Medical Assistance Financial Eligibility Rules
In Montgomery County, Maryland the average cost of nursing home care is about $11,000 per month. Medical Assistance (Medicaid) is the government health insurance program that helps pay that cost. Medicaid accounts for about half of all nursing home revenue. About two-thirds of all long-term nursing home residents are on Medicaid.
Medical Assistance is means tested. Which is to say that the government looks at both the nursing home resident’s, and, if applicable, the community spouse’s financial information when determining eligibility. With regards to assets, Maryland Medicaid does not count (or counts but exempts) the following:
Nursing home resident: $2,500.
- the residence, of any value;
- household furnishings;
- a motor vehicle; and
- in addition to all of that (in addition to the house, household furnishings and one car), a “community spouse resource allowance,” equal to one-half of the couple’s other property, up to $123,600 (in 2018).
The nursing home resident, and, if applicable, the community spouse must “spend down” all of his or her (or their) assets above these amounts in order to qualify for Medicaid.
What’s more, Medical Assistance generally penalizes transfers of assets (gifts to children, for example) by the nursing home resident and/or the community spouse made within five (5) years of application. In Maryland, the transfer penalty is loss of one month’s benefits for every $8,684 transferred.
But there are exceptions to Medicaid’s transfer penalty. One way to spend down to qualify for public long-term nursing home care insurance coverage is for the nursing home resident to put his or her funds into a supplemental needs trust (also known as a “special needs trust” or SNT). Maryland law encourages the use of special needs trusts for the benefit of disabled persons. Maryland does not limit the amount of funds one can place in a SNT, and does not impose a transfer penalty for funding a SNT.
Supplemental Needs Trusts (also known as “special needs trusts” or SNTs)
“Self Settled” Trusts
Federal and Maryland law define two kinds of supplemental needs trusts funded with a nursing home resident’s own assets - self-settled trusts, also knows as first party trusts - which are exempt from Medicaid’s resource limits and transfer penalty.
(d)(4)(A) Stand Alone Trust — for a disabled person under age 65
The first type of self settled trust is a (d)(4)(A) stand alone trust (named for the Federal law authorizing it, 42 United States Code, section 1396p(d)(4)(A); also defined under the Code of Maryland Regulations (COMAR), section 10.09.24.08-2C).
The requirements for a (d)(4)(A) stand alone trust include, as follows:
- The beneficiary is “disabled” as Social Security defines that term. Which is to say that medical evidence indicates that the beneficiary is unable to engage in any substantial gainful activity, by reason of a physical or mental impairment, which is expected to last for a continuous period of 12 months or more, or result in death.
- The beneficiary must be under the age of 65.
- There is no limit on the amount of assets that can be placed in a (d)(4)(A) stand alone trust. But the trust corpus cannot be added to after age 65.
- The trust is established by a parent, grandparent, legal guardian, or a court.
- In Maryland, before a first-party special needs trust can be established, the language of the trust must be submitted to and approved in writing by the Office of the Attorney General. The Office of the Attorney General has prepared a checklist of requirements and prohibitions relating to special needs trusts. The checklist includes the following:
- the trust must be irrevocable;
- trust distributions must be for the sole benefit of the beneficiary;
- trust distributions must be made only for the beneficiary’s health care, education, comfort, support, or expenditures directly related to these purposes;
- the trust must require an annual accounting of itemized income and expenditures with the Maryland Department of Health and Mental Hygiene (DHMH). This annual accounting allows the Department to review use of trust assets and the propriety of trust expenditures;
- the trust must not violate common principles of sound trust management.
- The trust includes a payback provision stating that, upon the beneficiary’s death, the remaining trust funds, if any, must be used to repay the State for Medicaid benefits provided to the beneficiary during his lifetime. Funds remaining in the trust after the satisfaction of this payback provision may be distributed pursuant to the beneficiary’s instructions.
(d)(4)(C) Pooled Asset Trust — for a disabled person of any age
The other self-settled trust that is available for an individual to shelter assets of his or her own is the (d)(4)(C) pooled asset trust (named for the Federal law authorizing it, 42 United States Code, section 1396p(d)(4)(C); also defined under the Code of Maryland Regulations (COMAR) 10.09.24.08-2B(6)(b)).
The requirements for a (d)(4)(C) pooled asset trust include, as follows:
- The beneficiary is disabled according to the Social Security standard.
- There is no age limit to join a (d)(4)(C) pooled asset trust. This is an important difference from a (d)(4)(A) stand alone special needs trust, which, as stated, requires that, at the time the trust is established and funded, the individual be under the age of 65. The fact that there is no age limit to join a (d)(4)(C) pooled asset trust makes this trust an attractive option for many senior citizens who require long-term nursing home care.
- There is no limit on the amount of funds that can be deposited to a (d)(4)(C) pooled asset trust account.
- An account with a (d)(4)(C) pooled asset trust can be established by a parent, grandparent, legal guardian, or court. But here - differently than a (d)(4)(A) stand alone trust - the account can also be established by the beneficiary, or the beneficiary’s agent under a power of attorney which authorizes the establishment and funding of a trust for the beneficiary’s benefit.
- The (d)(4)(C) trust is created and managed by a non-profit organization that collectively invests and manages funds of multiple disabled individuals, reducing the costs of trust administration. Each beneficiary has his own account within the trust. And the non-profit organization accounts for each individual’s account to the penny. The non-profit association is required to use the funds in that account for the sole benefit of the individual account holder.
- Like (d)(4)(A) stand alone trusts, (d)(4)(C) pooled asset trusts must include a payback provision, so that, upon the beneficiary’s death, the remaining funds in the beneficiary’s account, if any, are used to repay the State for Medicaid benefits provided during lifetime.
Third Party Trusts
Federal law defines two kinds of supplemental needs trusts funded with somebody else’s money - third party trusts - that are exempt from Medicaid’s resource limits and transfer penalty.
(c)(2)(B)(iii) Trust — for a blind or disabled child
The first kind of third party trust is a (c)(2)(B)(iii) trust (named for the Federal law authorizing it, 42 United States Code, section 1396p(c)(2)(B)(iii); also defined under the Code of Maryland Regulations (COMAR), section 10.09.24.08-1B(8)(c)).
The requirements for a (c)(2)(B)(iii) trust include, as follows:
- Established by a parent for a child who is blind or disabled under the Social Security standard. (c)(2)(B)(iii) trusts, therefore, can be very useful for, in particular, an elderly individual who requires Medical Assistance long-term care, and has a blind or disabled child.
- The trust must be for the sole benefit of the blind or disabled child.
“Sole benefit” means:
- The trust cannot benefit anyone but the beneficiary, either when the trust is created, or at any time, ever, in the future.
- The trust must provide for actuarial spend down.
Basically that means that you take the beneficiary’s age, and, using the Medical Assistance life expectancy tables, figure his life expectancy. And then you divide the trust corpus by that number.
So, for specific example, say a disabled female adult child is 50 years old. And, according to the Maryland Medical Assistance life expectancy tables, a 50 year female, on average, will live another 32 years. Then you divide the trust corpus by 32. And that tells you how much you should spend this year.
- Post mortem requirements. Maryland Medical Assistance and the Maryland Attorney General’s Office permit the trust to provide for one of two options when the beneficiary dies:
- include no contingent or remainder beneficiaries, but, rather direct the trustee to distribute funds remaining in the trust, if any, to the beneficiary’s estate, which would permit Medical Assistance to enforce a claim for reimbursement for the amount of benefits Medicaid provided to the beneficiary after the age of 55; or
- explicitly provide for reimbursement to Medicaid for benefits provided to the beneficiary after the age of 55.
(c)(2)(B)(iv) Trust — for any blind or disabled individual under age 65
The second kind of third party special needs trust is a (c)(2)(B)(iv) trust (named for the Federal law authorizing it, 42 Unites States Code, section 1396p(c)(2)(B)(iv); also defined under the Code of Maryland Regulations (COMAR), section 10.09.24.08-1B(8)(c)).
The requirements for a (c)(2)(B)(iv) trust include, as follows:
- Established for a blind or disabled individual, regardless of the relation to the grantor, so long as the blind or disabled individual is under the age of 65. Maybe it’s a grandchild (typically it is a grandchild). Maybe it’s a brother or sister. Maybe it’s just someone else he cares about, that he would be happy to transfer funds to.
- Must be for the sole benefit of the blind or disabled individual under age 65.
If a (c)(2)(B)(iii) or (c)(2)(B)(iv) trust meets all of the legal requirements, then a transfer of assets into one of these trusts is not subject to a transfer penalty. And the trust funds are not counted against the beneficiary’s eligibility for public benefits.
Supplemental Needs Trusts Complement Public Benefits
Public benefits may not fully provide for all of the services that a disabled person might need or want. The special needs trust exception to Medicaid’s financial eligibility rules reflect the government’s desire to encourage private efforts to provide for a disabled person’s supplemental needs with the person’s own or with another person’s funds.
A supplemental needs trust does what the term indicates: it supplements public benefits; it pays for services that Medicaid does not, or does not pay for very well.
For example, a supplemental needs trust might pay for additional health care services, including:
- A private room in a nursing home / the additional cost of a private room (Medicaid pays only for semi-private rooms);
- Holding a nursing home bed in the event of hospitalization. As of 2012, Maryland Medical Assistance no longer pays to reserve a nursing home resident’s bed when the nursing home resident enters a hospital;
- Physicians who do not have a Medicaid contract, including many specialists;
- Dental care;
- Hearing aids;
- Eye glasses;
- Elective surgery (like corrective eye surgery);
- Massage therapy (for, say, a bedridden patient); and
- Privately hired nurses and personal aids.
Further, a supplemental needs trust might pay for non-health care services, like:
- Legal expenses. For example, a beneficiary must annually redetermine for Medical Assistance long-term nursing home care benefits. If there is any difficulty with doing that, the special needs trust can pay a lawyer to make sure those Medicaid benefits continue;
- Clothing; and
- Funeral and burial expenses.
For More Information or Help with a Maryland Supplemental Needs Trust
Funding a special needs trust is a way to spend down to qualify for Medicaid long-term nursing home care insurance coverage. Special needs trusts are an excellent financial planning tool which allow funds to be set aside for the benefit of, and meaningfully enhance quality of life for disabled persons.
The person who knows about supplemental needs trusts and other trusts for the benefit of disabled persons is an elder law and disability law, and estates & trusts law attorney.
The Law Office of Henry Nash practices in the areas of Maryland elder law and disability law, and estates & trusts law. If you have any questions or concerns about paying for long-term nursing home care, and want to discuss with an experienced elder law and disability law, and estates & trusts law attorney, please feel free to contact us.