An Introduction to: OBRA

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An Introduction toOBRA 93 Special Needs
Trusts
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OBRA 93

• When Congress enacted the Omnibus Reconciliation
  Act of 1993 (OBRA 93), it created a specific
  exception to the rules that normally apply to
  trusts. OBRA trusts share the following
  characteristics
• Trust assets are not counted as an available
  resource
• Transfers to OBRA trusts are not subject to
  transfer penalties and,
• Interest or dividend income generated within OBRA
  trusts are not counted as income for purposes of
  public benefit eligibility.

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42 U.S.C. 1396p(d)(4)(A)

• OBRA 93 was codified in the law at 42 U.S.C.
  1396p, where three specific types of trusts are
  found that preserve public benefit eligibility.
  These three trusts include
• (d)(4)(A) Trusts, or Special Needs Trusts
• (d)(4)(B) Trusts, or Miller Trusts and,
• (d)(4)(C) Trusts, or Pooled Trusts.

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(d)(4)(A) Special Needs Trusts

• A Special Needs Trust (SNT) must meet the
  following requirements
• The beneficiary must be disabled as defined by
  law and under age 65
• Only the beneficiarys parent, grandparent, legal
  guardian, or a court may establish the SNT
• The SNT must be irrevocable, funded with the
  beneficiarys assets, be established and
  administered for the sole benefit of the
  beneficiary and,
• Any funds that remain in the SNT at the
  beneficiarys death must be used to reimburse the
  State for all medical benefits provided during
  the beneficiarys lifetime.
• The requirement to reimburse the State is
  commonly referred to as a payback provision.

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(d)(4)(B) Miller Trusts

• Miller Trusts are also called Income Trusts and
  serve a very limited purpose. They can solve
  income problems for benefits such as long term
  nursing home care.
• The trust can only receive and hold income.
• Except for a small personal needs allowance, all
  of the income received each month must be spent
  for the beneficiarys care.
• Any funds that remain in a Miller Trust at the
  beneficiarys death must be used to reimburse the
  State for all medical benefits provided during
  the beneficiarys lifetime.

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(d)(4)(C) Pooled Trusts
Pooled Trusts are very similar to Special Needs
Trusts, but there are some important differences

• A Pooled Trust (PT) must meet the following
  requirements
• The beneficiary must be disabled as defined by
  law, but there is no age limit
• The PT account must be established by the
  beneficiarys parent, grandparent, legal
  guardian, or a court, but the beneficiary may
  also establish the trust on his or her own
  behalf
• The PT account must be irrevocable, funded with
  the beneficiarys assets, be established and
  administered for the sole benefit of the
  beneficiary
• PTs must be created and managed by a non-profit
  association
• A separate account must be maintained for each PT
  beneficiary, but the trustee may pool the
  accounts for investment and management purposes
  and,
• Any funds that remain in the SNT at the
  beneficiarys death must either be retained in
  the trust or used to reimburse the State for all
  medical benefits provided during the
  beneficiarys lifetime.

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Third Party Trusts

• Third Party Special Needs Trusts are NOT OBRA
  Trusts, but are simply trusts that are created
  with funds belonging to someone other than the
  beneficiary. They must
• Be established by someone other than the
  beneficiary who has no legal duty to support the
  beneficiary
• Be funded with funds in which the beneficiary has
  no ownership interest and,
• Contain special need provisions regarding trust
  distributions.
• Third Party Trusts may be revocable or
  irrevocable and can be incorporated into
  traditional estate planning because they do not
  require payback provisions.

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Deficit Reduction Act of 2005Effects on Medicaid
Planning

• The look-back period for all transfers below fair
  market value is now 60 months, and penalties will
  now begin at the date of application.
• No rounding down for monthly gifting, and all
  transfers are lumped together.
• Annuities may no longer include balloon payments,
  and in most cases, they must name the State as a
  contingent beneficiary.
• Personal Services Contracts are limited and
  narrowly defined in some states.
• Home equity over 500,000-750,000 will be a
  countable asset.
• Purchase of a life estate will be disallowed if
  the beneficiary is not living in the home.

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Who Can Benefit from a Special Needs Trust?

• People who are disabled as defined by law
• Some Examples
• Elderly persons who have become infirm
• Nursing home residents
• ALF residents
• Minor children with disabilities
• People with disabilities living in the community
• Disabled recipients of or applicants to
  government assistance programs such as Medicaid
  or SSI and,
• Recipients of personal injury settlements who
  need to apply for or protect, government
  assistance benefits.

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How Trust Funds Can Be UsedExamples

• Purchase a home
• Purchase a vehicle
• Travel expenses
• Entertainment
• Differentials in housing costs between shared and
  private rooms in institutional settings
• Any other expense not provided by government
  assistance programs

• Care-Giver services
• Attorney fees
• Guardian fees
• Supplemental nursing care
• Medical procedures not provided through
  government assistance
• Tuition
• Transportation

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How Professionals Benefit

• SNTs and PTs can provide additional resources for
  helping clients augment or increase the level of
  care and services they receive.
• Increasing the level of care and services
  ultimately translates into an additional revenue
  source for professionals who add value.
• SNTs and PTs can reduce potential liability in
  the decision-making process of settlement
  allocation.

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The Florida Pooled Trust

• The Florida Pooled Trust was created to assist in
  public benefits planning across the country and
  to protect the interests of a vulnerable
  population.
• The end result is that beneficiaries of the
  Florida Pooled Trust can continue receiving
  public benefits for meeting essential needs and
  still have resources available for their special,
  or supplemental needs.

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Safety and Protection

• With an eye toward safety, protection, and
  stability, the Florida Pooled Trust has been
  structured with an internal safety system.
• The Trusts safety system consists of a check and
  balance system that is supported by professional
  money management as well as separate custodians.

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Conclusion

• Many of the previously-used public benefit
  planning vehicles have been eliminated.
• Because of the increasing complexity of public
  benefit programs, the use of specialized
  administrative professionals has become a
  critical consideration.
• Attorneys are becoming increasingly more
  concerned about protecting public benefit
  eligibility at the time a settlement is reached.
  Helping a client to establish a SNT or PT can
  alleviate that concern.

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Who Operates The Florida Pooled Trust?

• The Not-for-Profit Trustee is
• The Center For Special Needs Trust
  Administration, Inc.
• 4912 Creekside Drive ? Clearwater, FL 33760
• 1-877-766-5331
• www.sntcenter.org