I. In General
Disabled individuals often need assistance and supervision to meet their daily living needs. This assistance may take many forms. A disabled individual may need 40 hours a week of assistance from an aide; or need coverage to pay for extensive and ongoing medical bills, or need a monthly stream of income because he cannot work. Government programs are the safety net for most of our country’s severely disabled. Individuals who are poor enough and sick enough to meet certain criteria may be eligible to receive public assistance, that over a lifetime can result in millions of dollars of assistance for that individual.
If a disabled individual directly receives assets in any way, this can profoundly affect that individual’s eligibility for public benefits. If a disabled person directly receives an
inheritance, or receives a lifetime gift, or receives the proceeds of a personal injury settlement, that individual may lose all of his public benefits. He may no longer be seen as impoverished and hence no longer meet the eligibility criteria for the public benefits. What at first may seem like a cause for rejoicing may in fact wreak havoc on the delicate balance of public benefits that holds together the life of the severely disabled.
The Supplemental Needs Trust is a device for setting aside funds for disabled individuals. Essentially, with a Supplemental Needs Trust the funds are seen as owned by the trust and not by the disabled individual. Thus, the disabled individual is still poor enough to qualify for public benefits. Without Supplemental Needs Trusts, the disabled individual would always have to live in poverty and would never be able to afford any luxuries.
With the enactment of the Omnibus Reconciliation Act of 1993 (OBRA-93), these trusts have become an essential part of any estate plan or personal injury settlement for a disabled individual. They may be set up by a third party, such as a parent, as a way to make a gift to a disabled child, or they may be set up with the funds of the disabled person, for example, to receive the funds of a personal injury settlement. Each form of trust must be set up and structured in a different way.
An important consideration when setting up a Supplemental Needs Trust is the type of public benefit that the disabled individual wants to protect. Disabled individuals may receive a panoply of public benefits, such as Supplemental Security Income (“SSI”), MaineCare (Maine's Medicaid program), food stamps, housing assistance, and TANF (Temporary Assistance for Needy Families). The requirements for a Supplemental Needs Trust depend on the types of public benefits that the disabled individual receives, as different benefits mandate different trust provisions. The most important benefits to disabled individuals are MaineCare and SSI benefits. For that reason, in this outline I will discuss the trust criteria for a trust that is designed to maintain a client’s eligibility for SSI and MaineCare.
MaineCare and SSI
MaineCare and SSI are poverty programs. Essentially, MaineCare provides health insurance for disabled individuals and SSI provides a stream of income. In Maine, a person who qualifies for SSI automatically becomes eligible for MaineCare coverage. Thus, MaineCare and SSI often go hand in hand, and eligibility to receive SSI benefits of any amount will support eligibility for full MaineCare benefits.
A person must be aged, blind, or disabled to receive SSI. The definition of “disability” for SSI is the same as that for Social Security Disability: "inability to engage in substantial gainful employment (to perform remunerative work as available in the national economy) due to a medically determinable physical or mental impairment that has lasted, or can be expected to last, for a continuous period of not less than 12 months.” 42 USC §1382c(a)(3)(A). There are income and asset requirements, as well, to qualify for SSI.
In Maine, an individual who does not qualify for SSI, however, may still be able to receive MaineCare. If an individual does not qualify for SSI, he may apply directly to the MaineCare program for coverage. There are a number of Maine programs that are more generous than SSI. For example, a child may receive MaineCare benefits under the Katie Beckett program, yet not qualify for SSI. See Medical Assistance Eligibility Manual, Part 13. Under the Katie Beckett program, unlike SSI, the parents’s assets are not deemed to the child.
II. The First Party Supplemental Needs Trust
A first party supplemental needs trust is a trust that is set up with the funds of the disabled person. These trusts, for example, are used if a disabled person receives a settlement from a medical malpractice claim or if a disabled person inherits property outright from a parent. If the disabled individual places his or her own funds into a supplemental needs trust, this is known as a first party supplemental needs trust.
MaineCare and SSI Criteria for First Party Supplemental Needs Trusts
Before a First Party Supplemental Needs Trust will pass muster with the Maine Department of Human Services or the Social Security Administration, it must adhere to the SSI and MaineCare criteria for such a trust.
First, the trust must be irrevocable. Provisions, however, allowing for amendments for administrative changes to the trust and allowing for amendments necessary to make the trust compliant to protect public benefit eligibility are permitted. Second, the trust must contain the assets of an individual who is under 65, when the trust is set up. This exemption remains after the individual turns 65, as long as there are no changes in the terms of the trust after the individual turns 65. However, the trust will not protect any assets added to the trust after the individual turns 65.
Third, the beneficiary must meet the SSI criteria for a disability. The individual does not have to actually receive SSI, he only has to be able to meet the SSI criteria for disability. DHHS will make its own determination of disability, if Social Security has not made an assessment. Fourth, the trust must be established for the sole benefit of the disabled individual. A trust is considered to be established for the “sole benefit of” the individual if no other individual or entity can benefit from the assets transferred in any way, whether at the time the trust is established or at any time in the future. The trust, however, may provide for reasonable compensation to trustees to manage the trust.
Fifth, the trust must be established by the beneficiary’s parent, grandparent, legal guardian or a court. If there is no guardian, surviving parent or grandparent, then the attorney may petition the probate court under its Single Transaction Authority (18-A M.R.S.A. §5-409) so that the court may establish the trust. Sixth, the trust must provide that after the disabled beneficiary’s death, the state will receive all amounts remaining in the trust up to an amount equal to the total medical assistance paid on behalf of the individual “after due payment of any legal obligations of the trust.” The Department of Human Services is very strict in its interpretation of “legal obligations of the trust.” At one time, DHHS would allow trust provisions that specified that before MaineCare was paid the trust could make payments, such as death taxes, expenses of last illness and funeral, and expenses related to administration and distribution. The Department of Health and Human Services has rejected such provisions, and instead, only allows payments for “legal obligations of the trust” before MaineCare is reimbursed.
III. The Third Party Supplemental Needs Trust
The third party supplemental needs trust is a trust that is funded with the assets of a third party, such as a parent or other relative for the benefit of the disabled person. With a third party supplemental needs trust, a disabled individual can inherit property without losing his or her eligibility for public benefits. A third party trust may be set up in a will as a testamentary supplemental needs trust or as a stand alone trust. The most important distinction between the third party and the first party trust, however, is that there is no requirement for a pay back to the State after the disabled beneficiary's death with a third party trust. Instead, after the death of the disabled beneficiary, the assets may then pass to the named remainder beneficiaries.
MaineCare Criteria for Third Party Supplemental Needs Trusts
The MaineCare criteria for third party supplemental needs trusts are set out in the Maine MaineCare Eligibility Manual and are quite simple. The trust must be irrevocable. Also, such a trust should leave the amount and frequency of the trust distributions of trust income and principal to the discretion of the trustee.
DHHS will only view the assets available to the beneficiary if the terms of the trust make them available. Hence, if the trust is completely discretionary, so that all distributions of principal and income are within the sole and absolute discretion of the trustee, then DHHS will not view any of the funds that are held in the trust as available to the disabled beneficiary. The funds will only be seen as available, as they are made available by the trustee. The MaineCare manual sets out examples of this rule that illustrate its application. The MaineCare Manual provides the following examples:
An individual has a trust fund that was established upon the death of his parents based on their will. From this he is to receive $500.00 from the interest each month and $10,000.00 every three years to buy a new vehicle. The monthly payments are income. The $10,000.00 is used to purchase an excluded asset (the old vehicle is traded in to purchase the new one).
This trust is irrevocable in accordance with the provisions above. The terms of the trust specify the amount, frequency and for part of the payments (the $10,000.00) the purpose. MaineCare policy treats interest payments as income and excludes the vehicle as an asset.
B.A trust was set up for the individual by his father who is deceased. The individual is to receive $200 per month for as long as the fund lasts. The fund currently has $140,000. The individual can get all the funds in the trust if there is an emergency.
The $200 per month is considered income as long as this represents interest income. The remainder of the fund is considered an asset (currently $140,000) since it can be accessed by the individual.
C.A trust is set up for the individual by her grandmother. It is irrevocable and the trustee has full discretion in disbursement of the funds (totaling $75,000) based on the needs of the individual.
Since the trust is irrevocable, what is considered available to the individual is whatever the trustee, in her discretion, makes available.
See Maine MaineCare Eligibility Manual, Part 16.5, section 2.53.
Anyone may serve as grantor of the third party supplemental needs trust, and most importantly DHHS does not require a payback provision to the State.
Social Security Criteria for Third Party Supplemental Needs Trusts
The Social Security criteria for the third party supplemental needs trust, also, are not nearly as complicated as the criteria for the first party supplemental needs trust. As with MaineCare, the trust should leave the amount and frequency of the distributions of trust income and principal to the discretion of the trustee. If the disabled individual has the legal authority to use the funds to meet his/her food or shelter needs, or if the individual can direct the use of the trust principal or income for his/her support and maintenance under the terms of the trust, the trust principal and income will be considered a resource for SSI purposes.
Also, the disabled individual may not have the authority to revoke the trust. If the disabled individual has the legal authority to revoke the trust, and use the funds to meet his/her shelter needs, then the trust principal is a resource for SSI purposes. The Social Security regulations set their own standard for whether a trust that is termed “irrevocable” is actually treated as an irrevocable trust. The revocability of a trust and the ability to direct the use of the trust principal depends on the terms of the trust agreement and/or State law.
Anyone may serve as grantor of the third party supplemental needs trust, and Social Security does not require a payback provision to the State.
IV Non Profit Disability Trust - Maine Pooled Disability Trust
The “Non Profit Disability Trust” essentially is a first party supplemental needs trust with numerous beneficiaries and that is established by a non profit organization. Such a trust has the advantage of being run by a professional, independent trustee and of taking smaller sums than a bank or trust company will require to act as trustee.
To protect the MaineCare and SSI benefits of the disabled beneficiary, the non profit disability trust must meet the following criteria. First, the trust must be established and managed by a non-profit association. Second, the trust must maintain a separate account for each trust beneficiary. For the purposes of investment and fund management, however, the trust must pool the accounts. Third, the accounts in the trust must be established solely for the benefit of the disabled individual. Fourth, the account must be established by either the individual, the individual’s parent, grandparent, legal guardian or by a court. Fifth, to the extent that there are any amounts remaining in the beneficiary’s account after the beneficiary’s death, that are not retained by the trust, the trust must pay the state an amount equal to the total amount of medical assistance paid on behalf of the beneficiary after due payment of legal obligations of the trust. Sixth, the individual must meet the SSI criteria for disability. Finally, if beneficiaries are older than 65 years of age, the State may impose a penalty period on the disabled individual for funding the trust. The penalty period is imposed if the individual is receiving MaineCare benefits under the long term care program.
There is one such trust that has been set up in the State of Maine, the Maine Pooled Disability Trust. Information about this trust may be found at its web site: www.mainepooleddisabilitytrust.org. The Maine Pooled Disability Trust is administered by five trustees. The trust is irrevocable, and for investment purposes all of the funds are pooled. However, each beneficiary has his own sub account. For accounting purposes, all of the expenses and disbursements for each sub account are recorded and tracked separately. During the lifetime of the individual, the funds in a sub account must be used only for the benefit of the disabled individual who is the beneficiary of the sub account. After the death of the disabled individual, the trust retains 50 percent of any funds remaining in the trust sub account. Those funds are used to assist other disabled individuals. After the trust retains its percentage share, the trust is required to pay the State an amount equal to the total amount of medical assistance paid on behalf of the beneficiary. Thereafter, whatever remains in the trust may be left to remainder beneficiaries specified by the disabled individual when the sub account was established.
To join the Maine Pooled Disability Trust, there is a joinder fee of $900. The disabled person (or his parent, grandparent, guardian or the court) must complete a sponsor agreement. The annual administrative fee is $360. Costs and fees related to specific sub accounts are charged to the sub accounts affected. There is also an investment management fee of one percent (.01) annually based on the month end market value of the sub account. The minimum amount needed to establish a sub account is $10,000.
V Third Party Pooled Trust - Maine Trust for People with Disabilities
There is one third party pooled trust in Maine, the Maine Trust for People with Disabilities. Similar to the First Party Pooled Trust, funds are pooled for investment purposes but each beneficiary's sub account is tracked and recorded separately. As with other third party trusts, however, after the death of the beneficiary, there is no pay back to the State. Instead, the remaining assets may pass to the remainder beneficiaries named in the Joinder Agreement when the sub account is established. Information about this trust can be found at its web site: www.themainetrust.com.
An account in the Maine Trust for People with Disabilities ("MTPD") must be created and funded with the assets of a person other than the disabled beneficiary. The disabled beneficiary's own assets cannot be the funding source. Because the disabled beneficiary cannot revoke the trust or direct the use of the trust for his support, the beneficiary's accounts assets will not affect MaineCare or SSI eligibility.
The Board of Advisors manages the daily operation of the trust. The members of the board are appointed by the sponsoring nonprofit corporation. Norway Savings Bank serves as the trustee and Old Port Pension Administrators provides bookkeeping and financial data administrative services.
To enroll in the trust, a joinder agreement must be completed and there is a one-time enrollment fee of $500. While a sub account is not funded, there is no annual fee. If a sub account is funded, but is inactive, there is a fixed fee of $250 a year. After a sub account is funded and active, there is a current annual fee of two percent of the value of the assets in the sub account, with a minimum annual fee of $500.
Only individuals who are residents of Maine and who have developmental disabilities may establish a sub account with this trust.