Three Common Misconceptions About Medi-Cal Health Insurance Resource Limits and Special Needs Trusts Health insurance is one of the most complex and difficult to navigate areas of American life for both the average consumer and advocates counseling on health insurance options. The benefits of cost control that the Affordable Care Act was intended to bring about seem to have been lost in political infighting and program changes over the first two and a half years of the Trump Administration. For California families eligible for full-scope healthcare coverage with income up to 300% of the poverty line or as a result of being categorically needy as aged or severely disabled, Medi-Cal’s income and resource requirements are strict and zealously enforced. No individual receiving Medi-Cal may have more than $2000 in non-exempt resources at any one time and no married couple may have more than $3000. This requirement is enforced regularly, and families and individuals often lose healthcare coverage in times of need because they fail to maintain bank account balances or other assets below the monetary threshold. Further, the Medi-Cal program may actually assess overpayments against individuals who failed to report changes in assets, which can number in the tens of thousands of dollars. Where a family member has a severe mental health disorder, it is nearly impossible for that person to save for a home or accumulate a savings while not running afoul of the resource requirements. There are many misconceptions about public health insurance and Medi-Cal in particular, and I only have space in this article to discuss three. But everyone who receives some form of Medi-Cal should know that there are ways to provide a decent life and economic security for disabled individuals regardless of these strict requirements. Some of these methods are discussed below. I. MISCONCEPTION NUMBER ONE: THERE IS NO WAY TO SAVE ASSETS FOR FUTURE USE WHILE ON MEDI-CAL Many people have this misconception because Medi-Cal informs them generally that they can never own more than $2000 in assets individually. This is a general requirement for receipt of full-scope healthcare coverage. However, assets are only owned by an individual if those assets are currently accessible to that person. I often advise my clients to plan for future home purchases (one home which is a principal place of residence is an exempt asset for Medi-Cal) by placing currently existing savings and other monies in a Special Needs Trust (“SNT”). An SNT provides for continuous distribution of money to a beneficiary (the person with a disability) and may be managed by a family member or other trusted individual, who acts as the trustee. The most important provision in an SNT is the section making distributions to the beneficiary discretionary, thereby preserving the assets in the trust as assets of the trust, and not of the disabled individual. This provision distinguishes an SNT from a Revocable Living Trust (or Irrevocable Trust of a deceased spouse) which retain assets as property held and managed by the person creating the trust or the estate. A properly drafted SNT preserves Medi-Cal and can also work for numerous other public benefit programs, both state and federal. II. MISCONCEPTION NUMBER TWO: THERE IS AN ASSET TRANSFER PENALTY FOR SAVING ASSETS To be clear, asset transfer penalties do exist for certain kinds of public health insurance plans, including Medi-Cal. The federal law provides for transfer penalties for Medicaid benefits, including nursing home or long-term care, of which Medi-Cal is an included Medicaid program. Basically, the formula penalizes individuals who transfer away their savings or other non-exempt assets in order to qualify for Medi-Cal and who otherwise have no other motive for doing so. The transfer penalty is a period of ineligibility for health insurance, which can last for years on end, depending on how many months the transferred assets would have provided for the basic needs of the individual who wants to receive Medi-Cal. However, in California, there is currently no asset transfer penalty for assets gifted or transferred to third parties or to a special needs trust where an applicant requests non-long-term care or non-nursing home care Medi-Cal (meaning all other types of health insurance). This may change in the future, but this is currently the way the law and regulations are structured and enforced. III. MISCONCEPTION NUMBER THREE: THERE IS NO WAY TO SAVE ASSETS FOR SOMEONE WITHOUT LEGAL CAPACITY Individuals and families with mental health or cognitive disabilities often believe that there is no way to benefit someone with a serious mental health issue, young or old, because that person cannot set up a trust on their own for lack of capacity. This is false. Federal law specifically provides for the creation of third-party Special Needs Trusts, usually set up by a parent, child, or other interested party or family member, which can be funded with assets of that person or transferred assets (assuming authority to do so) of the disabled beneficiary. The creation, funding, and management of these trusts can be complex, and different types of income placed in a trust require different management practices and designations to preserve the viability of the income stream and the eligibility of the disabled beneficiary for public benefits. But these trusts are a viable method of ensuring that a loved one has a decent life, instead of living on the margins of poverty that some public benefit programs require. Specialized legal advice and drafting should be consulted to set up this type of trust. Utmost care is required to ensure that the objectives of you and your family to preserve public benefits eligibility while providing for discretionary trust payments to a family member with a disability are fulfilled. Please contact me at [email protected] or (408) 634-9850 (my office referral line) with any questions or concerns regarding the above. I provide free consults to eligible clients and enjoy helping families and individuals navigate these complex public benefits eligibility and health insurance issues. For more information on my firm and our mission and practice areas, please visit the firm website below. Firm Website www.klolawfirm.com
Q: What steps can parents take to protect their kids' future? A: Protect your children by securing your own financial future. Start saving for retirement as early as possible to take advantage of compound interest. Q: In addition to saving for retirement, what else can be done? A: Consider investing in enough life insurance to care for your child’s future financial needs. Government benefits can cover basic costs, but extra funds can fund additional expenses, such as hiring an additional caregiver after you’re gone. Talk to an advisor about beneficiary designations and consider a special needs trust. Consider disability insurance, too, to protect your family financially if you are living but no longer able to work. Q: What is a special needs trust? A: Assets held in a child’s name are held against them and could disqualify them from government benefits. One way around that is to set up a special needs trust. The intent is that a special needs trust can supplement a disabled person’s income in order to pay for extra wants and needs not covered by government benefits. Q: Are there other outlets that can help fund additional expenses for a special needs child? A: Like a 529 education plan, a 529A is a tax-advantaged way to save for your child’s special needs education and certain disability expenses. Generally speaking, parents should consider maxing out their own retirement accounts before funding supplemental savings tools like these. Be aware that once the account exceeds $100,000, your child will no longer be eligible for Supplemental Security Income (SSI) payments. Q: What planning can be done once the child reaches 18 years of age and is an adult? A: If your child will be unable to make medical and financial decisions after they turn 18, talk to a lawyer about a power of attorney and health care proxy or becoming your adult child’s legal guardian. Don’t assume you’ll automatically be able to make decisions for them just because they’re disabled. When you have children with special needs, financial planning takes special care. It can be an emotional, frustrating process. An estate-planning attorney can help you be proactive and create a plan so that both you and your children are cared for and protected.
Special Needs Trusts The best and most comprehensive option to protect a loved one is to set up a special needs trust (also called a supplemental needs trust). These trusts allow beneficiaries to receive inheritances, gifts, lawsuit settlements, or other funds and yet not lose their eligibility for certain government programs, such as Medicaid and Supplemental Security Income (SSI). The trusts are drafted so that the funds will not be considered to belong to the beneficiaries in determining their eligibility for public benefits. There are three main types of special needs trusts: First-Party Trust A first-party trust is designed to hold a beneficiary's own assets. While the beneficiary is living, the funds in the trust are used for the beneficiary's benefit, and when the beneficiary dies, any assets remaining in the trust are used to reimburse the government for the cost of medical care. These trusts are especially useful for beneficiaries who are receiving Medicaid, SSI or other needs-based benefits and come into large amounts of money, because the trust allows the beneficiaries to retain their benefits while still being able to use their own funds when necessary. Third-Party Special Needs Trust The third-party special needs trust is most often used by parents and other family members to assist a person with special needs. These trusts can hold any kind of asset imaginable belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments. The third-party trust functions like a first-party special needs trust in that the assets held in the trust do not affect a beneficiary's access to benefits and the funds can be used to pay for the beneficiary's supplemental needs beyond those covered by government benefits. But a third-party special needs trust does not contain the "payback" provision found in first-party trusts. This means that when the beneficiary with special needs dies, any funds remaining in the trust can pass to other family members, or to charity, without having to be used to reimburse the government. Pooled Trust A pooled trust is an alternative to the first-party special needs trust. Essentially, a charity sets up these trusts that allow beneficiaries to pool their resources with those of other trust beneficiaries for investment purposes, while still maintaining separate accounts for each beneficiary's needs. When the beneficiary dies, the funds remaining in the account reimburse the government for care, but a portion also goes towards the non-profit organization responsible for managing the trust. Life Insurance Not everyone has a large chunk of money that can be left to a special needs trust, so life insurance can be an essential tool. If you've established a special needs trust, a life insurance policy can pay directly into it, and it does not have to go through probate or be subject to estate tax. Be sure to review the beneficiary designation to make sure it names the trust, not the child. You should make sure you have enough insurance to pay for your child's care long after you are gone. Without proper funding, the burden of care may fall on siblings or other family members. Using a life insurance policy will also guarantee future funding for the trust while keeping the parents' estate intact for other family members. When looking for life insurance, consider a second-to-die policy. This type of policy only pays out after the second parent dies, and it has the benefit of lower premiums than regular life insurance policies. ABLE Account An Achieving a Better Life Experience (ABLE) account allows people with disabilities who became disabled before they turned 26 to set aside up to $15,000 a year in tax-free savings accounts without affecting their eligibility for government benefits. This money can come from the individual with the disability or anyone else who may wish to give him money. Created by Congress in 2014 and modeled on 529 savings plans for higher education, these accounts can be used to pay for qualifying expenses of the account beneficiary, such as the costs of treating the disability or for education, housing and health care, among other things. ABLE account programs have been rolling out on a state-by-state basis, but even if your state does not yet have its own program, many state programs allow out-of-state beneficiaries to open accounts. Although it may be easy to set up an ABLE account, there are many hidden pitfalls associated with spending the funds in the accounts, both for the beneficiary and for her family members. In addition, ABLE accounts cannot hold more than $100,000 without jeopardizing government benefits like Medicaid and SSI. If there are funds remaining in an ABLE account upon the death of the account beneficiary, they must be first used to reimburse the government for Medicaid benefits received by the beneficiary, and then the remaining funds will have to pass through probate in order to be transferred to the beneficiary's heirs. Get Help With Your Plan However you decide to provide for a child with special needs, proper planning is essential. Talk to your attorney to determine the best plan for your family. Disclaimer This article is provided as legal information, not legal advice and our law firm makes no claims, promises or guarantees about the accuracy,completeness, or adequacy of the information contained in in this article. The distribution or acceptance of this article does not constitute an attorney-client relationship with our law firm.
Check out this video to learn how to proactively plan for your special needs loved ones.
Supplemental Needs Trusts Supplemental needs trusts (SNT) are designed to provide funds for a disabled, blind, or aged person to maintain or enhance the person's quality of life while also ensuring that certain government benefits are not taken away. A properly drafted supplemental needs trust protects trust funds from being considered "available" or "counted" for means-tested government benefit eligibility. “Means-tested” means a benefit that is only given to people who meet the financial qualifications. If an individual is receiving means-tested benefits or might receive them in the future, a supplemental needs trust may be appropriate to avoid disqualification from those government programs. To receive means-tested government benefits, an individual's assets and income will be examined to determine if they are eligible. If there are assets and income available to pay for an individual's basic needs, such as food and shelter, then the amount of government benefits can be reduced or taken away. A supplemental needs trust is drafted with specific provisions to restrict the trust funds from being available for the beneficiary's basic needs, so that the funds do not affect eligibility for means-tested government benefits. Common means-tested government benefits include Supplemental Security Income ("SSI") and Medicaid. Government programs providing benefits that are not means-tested are often referred to as entitlement benefits. These benefits do not contain the same strict financial eligibility limits as means-tested government benefits. Common entitlement benefits include Social Security Disability Insurance ("SSDI)" and Medicare. First Party and Third Party Supplemental Needs Trusts First-party supplemental needs trusts are often referred to as "payback trusts." A first-party supplemental needs trust is established with funds that belong to the disabled individual. First-party supplemental needs trusts are controlled by a federal act, the Omnibus Reconciliation Act of 1993 ("OBRA"). OBRA provides certain requirements for the funds to not be considered for eligibility of means-tested benefits. The first-party supplemental needs trust must: • Benefit an individual who is disabled as defined by the Social Security Administration; • Benefit an individual under the age of 65; • Contain only the disabled individual's own assets; • Be set up by a parent, grandparent, legal guardian or conservator, or a court; • Include a "pay-back provision" stating that upon the disabled beneficiary's death, any state that provided Medicaid assistance to the disabled person can demand reimbursement from the trust for the amount the Medicaid agency spent assisting the disabled person. What distinguishes a third-party supplemental needs trust from a first-party supplemental needs trust is the source of funds used to establish the trust. A third-party supplemental needs trust is funded with assets belonging to someone other than the disabled beneficiary. Third-party supplemental needs trusts are more common than first-party supplemental needs trusts. Third-party supplemental needs trusts are often set up by parents, grandparents, and other family members to provide and protect funds for a disabled individual who is receiving or may receive means-tested government benefits in the future. The parents, grandparents, or other family members who set up the trust are referred to as the trust Grantors or Settlors. The Settlors have the right to choose where any remaining funds will go on the death of the disabled person. Third-party supplemental needs trust funds are not subject to recovery under payback rules after the disabled person's death and will not be handed over to the state.
Michigan Estate Planning Attorney explains how you can plan for the future of your child with special needs. This planning could include: a care plan, a special needs trust, and life insurance. With good planning, you can assure a good life for your child. Howell, Michigan Elder Law, Brighton, Michigan Elder Law, Livingston County Elder Law, Macomb County Elder Law.
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Chronic Medicaid If your spouse requires care in a nursing facility and wants to rely on Chronic Medicaid to pay for it, the Department of Social Services will conduct a five-year lookback. During the examination, the Department of Social Services will inquire whether your spouse received her *elective share* from your estate at the time of your death. If s/he did not receive his/her elective share, the Department of Social Services will issue a dollar for dollar penalty which will delay Chronic Medicaid benefits. What is an Elective Share? An elective share ensures that surviving spouses in New York receive the first $50,000.00 or one-third of an estate, whichever is greater. The surviving spouse has a time limit where s/he must demand the elective share. If the elective share is not demanded within the timeframe, the surviving spouse forfeits his/her right to receive the share. For example, if you pass away with $300,000.00 in your estate, your spouse would be entitled to $100,000.00 even though your Last Will & Testament specifically excluded your spouse. If the elective share of $100,000.00 is not paid from your estate, the Department of Social Services will issue a penalty of approximately seven (7) months. In other words, Medicaid will not pay for the first seven months of care in the nursing facility. What are your options? There are options available to you now in order to preserve your estate even if your spouse requires care in a nursing facility. One option is to set up a Supplemental Needs Trust through your Last Will & Testament that benefits your spouse but protects the estate. You would appoint a Trustee to manage the assets in the Trust on behalf of your spouse. The Supplemental Needs Trust is a vehicle to supplement and not supplant government benefits. This would allow the money to be used for your spouse*s benefit but not interfere with an application for Medicaid benefits. Another option would be to provide that your spouse receives one-third of your estate and reminder to your children. Community Medicaid Finally, in New York State, we have a program called Community Medicaid, which will pay for a home health aide to come into your home and assist your spouse with activities of daily living. If your spouse received this assistance in the home, there would not be a five-year lookback and s/he would not be required to elect against your estate. This may be a viable option now, so you are not the sole caregiver. Conclusion It is important to review your estate planning documents with an Elder Attorney in your area to ensure you and your spouse are protected and have the appropriate documents in place for your specific situation.
Disinheritance and Medicaid While updating your estate planning documents is a good idea, simply disinheriting your spouse may not protect your estate in the event she needs to go to a nursing facility. If your wife requires care in a nursing facility and wants to rely on Chronic Medicaid to pay for it, the Department of Social Services will conduct a five-year lookback. During the examination, the Department of Social Services will inquire whether your wife received her *elective share* from your estate at the time of your death. If she did not receive her elective share, the Department of Social Services will issue a dollar for dollar penalty which will delay her Chronic Medicaid benefits. Elective Share An elective share ensures that surviving spouses in New York receive the first $50,000.00 or one-third of an estate, whichever is greater. Therefore, if you pass away with $300,000.00 in your estate, your wife would be entitled to $100,000.00 even though your Last Will & Testament excluded her. If her elective share of $100,000.00 is not paid to her from your estate, the Department of Social Services will issue a penalty of approximately seven (7) months. In other words, Medicaid will not pay for the first seven months of care in the nursing facility. Other Options There are options available to you now in order to preserve your estate even if your wife requires care in a nursing facility. One option is to set up a Supplemental Needs Trust through your Last Will & Testament that benefits your wife but protects the estate. You would appoint a Trustee to manage the assets in the Trust on behalf of your wife. The Supplemental Needs Trust is a vehicle to supplement and not supplant government benefits. This would allow the money to be used for your wife*s benefit but not interfere with an application for Medicaid benefits. Conclusion It is important to review your estate planning documents with an Elder Attorney in your area to ensure you and your wife are protected and have the appropriate documents in place for your specific situation.
This article focuses on a special needs trust. A special needs trust (SNT) is a trust preserving the beneficiary*s eligibility for government benefits including Medicaid and Supplemental Security Income. Since the beneficiary doesn*t own the assets in the trust, they are eligible for benefit assistance programs with an asset limit. The trustee will supplement but not replace the beneficiary*s government benefits. Supplemental Need Trust are created to help cover costs not covered by Medicare or Medicaid. A first-party SNT, also called a *self-settled* or *(d)(4)(A) trust,* is funded with assets or income that belong to an individual with a disability. Federal law states the beneficiary must be under the age of 65 when the trust is created and funded. Usually funding comes from a personal injury settlement or inheritance. A third-party SNT, is funded with assets belonging to a person that is not beneficiary. No funds of the beneficiary are used for the trust. Typically, funding comes from gifts, inheritance from and life insurance. This trust doesn*t have to pay Medicaid back if terminated, the person who created the trust chooses how the trust estate is distributed when the beneficiary dies.