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Question:

I am having some negative luck with getting advice about trusts. I am on SSDI. My disability, juvenile rheumatoid arthritis began when I was three years old. I am now 62. I applied for SSDI in 2015 and received it. Anyway, my father set up a medical or special needs trust. My sister is the trustee and I have no access to this money. She pays medical bills directly from the trust. There is another approximately $200,000 that will be coming to me. These are funds I need some advice on. Also I am on Medicaid.  I am thinking of setting up an ABLE  account for myself with those additional funds. Will these funds make me ineligible for Medicaid and upon my death will Medicaid come after any remaining monies in the ABLE account? Or should my sister set up another trust of some sort?

Response:

There are a few issues here. First of all, your receipt of $200,000 would not affect your Social Security Disability Income (SSDI) because it is based on your father’s contributions to Social Security, not on your financial status. But it could well affect your Medicaid eligibility. Depending on your state and its Medicaid program, you may well be limited to $2,000 in countable assets either now or when you reach age 65.

Second, an ABLE account, which you can manage yourself, may be part of the solution, but not the entire solution. It is limited to $100,000 and can only be funded at the rate of up to $17,000 a year. Despite these restrictions, it can be a great solution to your cash flow issues since your sister as trustee (or the trustee of the new trust discussed below) can fund the ABLE account with up to $17,000 a year, whether this is done once a year or on a monthly or other basis, and you can then freely use those funds for your needs.

Third, it seems like a trust would be the best solution. If these funds are coming directly to you, you will need to use a safe-harbor trust.  That would be a (d)(4)(A) or (d)(4)(C) trust. The first is an individual trust for your benefit and the second is a pooled trust run by a nonprofit organization for multiple beneficiaries. At your death, both of these trusts, along with an ABLE account, must repay the state Medicaid program for its expenses on your behalf, assuming any funds remain at that time. You can minimize such repayment by making payments out of these accounts and allowing the existing trust managed by your sister to be invested and grow in value.

Finally, both a (d)(4)(A) trust and, in most states, a (d)(4)(C) trust must be funded before you reach age 65.

Given the somewhat complicated interactions of the two types of trusts and an ABLE account, I’d recommend consulting with a special needs planning attorney in your state. One source of such an attorney is the Academy of Special Needs Planners. Their website is at www.SpecialNeedsAnswers.com.

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