1. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC Supplemental Needs Trusts and Medicaid Student Assistantship: Michelle A. Daubert, JD Student, University at Buffalo School of Law UB RESEARCH PROJECT FOR CDHS CURRICULUM DEVELOPMENT

2. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC Statutory Basis for SNTs A Supplemental Needs Trust (“SNT”) enables a person with a disability to maintain eligibility for government benefits (primarily Medicaid and Social Security Income (“SSI”)), despite having transferred his or her own income or resources into a self-settled trust that exists for the benefit of the disabled individual. A Supplemental Needs Trust (“SNT”) enables a person with a disability to maintain eligibility for government benefits (primarily Medicaid and Social Security Income (“SSI”)), despite having transferred his or her own income or resources into a self-settled trust that exists for the benefit of the disabled individual. Federal law does not define an SNT. Federal law does not define an SNT. New York State definition of an SNT, pursuant to N.Y. Est. Powers & Trusts Law § 7-1.12(a)(5), is a discretionary trust “established for the benefit of a person with a severe and chronic or persistent disability.” New York State definition of an SNT, pursuant to N.Y. Est. Powers & Trusts Law § 7-1.12(a)(5), is a discretionary trust “established for the benefit of a person with a severe and chronic or persistent disability.”

3. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC Statutory Basis for SNTs There are two very key aspects of any SNT, regardless of whether it is individual or pooled, self-settled or third-party, are the following: There are two very key aspects of any SNT, regardless of whether it is individual or pooled, self-settled or third-party, are the following: (1) the beneficiary does not have the power to assign, encumber, direct, distribute, or authorize any distributions from the trust; and (1) the beneficiary does not have the power to assign, encumber, direct, distribute, or authorize any distributions from the trust; and (2) the trust document prohibits the trustee from expending or distributing funds in any way that would supplant, impair, or diminish the beneficiary’s eligibility for or receipt of any type of government benefit. (2) the trust document prohibits the trustee from expending or distributing funds in any way that would supplant, impair, or diminish the beneficiary’s eligibility for or receipt of any type of government benefit.

4. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC Differences between the Individual SNT and the Pooled SNT under OBRA ’93: Individual SNT Pooled SNT 1. Beneficiary must be under 65. 1. No age limit. 2. No penalty period for transfer of assets into the trust. 2. If beneficiary is 65 or older, transfer of assets into the pooled trust may create penalty period. 3. Administered by trustee. 3. Operated and managed by a non-profit group which either acts as a trustee or selects a trustee. 4. Assets invested separately. 4. Assets pooled for investing. 5. Can only be established by: parent, grandparent, legal guardian, or a court. 5. Individual trust account can be created by: the disabled individual, in addition to a parent, grandparent, legal guardian, or a court. 6. Remainder to the State. 6. Only amount of remainder not retained by the pooled trust goes back to the State.

5. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC An existing NPO becomes committed to establishing a pooled trust, or a NPO is incorporated for that express purpose. Attorneys, typically pro bono, draft the trust agreement and related documents. The NPO hires or trains staff to market and operate the pooled trust. Marketing begins. New clients execute Joinder Agreements and pay initial sign-up fees. NPO manages the trust, often delegating out financial and legal aspects of administering the trust. Pooled SNT Startup Steps:

6. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC Trust Distributions SNTs, both individual and pooled, are set up to meet supplemental needs, rather than basic needs. SNTs, both individual and pooled, are set up to meet supplemental needs, rather than basic needs. SNTs are intended to provide services and items that do not jeopardize means-tested benefits. SNTs are intended to provide services and items that do not jeopardize means-tested benefits. For Medicaid and SSI, all money in either an individual or pooled SNT is not considered a resource of the beneficiary. For Medicaid and SSI, all money in either an individual or pooled SNT is not considered a resource of the beneficiary.

7. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC Trust Expenditures for Beneficiaries who Receive Medicaid Only The trustee of the individual or pooled SNT may make direct payments to third parties that provide goods and services to the beneficiary. These in-kind payments are not considered income for Medicaid purposes, regardless of what the payments are for. The trustee of the individual or pooled SNT may make direct payments to third parties that provide goods and services to the beneficiary. These in-kind payments are not considered income for Medicaid purposes, regardless of what the payments are for. Payments made by the trust to third parties for rent, clothing, food, etc. do not reduce Medicaid benefits. Payments made by the trust to third parties for rent, clothing, food, etc. do not reduce Medicaid benefits. Cash paid directly from the trust to the individual, however, would be considered income and would reduce Medicaid benefits. Cash paid directly from the trust to the individual, however, would be considered income and would reduce Medicaid benefits.

8. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC Trust Expenditures for Beneficiaries who Receive Medicaid & SSI Food or shelter received as a result of disbursements from the SNT by the trustee to a third party are income in the form of in-kind support and maintenance. Food or shelter received as a result of disbursements from the SNT by the trustee to a third party are income in the form of in-kind support and maintenance. In-kind support and maintenance is defined in 20 C.F.R. § 416.1130: “Both earned income and unearned income include items received in kind.” In-kind support and maintenance is defined as “any food or shelter that is given to you or that you receive because someone else pays for it.” In-kind support and maintenance is defined in 20 C.F.R. § 416.1130: “Both earned income and unearned income include items received in kind.” In-kind support and maintenance is defined as “any food or shelter that is given to you or that you receive because someone else pays for it.” These payments are “unearned income” and will generally reduce SSI payments by a maximum of one- third of the monthly federal benefit amount plus $20, which is the “general income exclusion.” These payments are “unearned income” and will generally reduce SSI payments by a maximum of one- third of the monthly federal benefit amount plus $20, which is the “general income exclusion.”

9. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC Initiation and Fees Limits on Marketing: Limits on Marketing: Marketing of SNTs may assist or complicate the decision that disabled individuals face as to whether or not to establish an SNT. Marketing of SNTs may assist or complicate the decision that disabled individuals face as to whether or not to establish an SNT. The marketing of SNTs is a concern for CDHS because aggressive tactics have been used to encourage disabled individuals to join a pooled SNT. The marketing tactics employed have included visiting disabled individuals directly at their home or contacting family members. The marketing of SNTs is a concern for CDHS because aggressive tactics have been used to encourage disabled individuals to join a pooled SNT. The marketing tactics employed have included visiting disabled individuals directly at their home or contacting family members. Unfortunately, there are no laws, either in New York or on the federal level, that regulate the marketing or advertising of SNTs. Unfortunately, there are no laws, either in New York or on the federal level, that regulate the marketing or advertising of SNTs.

10. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC Initiation and Fees Limits on Administrative Fees: Limits on Administrative Fees: New York State law sets forth that an NPO may act as trustee of a pooled SNT so long as a trust company acts as a co-trustee. New York State law sets forth that an NPO may act as trustee of a pooled SNT so long as a trust company acts as a co-trustee. Some are critical of this provision because NPOs are then saddled with the additional expense of a corporate trustee’s fees that will reduce the available benefits to pooled SNT beneficiaries when, arguably, most NPOs can handle the necessary bookkeeping and payments internally or keep costs down by contracting with banks to administer the trust accounts at lower cost. Some are critical of this provision because NPOs are then saddled with the additional expense of a corporate trustee’s fees that will reduce the available benefits to pooled SNT beneficiaries when, arguably, most NPOs can handle the necessary bookkeeping and payments internally or keep costs down by contracting with banks to administer the trust accounts at lower cost. New York State statute has limits on the amount of commissions that trustees of individual and pooled SNTs are entitled to. New York State statute has limits on the amount of commissions that trustees of individual and pooled SNTs are entitled to.

11. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC Remainder in Pooled SNTs Pursuant to the Federal statute, 42 U.S.C. § 1396p(d)(4)(C), and the New York statutes, N.Y. Soc. Servs. Law § 366(2)(b)(2)(iii)(B) and 18 NYCRR § 360-4.5(b)(5)(i)(b), pooled SNTs may keep the remaining balance of a disabled individual’s account after they die. Pursuant to the Federal statute, 42 U.S.C. § 1396p(d)(4)(C), and the New York statutes, N.Y. Soc. Servs. Law § 366(2)(b)(2)(iii)(B) and 18 NYCRR § 360-4.5(b)(5)(i)(b), pooled SNTs may keep the remaining balance of a disabled individual’s account after they die. With a pooled SNT, the State's remainder interest is subject to the election to retain the remaining balance in the pooled trust. With a pooled SNT, the State's remainder interest is subject to the election to retain the remaining balance in the pooled trust. Any amounts not retained by the pooled trust must go to repay the New York State Medicaid program up to the amount of medical assistance paid by Medicaid for the beneficiary of the pooled SNT. Any amounts not retained by the pooled trust must go to repay the New York State Medicaid program up to the amount of medical assistance paid by Medicaid for the beneficiary of the pooled SNT. As a result of the remaining corpus of pooled SNT accounts being retained by the non-profit sponsor, a potential conflict of interest arises in the administration of pooled SNTs; the trustee has an interest in the remaining balance of the trust account. As a result of the remaining corpus of pooled SNT accounts being retained by the non-profit sponsor, a potential conflict of interest arises in the administration of pooled SNTs; the trustee has an interest in the remaining balance of the trust account.

12. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC Remainder in Pooled SNTs Neither federal nor state statutes provide any guidance regarding the use of the remainder interest of the pooled SNT. Neither federal nor state statutes provide any guidance regarding the use of the remainder interest of the pooled SNT. Some pooled SNTs have developed their own policies to address this issue. Some pooled SNTs have developed their own policies to address this issue. Ways to avoid the conflict of interest: Ways to avoid the conflict of interest: Using distribution plans based on beneficiaries’ actuarial life expectancies, ensuring that the remainder cannot be used from administrative expenses, letting individuals direct the remainder to other charitable organizations. Using distribution plans based on beneficiaries’ actuarial life expectancies, ensuring that the remainder cannot be used from administrative expenses, letting individuals direct the remainder to other charitable organizations. New York’s Prudent Investment Act, set forth in EPTL § 11-2.3 – may not be applicable because the trustee is under no obligation to protect a remainder of an individual’s account in a pooled SNT. New York’s Prudent Investment Act, set forth in EPTL § 11-2.3 – may not be applicable because the trustee is under no obligation to protect a remainder of an individual’s account in a pooled SNT.

13. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC Oversight There is no certification or accreditation process for individual or pooled SNTs. There is no certification or accreditation process for individual or pooled SNTs. With respect to pooled SNTs, the sponsoring NPO must at all times meet the criteria set forth in Internal Revenue Code § 501(c), which sets forth the requirements for tax-exempt status. With respect to pooled SNTs, the sponsoring NPO must at all times meet the criteria set forth in Internal Revenue Code § 501(c), which sets forth the requirements for tax-exempt status. Pursuant to § 717 of the New York Not-For-Profit Corporation Law, directors and officers share an obligation to carry out the duties of their positions in good faith and with “that degree of diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in like positions.” Pursuant to § 717 of the New York Not-For-Profit Corporation Law, directors and officers share an obligation to carry out the duties of their positions in good faith and with “that degree of diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in like positions.” Federal False Claims Act – permits a qui tam action which means that under certain circumstances, a private person may pursue a claim against persons who make false claims for money from a governmental agency. Federal False Claims Act – permits a qui tam action which means that under certain circumstances, a private person may pursue a claim against persons who make false claims for money from a governmental agency. A cause of action against the trustee of the SNT for self-dealing is another means of potential oversight. A cause of action against the trustee of the SNT for self-dealing is another means of potential oversight. Lastly, there are reporting requirements in New York that provide a measure of oversight and quality control regulations over pooled SNTs. Lastly, there are reporting requirements in New York that provide a measure of oversight and quality control regulations over pooled SNTs.

14. © 2006-2007 CDHS College Relations Group/Research Foundation of SUNY/BSC THANK YOU