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A Major Recent Special Needs Trust Development

Courts have ruled funding pooled special needs trusts after age 65 is not an uncompensated transfer.

One of the major recent developments in special needs law has centered around the funding of pooled special needs trusts (SNTs) by individuals with disabilities after age 65. Since the Deficit Reduction Act of 2006 , policy on this issue has been inconsistent among the states, and advocates have fought for clarification. Recently, state courts have heard this issue and issued decisions in which they’ve opined that a transfer to a pooled SNT, regardless of age, isn’t necessarily an uncompensated transfer that results in a penalty which delays eligibility for public benefits. For certain benefits (in particular, Medicaid payment of long-term care (LTC)), if the individual didn’t receive adequate consideration (that is, fair market value) for their transfer of assets to the pooled SNT trust, Medicaid would penalize the individual by not paying for the individual’s LTC for a certain period.

Two Types of SNTs

An individual with a disability can establish an SNT to preserve assets and public benefits eligibility. There are two primary types of first party SNTs:

1.  A standalone trust, for which any individual, aside from the beneficiary, or entity with fiduciary powers, may serve as trustee. The federal law, specifically 42 U.S.C. 1396p(d)(4)(A), expressly provides that the trust must be established and funded by an individual with a disability prior to age 65, and, on the death of the beneficiary, Medicaid be repaid for the amount of medical assistance paid for on such beneficiary’s behalf during their lifetime. 

2.  A pooled SNT established pursuant to 42 U.S.C.  1396p(d)(4)(C). This trust is managed by a nonprofit, and in lieu of repayment to Medicaid, the funds may stay within the nonprofit to be used by other individuals in the pool. Unlike the standalone trust, there’s no expressed age restriction. As a result, by omission of the age limit, advocates argue that federal law expressly permits a pooled SNT to be funded at any point in time, even after age 65, without a penalty.

Recently, state courts have decided cases regarding transfers to a pooled SNT by individuals over the age of 65 by reflecting the federal guidelines requiring the appropriate agency to determine if the beneficiary is likely to receive adequate compensation. For example, earlier this year, in Pfoser v. Harpstead, (A19-0853 Jan. 20, 2021) the Minnesota Supreme Court determined that transfers by an individual with a disability over the age of 65 into a pooled  SNT  isn’t  subject  to  a  penalty  for  transferring  assets  when  the  individual satisfactorily  showed  that  he  intended  to  receive  “valuable  consideration.” In this case, the individual had placed funds into the pooled SNT but showed that his anticipated expenditures included, among other things, an adaptive recliner, equipment for his wheelchair and restorative dental work not covered by Medicaid. Based on this, he demonstrated that his trust fund would be depleted in less than two years, which was significantly less than his life expectancy.

Additionally, Administrative Law Judges rendered two decisions after reviewing adverse decisions made by the Social Security Administration (SSA) that funding a pooled SNT account by an individual over the age of 65 didn’t provide fair market value (FMV) to a beneficiary. The judge in the case of Sarah A. determined that the beneficiary retained beneficial ownership of the assets and will have received valuable consideration within her lifetime. Similarly, based on a more thorough analysis of the SSA’s life expectancy tables and expert testimony regarding service and benefits to be received by the beneficiary, in the case of Shirley W., the judge determined that Shirley W. received FMV in the goods and services that have been, and will be, provided to her.

As a result of these recent cases, the trend seems to be that the funding of a pooled SNT after age 65 isn’t an uncompensated transfer

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