SPECIAL NEEDS TRUSTS: New Laws, New Perspectives

1. SPECIAL NEEDS TRUSTS: New Laws, New Perspectives Bridget O’Brien Swartz, J.D., M.P.A AzTLA Learn at Lunch Series April 12, 2005

2. Potential Liability for Personal Injury Attorneys • The Grillo case is often cited by the insurance industry for the proposition that an attorney may be liable for failing to propose a structured settlement. See Grillo v. Petiete et al., Cause No. 96-14509092 and Grillo v. Henry Cause, 96-167943-96, 96th District Court, Tarrant County Texas. • The personal injury attorney arguably has a duty to not over-structure a settlement case as well, leaving the claimant with insufficient funds to meet up front cash needs, as well as overlooking a proper investment allocation of the overall settlement.

3. Potential Liability forPersonal Injury Attorneys (cont.) • The Grillo case stands for the proposition that the personal injury attorney (and guardian ad litem) may be liable for failing to set up a special needs trust where public benefits are concerned. See id.; see also Dept . Of Social Services v. Saunders, 247 Conn. Lexis 25 (1999). • Prior to setting up a special needs trust, all medical claims and liens must be compromised and paid, which includes Medicare claims and AHCCCS liens! See Norwest Bank v. David S. Doth, 159 F.3d 328 (8th Cir. 1998).

4. Potential Liability for Personal Injury Attorneys (cont.) • The Ahlborn case stands for the proposition that federal law limits a state to placing a lien only on third-party payments made to compensate for medical care, i.e., not pain and suffering, lost wages, etc. See Ahlborn v. Arkansas Dept. of Human Services (8th Cir., No. 03-3377, Feb. 9, 2005). • In Arizona, there is an automatic “assignment” upon application for Medicaid or AHCCCS benefits. Consider making the argument that, where no conservator has been appointed by the probate court, the assignment fails in cases of minors and incapacitated adults because no one had the right to assign that individual’s property.

5. Medicare Secondary Payor • Be mindful of the fact that an individual who is eligible for and receiving Social Security Disability Insurance (SSDI) will be Medicare-eligible within 24 months and, thus, Medicare may have a claim for reimbursement if the case has not settled prior to that date. • If the claimant has a “reasonable expectation” of Medicare enrollment within 30 months of the settlement date, and the anticipated total settlement for future medical expenses is expected to be greater than $250,000, then a set-aside arrangement must be approved by Medicare.

6. Not all public benefits are needs-based: Social Security (retirement) Social Security Disability Insurance (SSDI) Medicare Some public benefits are needs-based: Supplemental Security Income (SSI) Medicaid (AHCCCS and ALTCS) Section 8 Housing, TANF (formerly AFDC), and Food Stamps Identifying the Public Benefits for which Your Client is Eligible

7. SSDI Federal program “Disabled,” i.e., unable to engage in substantial gainful activity Based on the claimant’s earnings record or that of a retired or deceased parent if disabled before age 22 Eligible for Medicare 24 months later SSI Federal program Elderly, blind or disabled Resource limit: $2,000 in countable resources (single person) Maximum benefit of $579/month (eff. 1/1/05 for single person) “Deeming” of parents’ (and spouse’s) income/resources Categorically or automatically eligible for AHCCCS medical benefits Social Security Benefits for the Disabled

8. AHCCCS for the Indigent: Medical benefits for those who meet the resource and income criteria All AHCCCS programs are income-sensitive Some AHCCCS programs are resource-sensitive, namely, the Medical Expense Deduction (MED) program Many AHCCCS programs are based on the income/resources of the household AHCCCS eligibility is determined either by the Arizona Department of Economic Security or AHCCCS See www.ahcccs.state.az.us AHCCCS for the disabled: Automatic for those who are eligible for SSI Arizona Long Term Care System (ALTCS) ALTCS covers nursing home care, home care, adult foster homes, and assisted living ALTCS is based on medical and financial need Someone who is “disabled” for purposes of qualifying for disability benefits through the SSA or for services through the Division of Developmental Disabilities through the Arizona Department of Economic Security does not necessarily qualify medically for ALTCS benefits AHCCCS Medical Benefits

9. ALTCS Financial Eligibility Requirements • Income requirements: $1,737/month gross income from all sources for single person (2005) • Resource requirements: $2,000 “available” for single person and ½ “available” resources of marital couple but no more than $95,100 (2005) • Excluded resources: Home if legal ownership interest, one vehicle, burial plot, burial account of $1,500 or irrevocable prepaid burial plan with no limit, household goods and personal effects

10. Initial Considerations • A primary consideration is whether your client has alternative medical coverage available to him/her and whether he can otherwise afford the cost of his care, e.g., dependent children may have coverage available through a parent’s employer-sponsored group health plan and may continue to remain dependent indefinitely if disabled and living with that parent. • If your client has no alternative medical coverage available, but does not otherwise have substantial costs in long term care, consider his/her potential eligibility through one of the AHCCCS programs that is only income sensitive

11. Maintaining SSI and/or ALTCS Eligibility • Spend down options: pay off debts, pre-pay up to one year of services, pay down mortgage, purchase home, purchase vehicle, purchase household goods and personal effects, make burial arrangements, etc. • “Special Needs Trust” or trust established pursuant to 42 U.S.C. Sec. 1396p(d)(4)(A) and A.R.S. Sec. 36-2934.01

12. Special Needs Trusts • Must be “disabled” according to the SSA or medically eligible for ALTCS • Must be established before age 65 • Must be established by a parent, grandparent, guardian, conservator, or court of law • Must provide for reimbursement to AHCCCS up to the cost of medical services provided on termination of the trust (this is in addition to any lien that may have been paid from recovery)

13. Structured Settlements and Public Benefits • Payments from a structured settlement constitute “income” for purposes of public benefits eligibility • If a special needs trust is established, then the payee on the structured settlement must be the trust • Consider delaying payment on the structure until such time as a minor has reached the age of majority if AHCCCS eligible based on “indigency” alone. See A.R.S. Sec. 14-5424.D. • Consider who should be named the contingent beneficiary of a structured settlement payable to a special needs trust, arguably Medicaid/AHCCCS. • Consider potential impact of guaranteed period on AHCCCS/ALTCS eligibility as AHCCCS has treated such provision as a transfer without fair compensation to the individual, thereby disqualifying him/her from long term care (not acute medical) benefits for a period of time. • Consider potential estate taxation on the death of the payee and include a commutation provision to provide for sufficient liquidity to pay such liability if necessary

14. Allocation Issues • Consider who other than the “injured” party has a potential claim, such as for loss of consortium • Ensure that “financially responsible” relatives who have claims receive sufficient funds to purchase large ticket items, such as a home, vehicle, etc. • Consider the fact that “financially responsible” relatives, i.e., spouse and parent of a minor disabled child, cannot be compensated for personal care services from a special needs trust. See A.R.S. Sec. 36-2934.01.

15. Considerations Prior to Funding a Special Needs Trust • State law requires that real property purchased by a special needs trust be titled to the trust, thereby subjecting it to the payback provision on termination. See A.R.S. Sec. 36-2934.01. • State law also requires that a vehicle purchased by a special needs trust be either titled to the trust or that the trust take back a lien equal to the current market value of the vehicle, thereby subjecting it to the payback provision on termination. See id. • Don’t forget to compromise and pay all liens prior to funding a special needs trust! • Given the above, consideration should be given to purchasing a home and vehicle prior to funding a special needs trust with a settlement!

16. HB 255O re: SNTs • Supported by Representative Leah Landrum-Taylor this legislative session, but never introduced (we’ll be trying again next year so stay tuned!) • Attempted to cure ills of SB 1167, which amended A.R.S. Section 36-2934.01 effective 8/25/04 • Focused on allowable disbursements, i.e., payments to financially responsible relatives for caregiving services, exceptions to recovering against real property held in SNT, consequences if statute violated, etc.