Medicaid Payback
Public benefits agencies, like those who administer Medicaid and SSI (Supplemental Security Income), place a cap on a recipient's income and assets in order for the recipient to become or remain eligible for benefits. As of this writing, a person who receives Medicaid must not own more than $1,500 in assets. A person who receives SSI must not own more than $2,000 in assets. These types of benefits are referred to as "means-tested" benefits.
When a recipient of means-tested benefits receives a lump sum of money, that money can make him or her ineligible for assistance. Fortunately, The United States Congress passed a law in 1993 allowing persons to fund their own Special Needs Trusts. This law is called the Omnibus Budget Reconciliation Act of 1993, (or OBRA '93 for short).
Today, a trust funded by a person with his or her own money is called a Self-Settled Trust, or a Medicaid Payback Trust, because when Congress passed OBRA '93, it required that when the recipient Beneficiary passes away, any funds left in the trust must go back to the State to reimburse the state's Medicaid program for the money it spent on the Beneficiary during his or her lifetime. Any money remaining after the State has been reimbursed can pass to the recipient Beneficiary's estate or heirs. However, it is rare for any money to be left after the State has been reimbursed for Medicaid expenses.
In the case of trusts like Trust II, the law allows a portion of the trust to go to an organization that assists persons with disabilities. Although the law allows trusts like Trust II to retain up to 100% of the remaining balance, The Arc Trust retains only 50% of the remainder. After The Arc Trust has retained 50% of the funds remaining in the trust, only then does the State receive any remaining funds.
Some families are at first surprised to learn that The Arc of Indiana retains 50% of the assets remaining in a Trust II account upon the death of the Beneficiary. Without understanding how the federal law works, it is natural to assume that the 50% retained by The Arc otherwise would pass to the Beneficiary's estate. However, in the overwhelming majority of cases, if The Arc did not retain any of the remainder, the State would claim it all anyway.
How do we utilize the 50% we retain? In accordance with the Social Security Administration's POMS Manual, The Arc Trust only uses the remaining money for Trust administrative expenses and for existing beneficiaries. One way we use that money is to guarantee to our Trust I beneficiaries that disbursements will continue to be made even if they outlive their actuarial life span and deplete their accounts. The Arc of Indiana continues to meet their needs so they are never left without.
In those rare cases where the trust account is large and the Beneficiary has been on Medicaid only a short period of time, there is the chance that The Arc of Indiana's 50% remainder requirement may decrease money that otherwise would pass to the Beneficiary's estate. Again, this is rare. When there is the potential for this situation to arise, The Arc of Indiana may suggest employing a Tandem Trust. We would be happy to provide you with more information on Tandem Trusts. If the beneficiary passes away within a year of funding their trust, The Arc will not keep the full 50% of the assets remaining in the Trust II account.
There is no avoiding Medicaid Payback when a special needs trust is funded with money originally belonging to the Beneficiary. It is important to remember, however, that there is no mandatory remainder requirement when an Arc Trust is funded with money originally belonging to someone other than the Beneficiary, such as parents or grandparents.
