Fundamental Supplemental Needs Trust Planning

Careful planning is necessary for individuals who have heirs with special needs that qualify for means-tested public assistance. At a minimum, such a plan should include a trust that restricts distributions to any special-needs heir. Any distribution that would otherwise pass to such an heir can only be made for the heir's "supplemental needs," or those needs that are not provided by a government assistance program. This trust provision is necessary to prevent a special-needs heir on means-tested public assistance from ceasing to qualify for such assistance due receiving an inheritance.

Assets subject to a supplemental needs trust are not countable resources for purposes of determining the special-needs heir's qualification for means-tested public assistance. Accordingly, the heir can continue benefiting from their public assistance programs while maintaining the beneficial interest in a supplemental-needs trust. The trust is able to provide benefits that the heir is not already receiving from his or her public assistance program. A trust that is funded solely with assets derived from someone other than the special-needs heir is known as a third-party supplemental needs trust. After the termination of the trust, assets remaining in a third-party supplemental needs trust can be passed to other family members.

If proper planning is not undertaken and a special-needs heir does inherit assets, they have two primary options: Spend down all of the inheritance until the heir qualifies once again for the public assistance program(s), or transfer the inheritance into a first-party or self-settled supplemental needs trust. First-party supplemental needs trusts are funded with assets belonging to the individual with special needs. The key downside of a first-party supplemental needs trust is that upon the termination of the trust, the government must be reimbursed from any property remaining in the first-party trust up to the total amount of medical assistance benefits received by the beneficiary during their lifetime. Accordingly, it is much better if all family members from whom a special needs individual could possibly receive an inheritance complete an estate plan that includes supplemental needs planning provisions.

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Important New Probate Law in Utah

Earlier this week, Utah S.B. 241, Chapter 443, "Medical Benefits Recovery Amendments," was signed into law. By way of background, the Utah Office of Recovery Services seeks reimbursement for Medicaid expenses the state has paid on behalf of an individual from that individual's estate after death in order to supplement medical assistance programs and limit tax burdens. This law is intended to improve the state's ability to recover medical assistance it has provided.

The law does this in part through the enactment of new section 75-3-104.5 of Utah's probate code, which is effective as of May 8, 2018.  This section requires a petitioner or personal representative to send copies of pleadings relating to any "action" under Chapter 3, Probate of Wills and Administration, to the Office of Recovery Services. Such pleadings must be sent by certified mail within 30 days after the filing of the action. Failure to do so "tolls all limitations concerning the state's presentation or enforcement of a lien or claim" under the estate and trust recovery statute. This new law applies to all actions involving a decedent who was 55 or older.

The address to which pleadings must be sent is:
Office of Recovery Services
Bureau of Medical Collections
PO Box 45025
Salt Lake City, UT 84145-0025

The law is notable for requiring all pleadings for all actions filed under Chapter 3 to be provided to the Office of Recovery Services, when presumably the only information really needed to protect the state's interests is the identifying information of the decedent. Furthermore, only certified mail is effective to avoid the tolling of the statute of limitations. It will be interesting to see if these provisions are relaxed in the near future.

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Medicaid Eligibility for a Married Individual

Medicare is a federal entitlement program available to seniors regardless of need and works like health insurance. In contrast, Medicaid is a health benefit program for low-income individuals. "Medicaid planning," normally refers to qualifying for long-term care benefits under Medicaid. Long-term care costs thousands of dollars per month and coverage is not available under Medicare and most health insurance plans. This post will focus on Medicaid qualification in Utah for a married individual.

In order to be eligible for Medicaid, an applicant cannot have more than $2,000 in assets. However, some assets do not count toward this limit; moreover, some "countable" assets can be converted to "non-countable" assets. First, an in-state residence is not a countable asset unless the applicant does not intend to return home and no spouse or dependent lives there. The cash value of a life insurance policy up to $1,500 is exempt, as is up to $1,500 that is specifically designated as a funeral fund. Irrevocable prepaid funeral plans, cemetery plots, and household items are also exempt. It is generally permissible to purchase these items or pay down a mortgage or other debts in order to reduce countable assets and qualify for Medicaid. However, the applicant cannot have more than $525,000 of equity in a residence.

In addition, spouses of applicants who live at home can keep some assets. A Medicaid worker will value all of a couple's countable assets and divide by two. The spouse can keep half, with a minimum of around $23,000 and a maximum of around $114,000 (which changes each year). The applicant is still limited to $2,000 of assets, meaning that if the couple has more than $25,000 in total non-exempt assets, the excess attributable to the applicant spouse must be spent down before they will qualify for Medicaid. In addition, the non-applicant spouse can keep some of the income of the applicant spouse once the applicant spouse is in a nursing home.

Certain transfers of assets do not affect Medicaid eligibility, such as transfers to a spouse or certain transfers to disabled individuals. However, nearly all other transfers made within five years prior to applying for Medicaid are of no benefit for eligibility purposes because applicants must report all such transfers made for less than fair market value. Making transfers of non-exempt assets within this timeframe will be detrimental due to the Medicaid sanction rules.

It is critical that an individual consults with a Medicaid expert before applying in order to avoid making transfers that will result in sanctions or spending assets they would have been allowed to keep. Proper planning will allow a spouse remaining at home to be more financially secure.

The state will seek to recover funds paid by Medicaid from the estate of a recipient after the death of the recipient and the surviving spouse, so long as there is no minor or disabled child. Even though an asset may have been exempt for Medicaid qualification purposes, it will not be exempt from estate recovery. For more information, including the sources for this post, see the pamphlets provided by the Utah Department of Health entitled “Estate Recovery Information Bulletin”, DWS 05-994, "Nursing Home Information, May we be of service to you?” DWS 05- 969, and “Assessment of Assets” DWS 05-992.

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