicaid Eligibility Handbook §§3232.1-3232.22.
[162] 40 T.A.C. §48.6009.
[163] 40 T.A.C. §15.417(e)(3)(D),(E); State Medicaid Manual §3259.7C5c.
[164] Medicaid Eligibility Handbook §3232.21.
[165] This does not appear in the Texas rules or handbook, but it is implicit in HCFA's interpretation of the Miller Trust provisions of OBRA 93. State Medicaid Manual §3259.7C3. Before the Miller Trust, it was virtually impossible for anything to be left over after payment of applied income, as the institutionalized spouse would be eligible only if his or her income did not exceed the income cap ($1,452 in 1997). With a Miller Trust, however, the institutionalized spouse's income can be much higher, and payment to the community spouse of any balance remaining after full reimbursement to the Medicaid program is essential.
[166] 42 U.S.C.A. §1396p(d); 40 T.A.C. §§15.100, 15.417; Medicaid Eligibility Handbook §§2313.2-2313.46.
[167] 42 U.S.C.A. §1396p(d)(2)(A); 40 T.A.C. §15.417(a)(3); Medicaid Eligibility Handbook §2313.4.
[168] 42 U.S.C.A. §1396p(e)(1).
[169] 42 U.S.C.A. §1396p(d)(3); 40 T.A.C. §15.417(d); Medicaid Eligibility Handbook §1313.43.
[170] State Medicaid Manual §3259.6F.
[171] 42 U.S.C.A. §1396p(d)(3); 40 T.A.C. §15.417(d); Medicaid Eligibility Handbook §2313.44.
[172] 42 U.S.C.A. §1396p(d)(5).
[173] State Medicaid Manual §3259.8A; 40 T.A.C. §15.417(g)(1); Medicaid Eligibility Handbook §2313.46.
[174] 42 U.S.C.A. §1396(d)(4)(A); 40 T.A.C. §15.417(f), Medicaid Eligibility Handbook §2313.45.
[175] Clifton B. Kruse, Jr., O.B.R.A. ‘93 Disability Trusts--A Status Report, 10 naela quarterly No. 1 (Winter 1997), p. 15.
[176] Kruse, supra. One DHS attorney has expressed an opinion that such a trust is “established by” the applicant and not by a parent, guardian or court, to the extent the applicant personally transfers assets to the trust. In other states, and heretofore in Texas, it has been thought that execution of the trust instrument and transfer of a nominal consideration to legally establish the trust would meet the statutory requirements. The suggested limitation on such trusts would establish two categories of disabled persons—those with mental capacity to transfer assets personally (who would be barred from this benefit) and those without such capacity (for whom a guardian could be appointed to do this). No such distinction appears in the statute, nor any rational basis for such discrimination against mentally competent persons with disabilities. To the author’s knowledge, this erroneous view of the law has not been applied to a case at this writing.
[177] 42 U.S.C.A. §1396(d)(4)(B); 40 T.A.C. §15.417(f)(3); Medicaid Eligibility Handbook §2313.45.
[178] 42 U.S.C.A. §1396(d)(4)(C); 40 T.A.C. §15.417(f)(2); Medicaid Eligibility Handbook §2313.45
[179] State Medicaid Manual §3259.7B. This interpretation is based on the restriction of the exceptions to the transfer rule to trusts for the benefit of an individual under age 65. 42 U.S.C.A. §1396p(c)(2)(B)(iv). It is inconsistent with HCFA's policy that transfers to Miller Trusts generally do not incur a transfer penalty, based on the clear statutory purpose of making such trusts effective.
[180] Memorandum dated February 3, 1999 from Jackie Johnson, Assistant Deputy Commissioner for Long Term Care Services, to all Regional Directors of Aged & Disabled Services.
[181] For more information, call ARC at 800/252-9729 (or 454-6694 from Austin).
[182] HCFA takes the position that OBRA 93 applies even to Medicaid obtained through the cash assistance programs. State Medicaid Manual §3259.1, first paragraph. However, as of this writing, it is the author’s understanding that DHS has not developed a system for cutting off Medicaid for a client who is eligible for SSI but not Medicaid.
[183] For a more complete discussion, see Clifton B. Kruse, Jr., Third Party and Self-Created Trusts (1995); Palmer, Estate Planning for Public Welfare Recipients,” 2 Probate & Property 43 (March/April 1988); Chamberlin, Estate Planning for Families With Disabled Children, Illinois Bar J. July 1987, page 612.
[184] Programs Operations Manual System (POMS) §01120.105,01120.200; Speer’s Family Law Service, 6th Ed., §49:48. In a telephone conference with a Social Security official in the Dallas office in preparation of this article (April 1999), the author was told that “supplemental needs” restrictions are no longer required and that even a support trust’s assets will not be treated as a resource by the SSI program. However, there have been no amendments to the rules or the POMS, and experts have so far been unable to confirm this. Moreover, even if Social Security Administration has changed its policy, there are other important agencies (such as the Texas Department of Mental Health and Mental Retardation) that have not.
[185] 40 T.A.C. §15.415(d); Medicaid Eligibility Handbook §2313.2. The resource and income requirements of Medical Assistance Only benefits are required by federal statute to be the same, in "SSI states" such as Texas, as for the Supplemental Security Income program. Social Security Act §1902(a)(10)(ii)(V) [42 U.S.C.A. §1396a(a)(10)(A)(ii)(V)]. Therefore, the Texas treatment of trusts is more beneficial to clients than federal law requires, as the SSI program counts non-grantor trust assets as resources unless there is “special needs” language. However, the counting of all distributions as “income” appears inconsistent with SSI law, which does not count as income payments made directly to providers for goods and services other than food, clothing and shelter. It is possible, however, that the Texas rules can be harmonized with SSI law by interpreting the exception for “medical or social services” as allowing all the non-counted distributions that SSI law would allow. This appears to be an unresolved (and perhaps unconsidered) issue as far as DHS is concerned. For additional authority in support of applying SSI rules, see POMS §00835.310 and Trust Company of Oklahoma v. Oklahoma, 825 P.2d 1295 (Okla. S. Ct. 1995).
[186] POMS §01120.200. Where the grantor is the sole beneficiary, Texas cases hold that even a trust that is irrevocable by its terms can be revoked. Seguin State Bank & Trust Co. v. Locke, 102 S.W.2d 1050 (Tex. Comm. App. 1937). This is not a problem in the types of trusts under discussion, because they are not funded by the grantor. Where the grantor does fund the trust (probably including even personal injury cases), Medicaid is now available only if one of the “exception” trusts discussed above is used. If the Medicaid is obtained through SSI, the SSI requirement of irrevocability probably still applies; but it should be achievable simply by designating one or more remainder beneficiaries, so the grantor will no longer be the “sole beneficiary” and the property will not be subject to disposition through the grantor’s will.
[187] 42 U.S.C.A. §1396p(b).
[188] 42 U.S.C.A. §1396p(b)(3).
[189] Medicaid Eligibility Handbook §2341.3, Appendix X.
[190] 40 T.A.C. §79.1103.
[191] See 40 T.A.C. §79.1101-1317, 1501-1503 for the complete rules regarding fair hearings. See also DHS' FAIR HEARING, FRAUD AND CIVIL RIGHTS HANDBOOK.
[192] 40 T.A.C. §79.1207(a).
[193] 40 T.A.C. §79.1204(a).
[194] 40 T.A.C. §79.1102.
[195] 40 T.A.C. §79.1302, §§79.1305-1307.
[196] 40 T.A.C. §79.1301(a).
[197] 40 T.A.C. §79.1301(d).
[198] 40 T.A.C. §79.1203(d)(8),(9). The author is unaware of another agency whose policies are so insulated from administrative review. Since the same decisions are insulated from judicial review (other than under the federal Civil Rights Act, as discussed below), there would seem to be issues here both under the Administrative Procedures Act and under the Texas Constitution.
[199] 40 T.A.C. §79.1105.
[200] Texas Government Code §2001.223. However, at this writing (May 1999), a bill providing for such review has passed the House Human Services Committee.
[201] 42 U.S.C.A. §§1983, 1988. Wilder v. Virginia Hospital Assn., 496 U.S. 498, 110 S. Ct. 2510 (1990); Wood v. Tompkins, 33 F.3d 600 (6th Cir. 1994); but see Suter v. Artist M., 112 S. Ct. 1360 (1992).
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.
Related download
- background michigan
- international journal of special education
- disability benefits in the estate plan passing the means test
- american journal of emergency medicine
- title of innovation technology based nursing systems redesign
- physical therapist part time penn therapy and fitness
- curriculum vitae mary larsen bouxsein
- duncan wierman real estate investing marketing
- blue ribbon schools program us department of education
Related searches
- passing hair follicle test for cocaine
- passing a drug test for marijuana naturally
- passing the texas teachers exam
- passing a drug test for marijuana
- va means test 2019 form
- va means test threshold for 2019
- word that means get in the way
- va means test 2019
- va disability benefits calculator 2019
- va national means test threshold
- employee benefits in the news
- passing a drug test urine