OBRA ’93 authorized the concept of a “pooled” Special Needs Trust, separate accounts in which may be established for the sole benefit of a beneficiary with a disability. 42 U.S.C. § 1396p(d)(4)(C), and related POMS provisions, set forth the following requirements.
a. A pooled Special Needs Trust must be “established and managed by a non-profit association.” POMS SI 01120.203.B.2.c defines a non-profit association as “an organization established and certified under a State nonprofit statute.” As of January 2011, tax-exempt status is no longer required of the non-profit association.
b. A pooled Special Needs Trust must contain the assets of individuals who are “disabled,” as defined by 42 U.S.C. § 1382c(a)(3).
c. The pooled Special Needs Trust must maintain a separate account for the sole benefit of each beneficiary with a disability, but may pool the assets of the separate accounts for purposes of investment and management. See POMS SI 01120.203.B.2.d and POMS SI 01120.203.B.2.e.
d. A separate account with the pooled Special Needs Trust must be established by (i) the beneficiary’s legal Guardian of the Property or Conservator; (ii) the beneficiary’s parent or grandparent; (iii) a court; or (iv) the beneficiary himself. (In contrast, the beneficiary of a (d)(4)(A) Special Needs Trust may not serve as the Settlor to establish a first-party Special Needs Trust for himself.)
e. To the extent that the pooled Special Needs Trust does not retain any amounts remaining in a separate account upon the beneficiary’s death, such assets must be used to reimburse Medicaid (but not the Social Security Administration) up to the total amount of medical assistance benefits paid on behalf of the beneficiary during his lifetime. See also POMS SI 01120.203.B.2.g.
(1) POMS SI 01120.199.F.2 sets forth modified requirements for an acceptable “early termination” provision applicable to a beneficiary’s account with a pooled Special Needs Trust. The requirements described in POMS SI 01120.199.F.1 (for first-party Special Needs Trusts), need not be satisfied in the context of a pooled Special Needs Trust if the early termination provision only allows for the transfer of an account from one pooled Special Needs Trust to another. However, no funds may be retained by the first pooled Special Needs Trust if the termination of the beneficiary’s account occurs during his life rather than by virtue of his death.
f. There is no express statutory limitation on the age of a beneficiary of an account with a pooled Special Needs Trust, i.e. the statute on its face permits the establishment of an account even if the beneficiary is 65 or older. However, if the beneficiary is 65 or older, many States choose to impose a penalty for the uncompensated transfer of the beneficiary’s assets to the pooled Special Needs Trust if the beneficiary wishes to qualify for Medicaid long-term care (i.e. nursing home) coverage, or for certain long-term care services rendered in the community. See 42 U.S.C. § 1396p(c)(1)(B)(i)-(ii), (c)(1)(G), (e)(1), (f), and POMS SI 01150.121.A.3. Some States take the position that an account with a pooled Special Needs Trust cannot be established for a person who is 65 years or older even if the person were willing to accept a transfer penalty.
g. Separate accounts for a pooled Special Needs Trust may be established as first-party or as third-party, i.e. with reference to the source of the assets with which the account will be funded.
h. Pooled Special Needs Trusts are typically governed by a “Master Trust Agreement” that applies to all of the separate accounts. A separate account is established by completing a “Joinder Agreement,” which usually does not require the involvement of an attorney (one of the most popular aspects of this option). This is also a very cost-effective option for a beneficiary who has too many assets to maintain his eligibility for means-tested government benefits, but not enough to warrant the expense of creating or maintaining a (d)(4)(A) Special Needs Trust.
i. An account with a pooled Special Needs Trust is often the only option for a beneficiary who (i) has no living parents or grandparents, (ii) may be “disabled” but who is mentally competent and thus cannot qualify for a legal Guardian or Conservator, (iii) cannot convince a court to serve as the Settlor of a (d)(4)(A) Special Needs Trust, and/or (iv) is age 65 or older.
On June 12, 2012, the United States Court of Appeals for the Third Circuit held that the Medicaid program administered in the Commonwealth of Pennsylvania could not impose additional criteria for the exemption of pooled Special Needs Trusts authorized by 42 U.S.C. § 1396p(d)(4)(C), over and above those criteria specifically enumerated in the statute. See Lewis v. Alexander, 685 F.3d 325 (3d Cir. 2012).
Pursuant to the federal preemption doctrine, the Court struck down the following elements of a Pennsylvania statute that purported to impose additional qualification criteria over and above those set forth in the federal statute: (i) a restriction on the amount of funds in a deceased beneficiary’s account that can be retained by the pooled Special Needs Trust; (ii) a requirement that expenditures from a beneficiary’s account must be “reasonably related” to the beneficiary’s needs; (iii) a requirement that the beneficiary’s special needs could not be met without the funds in the beneficiary’s account; (iv) a definition of “special needs” that limits permissible disbursements to “items, products or services . . . related to the treatment of the beneficiary’s disability;” and (iv) a restriction limiting beneficiaries of a pooled Special Needs Trust to those under 65 years of age.
The Court held that “Congress intended that special needs trusts be defined by a specific set of criteria that it set forth and no others. We base this upon Congress’ choice to provide a list of requirements to be met by special needs trusts. The venerable canon of statutory construction— expressio unius est exclusio alterius—essentially says that where a specific list is set forth, it is presumed that items not on the list have been excluded. . . . Absent an explicit statement or a clear impression that States are free to expand the list, expressio unius leads us to conclude they are not.” Id. at 347. Earlier in its decision, the Court concluded that “in determining Medicaid eligibility, States are required to exempt any trust meeting the provisions of 42 U.S.C. § 1396p(d)(4).” Id. at 344. The Third Circuit’s holding that “42 U.S.C. § 1396p(d)(4) imposes mandatory obligations upon the States” is contrary to the position of the Second Circuit in Wong v. Doar, 571 F.3d 247 (2d Cir. 2009), and the Tenth Circuit in Keith v. Rizzuto, 212 F.3d 1190 (10th Cir. 2000), which held that 42 U.S.C. § 1396p(d)(4) does not mandate that the States exempt special needs trusts meeting the statutory criteria. Id. at 343.
On January 14, 2013, the United States Supreme Court denied the request by the Commonwealth of Pennsylvania to grant a writ of certiorari in the Lewis v. Alexander case, thus leaving in place the decision of the Third Circuit, and the conflict thus created with the Second and Tenth Circuits. Accordingly, the issue of whether a Medicaid program can impose additional criteria for exemption of Special Needs Trusts is ripe for a review by the United States Supreme Court.
Kristen Lewis
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