By Thomas D. Begley, Jr., CELA
One of the trusts used in Medicaid Planning is a Disability Annuity Special Needs Trust (“DASNT”). A previous Straight Word article discussed a Disability Annuity Trust (“DAT”). These trusts are designed so that an individual can establish a trust and transfer assets to the trust for the benefit of a disabled child of any age or a disabled individual under age 65 without incurring a Medicaid transfer of asset penalty. The problem with that trust is that the assets in the trust are considered available for public benefit purposes. Therefore, if a DAT were established for the benefit of an individual receiving Supplemental Security Income (“SSI”) and/or Medicaid, they would become ineligible for those public benefits because the assets in the trust would be countable. The solution would be to wrap a DAT inside a Special Needs Trust (“SNT”). In a Medicaid Planning context, the monies to be used to fund the trust would belong to the third party, usually a parent or a grandparent, so the SNT would be a Third-Party Special Needs Trust (“TPSNT”). In a typical situation, the parent would require long-term care and be applying for Medicaid. In order to become immediately eligible, from an asset standpoint, the parent would transfer the assets to a DASNT. The trust is exempt from the SSI and Medicaid transfer of asset penalties, and the assets in the trust would not be considered available because of the special needs provisions.
Generally, a family member, other than the trust beneficiary, would be the trustee of the DASNT, although a professional trustee could be utilized.
There are seven main issues to be considered in drafting any trust involving a potential Medicaid recipient.
These include:
Let’s examine each of these issues in the context of a DASNT.
The assets in the DASNT would not be available, because the trust would be designed to give the trustee complete discretion with respect to distributions. Standard Third Party Special Needs Trust language would be used in designing the trust. The standard DAT language would also be included. Because of the special needs provisions, the assets in the trust are not counted as assets of the beneficiary.
There would be no transfer of asset penalty imposed upon the grantor, usually a parent or grandparent, by SSI and Medicaid, because there is a statutory exemption(1) from the penalties for transfers of assets to or for the sole benefit of individuals with disabilities. For a child with a disability, there is no age limit. If the beneficiary of the DASNT is an individual other than a child, there is an age limit of 65.
Whether a “sole benefit of” trust is subject to a Medicaid payback is open to question. New Jersey takes the position that such a trust must include a Medicaid payback and this issue has not been litigated. Under the provisions of HCFA Transmittal 64, a payback does not appear to be required so long as distributions are made to the beneficiary on an actuarially sound basis. This means that the distributions must be made over the actuarial life expectancy of the beneficiary as determined by the tables contained in HCFA Transmittal 64. Many states follow this interpretation with respect to “sole benefit of” trusts including DATs and DASTs.
Because a DASNT is a crisis Medicaid planning strategy, generally all assets are placed in the trust. A careful analysis must be made as to whether to include retirement accounts. If the life expectancy of the grantor is short, a better strategy may be to take the risk and use the retirement accounts to pay for care. If the life expectancy is longer, the best strategy may be to simply pay the tax and transfer the after-tax assets to the DASNT.
There would be no Medicaid estate recovery from the estate of the grantor, but there would be estate recovery from the estate of the beneficiary. Since the state requires a payback, then the payback would replace the estate recovery provisions. The payback would include all medical assistance paid to the beneficiary since birth.
Transfers of assets to a DASNT would be subject to elective share considerations. It is good practice for both spouses to contribute the assets to the DASNT.
CONSIDERATION DAT DASNT
Typical Grantor Parent/Grandparent Parent/Grandparent
Typical Trustee Family Member (Non-Beneficiary) Family Member (Non-Beneficiary)
Assets Available Yes No
SSDI/Medicare Yes Yes
SSI/Medicaid No Yes
Transfer Penalty No No
HEMS Standard Yes No
SNT Standard No Yes
(1) 42 U.S.C. §1396p(c )(2)( B).
The post Disability Annuity Special Needs Trusts first appeared on SEONewsWire.net.]]>by Thomas D. Begley, Jr., CELA
The chart below is a brief comparison between a Disability Annuity Trust (“DAT”) and a Disability Annuity Special Needs Trust (“DASNT”).
| Consideration | DAT | DASNT |
| Typical Grantor | Parent/Grandparent | Parent/Grandparent |
| Typical Trustee | Family Member
(Non-Beneficiary) |
Family Member
(Non-Beneficiary) |
| Assets Available | Yes | No |
| SSDI/ Medicare | Yes | Yes |
| SSI/Medicaid | No | Yes |
| Transfer Penalty | No | No |
| HEMS Standard | Yes | No |
| SNT Standard | No | Yes |
The post COMPARISON BETWEEN A DISABILITY ANNUITY TRUST AND A DISABILITY ANNUITY SPECIAL NEEDS TRUST first appeared on SEONewsWire.net.]]>
by Thomas D. Begley, Jr., CELA
There are four main issues to be considered in drafting any trust involving a potential Medicaid recipient. These include:
Let’s examine each of these issues in the context of a DASNT.
Availability. The assets in the DASNT would not be available, because the trust would be designed to give the trustee complete discretion with respect to distributions. Standard Third-Party Special Needs Trust language would be used in designing the trust. The standard DAT language would also be included. Because of the special needs provisions, the assets in the trust are not counted as assets of the beneficiary.
Transfer of Asset Penalty. There would be no transfer of asset penalty imposed upon the grantor, usually a parent or grandparent, by SSI and Medicaid, because there is a statutory exemption[1] from the penalties for transfers of assets to or for the sole benefit of individuals with disabilities. For a child with a disability, there is no age limit. If the beneficiary of the DASNT is an individual other than a child, there is an age limit of 65.
Payback. Whether a “sole benefit of” trust is subject to a Medicaid payback is open to question. New Jersey takes the position that such a trust must include a Medicaid payback and this issue has not been litigated.
Tax Considerations
[1] 42 U.S.C. §1396p(c)(2)(B).
The post CONSIDERATIONS IN DRAFTING A DISABILITY ANNUITY SPECIAL NEEDS TRUST first appeared on SEONewsWire.net.]]>By Thomas D. Begley, Jr., CELA
A sole benefit of trust is a creature of HCFA Transmittal 64.’ These trusts have traditionally been used in crisis planning. They can be established for the benefit of disabled persons—a Disability Annuity Trust (“DAT”).2 The idea is that assets would be transferred to an irrevocable trust for the sole benefit of the disabled individual. The assets in the trust were then paid out to the beneficiary on an actuarially sound basis using the actuarial tables contained in HCFA Transmittal 64.;i However, some states, including New Jersey, maintain that despite the clear language in HCFA Transmittal 64, the language in the statute “sole benefit of” means that a Medicaid payback provision is required. Because the assets were transferred to an irrevocable trust “for the sole benefit of” a disabled individual, the transfer is not subject to the Medicaid transfer penalty rules.
This is a particularly useful device where (1) there are highly appreciated assets and utilization of the trust makes it possible for a “step up” in basis to be obtained, and (2) advanced planning has not been done and the transfer of assets to children would result in significant periods of Medicaid ineligibility. There are two issues to be considered in utilizing “for the sole benefit of” trusts: transfer rules and availability.
A sole benefit of trust is exempt from the Medicaid transfer of asset penalties.
If the sole benefit of trust is established for a disabled child, there is no age limit.
The trust can be established for a disabled child age 65 or older.4
If the sole benefit of trust is established for an individual other than a child, the other individual must be under age 65 years of age and disabled.5
HCFA Transmittal 64 deals with transfers of assets and treatment of trusts.6 For the sole benefit of is defined as follows:
A transfer is considered to be for the sole benefit of a spouse, blind or disabled child, or a disabled individual if the transfer is arranged in such a way that no individual or entity except for the spouse, blind or disabled child, or disabled individual can benefit from the assets transferred in any way, whether at the time of the transfer or at any time in the future. For a transfer or trust to be considered for the sole benefit of one of these individuals, the instrument or document must provide for the spending of funds involved for the benefit of the individual on a basis that is actuarially sound based on the life expectancy of the individual involved.7
Despite the clear definition of sole benefit of in HCFA Transmittal 64, many states, including New Jersey, require that the sole benefit of trust have a provision requiring a payback on the death of the beneficiary to the state Medicaid agency.
The key issue concerning trusts “for the sole benefit of” is availability. In a private letter, HCFA, now CMS, has taken the position that a trust established for the sole benefit of a community spouse under HCFA Transmittal 64 is an available resource.8 HCFA maintained that there is a material difference between a standard annuity and an “annuitized” trust. HCFA states:
A standard annuity can protect the funds used to purchase the annuity from being counted as resources in determining eligibility for Medicaid. However, there is a fundamental difference between a standard annuity and the “annuitized” trust you established. A standard annuity requires the actual purchase of a commodity; i.e., the annuity itself. A specific amount of money is given to the entity selling the annuity, in return for which the entity contractually agrees to provide an income stream for a specified period of time. Upon completion of the transaction, the buyer no longer owns the funds used to purchase the annuity. Instead, the buyer owns the annuity itself. If the annuity is irrevocable, as most annuities are, the buyer cannot reclaim ownership of the funds used to purchase the annuity. The buyer is only entitled to the income stream purchased and only for as long as the annuity stipulates. This is essentially the same as the purchase of any item or product where funds are exchanged for ownership of something else.
Therefore, it is clear from this letter that assets in a sole benefit of trust are available to the beneficiary of the trust.
Therefore, if the beneficiary is receiving Social Security Disability Income (“SSDI”) and Medicare, a DAT is appropriate. Beneficiaries receiving Supplemental Security Income (“SSI”) and Medicaid must utilize a Disability Annuity Special Needs Trust.
An advantage of a DAT are there is no transfer of asset penalty. However, a Medicaid payback is required on the death of the beneficiary of the trust. Income from the trust is taxed to the beneficiary. There is a gift for gift tax purposes, but because of the $5,450,000 lifetime exemption, this is not a major consideration for most people. The assets of the trust would be included in the estate of the beneficiary of the trust, not the Grantor.
Begley Law Group, P.C. has served the Southern New Jersey and Philadelphia area as a life-planning firm for over 85 years. Our attorneys have expertise in the areas of Personal Injury Settlement Consulting, Special Needs Planning, Medicaid Planning, Estate Planning, Estate & Trust Administration, Guardianship, and Estate & Trust Litigation.
1 HCFA Transmittal 64 § 325 7.
2 HCFA Transmittal 64 § 3258.9B.
1 HCFA Transmittal 64 § 3258.9B.
* 42 U.S.C. § 1396p(c)(2)(B)(iii).
5 42 U.S.C. § 1396p(c)(2)(B)(iv).
6 HCFA Transmittal 64 § 3257.
7 HCFA Transmittal 64 § 3257(B)(6).
8 Letter dated April 16, 1998, from Robert A. Streimer, Disabled and Elderly Health Programs Group, Center for Medicaid and State Operations, Health Care Financing Administration, to Jean Galloway Ball.
The post Medicaid Planning with Disability Annuity first appeared on SEONewsWire.net.]]>by Thomas D. Begley, Jr., CELA
One of the trusts used in Medicaid Planning is a Disability Annuity Special Needs Trust (“DASNT”). A previous article discussed a Disability Annuity Trust (“DAT”). These trusts are designed so that an individual can establish a trust and transfer assets to the trust for the benefit of a disabled child of any age or a disabled individual under age 65 without incurring a Medicaid transfer of asset penalty. The problem with that trust is that the assets in the trust are considered available for public benefit purposes. Therefore, if a DAT were established for the benefit of an individual receiving Supplemental Security Income (“SSI”) and/or Medicaid, they would become ineligible for those public benefits because the assets in the trust would be countable. The solution would be to wrap a DAT inside a Special Needs Trust (“SNT”). In a Medicaid Planning context, the monies to be used to fund the trust would belong to the third party, usually a parent or a grandparent, so the SNT would be a Third-Party Special Needs Trust (“TPSNT”). In a typical situation, the parent would require long-term care and be applying for Medicaid. In order to become immediately eligible, from an asset standpoint, the parent would transfer the assets to a DASNT. The trust is exempt from the SSI and Medicaid transfer of asset penalties, and the assets in the trust would not be considered available because of the special needs provisions.
Generally, a family member, other than the trust beneficiary, would be the trustee of the DASNT, although a professional trustee could be utilized.
The post DISABILITY ANNUITY SPECIAL NEEDS TRUST first appeared on SEONewsWire.net.]]>by Thomas D. Begley, Jr., CELA
A Disability Annuity Trust (“DAT”) can be established for a disabled child or any disabled individual.[1] However, in considering the use of a DAT for a disabled person, care must be taken to examine the other government benefits currently being received, or which may be received in the future by the person with disabilities.
If the person with disabilities is receiving Supplemental Security Disability Income (“SSDI”), this is usually accompanied by Medicare. SSDI and Medicare are insurance-based programs, rather than means-based programs. Receipt of income from the DAT would not cause a loss of SSDI or Medicare. However, consideration should be given to other benefits that the person with disabilities may receive in the future. For example, will the person with disabilities be a candidate for group housing in the future? If so, the existence of the DAT may cause them to lose that benefit.
If the person is receiving Supplemental Security Income (“SSI”), that person also receives Medicaid. SSI is a means-based program. Both resources and income are considered in determining eligibility. If the person with disabilities receives distributions from the DAT, this may well disqualify that person from receiving SSI and cause a loss of Medicaid. The assets in the DAT would be “available” which would also disqualify the SSI recipient from both SSI and Medicaid, because the assets in the trust would be considered resources. If a DAT is designed as a Special Needs Trust, public benefits may be preserved.
[1] HCFA Transmittal 64 § 3257(B)(6).
The post ESTABLISHING A DISABILITY ANNUITY TRUST FOR A BENEFICIARY RECEIVING SSDI OR SSI first appeared on SEONewsWire.net.]]>by Thomas D. Begley, Jr., CELA
The Concept. A sole benefit of trust is a creature of HCFA Transmittal 64.[1] These trusts have traditionally been used in crisis planning. They can be established for the benefit of disabled persons—a Disability Annuity Trust (“DAT”).[2] The idea is that assets would be transferred to an irrevocable trust for the sole benefit of the disabled individual. The assets in the trust were then paid out to the beneficiary on an actuarially sound basis using the actuarial tables contained in HCFA Transmittal 64.[3] However, some states, including New Jersey, maintain that despite the clear language in HCFA Transmittal 64, the language in the statute “sole benefit of” means that a Medicaid payback provision is required. Because the assets were transferred to an irrevocable trust “for the sole benefit of” a disabled individual, the transfer is not subject to the Medicaid transfer penalty rules.
This is a particularly useful device where (1) there are highly appreciated assets and utilization of the trust makes it possible for a “step up” in basis to be obtained, and (2) advanced planning has not been done and the transfer of assets to children would result in significant periods of Medicaid ineligibility. There are two issues to be considered in utilizing “for the sole benefit of” trusts: transfer rules and availability.
Transfer of Asset Penalty. A sole benefit of trust is exempt from the Medicaid transfer of asset penalties. If the sole benefit of trust is established for a disabled child, there is no age limit.
Age Limit.
Definition of sole benefit of. HCFA Transmittal 64 deals with transfers of assets and treatment of trusts.[6] For the sole benefit of is defined as follows:
A transfer is considered to be for the sole benefit of a spouse, blind or disabled child, or a disabled individual if the transfer is arranged in such a way that no individual or entity except for the spouse, blind or disabled child, or disabled individual can benefit from the assets transferred in any way, whether at the time of the transfer or at any time in the future. For a transfer or trust to be considered for the sole benefit of one of these individuals, the instrument or document must provide for the spending of funds involved for the benefit of the individual on a basis that is actuarially sound based on the life expectancy of the individual involved.[7]
Despite the clear definition of sole benefit of in HCFA Transmittal 64, many states, including New Jersey, require that the sole benefit of trust have a provision requiring a payback on the death of the beneficiary to the state Medicaid agency.
Therefore, if the beneficiary is receiving Social Security Disability Income (“SSDI”) and Medicare, a DAT is appropriate. Beneficiaries receiving Supplemental Security Income (“SSI”) and Medicaid must utilize a Disability Annuity Special Needs Trust.
[1] HCFA Transmittal 64 § 3257.
[2] HCFA Transmittal 64 § 3258.9B.
[3] HCFA Transmittal 64 § 3258.9B.
[4] 42 U.S.C. § l396p(c)(2)(B)(iii).
[5] 42 U.S.C. § l396p(c)(2)(B)(iv).
[6] HCFA Transmittal 64 § 3257.
[7] HCFA Transmittal 64 § 3257(B)(6).
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