Special Needs Trust Fairness Act Passage Presents New Opportunities in the New Year

January 30, 2017

On December 13, 2016, approximately two weeks prior to the start of the new year, the Special Needs Trust Fairness (SNTF) Act became law.  The SNTF Act corrected what appears to have been a long-standing error in the law regarding who is authorized, pursuant to the Social Security Act, to create first-party special needs trusts (commonly referred to as a (d) (4) (A) trust).  For many disabled persons, the ability to create a first-party special needs trusts is extremely important and critical to his/her continued access to important government benefits.  As such, the passage of the SNTF Act is a significant victory for competent disabled adults, who now have the same right that parents, grandparents, guardians, and courts have to create a first-party trust, for their own benefit with their own assets.

Prior to December 13, 2016, and for more than two decades, such individuals were prohibited from creating their own first-party special needs ((d)(4)(A)) trust.  Rather, the prior law stated that such trusts could only be created by the individual’s parent, grandparent, or guardian or by a court, even in a circumstance in which the individual was legally competent and able to handle his or her own affairs.  This error in the law left legally competent disabled adults in the unfortunate circumstance of having to either rely on the assistance of a qualified family member, or to expend significant funds petitioning a court to establish a first-party trust, when a qualified family member was either no longer alive, unwilling, or unable to assist.

Specifically, the SNTF Act, which was included in the 21st Century Cures Act, accomplished this change by amending the Social Security Act to add “the individual” as a person who is now allowed to create a first-party specials needs trust for the individual’s own benefit.  It should be noted that the SNTF Act did NOT make any other changes to the law regarding first-party special needs trusts, which still requires the inclusion of a payback provision to allow state Medicaid offices to recover expenditures made by the state for the individual’s benefit from the any remaining trust assets, after the individual’s death.

Quite simply:  The bottom line is that the addition of just two words (“the individual’) to the Social Security Act has made a world of difference for many legally competent adults.

Planning for special needs is complex.  As such, persons wishing to learn more about special needs planning for yourself or a loved one, are strongly encouraged to seek specific legal advice from an attorney, whose practice includes special needs planning.

The Elder Law Center, P.C. (subsidiary of Mickey, Wilson, Weiler, Renzi & Andersson, P.C., http://www.mickeywilson.com) is located in Sugar Grove, IL, Kane County, in the Chicago Western Suburbs, phone number: 630-844-0065.

Dispelling a Common Misconception:  Annual Gifts do NOT Qualify as an Exception Under the Strict Medicaid Transfer Rules

March 30, 2015

At our office, we frequently meet with clients regarding long-term care planning.  Many times these meetings include counseling clients regarding the Medicaid eligibility rules for a long-term nursing home stay.   (A full discussion of the Medicaid eligibility rules is beyond the scope of this post, as the rules are complex and vary from state to state.)   During these meetings, it is not uncommon for clients to make the following statement, “I know that I can gift $14,000 per year per person, without any negative consequences, if I have to apply for Medicaid.”   Most of these folks are quite surprised when we advise them that their understanding is incorrect and simply NOT true.  

Pursuant to the federal law regarding Medicaid eligibility for long-term care stays at a nursing home, there is a sixty (60) month look-back period in which ALL transfers made by the Medicaid applicant will be strictly scrutinized.   When transfers made during the look-back period are reviewed, a penalty period will be imposed for all “non-allowable” transfers.  A “non-allowable” transfer (made during the look-back period) is a transfer for which there is insufficient documentation to support that the applicant, or his/her spouse, received either  resources or services approximately equal to the fair market value of the amount transferred.  There are “exceptions” to the transfer rules, which may result in certain transfers being treated as “allowable,” even when the transfer was not made for fair market value.  However, nowhere in the Medicaid eligibility laws, rules, and policy provisions, as applied in Illinois, is the transfer of $14,000 per year per person included as an “allowable” transfer.  Thus, pursuant to the Illinois Medicaid eligibility rules, unless an annual gift (made during the applicable look-back period) fits into one of the “exceptions,” the gift will NOT be “allowable,” and it will result in a penalty period being imposed.

The genesis of this misconception is easily explained.   It is the result of confusing the federal gift tax laws with the Medicaid eligibility laws and rules.  According to the IRS, the federal annual gift tax exclusion rules provide that, in 2015, an individual may gift up to $14,000 per year per person without the annual exclusion gifts counting towards the individual’s lifetime gift exemption. This rule, however, is limited solely to the federal estate and gift tax laws, and unless the gift fits into one of the stated “exceptions” for transfers made during the look-back period, it will NOT qualify as an “allowable” transfer under the Medicaid eligibility rules.

Quite simply, the bottom line is that if you or a loved one will likely need Medicaid assistance for long-term care, obtaining legal advice (in your home state) for your specific situation is highly recommended. As noted above, the Medicaid eligibility rules are quite complex and vary from state to state.  As such, it is important to be certain that you are not confusing other laws and rules with the applicable Medicaid eligibility rules in your state.

©Copyright 2015 by Constance Burnett Renzi. All rights reserved.

To discuss elder law issues, estate planning (including Wills and/or Trusts), life care planning (powers of attorney), special needs planning, probate and/or guardianship matters with one of our attorneys, please call the Elder Law Center at 630-844-0065 or contact us via email. The Elder Law Center, P.C. is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

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