DISABILITY BENEFITS IN THE ESTATE PLAN:
PASSING THE MEANS TEST
H. Clyde Farrell
Attorney At Law
5511 Parkcrest Drive Suite 210
Austin, Texas 78731
512/323-2977
23rd Annual Advanced Estate Planning
and Probate Course
June 2-4, 1999
San Antonio, Texas
Y
Copyright 1999 by H. Clyde Farrell
H. CLYDE FARRELL
ATTORNEY AT LAW
5511 Parkcrest Drive Suite 210
Austin, Texas 78731
512/323-2977 (Telephone)
512/453-4253 (Fax)
BIOGRAPHICAL INFORMATION
EDUCATION
J.D. Degree, The University of Texas School of Law, 1975
M.A. Degree (Political Science), The University of Wisconsin, 1971
B.A. Degree (Government), The University of Texas, 1970
Certified Financial Planner, College for Financial Planning, 1987
PROFESSIONAL ACTIVITIES
Solo Practitioner in Austin, Texas
Formerly Chief of Texas Attorney General’s Consumer Protection Division and Elder Law Section
Immediate Past President, Texas Chapter, National Academy of Elder Law Attorneys
President's Council, Family Eldercare, Inc. (Austin)
Member of the Bars of United States Supreme Court, U.S. Court of Appeals for the Fifth Circuit, U.S.
District Court for the Western District of Texas, U.S. District Court for the Southern District of
Texas, U.S. District Court for the Northern District of Texas, State Bar of Texas
LAW-RELATED PUBLICATIONS, ACADEMIC APPOINTMENTS AND HONORS
Co-Author (with Joe C. Fiore), TEXAS CONSUMER LAW (1993), 3rd Ed.
Author/Speaker on Elder Law for Professional Education Systems, Inc. &
National Academy of
Elder Law Attorneys, 1995 & 1996
Author/Speaker, South Texas College of Law Wills & Probate
Institute, 1992; and State Bar of Texas Annual Meeting, 1992
Editor, CAVEAT VENDOR (quarterly journal of the Consumer Law Section of the State Bar of Texas)
(1982-84)
Author, Proof of Court-Awarded Attorney Fees in Texas Courts, 45 TEX. BAR J. 857 (July 1982);
Consent to Medical Care for Minors: Who Has Authority in Texas? 42 TEX. BAR J. 25 (January
1979)
Disability Benefits in the Estate Plan
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TABLE OF CONTENTS
I. INTRODUCTION ................................................................................................................. 1
II. SUPPLEMENTAL SECURITY INCOME (SSI) ............................................................. 1
A. Eligibility .............................................................................................................................................................1
1. “Categorical” Requirements: Disability, Age 65 or over, or Blindness ..........................................................1
2. Citizenship/Immigration/Residency Status ......................................................................................................1
3. Income .............................................................................................................................................................2
4. Resources .........................................................................................................................................................4
B. Benefits ................................................................................................................................................................5
1. Cash Benefits ...................................................................................................................................................5
2. Medicaid Eligibility .........................................................................................................................................5
C. Trust Rules .........................................................................................................................................................5
1. Third-Party-Settled Trusts ...............................................................................................................................5
2. Self-Settled Trusts ...........................................................................................................................................6
D. Transfer Rules ....................................................................................................................................................7
E. Application..........................................................................................................................................................7
III. SOCIAL SECURITY DISABILITY (SSD) ..................................................................... 7
A. Eligibility .............................................................................................................................................................8
1. Work History ...................................................................................................................................................8
2. Disability .........................................................................................................................................................8
B. Benefits ................................................................................................................................................................8
1. Cash Benefits ...................................................................................................................................................8
2. Medicare Benefits ............................................................................................................................................8
C. Application..........................................................................................................................................................8
IV. MEDICARE ........................................................................................................................ 9
A. Eligibility .............................................................................................................................................................9
1. Eligibility at Age 65.........................................................................................................................................9
2. Eligibility in Connection With Social Security and Railroad Retirement Disability Benefits .........................9
3. Medicare Premiums .........................................................................................................................................9
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23rd Annual Advanced Estate Planning and Probate Course
B. Benefits ................................................................................................................................................................9
1. Hospital Services .............................................................................................................................................9
2. Nursing Facility Services ............................................................................................................................... 10
3. Home Health Services ................................................................................................................................... 10
4. Hospice Services ............................................................................................................................................ 10
5. Physician Services and Other “Part B” Benefits ............................................................................................ 10
C. Application........................................................................................................................................................ 11
V. ..................QUALIFIED MEDICAID BENEFICIARIES/SPECIFIED LOW-INCOME
BENEFICIARIES .......................................................................................................................... 11
A. Eligibility and Benefits..................................................................................................................................... 11
1. Qualified Medicare Beneficiaries (QMB) ..................................................................................................... 11
2. Specified Low-Income Medicare Beneficiaries (SLMB) .............................................................................. 11
3. Qualifying Individuals-1 ................................................................................................................................ 11
4. Qualifying Individuals-2 ................................................................................................................................ 12
B. Trust and Transfer Rules ................................................................................................................................ 12
C. Application........................................................................................................................................................ 12
VI. “COMMUNITY MEDICAID” ....................................................................................... 12
A. Eligibility ........................................................................................................................................................... 12
1. Medicaid Linked to SSI and TANF ............................................................................................................... 12
2. Medicaid for Children & Pregnant Women ................................................................................................... 12
3. “Medically Needy” Medicaid ........................................................................................................................ 12
B. Benefits .............................................................................................................................................................. 13
C. Application........................................................................................................................................................ 13
VII. "LONG TERM CARE" MEDICAID ........................................................................... 13
A. Medicaid Long Term Care Programs in Texas ............................................................................................. 13
1. Program Administration And Sources Of Law .............................................................................................. 13
2. Possibility Of Major Changes ........................................................................................................................ 14
3. Focus On Long Term Care ............................................................................................................................ 14
4. Notes On Program Terminology.................................................................................................................... 14
5. Major Medicaid Long Term Care Programs in Texas ................................................................................... 15
B. Why Become Eligible for Medicaid? .............................................................................................................. 16
1. Unavoidable Impoverishment ........................................................................................................................ 17
2. Protection of the “Community Spouse” ......................................................................................................... 17
C. Why Plan to Avoid Medicaid .......................................................................................................................... 17
1. The “Medical Necessity” Requirement ......................................................................................................... 17
2. Possibility of Better Care ............................................................................................................................... 17
3. Choice of Facilities ........................................................................................................................................ 18
4. The Client’s Values ....................................................................................................................................... 19
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D. Ethical Issues In Medicaid Representation .................................................................................................... 19
1. Identifying the Client ..................................................................................................................................... 19
2. Avoiding Fraud .............................................................................................................................................. 19
3. Diligent Representation ................................................................................................................................. 20
4. Competent Representation ............................................................................................................................. 21
5. Client Capacity and Gifting ........................................................................................................................... 21
E. Summary Of Medicaid Eligibility Requirements .......................................................................................... 21
1. Nationality and Residence ............................................................................................................................. 21
2. Age, Blindness or Disability .......................................................................................................................... 22
3. Medical Necessity for Nursing Facility Care ................................................................................................. 22
4. Income ........................................................................................................................................................... 22
5. Resources (Assets) ......................................................................................................................................... 23
6. Medicaid Facility, Medicaid Bed ................................................................................................................... 23
F. Income Requirements ...................................................................................................................................... 23
1. Income Definitions and Exclusions ............................................................................................................... 23
2. Rules Affecting Rental Income...................................................................................................................... 25
3. "Spousal Impoverishment" Rules Protecting Income of the Community Spouse ......................................... 26
4. Reducing Income Through a "Miller Trust" (“Qualified Income Trust”) ...................................................... 28
5. Rules Pertaining to Annuities ........................................................................................................................ 32
G. Rules Pertaining to Notes and Similar Instruments ...................................................................................... 33
1. Transferable, Secured Instrument .................................................................................................................. 34
2. Transferable, Non-Secured Instrument .......................................................................................................... 34
3. Non-Transferable, Non-Secured Instrument .................................................................................................. 34
H. Resource Requirements ................................................................................................................................... 34
1. General Definition of "Resources" ................................................................................................................ 34
2. When Counted ............................................................................................................................................... 35
3. Requirement of "Accessibility” ..................................................................................................................... 35
4. Co-Owned Resources Generally .................................................................................................................... 36
5. Joint Bank Accounts ...................................................................................................................................... 36
6. Trusts ............................................................................................................................................................. 36
7. Discovery of Unknown Assets ...................................................................................................................... 36
8. “Conversions of Resources” and “Lump Sums” ............................................................................................ 36
9. Proceeds of Insurance on Excluded Resources .............................................................................................. 37
10. Life Estates and Remainder Interests ........................................................................................................... 37
11. Excluded Resources ..................................................................................................................................... 37
I. "Spousal Impoverishment" Rules .................................................................................................................. 41
1. Purpose of "Spousal Impoverishment" Rules ................................................................................................ 41
2. Eligibility for Spousal Impoverishment Rules ............................................................................................... 41
3. Limitations on Income ................................................................................................................................... 42
4. Limitations on Resources .............................................................................................................................. 42
J. Transfer ("Gifting") Rules .............................................................................................................................. 46
1. Nature and Purpose ........................................................................................................................................ 46
2. Attempted "Criminalization" of Some Medicaid-Motivated Transfers ......................................................... 47
3. Medicaid Programs Subject to the Transfer Penalty ...................................................................................... 47
4. Only Transfers Within the "Lookback Period" Are Subject to Penalty ......................................................... 48
5. Certain Transfers Excepted From Penalty ..................................................................................................... 48
6. Legal Capacity Requirement for Gifting ....................................................................................................... 49
7. Rules for Calculating the Penalty Period ....................................................................................................... 50
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23rd Annual Advanced Estate Planning and Probate Course
K. What Happens To Client Income After Eligibility ........................................................................................ 52
1. The Process Of “Determining Applied Income” ........................................................................................... 52
2. Calculation of Net Income ............................................................................................................................. 52
3. Unmarried Clients .......................................................................................................................................... 52
4. Couples With Both Spouses Eligible ............................................................................................................. 52
5. Spousal Impoverishment Cases ..................................................................................................................... 53
L. Trusts Affecting Medicaid Eligibility ............................................................................................................. 53
1. General Rules on Trusts "Established By" The Client ................................................................................... 53
2. Exceptions to General Rules Governing Trusts "Established By" The Client ............................................... 55
3. Rules Affecting Trusts Not "Established By" the Client ............................................................................... 57
M. Possible Recovery Of Medicaid Benefits From Estates Of Medicaid Recipients ...................................... 59
1. Purpose and Scope of the Federal Requirement ............................................................................................ 59
2. Status in Texas ............................................................................................................................................... 59
N. Procedural Matters In Medicaid Practice...................................................................................................... 60
1. Rulemaking by the Texas Department of Human Services ........................................................................... 60
2. Fair Hearings ................................................................................................................................................. 61
3. Administrative Review .................................................................................................................................. 61
4. Judicial Review.............................................................................................................................................. 62
VIII. FOOD STAMPS ............................................................................................................ 62
A. Eligibility ........................................................................................................................................................... 62
1. Resources ....................................................................................................................................................... 62
2. Trust Rules ..................................................................................................................................................... 62
3. Transfer Rules................................................................................................................................................ 62
4. Income ........................................................................................................................................................... 63
5. Citizenship/Immigration Status ..................................................................................................................... 63
6. Work Requirements ....................................................................................................................................... 63
B. Benefits .............................................................................................................................................................. 63
C. Application........................................................................................................................................................ 63
IX. ......... TEMPORARY ASSISTANCE FOR NEEDY FAMILIES (TANF, FORMERLY
AFDC) ............................................................................................................................................. 63
A. Eligibility ........................................................................................................................................................... 63
1. Resources ....................................................................................................................................................... 64
2. Trust Rules ..................................................................................................................................................... 64
3. Transfer Rules................................................................................................................................................ 64
4. Income ........................................................................................................................................................... 64
5. Citizenship/Immigration Status ..................................................................................................................... 65
6. Deprivation of Parental Assistance ................................................................................................................ 65
7. Time Limitation on Eligibility ....................................................................................................................... 65
B. Benefits .............................................................................................................................................................. 66
C. Application........................................................................................................................................................ 66
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X. MHMR PROGRAMS........................................................................................................ 66
A. Eligibility ........................................................................................................................................................... 66
1. Medicaid-Funded Services ............................................................................................................................ 66
2. Non-Medicaid-Funded Services .................................................................................................................... 66
B. Benefits .............................................................................................................................................................. 67
1. Mental Health Facilities ................................................................................................................................. 67
2. Mental Retardation Services .......................................................................................................................... 67
3. Community Services ...................................................................................................................................... 68
4. Support Services ............................................................................................................................................ 68
C. Trust Rules ....................................................................................................................................................... 69
D. Transfer Rules .................................................................................................................................................. 71
XI. VETERANS’ BENEFITS ................................................................................................ 71
A. Disability Compensation .................................................................................................................................. 72
1. Eligibility ....................................................................................................................................................... 72
2. Benefits .......................................................................................................................................................... 72
B. VA Pensions ...................................................................................................................................................... 72
1. Eligibility ....................................................................................................................................................... 72
2. Benefits .......................................................................................................................................................... 72
C. Vocational Rehabilitation ................................................................................................................................ 73
1. Eligibility ....................................................................................................................................................... 73
2. Benefits .......................................................................................................................................................... 73
D. Health-Care Benefits........................................................................................................................................ 73
1. Hospital and Outpatient Care ......................................................................................................................... 73
2. Nursing Home & Assisted Living Care ......................................................................................................... 74
3. Miscellaneous Medical Services .................................................................................................................... 75
E. Application........................................................................................................................................................ 75
XII. OTHER PUBLIC BENEFITS ....................................................................................... 75
A. Subsidized Housing .......................................................................................................................................... 75
B. Local Medical Assistance Programs ............................................................................................................... 75
C. Emergency Room Assistance .......................................................................................................................... 75
D. Indigent-Care Responsibilities of Hospitals ................................................................................................... 75
E. Local Nonprofit Agencies ................................................................................................................................ 75
F. Unlisted Agencies & Benefits .......................................................................................................................... 75
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23rd Annual Advanced Estate Planning and Probate Course
APPENDICES ......................................................................................................................... 77
APPENDIX 1: Miller Trust (Qualified Income Trust)--Trust Instrument ..................................................... 77
APPENDIX 2: Miller Trust (Qualified Income Trust)--Sample Letter of Instruction to Trustee ............... 82
APPENDIX 3: Testamentary Contingent Trust With Short-Form Supplemental Needs Provision ............ 85
APPENDIX 4: Long-Form Testamentary Supplemental Needs Trust ............................................................ 87
APPENDIX 5: Inter Vivos Supplemental Needs Trust Created by Third Party ............................................ 89
APPENDIX 6: Application to Create 142 Trust ................................................................................................. 92
APPENDIX 7: Order Creating 142 Trust .......................................................................................................... 94
APPENDIX 8: Trust Instrument for 142 Trust ................................................................................................. 96
APPENDIX 9: Application for Guardianship and/or Creation of Guardianship Management Trust (867
Trust) ............................................................................................................................................................................ 100
APPENDIX 10: Application for Creation of Guardianship Management Trust (867 Trust) With
Supplemental Needs Provisions ................................................................................................................................. 103
APPENDIX 11: Order Creating Guardianship Management Trust (867 Trust) With Supplemental Needs
Provisions ..................................................................................................................................................................... 106
APPENDIX 12: Application for Creation of 867 Trust in Existing Guardianship ....................................... 108
APPENDIX 13: Order Creating 867 Trust in Existing Guardianship .......................................................... 110
APPENDIX 14: Trust Instrument for Guardianship (867) Trust .................................................................. 112
APPENDIX 15: Under-65 Supplemental Needs Trust Created by Parent or Grandparent ........................ 116
APPENDIX 16: Third-Party-Funded Supplemental Needs Trusts--A Multiple-Trust Approach .............. 121
APPENDIX 17: Summary of Public Benefits Financial Eligibility Requirements in Texas ........................ 153
APPENDIX 18: Calculation of "In-Kind Support" Income by SSI (& Other Planning Issues) ................. 154
APPENDIX 19: Calculation of Increased Protected Resource Amount ........................................................ 169
APPENDIX 20: Texas Department of Mental Health and Mental Retardation Fee Guidelines ................. 171
APPENDIX 21: Limits On Eligibility Of Aliens For Public Benefits............................................................. 179
APPENDIX 22: Comparison of 142 Trusts, 867 Trusts and Guardianships ................................................. 181
APPENDIX 23: Selected Bibliography ............................................................................................................. 184
Nothing contained in this publication is to be considered as the rendering of legal advice for specific
cases, and readers are responsible for obtaining such advice from their own legal counsel. This
publication is intended for educational and informational purposes only.
Disability Benefits in the Estate Plan
DISABILITY BENEFITS IN THE
ESTATE PLAN: PASSING THE MEANS
TEST
I.
INTRODUCTION
This is an overview of the most significant
public benefits for persons with disabilities. It is
intended to assist attorneys and other benefits
counselors to identify the major benefits to which
disabled clients may be entitled. Particular
attention is paid to rules relating to trusts and
transfers of assets, to assist attorneys with estate
planning for family members and with planning
for dispositions of personal injury awards,
inheritances and other assets of disabled persons.
II. SUPPLEMENTAL SECURITY
INCOME (SSI)
A. Eligibility
1. “Categorical” Requirements: Disability, Age
65 or over, or Blindness
a) Disability
For an adult, the disability requirement is the
same as for Social Security Disability (discussed
at II. below): the client must be unable to engage
in any substantial gainful activity because of a
medically determinable physical or mental
impairment that can be expected to result in death
or that has lasted or can be expected to last for a
continuous period of at least 12 months. 42
U.S.C.A. §1382c(a)(3)(A); 20 C.F.R. §416.905.
This is a very tough standard, compared to
the standards of most disability insurance policies
and compared to many clients’ expectations. For
example, it rules out benefits in the following
cases:

The client is partially but not totally
disabled.

Although unable to do his or her previous
job (e.g., teaching or driving a truck), the
client is able to do a much lower-paying
job (e.g., assembly-line work)

Although no work is available to the
client in the area where he or she lives, it
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is available somewhere else in the United
States.
Effective August 22, 1996, a child under age
18 is considered disabled if she or he has a
medically determinable physical or mental
impairment that meets the adult definition above
and that, in addition, results in “marked and
severe functional limitations.”
42 U.S.C.A.
§1382c(a)(3)(H).
The regulations define a
“marked limitation” to mean, “...when several
activities or functions are impaired, or even when
only one is impaired, as long as the degree of
limitation is such as to interfere seriously with the
ability to function (based upon age-appropriate
expectations)
independently,
appropriately,
effectively, and on a sustained basis.” 20 C.F.R.
Part 404 Subpart P, Appendix 1, Part B
§112.00C.
b) Blindness
Total blindness is not required.
The
requirement is for central vision acuity of 20/200
or less in the better eye with the use of correcting
lenses. 42 U.S.C.A. §1382c(a)(1)(A); 20 C.F.R.
§§416.801 through 416.806.
c) Age
A person age 65 or over who meets the other
eligibility requirements is eligible for SSI.
Practice Note: It is quite common for
persons age 65 and over to meet the SSI
requirements and not know it. In addition to an
income subsidy, SSI eligibility carries with it
Medicaid benefits, which are vastly superior to
Medicare benefits as discussed below.
2. Citizenship/Immigration/Residency Status
a) Residency
The client must be a resident of one of the
50 states of the United States, the District of
Columbia, or the Northern Mariana Islands.
Puerto Rico residents do not qualify. 20 C.F.R.
§416.1603(b)(c). Absence from the United States
for 30 consecutive days disqualifies, and the
client cannot regain qualification until he or she
has again resided in the United States for at least
30 days. 42 U.S.C.A. §1382(f); 20 C.F.R.
§416.215.
23rd Annual Advanced Estate Planning and Probate Course
 Immigrants who were legally in the
United States on August 22, 1996 retain
b) Citizen or Entitled Alien
their potential SSI eligibility (i.e., they
are not subject to the “qualified alien”
A U.S. citizen, either by birth in the United
rules summarized above, which in effect
States or by naturalization, always meets this
apply only to persons who were not
requirement.
legally in the United States on August 22,
1996.).
An illegal immigrant never meets this
requirement. 8 U.S.C. §§1611(a), 1641.
8 U.S.C. §1612(a)(2)(E),(F).
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A person who is a permanent resident alien,
an asylee, a refugee, a person paroled into the U.
S. for at least a year, a person whose deportation
is withheld for certain reasons, or a person
granted conditional entry is a “qualified” alien
potentially eligible for SSI, if he or she meets any
of the following requirements:

Entered the United States before August
22, 1996. (An alien entering the U. S. on
or after that date is ineligible unless he or
she falls into one of the categories
below.)

An asylee, refugee or person whose
deportation is withheld, for the first 7
years after being granted that status; or
for the first 7 years, a Cuban, a Haitian,
an Amerasian, certain Native Americans
from Canada, and the noncitizen children
of a battered parent

Active duty troops, their spouses, their
unremarried
surviving
spouses,
unmarried dependent children, and
honorably discharged veterans meeting
the minimum service requirement
(generally, 24 months active duty)

Persons who have earned 40 qualifying
quarters of Social Security coverage, or
who can be credited with such quarters
due to the work of a parent or spouse
under certain specified rules. 8 U.S.C.
§1612.
The general prohibition on benefits for
aliens is also subject to the following important
exceptions:

Legal immigrants who were receiving
SSI as of August 22, 1996 continue to be
eligible
Aliens receiving SSI only because of the
August 22, 1996 exceptions are not eligible for
food stamps.
8 U.S.C. §1612(a)(1),
§1612(a)(2)(E),(F).
However, all aliens
receiving SSI are eligible for Medicaid. 8 U.S.C.
§(b)(2)(F).
See Appendix 21 for a chart summarizing
the new limits on eligibility of aliens for
numerous types of public benefits.
Practice Note: When reading summaries of
the complex new alien-exclusion rules regarding
SSI eligibility, it helps to bear in mind that as of
this writing, the exceptions for legal residents of
the U.S. on August 22, 1996 make unnecessary
the application of the harsh and potentially
difficult “qualified alien” rules. However, the
latter rules will become increasingly important in
the future, as more potential applicants enter (or
re-enter) the U. S. after August 22, 1996. It is
also important to remember that none of these
rules apply to aliens who become naturalized
citizens, which most can do after 3 years of U.S.
residency (if married to a U.S. citizen) or 5 years
(otherwise). See 8 U.S. C. §1423 et seq. Note
especially that the requirements for speaking
English and knowledge of U.S. history and
government do not apply to “any person who
is unable because of physical or
developmental
disability
or
mental
impairment to comply therewith.” 8 U.S. C.
§1423(b)(1).
3. Income
a) General Rule
An unmarried person must have less than
$500 per month of countable income in 1999. A
married couple can both be eligible if their
countable income totals less than $750. Because
the first $20 of income is not counted, these
Disability Benefits in the Estate Plan
numbers are sometimes expressed as $520 and
$770, respectively. These numbers change with
inflation on January 1 of each year.
“Income” is defined generally as cash (or
property readily convertible to cash), food,
clothing or shelter. Unlike the income tax rules,
the SSI rules count even gifts as “income.” This
general rule is subject to a long list of exclusions
that can be important in some cases. 20 C.F.R.
§416.1103.
Additional important exclusions applying to
“earned” income and “unearned” income,
respectively, are discussed next below.
b) Rules applying to earned income
Earned income is defined as gross wages of
an employee (without deductions for taxes,
insurance, etc.), and net earnings from selfemployment (after deduction of business
expenses but also without deductions for taxes,
insurance, etc.).
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stamps), up to $20 per month of irregular or
infrequent income, one-third of child support
payments, and certain special VA payments
(though VA pensions count as income). Because
the list of exclusions is quite lengthy, it should
always be consulted. 42 U.S.C.A. §1382a(b); 20
C.F.R. §416.1124.
d) “In-kind support and maintenance”
This term refers to food, clothing and shelter
furnished or paid for by someone other than the
SSI applicant. In general, because it is counted as
unearned income, it reduces benefits dollar-fordollar. However, a much better result for the
client can be obtained by applying some
important rules applicable only to this kind of
“income”:

One-Third Reduction Rule: If the client is
living in the household of another person
who is providing both food and shelter, the
client’s SSI benefit will be reduced by 1/3 of
the monthly federal benefit rate (maximum
payment). In 1999, that amount is 1/3 X
$500 = $166.67. (Another way of viewing it
is that $166.67 will be counted as income, in
addition to any other countable income the
client may have.) 20 C.F.R. §416.1131.

Presumed Value Rule: If the One-Third
Reduction Rule does not apply, and the client
is furnished any food, clothing or shelter by
someone else, the agency presumes that the
value of whatever is furnished is 1/3 of the
federal benefit rate plus $20--that is, in 1999,
$166.67+ $20.00 = $186.67.
This
presumption is rebuttable--that is, by showing
that the actual value of what is furnished is
less than $186.67, the client can have his or
her income reduced by the actual value rather
than the full $186.67.

Exception: If the SSI beneficiary lives in the
household of someone part of whose income
is "deemed" to the beneficiary, then any
support provided is not treated as income. 20
C.F.R. §416.1148.
For example, some
income of a parent of a child under age 18 is
deemed to the child, so the parent's provision
of food, clothing and shelter does not result
in a reduction of the child's SSI payment. 20
C.F.R. §416.1160 et seq.
The following are excluded from countable
earned income:





The first $65 plus one-half of remaining
earned income each month
Certain federal assistance payments
(including food stamps)
$10 per month of infrequent income
Certain additional exclusions for blind
and disabled persons (including, for
example, work expenses due to
disabilities)
The general $20 per month exclusion, to
the extent it has not been taken against
unearned income
42 U.S.C.A. §1382a(a);
§§416.1102, 416.1110, 416.1112
20
C.F.R.
c) Rules applying to unearned income
“Unearned” income is all income that is not
earned, including without limitation annuities,
pensions, alimony, support, dividends, life
insurance proceeds, prizes, gifts and inheritances.
42 U.S.C.A. §1382a(a)(2); 20 C.F.R. §416.1120.
Important exclusions from unearned income
include most federal payments (for example, food
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23rd Annual Advanced Estate Planning and Probate Course
In many situations it is impossible for a
Appendix 18 illustrates how SSI benefits can
disabled person to live on $500 per month.
be optimized through full use of the "In-Kind
Therefore, it can be critical to the client’s health
Support and Maintenance" rules.
and safety to apply the following planning
techniques, which further protect the client from
A simple and powerful technique where a
the harshness of the general rule that in-kind
supplemental needs trust is involved is to have
maintenance and support counts as “income”:
the trust provide all food, clothing and shelter, in
exchange for reducing the SSI payment by
 Business Arrangement: As long as the client
$186.67 per month, under the "presumed value
pays a pro rata share of the actual cost of
rule." In addition, the trust can make unlimited
food and shelter, there is no reduction in
payments to the providers of "supplemental"
benefits, and no food or shelter value counts
needs. In this arrangement, the only thing the
as income.
20 C.F.R. §416.1130(b),
trust cannot do for the beneficiary is to pay cash
416.1133. Simply by keeping records of
to him or her. The beneficiary then has $500.00 household expenses and having the SSI$186.67 = $313.33 per month in cash from SSI to
eligible person pay his or her share, the total
spend as she or he wishes, with Medicaid paying
household income can in this way be
(usually) all medical needs and the trust paying
increased by exactly $166.67. This can also
everything else.
allow a person with irreducible income (for
example, from Social Security Disability) to
e) Deeming of income
achieve eligibility that would otherwise be
impossible.
The income of an SSI client is “deemed” to
include some of the income of persons related to
 Pay 1/3 FBR to Landlord: Under a recent
the client. For specific rules, see 20 C.F.R.
settlement agreement, the Social Security
§§416.1160-416.1169. The relationships that
Administration agreed to apply in Texas a
give rise to deeming are summarized as follows:
rule previously applied only in the Seventh
Circuit--that a “business arrangement” will
 Ineligible spouse living in the same
be deemed to exist whenever the rent paid
household
equals or exceeds the presumed value
($186.67 in 1999). Therefore, even if the fair
 Ineligible parent, or parent’s spouse, living in
market value of the rent is $500, there will be
the same household with a client under age
no income attributed to a rent subsidy, so
18
long as the client pays at least $186.67 to the
landlord. In this way, a parent or other
 Sponsor of a client who is an alien--i.e.,
family member (or anyone) can subsidize an
someone who signed an affidavit of support
SSI recipient’s rent--including even other
for the alien’s admission to the U.S. Certain
“shelter” expenses such as electricity, gas,
limitations and exceptions apply.
water, sewerage and garbage collection-without reducing the monthly SSI payment to
4. Resources
the client.
20 C.F.R. §1130(b); see
settlement agreement in C. A. No. 3:95-CV1817-X, Diaz v. Chater (N.D. Tex. 1996),
a) General rule
unreported agreed order.
Practice note: The full effect of the Diaz
settlement is only beginning to be felt, as
advocates realize the importance of this
technique. This will be especially helpful if it can
be applied in a case in which a supplemental
needs trust leases or subleases a house or
apartment to the beneficiary in exchange for
$186.67 per month. To my knowledge, the
Administration has not yet decided such a case.
An unmarried individual seeking SSI is
limited to $2,000 in countable resources (assets).
A married couple can have no more than $3,000
in countable resources for either one or both to be
eligible for SSI.
b) Definition of “resources”
Resources include cash, other liquid assets,
and any real or personal property that the client or
Disability Benefits in the Estate Plan
spouse owns and can convert to cash. The
important exclusions include the following:

Entire value of the client’s residence, without
limit, including all contiguous acreage.
Leaving the residence for nursing home care
or other institutionalization does not preclude
exclusion of the residence, so long as there is
a subjective intent to return.

Household goods up to $2,000 in value

An automobile with a wholesale value not
exceeding $4,500; or of unlimited value if
used for necessary medical transportation or
employment, or if specially modified for
operation by or transportation of a disabled
person, or if necessary because of climate,
terrain, distance, or similar factors to perform
essential daily activities.
See 20 C.F.R. §416.1210 for a complete
listing of these and other important exclusions.
c) Deeming of resources
The following resources of others are
deemed to the client:

All resources of the claimant’s spouse living
in the same household

Resources of the claimant’s single parent in
excess of $2,000, or parent and spouse
together in excess of $3,000, if the claimant
is under age 18 and living in the same
household with a parent.

Certain resources of an alien’s sponsor
20 C.F.R. §416.12012.
B. Benefits
1. Cash Benefits
An eligible person with no other income
receives the monthly “federal benefit rate” in
1999 of $500 (if single) or $750 (for a married
couple with both spouses eligible). Countable
income reduces the amount of cash benefits
dollar-for-dollar (but see the discussion of
eligibility above for a summary of what is
“countable.”)
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2. Medicaid Eligibility
SSI beneficiaries are automatically eligible
for the comprehensive medical benefits of the
Medicaid program. These benefits are often
more important than the cash benefits. They are
the “Community Medicaid” benefits discussed
below.
C. Trust Rules
1. Third-Party-Settled Trusts
These are trusts whose assets are contributed
by someone other than the SSI beneficiary.
Typically, they are created by parents or other
family members of disabled persons, who are
made beneficiaries. They may be created in wills
(testamentary trusts) or by transfers during
lifetime (inter vivos trusts).
So long as the beneficiary does not have the
legal authority to revoke the trust or direct the use
of the trust assets for his or her own support and
maintenance, the trust principal is not the
beneficiary’s resource for SSI purposes.
PROGRAM OPERATIONS MANUAL SYSTEM
§01120.200D. A trust that obligates the trustee to
provide for the support of the beneficiary may not
protect the assets under this rule, because the
beneficiary can sue the trustee to require
distributions for support.1
However, a
“supplemental needs trust” directing the trustee to
supplement and not supplant public benefits will
protect the assets. Likewise, a trust giving the
trustee absolute discretion to decide how the
assets will be used will not be treated as the SSI
beneficiary’s property. See REGAN, MORGAN &
ENGLISH, TAX, ESTATE & FINANCIAL PLANNING
FOR THE ELDERLY §19.14 (Matthew Bender,
Looseleaf).
1 However, in a recent contact with the Dallas
Region Social Security office in preparation of this
article, the author was told this is no longer the policy,
and even the corpus of a support trust will be treated
as a "resource" of a beneficiary by SSI. Because the
case law and commentary to date is contrary, this does
not appear a sufficient basis for leaving "supplemental
needs" language out of trusts; but it opens the
possibility of drafting less restrictive distribution
powers and of utilizing existing support trusts that
previously would have had to be amended to allow for
SSI benefits.
23rd Annual Advanced Estate Planning and Probate Course
losing the SSI-linked Medicaid benefits unless
Practice Note: Providing for such trusts
the trust also provides for a remainder to the
should be seriously considered in any estate plan
Medicaid program, as required by 42 U.S.C.
involving a disabled beneficiary.
Although
§1396p(d)(4)(a),(c). Social Security officials in
support trusts can sometimes be reformed
Texas currently consider the trust to be
judicially, that process should be avoided if at all
irrevocable if the Texas Department of Human
possible. Likewise, an inheritance by a disabled
Services is designated as a “vested remainder”
person may usually be transferred into a selfbeneficiary. However, in case the Social Security
settled trust, but that involves providing for a
Administration in some other regions may not
remainder to the Medicaid program in order to
find that sufficient, it is prudent also to designate
preserve Medicaid benefits. Use of such trusts is
specific named persons (not simply “heirs at
often an excellent alternative to disinheriting a
law”) as vested remainder beneficiaries.
disabled child, for example, just to avoid loss of
benefits.
Practice Note: These rules usually come into
play when an SSI beneficiary anticipates
Appendix 3 is a form for a testamentary
recovering a sum of money in a lawsuit, such as a
contingent trust to avoid loss of eligibility of a
personal injury case, or when he or she receives
person who but for the distribution would be
money or property through inheritance. If a trust
eligible for disability benefits (such as SSI and
is not utilized and SSI and Medicaid benefits are
Medicaid). This is simply an extension of a
lost, the money or property may be used up
contingent trust form commonly used to avoid the
quickly and the beneficiary returned to a status of
need for a guardianship to manage assets for a
poverty before again being eligible for benefits.
minor or an incapacitated adult. In addition to
With a trust, there is an incentive to recover and
avoiding a guardianship, this forms avoids the
use carefully the money or property, and it can
loss of benefits; and it does so for an adult who
last much longer if it merely supplements the
although not mentally incapacitated, is
public benefits.
"disabled" within the meaning of the SSI law.
Appendices 6 through 8 are forms for
Appendix 4 is a long-form testamentary
establishing a trust created by a trial court with a
supplemental needs trust.
judgment or settlement belonging to a person
under age 65, to avoid disqualification for SSI,
Dallas attorney Renée Lovelace has worked
Medicaid and other public benefits. The forms in
with many families who seek to plan for family
Appendices 9 through 14 accomplish the same
members with serious disabilities, and has
purpose where there is a guardianship. Both
concluded that in most cases two trusts are
forms include the "payback" provision required
needed in order to provide adequate flexibility
by Medicaid law at 42 U.S.C. §1396p(d)(4)(a),
and protection of the trusts. Her approach is
discussed further under the "Long Term Care
addressed in Appendix 16.
Medicaid" heading below. Finally, the form in
Appendix 15 is for assets of a beneficiary with
capacity to accomplish the transfer to a similar
2. Self-Settled Trusts
trust, which can only be "created" under the
Medicaid law by a parent or grandparent.
If an SSI beneficiary transfers his or her own
property into a trust of which he or she is
An additional option is provided by The
beneficiary, additional problems are raised. First,
Association for Retarded Citizens, which has
because such a trust is considered revocable if the
recently developed a “pooled trust” as
settlor is the only beneficiary with a vested
authorized by 42 U.S.C. §1396p(d)(4)(c) that
interest, it is necessary to name one or more
meets the requirements discussed above for a
vested remainder beneficiaries in order to make
self-settled Medicaid trust. This can apparently
the trust irrevocable. PROGRAM OPERATIONS
be used pursuant to an order in a guardianship
MANUAL SYSTEM §01120.200D; Seguin State
case under Probate Code §867. It may be more
Bank & Trust v. Locke, 102 S.W.2d 1050 (Tex.
problematic if the order is from a trial court
Comm. App. 1937).
because of the requirement of Property Code
§142.005(b)(1) that the minor or incapacitated
The second problem is that even if the trust
person be the "sole beneficiary of the trust;" but
meets SSI requirements, the beneficiary will risk
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Disability Benefits in the Estate Plan
it would seem that a "subaccount" in the pooled
trust should considered the functional equivalent
of a trust with a single beneficiary, as the
"pooling" is for investment purposes only. For
more information, call the ARC at 800/252-9729
(454-6694 in the Austin area).
The ARC trust offers an attractive
combination of low fees and administration by
persons knowledgeable about the needs of
persons with disabilities and the programs that
serve them. It can also be utilized for assets of
persons other than the beneficiary (such as
testamentary gifts, by advance arrangement), in
which case there is no "payback" provision.
At this writing (May 5, 1999), a trust created
under either Property Code §142.005 or Probate
Code §867 must have a corporate trustee.
However, legislation has been introduced to
remove this requirement. It is not expected to
pass as to a trustee appointed under §142, but
H.B. 3632, which would remove this requirement
under §867 (in guardianships), has a reasonable
chance of passage.
This outline does not discuss fully all the
procedural rules applicable in establishment of
court-created trusts.
For more complete
discussions, see Deborah A. Green, Special
Trusts: §§867, 142, 1396 Supplemental Needs
Trusts- When and How to Use Them, State Bar of
Texas Advanced Estate Planning and Probate
Law Course, 1998 (available for downloading at
http://www.texasprobate.com/articles/); Kathleen
A. Miller, Third Party Recovery: The Right to
Recover and Defending the Recovery Action,
State Bar of Texas Elder Law Institute, 1996; and
Glenn M. Karisch, Court-Created Trusts, State
Bar of Texas Advanced Drafting: Estate Planning
and Probate Course, 1995 (available for
downloading
at
http://www.texasprobate.com/articles/)
D. Transfer Rules
Unlike the “Long Term Care” Medicaid
rules, the SSI rules do not penalize a transfer of
assets for less than adequate consideration. 20
C.F.R. §416.1246. Because “Community
Medicaid” is linked to SSI, one can satisfy the
resource requirements for those programs by
transferring all but $2,000 of their countable
assets and applying immediately. Such a transfer
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will still be penalized, however, if they later have
a need for long term care Medicaid before the
penalty period has run. Also, as of this writing
(early May 1999), legislation is pending in
Congress to provide for a transfer penalty, as well
as for restrictions on trusts similar to those in the
Medicaid law.2
E. Application
Filing of an application is required, and
entitlement to cash benefits cannot begin until
the application is filed. However, entitlement to
Medicaid can be retroactive to the first day of the
third month before the month in which the
application is filed, if all other requirements for
eligibility are met at that time.
Although filing of a written application is
required, this form is filled out and mailed to the
applicant after an oral interview with a Social
Security representative.
To arrange the
interview, call your local SSA office or call 1800-772-1213
or
TTY
1-800-325-0778.
Additional information is available at the Social
Security website at http://www.ssa.gov.
III. SOCIAL SECURITY DISABILITY
(SSD)
2
At this writing, Congress is considering H.R.
631, which would provide (at Section 107) for one
month of ineligibility for every $500 transferred (or in
future years, the amount will equal whatever the
maximum monthly SSI benefit may then be). The
look-back period would be 36 months. It would not
apply to transfers to a trust created under 42 U.S.C.
§1396p(d)(4) (self-settled under-65 SNT's and pooled
trusts). Sec. 106 also provides for trust rules similar to
those in the Medicaid law. That is, if a trust is
established with assets of the individual or the
individual's spouse, the corpus will be treated as a
resource if the trustee can under any circumstances
make a payment to the individual or the individual's
spouse. If not (i.e., an irrevocable trust of which the
settlor is not a beneficiary), the transfer will be
penalized, apparently with a 36-month lookback
period. If the bill passes, the transfer penalty
provisions will be effective on the date of enactment.
The trust provisions would go into effect January 1,
2000. At this writing, the bill has been reported out to
the House Ways & Means Committee from the
Subcommittee on Human Resources.
23rd Annual Advanced Estate Planning and Probate Course
determination of disability. 20 CFR §§ 404.315,
404.316, 404.321, 404.332, 404.335, 404.337,
404.350, 404.352, 404.402, 404.470, 404.480,
1. Work History
404.902, 404.1535, 404.1536, 404.1537,
404.1538, 404.1539, 404.1540, 404.1541.
Coverage depends upon the client’s having
paid Medicare taxes on sufficient income during
B. Benefits
certain time periods to meet the legal
requirements. Generally, a person satisfies the
1. Cash Benefits
work history requirement if he or she has had
significant employment under the Social Security
Amount of monthly payments is determined
system for at least 10 years, and if the person has
by a complex formula based on contributions to
had such employment for at least 20 of the 40
the Social Security system. To obtain an estimate
preceding quarters. Persons who are disabled
of a particular person’s benefits, have them fill
under age 31 are eligible with less work
out and sign Form SSA-704-SM-OP1.
experience; and those who are disabled due to
blindness need meet only the 10-year work
Eligibility for and amount of benefits does
requirement.
not depend on amount of income from other
sources. Even the wealthiest Americans qualify,
The mind-numbing formulas for determining
if they meet the contribution, disability and other
this are beyond the scope of this outline. The
requirements.
practical approach in the event of a disabling
condition is to apply for benefits, then in the
The cash benefits cannot be waived or
event of a denial based on work history, compare
assigned. This rule is sometimes greatly to the
carefully the Social Security summary of work
disadvantage of lower-income beneficiaries, who
history to what the client reports, and apply those
may be disqualified from receiving SSI and
particular rules that appear to affect that client.
Medicaid by Social Security Disability benefits
slightly over the SSI income limits.
This
For the purpose of long-range planning,
precludes their receiving the immediate and more
ensuring that all the client’s actual work history is
comprehensive Medicaid benefits that go along
credited to him or her is a good reason to advise
with SSI (Medicaid has no 2-year wait, as usually
the client to send in Form SSA-704-SM-OP1.
happens with the Medicare benefits attached to
Erroneous denials of benefits based on
Social Security Disability; plus Medicaid has no
incomplete work records of the Social Security
deductibles or copayments, and prescription
Administration are not unusual, and the earlier
drugs are included.
the omissions are caught, the better the chance of
correcting them. 42 U.S.C.A. §405(c)(5).
2. Medicare Benefits
Y-8
A. Eligibility
2. Disability
The client must be unable to engage in any
substantial gainful activity because of a medically
determinable physical or mental impairment that
can be expected to result in death or that has
lasted or can be expected to last for a continuous
period of at least 12 months. 42 U.S.C.A.
§423(a)(1). See the SSI section above for a brief
discussion of the meaning of this standard.
Most recipients of Social Security Disability
benefits have to wait 24 months from date of
onset of disability to be eligible for Medicare
benefits.
42 U.S.C.A. §1395c; 42 C.F.R.
§406.12(a). However, persons with end-stage
renal disease (e.g., kidney failure) are eligible for
Medicare Part A (hospital insurance) after 3
months from the beginning of dialysis. (The 3month waiting period is waived in certain cases.)
42 U.S.C.A. §1395c; 42 C.F.R. §406.13(c).
There is a waiting period of 5 months before
benefits may begin.
See IV.B. below for a summary of Medicare
Part A and Part B benefits.
Recent rules limit substantially the
availability of benefits to claimants whose drug
addiction or alcoholism is a factor material to the
C. Application
Disability Benefits in the Estate Plan
Filing of an application is required, but in
the case of Social Security Disability benefits, the
client may recover retroactive benefits up to 12
months before the date of filing the application.
20 CFR § 404.621.
Although filing of a written application is
required, this form is usually filled out and
mailed to the applicant after an oral interview
with a Social Security representative. To arrange
the interview, call your local SSA office or call 1800-772-1213 or TTY 1-800-325-0778.
IV. MEDICARE
A. Eligibility
1. Eligibility at Age 65
Most Americans become eligible for
Medicare at age 65. Because there is no “means
test,” even the wealthiest are eligible. All who
are eligible for Social Security retirement benefits
or for railroad retirement benefits become eligible
for Medicare at age 65, regardless of whether
they begin receiving the monthly payments
before, at or after age 65. 42 U.S.C. §1395c; 42
C.F.R. §406.10(a). Dependents and survivors of
an insured worker are also entitled to Medicare.
42 C.F.R. §406.10(a)
There is a requirement of working a certain
number of quarters in a job covered by Medicare.
This is usually satisfied by 40 quarters (10 years)
of covered employment.
Y-9
renal disease qualify for Medicare after a 3month waiting period (which may sometimes be
waived).
42 U.S.C. §1395c; 42 C.F.R.
§406.13(c).
3. Medicare Premiums
Persons eligible for Medicare in connection
with Social Security or Railroad Retirement
benefits pay no premium for Medicare Part A.
Persons who are not so eligible and who purchase
Part A voluntarily must pay a premium of $309
per month in 1999. However, persons who meet
the income and resource requirements for the
QMB program (discussed at IV. below) are
eligible to have that program pay the Medicare
Part A premium (in addition to the Part B
premium) if one is required.
All persons eligible for Medicare Part A are
also eligible for Medicare Part B but must pay a
premium for Part B ($45.50 per month in 1999).
This premium can be paid through the QMB and
SLMB programs (See below) for eligible
beneficiaries.
B. Benefits
Medicare is divided into Part A (primarily
hospital and very limited nursing home benefits)
and Part B (primarily physicians, tests, medical
equipment, etc.). It can be important to know
whether a particular service is covered under Part
A or Part B, because they have different appeal
procedures.
Even persons age 65 or older who are not
automatically
eligible
through
covered
employment can become eligible for Medicare by
paying the required premiums.
42 C.F.R.
§§406.20 through 406.26.
Effective January 1, 1998, a new “Part C”
(called “Medicare+Choice”) became available, to
allow beneficiaries to elect various combinations
of managed care and private-pay service delivery.
42 U.S.C. §1851 et seq. Because it has not been
implemented in Texas as of the time of this
presentation, Part C is not covered in these
materials.
2. Eligibility in Connection With Social
Security and Railroad Retirement Disability
Benefits
1. Hospital Services
After 24 months of entitlement to receive
cash payments of Social Security Disability or
Railroad
Retirement
Disability
benefits,
beneficiaries are also entitled to Medicare
benefits.
42 U.S.C. §1395c; 42 C.F.R.
§406.12(a). However, persons with end-stage
Part A covers inpatient hospital services,
posthospital extended-care services, home health
services, and hospice services. Hospital coverage
is for 90 days per spell of illness, plus a lifetime
reserve of 60 days of hospital care.
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23rd Annual Advanced Estate Planning and Probate Course
In 1999, the beneficiary must pay a
 Under care of a doctor who establishes the
deductible of $768 for Part A inpatient hospital
care plan
services provided during the calendar year.
There is also a requirement of a copayment of
 In need of intermittent skilled nursing care,
$192 per day for days 61 through 90 in a hospital,
physical or speech therapy, or occupational
and $384 per day for days 91 through 150.
therapy.
2. Nursing Facility Services

Services provided by or through a Medicarecertified home health agency
This coverage includes up to 100 days in a
skilled nursing facility if all the requirements are
met, including the following:

For Part A coverage, home health services
must have begun within 14 days of discharge
from a hospital stay lasting at least 3 days.
However, Part B covers home health if this
requirement is not met.

Care must be “skilled care” (not “custodial”
or “intermediary”) needed, “as a practical
matter,” in an inpatient facility on a daily
basis.

The nursing facility stay must be preceded by
a hospital stay of at least three consecutive
days, not counting the day of discharge.

Admission to the nursing facility must occur
within 30 days after discharge from the
hospital, unless it would be medically
inappropriate.
42 U.S.C. §1395d(a)(2); 42 C.F.R. §409.61.
Even during the 100 days of nursing facility
coverage, Medicare pays the full cost for only the
first 20 days. For days 21 through 100, there is a
copayment of $96.00 per day, which in many
cases exceeds the private-pay cost of the services
in Texas. However, the copayment is usually
(but not always) covered by Medicare
Supplement insurance, if there is any, or by the
Qualified Medicare Beneficiary program for
eligible clients.
3. Home Health Services
Under the Balanced Budget Act of 1997,
home health services are being transferred in
stages from Part A to Part B. In 1999, Part A still
covers the first 100 visits per spell of illness; but
Part B then covers an unlimited number of visits.
42 U.S.C. §1395d. In any case, the following
requirements exist for Medicare home health
services:

Confinement to a home that is not a hospital
or nursing facility (“homebound”)
42 U.S.C. §§1395f(a)((2)(C), 1395x(m); 42
C.F.R. §409.42.
4. Hospice Services
Medicare
Part
A
includes
fairly
comprehensive services for supportive and
palliative
assistance
for
terminally
ill
beneficiaries who elect hospice coverage. The
following requirements apply:

Medical determination of terminal illness,
that is, a life expectancy of six months or less

Waiver of Medicare coverage that would
include efforts to cure the terminal condition
The beneficiary is entitled to two 90-day
periods of hospice care and an unlimited number
of subsequent periods of 60 days each. The
election for hospice care may be revoked at any
time. 42 U.S.C. §1395d; 42 C.F.R. §418.28.
5. Physician Services and Other “Part B”
Benefits
Medicare Part B includes physicians’
services, diagnostic tests, medical equipment,
ambulance services, outpatient physical and
speech therapy, certain limited prescription drugs,
and certain preventative services. 42 U.S.C.
§1395k(a); 42 C.F.R. §410.10.
The Medicare Part B premium is $45.50 per
month in 1999, and the Part B deductible for the
calendar year is $100. Both payments may be
made by the State for persons eligible under the
Qualified Medicare Beneficiary (QMB) program,
Disability Benefits in the Estate Plan
and the Part B premium may be paid under the
Specified Low-Income Beneficiary (SLMB)
program, discussed below.
Y-11
successful appeal, then, is usually to reimburse
the client for payments made pending appeal.
In addition, Part B requires a copayment of
20% of the Medicare-approved charge. This
copayment can also be paid by the QMB program
for eligible beneficiaries.
A provider who
“accepts assignment” can bill no more than 20%
of the Medicare-approved charge, plus the $100
annual deductible. One who does not accept
assignment can also bill for an additional amount,
not to exceed 15% of the approved charge.
V. QUALIFIED MEDICAID
BENEFICIARIES/SPECIFIED LOWINCOME BENEFICIARIES
Medicare supplement insurance and Health
Maintenance Organizations pay varying amounts
of the Medicare copayments and deductibles; and
HMO’s sometimes provide non-covered items,
such as comprehensive prescription medications.
Under these programs, the State pays for
Medicare premiums, and sometimes deductibles
and copayments, of low-income Medicare
beneficiaries.
Comment: These are oft-overlooked
programs that can be essential to the well-being
of low-income persons not eligible for Medicaid’s
more comprehensive benefits.
A. Eligibility and Benefits
C. Application
1.
An individual will be automatically enrolled
in Medicare in three situations:

Already receiving Social Security or Railroad
Retirement benefits at age 65

Has received Social Security Disability
benefits for 24 months; or

Applying initially for Social Security or
Railroad Retirement benefits at age 65
If a Medicare card does not arrive after the
above events, or if the person becomes eligible in
other situations (for example, disabled
beneficiary with end-stage renal disease or retiree
not applying for Social Security retirement until
after age 65), an application for Medicare should
be filed at the local social Security office. If the
application is not filed within certain time
periods, eligibility may be lost.
It may also be necessary to take action to
preserve the right to obtain benefits through an
appeal, after eligibility is established. If the
provider denies coverage, the beneficiary has a
right to require the provider to submit a claim for
Medicare reimbursement. Otherwise, there is no
decision from which to appeal. 42 C.F.R.
§405.704; Home Health Agency Manual §265.1.
Meanwhile, however, the client must arrange to
pay privately for the services, if they are to be
provided pending appeal. The effect of a
Qualified Medicare Beneficiaries (QMB)
State Medicaid programs are required to pay
Medicare Part A and B premiums, copayments
and deductibles for persons whose incomes are
below the poverty line and whose assets are at or
below twice the SSI resource limit.
The resource limit has not changed for many
years: 2 X $2,000 = $4,000 for an individual and
2 X $3,000 = $6,000 for a couple.
The income limit for 1999 is $707 per month
for an individual and $942 per month for a couple
(including the $20 per month that is "exempt").
2. Specified Low-Income Medicare
Beneficiaries (SLMB)
The SLMB program requires states to pay
the Medicare Part B premiums ($45.50 per month
in 1999) of Medicare beneficiaries who meet the
resource requirements for QMB and whose
incomes are more than the poverty level but less
than 135% of that level.
Individuals with monthly incomes greater
than $707 and less than $844, and couples with
monthly incomes greater than $942 and less than
$1,126, are eligible.
3.
Qualifying Individuals-1
Y-12
23rd Annual Advanced Estate Planning and Probate Course
This program also pays the Medicare Part B
to as “long term care Medicaid,” which are
premium. The only difference is that it is
discussed at VII. below. This part will cover only
available only to persons who re not certified for
programs
sometimes
called
“community
any other Medicaid funded program in the same
Medicaid,” which are available to disabled
month. It is available to individuals with monthly
persons and some others who are not residents of
incomes greater than $844 and less than $947;
nursing homes or receiving other long term care
and couples with monthly incomes greater than
services.
$1,126 and less than $1,265.
A. Eligibility
4. Qualifying Individuals-2
This program pays only $2.23 per month
toward the Medicare Part B premium. It is
available to individuals with monthly incomes
greater than $947 and less than $1,222; and
couples with monthly incomes greater than
$1,265 and less than $1,633. It requires annual
reapplication. It is expected to be of greater
importance in future years, when the Part B
premium is expected to increase sharply, and this
program will reduce or eliminate the increase for
moderate-income beneficiaries.
B. Trust and Transfer Rules
Because QMB and SLMB are Medicaid
programs, the same trust and transfer rules apply
to them as to the “Community Medicaid”
programs. That is, in general, the assets of thirdparty supplemental needs trusts are not counted;
nor are the assets of self-settled trusts if they are
settled by persons under age 65, have a remainder
to the Medicaid program, and meet the other
requirements of 42 U.S.C. §1396p(d)(4)(a),(c).
There is no transfer penalty, though transfers for
this purpose may affect eligibility for “Long
Term Care” Medicaid. A "Miller Trust" cannot
be used to qualify persons with excess income, as
it can for most "Long Term Care Medicaid"
programs.
C. Application
Application is made to the Texas
Department of Human services (not Social
Security).
VI. “COMMUNITY MEDICAID”
The term “Medicaid” applies generally to all
benefits provided under Title XIX to the Social
Security Act, codified at 42 U.S.C. §1396 et seq.
It includes a host of programs sometimes referred
1. Medicaid Linked to SSI and TANF
Most “community Medicaid” beneficiaries
receive their Medicaid automatically because
they qualify for Supplemental Security Income
(SSI) (discussed at I above) or Temporary
Assistance for Needy Families (TANF)
(formerly AFDC, discussed at VIII. below). For
such clients, requirements for Medicaid eligibility
are the same as for SSI or TANF, so no further
discussion is required here.
2. Medicaid for Children & Pregnant Women
Certain low-income children and pregnant
women are eligible for Medicaid although they
are not eligible for TANF.
Eligibility
information is at 40 T.A.C. Chapter 4.
3.
“Medically Needy” Medicaid
Persons who are members of eligible groups
may obtain Medicaid coverage, even though their
income exceeds the TANF income levels.
Essentially, they are required to “spend down”
any income they have that exceeds the medically
needy income allowance, by applying that part of
their income to their medical bills.
The
remaining part of their medical expenses, which
may be quite substantial, is paid by Medicaid. 40
T.A.C. Chapter 2; 42 U.S.C. §1396d(a); 42
C.F.R. §435.301(b).
The following are groups potentially eligible
for this benefit:

Certain pregnant women

Children under 18 whose families meet the
$1,000 resource limit but whose family
income exceeds the TANF income limits;

Foster children in DHS conservatorship


Disability Benefits in the Estate Plan
Adult caretakers of dependent children who
meet all TANF eligibility requirements,
except for income (or they are sanctioned
under the TANF program)
Second parents (stepparents) when either the
caretaker or the second parent is
incapacitated
40 T.A.C. §2.1004.
This program is under the same federal
statute that in most states allows aged, blind or
disabled persons to “spend down” their income so
as to be eligible for Medicaid long term care. 42
U.S.C. §1396d(a). Texas is not a “medically
needy” or “spend-down” state in that sense.
Rather, it is an “income-cap” state. Therefore, a
disabled person needing long term care Medicaid
who has more income than the “income cap”
($1,500 per month in 1999) must go through the
burdensome “qualified income trust” (Miller
trust) procedure to achieve the same effect (i.e.,
achieve eligibility by spending all but a small
income allowance on medical care).
Comment: The “medically needy” program
is extremely important to low-income families
who are stricken with an accident or illness of a
family member and who are medically uninsured
or underinsured. When they have used up their
savings, they can often qualify for this program to
pay medical bills.
B. Benefits
In general, Medicaid is a comprehensive
medical assistance program. It is broader in some
respects than Medicare and does not require
payment of premiums, deductibles and
copayments as does Medicare.
The exact scope of benefits available to the
participants in the various Medicaid programs is
set out in the State Medicaid Plan, which in
Texas is prepared by the Texas Health and
Human Services Commission. Legal parameters
are found in the federal Medicaid legislation and
rules at 42 U.S.C. §1396d(a), 42 C.F.R. § §440.1
- 440.180. Texas legislation generally requires
that the Texas Medicaid program provide the
minimum necessary to obtain federal matching
funds, with some flexibility for providing
additional benefits if available funding permits.
TEX. HUMAN RESOURCES CODE §32.024.
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C. Application
Application for Medicaid for children and
pregnant women and for the “medically needy” is
to the Texas Department of Human Services.
Likewise, Medicaid eligibility linked to TANF
benefits is processed by DHS.
However,
eligibility for Medicaid linked to SSI eligibility is
determined by the Social Security Administration
when it processes the SSI application.
VII. "LONG TERM CARE" MEDICAID
A. Medicaid Long Term Care Programs in
Texas
1. Program Administration And Sources Of
Law
The Medicaid program is administered in
Texas by the Texas Health and Human Services
Commission which has final authority and
responsibility for the program. However, the
Texas Department of Human Services (referred
to herein as "DHS") determines eligibility, so it is
the agency with which Medicaid applicants and
their representatives have most contacts. The
DHS enabling statute, regulations and agency
handbook (the Medicaid Eligibility Handbook)
are important sources of law and policy for the
program. See the Bibliography at Appendix 23
for a comprehensive list of sources of law, policy
and commentary.
In Fiscal Year 1996, federal and state
outlays on Medicaid totaled $159.6 billion, with
57% of the total paid by the federal government
and 43% paid by the states. The year before, 41.4
million people were enrolled in some Medicaid
program nationally, of whom 20 million were
children under age 21 and 9 million were adults
in families with children. The elderly and nonelderly disabled without children made up only
25% of the Medicaid population, but due largely
to the high cost of long term care, they accounted
for 60% of all Medicaid spending.3
The
Congressional Research Service explains
concisely why Medicaid policy is of such
importance politically:
3
Congressional Research Service, Medicaid: An
Overview (IP 468M, September 30, 1997), pp. CRS-1
to 2.
23rd Annual Advanced Estate Planning and Probate Course
widely assumed to assure continuation of the
Due to a combination of factors including
federal guarantees at least until the next President
enrollment increases, health care inflation, and
takes office; but his acquiescence to the abolition
creative state financing practices, federal
of federal guarantees in "welfare reform"
Medicaid outlays rose dramatically from FY
suggests that this is by no means certain.
1989 to FY 1992, increasing at an average
annual rate of over 25%. Some states said
If legislation similar to that contained in
Medicaid was the largest single item in their
OBRA 95 becomes law, much of this outline will
budgets, using resources that states wanted to
be superseded. Virtually all the law in this area
put into education or other state programs.
will be state law, and calling it “law” at all may
Although outlay growth slowed to 12% in FY
be stretching a point, as discussed below at
1993 and to 8% in FY 1994, lawmakers saw the
IV.L.4. regarding judicial review. Therefore, this
reduction of Medicaid growth as an essential
outline presents the law as it is as of this writing,
part of reducing the federal deficit and
with the warning that everything in this outline is
providing relief to states.4
subject to change at any time.
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In 1995, the Texas Medicaid program paid
$1.2 billion for nursing facility services to 1,072
facilities (93% of the 1,157 licensed nursing
facilities in the State). These payments to nursing
facilities represented about 18% of all Medicaid
payments in Texas. The other payments were for
such expenses as physician services (11%),
hospital services (29%), mental health facilities
(9%) and drugs (9%). Although persons over age
65 represented only 12% of Medicaid recipients,
because of the high cost of nursing home care,
they required 28% of all Medicaid expenditures.
(The other 72% went to children in poverty,
caretaker parents of those children, and non-aged
disabled persons.) That is, of the $9.1 billion
spent on Medicaid in Texas, about $2.5 billion
went to persons over 65. This latter amount
represented about 5% of the total State budget
(including federal funds), with the total Medicaid
program taking 18.6% of the State budget.5
2.
Possibility Of Major Changes
In the 1995 Omnibus Budget Reconciliation
Act, Congress voted to repeal Title XIX of the
Social Security Act (containing the entire
Medicaid program) and to replace it with a
system of Medicaid block grants (sometimes
referred to as “Medigrants”) to the States with
minimal federal requirements. President Clinton
vetoed that legislation, in part because it would
subject older and disabled Americans to chronic
uncertainty and to unequal treatment by the
various states. President Clinton's reelection is
4
Medicaid: An Overview, p. CRS-3
TEXAS HEALTH AND HUMAN SERVICES
COMMISSION, TEXAS MEDICAID IN PERSPECTIVE, 2nd
ed. (1997).
5
3.
Focus On Long Term Care
The focus of this part of the article is on
Medicaid long term care benefits. The term
"Medicaid" also applies to general medical
insurance for recipients of Supplemental Security
Income (SSI) and Temporary Assistance to
Needy Families (TANF, formerly Aid to Families
With Dependent Children (AFDC))--referred to
herein as "Community Medicaid" and discussed
at VI. above. One reason the regulations and
handbook provisions are so confusing is that they
seem to refer to all types of Medicaid (which they
call "Medical Assistance"), but critical parts of
them do not apply to the long term care
programs.
Nursing home care is not the only long term
care benefit available through the Medicaid
program. Also available, in certain cases, is care
at home and in assisted living facilities (personal
care homes). The latter benefits are not as well
known and are therefore underutilized.
Nevertheless, they meet the need for lessrestrictive care outside the nursing facility
environment, which is almost always preferable if
it will meet the client's medical needs. These
alternative non-nursing facility programs are
discussed in 5.(b),(c),(d) below.
4.
Notes On Program Terminology
(a) "Medicaid" Although the program is
referred to by the public and press as the
Medicaid program, it is never called that in the
statutes and regulations, which always call it the
"Medical Assistance Program”
Disability Benefits in the Estate Plan
(b) "Client"
The Texas Medicaid
regulations and handbook provisions refer to
persons eligible or applying for Medicaid benefits
as "clients." That terminology will be used
generally in this outline, without an intention to
imply that the attorney will necessarily be
representing the applicant or beneficiary in every
case. Obviously, too, such persons are not
"clients" of DHS in any fiduciary sense, but on
the contrary are likely to take opposing positions
regarding legal issues.
(c) Scope of this outline This outline is
intended as a "bridge" to the legal source
materials on Medicaid in Texas. It is not
intended to cover comprehensively and precisely
every aspect of Medicaid law and practice.
Therefore, a minimum of technical terminology is
used in the outline, with references to some of the
terminology employed by the Medicaid program
and with footnotes to the most useful source
materials.
5. Major Medicaid Long Term Care Programs
in Texas
a) Nursing Home Medicaid (DHS terminology:
"SSI-Related MAO, Type Program 14")
(i) General description of benefits. This
covers most medical and support needs of a
person who needs nursing facility care.6 A
significant exception is dental care.
(ii) Payment for non-covered services.
When a Medicaid-eligible resident needs dental
care or other non-covered medical services not
reimbursed by any insurance or benefit program
(called “incurred medical expenses”), the cost can
be paid out of the resident's income, most of
which ordinarily goes to nursing facility costs.7
The result is that the Medicaid program pays a
larger share of the cost of nursing facility care as
6
See 40 T.A.C. Chapter 19 for services
Medicaid-certified nursing facilities must provide and
standards they must meet. For a brief overview of
services covered, see Medicaid Eligibility Handbook
Appendix XIII, Attachment II.
7
For instructions to eligibility workers on how to
do this, see Medicaid Eligibility Handbook §2461.2.
Note that this says nothing about recovering payments
made in the past. Therefore, it is important that the
client be advised to notify the eligibility worker
whenever possible in advance before making
payments for these “incurred medical expenses.”
Y-15
long as payments are being made for the noncovered services.
(iii) General eligibility requirements. For
an unmarried person, the maximums are $2,000
in countable resources and $1,500 per month in
income. For a couple with a spouse not residing
in a medical institution, see "spousal
impoverishment" discussion below. Also see
below for requirements of residence, nationality,
disability and medical necessity for nursing home
care.
b) Community Care
DHS uses the term "Community Care," to
include "Family Care" and “Primary Home
Care.” “Primary Home Care” includes “Frail
Elderly."
(1) General description of benefits.
These programs provide assistance with
bathing, dressing, toileting, food preparation,
housekeeping, etc. Number of hours per week
varies
according
to
the
caseworker's
determination based on an assessment form filled
out from responses provided by the client or
client's representative. Current maximum in the
regulations is 50 hours per week, but caseworkers
say the maximum they will provide is 35 hours
per week. Does not include medical benefits.
(2) General eligibility requirements.
For an unmarried individual, financial
requirements are the same as for nursing home
Medicaid, except sometimes there are openings
for individuals with as much as $5,000 in
countable resources under the "Family Care"
program. For a married individual, maximum
income of both spouses combined is $3,000.
Maximum resources for a couple are $6,000 for
Family care and $3,000 for Primary Home Care.
Achieving eligibility for a married person is
usually more difficult, as the "spousal
impoverishment" provisions do not apply.8
The “transfer penalty” does not apply to the
“Community Care” programs. Therefore, a client
can meet the resource requirements by giving
8 40 T.A.C. §48.2901 et seq.
The regulations
regarding the home care programs are so poorly
organized that it is difficult to understand their
meaning without reference to DHS summaries that are
produced from time to time and are usually available
from local DHS offices.
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23rd Annual Advanced Estate Planning and Probate Course
away resources. However, it is important that the
d) CLASS (Community Living Assistance and
client understand that should the need for nursing
Support Services) Program
home arise during the “penalty period” (discussed
Other DHS name: §1915(c) Medicaid
below), such transfers would affect eligibility for
Waiver Program for Persons With Related
nursing home care or “waiver program” care (for
Conditions10
example, Community Based Alternatives,
discussed below).
(1) General description of benefits
Home care services of a wide variety.
c) Community Based Alternatives Program
DHS terminology: Community Based
(2) General eligibility requirements.
Alternatives Program, formerly Nursing Facility
Eligibility is limited to persons with a
Waiver Program; or Ҥ1915(c) Medicaid Home
severe,
chronic disability attributed to cerebral
9
and Community-Based Waiver Services”
palsy, epilepsy or any other condition, other than
mental illness, found to be closely related to
(1) General description of benefits
mental retardation, manifested before the person
Personal care services are provided at home
reaches age 22 and likely to continue
or in a licensed Personal Care Home. The cost
indefinitely.11 Financial eligibility requirements
must not exceed 90% of the cost of nursing home
are the same as if the person resided in a nursing
care.
facility, and spousal impoverishment provisions
apply.
(2) General eligibility requirements
The client must meet all requirements for
e) “Home and Community-Based Services”
nursing home care. For married clients, spousal
(1) General description of benefits
impoverishment protections are supposed to
This is a “Medicaid waiver” program
apply; but see VII.G.4(d) below for discussion of
providing
various community services to persons
a recent DHS policy that seems inconsistent with
with
mental
retardation would otherwise be
this requirement. The transfer penalty applies the
inappropriately
placed in institutional facilities.
same as for nursing home Medicaid.
Unfortunately, to the author’s knowledge, it has
never been afforded a distinctive program name
In addition to “medical necessity,” the
to distinguish it from Community Based
applicant must be able to answer “yes” to at least
Alternatives, the Community Care Programs and
two of the seven “risk assessment” factors in
other smaller programs, all of which are referred
Form 2333.
to in the regulations as “home and communitybased services.”12
Practice note: This is a relatively new
program, of tremendous potential benefit to
(2) General eligibility requirements.
eligible clients. Because of its popularity, at this
writing (May 1999), its funds have been
Persons meeting financial criteria for nursing
exhausted to the extent that potential applicants
home Medicaid also meet the requirements of this
are all being placed on a waiting list. Refunding
program, as do certain other classes of persons.13
of the program is not expected before September
1999 at the earliest.
B. Why Become Eligible for Medicaid?
Comment: The “risk” being assessed by
Form 2333B is the risk of going to a nursing
home. Note that this is required in addition to the
“medical necessity” determination that what the
applicant already needs is nursing home care.
9
See 40 T.A.C. §§48.6001-48.6020 for
regulations governing the Community Based
Alternatives Program. It is described generally at
Medicaid Eligibility Handbook §4816.
10
See 40 T.A.C. §§48.2101-48.2110 for
regulations governing the CLASS Program. It is
described generally at Medicaid Eligibility Handbook
§4811.
11 40 T.A.C. §27.503.
12 A word search of Chapter 48, T.A.C. yields
approximately a dozen references to “home and
community-based services,” none of which pertain to
this program. It is apparently funded under §1915(c)
of Title XIX to the Social Security Act as a “Medicaid
waiver program.
13
Medicaid Eligibility Handbook §4813.
Disability Benefits in the Estate Plan
At VII.C. below is a discussion of the
reasons to avoid Medicaid eligibility in some
situations. This section will highlight the reasons
that for most Texans who need long term care,
avoiding Medicaid is not possible, without
sacrificing more basic values.
1.
Unavoidable Impoverishment
Ninety percent of Texas nursing home
residents exhaust their resources and reach the
poverty level after only 26 weeks of care; and
78% of all Texas nursing home residents
(including those who have not yet exhausted their
resources) are qualified for Medicaid.14 For most
people, the time they can postpone Medicaid
eligibility by paying privately is at best very
short; and the cost is their entire savings.
Especially when there is a spouse at home
(sometimes with a long retirement to plan for),
accelerating Medicaid eligibility can appear as a
life-or-death imperative.
Practice Note: It is very useful to clients to
have an estimate of how long their resources will
last if they decide not to apply for Medicaid. This
will often be the deciding factor, one way or the
other, when considered along with the life
expectancy of the disabled client and his or her
spouse if any.
2.
Protection of the “Community Spouse”
As will be demonstrated below, in most
cases, the spouse at home (the “Community
Spouse”) can keep all the couple's assets; and
where assets are relatively low in value, that
spouse can keep all income as well. The
increased standard of living that may be available
to the disabled spouse on a private-pay basis may
be purchased at unacceptable cost to the future
well-being of the other spouse, if Medicaid
benefits are foregone.
C. Why Plan to Avoid Medicaid
Here are some reasons why long-term care
planning for many clients should be planning for
Medicaid avoidance, not Medicaid eligibility:
AARP brochure “Campaign for Nursing Home
Reform Now,” September 30, 1995, citing Texas
Department of Human Services as source.
Y-17
1.
The “Medical Necessity” Requirement
In addition to establishing financial
eligibility, a Medicaid applicant must prove a
“medical necessity for nursing home care.” See
the discussion at VII.D.3. for specifics. Many
persons who absolutely require substantial
personal care do not meet this standard.
Impoverishing such a person so as to make them
financially eligible for Medicaid may serve only
to strip them of their assets when they need them
most. See also the discussion of the dangers of
“gifting” at VII.H.
Practice Note: If there is any question as to
what is the best type of care for the client, make a
referral to a Geriatric Care Manager. The GCM
will do an assessment, advise as to appropriate
types of care settings, and if desired, refer to
specific providers. Sometimes, this advice will
rule out Medicaid eligibility, at least for the
moment. First determine the client's needs, then
how to meet them, instead of the other way
around! For a referral to a member of the
National Association of Geriatric Care Managers
in your area, call the National Association of
Geriatric Care Managers at 520/881-4005.
2.
Possibility of Better Care
Although 94% of Texas' nursing facilities
are Medicaid-certified, the 6% that are not
certified include some of the very best in the
State. A client who can afford to live in one of
the better facilities may well prefer to do so rather
than try to preserve assets for other family
members--especially if there is no community
spouse and if available resources are likely to be
sufficient to "private-pay" for the client's life
expectancy.
Texas is 48th among the 50 States in per
capita spending for Medicaid (including both
long term care and other services reimbursed).
Under threat of litigation, DHS in early 1998
agreed to raise payments to nursing homes to an
average of $71.08 per resident per day, from a
previous average of $66.45.15 In the author’s
experience and according to some limited data,
14
15
p. B-1.
Austin American-Statesman, January 28, 1997,
Y-18
23rd Annual Advanced Estate Planning and Probate Course
this is still substantially below private-pay rates.16
violates the federal Medicaid law.19
This subsidy by residents paying privately (really
a hidden tax on people who need long term care)
Practice Note: The new rule just cited will
appears to explain the practice of many nursing
help clients gain entrance to some of the better
homes of limiting availability of MedicaidMedicaid-certified
facilities,
which
have
reimbursed services only to certain “Medicaid
purposely certified only a limited number of
beds,” with resulting disadvantages to Medicaid
“Medicaid beds” so as to obtain more income
recipients discussed below.17
from the above-referenced hidden tax on the
infirm non-indigent.
There may be some
uncertainty as to whether a person has become
3. Choice of Facilities
“eligible” for Medicaid within the 6-month
period, so as to make this benefit inapplicable, if
Because “Medicaid beds” pay less than
the person spends down during that period. The
private-pay beds, many facilities have only
better interpretation would be that since
limited numbers of “Medicaid beds.” Therefore,
availability of a Medicaid bed is a condition for
in some areas, it is difficult to find a good
eligibility, that should never be a problem. To
Medicaid facility that does not have a waiting list
avoid this potential issue, however, it may be
for Medicaid residents. They invariably give
preferable to time the spend-down (or Miller
preference on the waiting list to residents who
Trust or whatever else is needed for eligibility) so
entered as private-pay residents (and usually, to
as to avoid eligibility for the full six months.
those who entered as Medicare residents); but
nevertheless, they sometimes require that
For clients threatened with discharge
residents move when they become eligible for
because they have run out of assets and there is
Medicaid, because no “Medicaid bed” is then
no “Medicaid bed,” consider raising the
available.
argument that under the Linton case cited above,
the whole “Medicaid bed” system in Texas is
One result of this system is that to have a
illegal. A Medicaid-certified home is prohibited
good choice of nursing homes, it may be
from discharging a resident for any resident
necessary to go in as a private-pay resident and
other than those enumerated in the rules; and the
have enough funds to pay privately until a
“nonpayment” ground for discharge expressly
Medicaid bed opens up. This condition has
provides, “For a resident who becomes eligible
recently been made somewhat less onerous in
for Medicaid after admission to a facility, the
Texas by a rule allowing a nursing home to
facility may charge a resident only allowable
obtain an additional “Medicaid bed” if needed to
charges under Medicaid.”20 If a resident meets
accommodate a resident who lived in the facility
all Medicaid requirements other than availability
at least six consecutive months before becoming
of a Medicaid bed in his or her facility, and that
eligible for Medicaid.18
requirement is illegal, then the resident cannot be
discharged for failure to pay. It is the Texas
Not all states require or even allow nursing
Medicaid program, not the client, that is
homes to designate a limited number of
delinquent.
“Medicaid beds.” In fact, this practice probably
16
Nationally, Medicaid pays 80% of the privatepay rate according to one unattributed estimate.
Analytical Text, ESTATE & ELDER LAW ADVISOR
(West Group CD, 1999).
No data expressly
addressing this issue have been found, but the author
calculates from data assembled for other purposes that
the ratio may have been 85% in Texas in the early
1990’s. HOUSE RESEARCH ORGANIZATION, NURSING
HOMES IN TEXAS: A GUIDE TO THE ISSUES (1992).
17 Similar opinions are expressed in LONG-TERM
CARE PLANNING: A DOLLAR AND SENSE GUIDE, p. 53
(United Seniors Health Cooperative, 1999 Edition).
18 40 T.A.C. §19.2322(d)(9), published in Texas
Register on January 23, 1999 (effective February 1,
1999).
Moreover, Medicaid does not pay for "bed
hold" if the client goes to a hospital temporarily.
If when the client is discharged from a temporary
hospital stay, the nursing home has no available
"Medicaid beds," the client may have to move to
19
Linton by Arnold v. Commissioner of Health
and Environment, State of Tennessee, 65 F.3d 508 (6th
Cir. 1995), cert. denied, St. Peter Villa, Inc. v. Linton,
116 S.Ct. 1542, 134 L.Ed.2d 646, 64 USLW 3705,
3707 (U.S., Apr 22, 1996). Federal Medicaid statutes
cited Linton are 42 U.S.C.A. §§1396a(a)(23),
1396r(c)(4),(5).
See
also
42
U.S.C.A.
§1396a(a)(10(a)(ii)(V).
20
40 T.A.C. §19.502(b)(5).
Disability Benefits in the Estate Plan
another facility. Whenever it is necessary to
move to another facility, either as a result of a
hospital stay, because of friction, because family
members have moved, or because the client has
gone home for a time, the client may be unable to
find a desirable home with Medicaid beds
available.
4.
The Client’s Values
Many people see Medicaid as a stigmatizing
form of "welfare" and are very resistant to
applying for it, even if it is clear that they will
probably be eligible eventually. Some nursing
homes encourage these sentiments (whether
intentionally or not) by having separate wings for
their "Medicaid beds," sometimes with lower
quality floor coverings and other amenities.
Practice Note: The children and other
family members of the potential Medicaid
applicant sometimes see things differently, as
they tend to focus more on the economics of the
situation--i.e., what they will inherit. This is a
strong argument for the Elder Law attorney's
representing only the older person (or couple).
D. Ethical Issues In Medicaid Representation
1.
Identifying the Client
a) Consider the options as to who is the client.
The options are, ordinarily, the following:




An unmarried elder/disabled person
A married couple, with one or both needing
long term care
Children or other family members
Joint representation of the elder/disabled
person and family members
Practice Note: It is the author’s practice and
recommendation that unless the elder/disabled
person is already represented by an attorney, the
attorney’s representation should be exclusively of
that person. Whether the spouse may or should
be represented jointly will depend on the nature
and extent of the conflicts of interest involved.
For example, if one spouse expresses an interest
in considering divorce (other than a mistaken
belief that there is no other planning alternative),
that will preclude joint representation. Also to be
considered are potential conflicts with and
among other family members
stepchildren and estranged children.
Y-19
such as
b) Decide quickly who is the client
In any case, include the identification of the
client(s) in a written attorney-client agreement.
The following situations, for example, cannot be
ethically managed until you have done this:




A child wants to tell you a "secret" about
their parent, the veracity of which is critical
to the parent's decision
The younger generation argues strongly for
Medicaid qualification, while the older
person or persons have reservations.
The disabled spouse expresses reservations
about transferring title to all their countable
property to the other spouse (which is
required for continuing eligibility under the
spousal impoverishment provisions, as
discussed below).
One spouse discloses to you "in private" that
he or she is considering filing for divorce, for
non-Medicaid reasons.
c) Joint representation
If you engage in joint representation of
spouses or other persons, make the required
disclosure to each client. See Disciplinary Rule
1.06 for the elements of a disclosure of conflicts
of interest that must be made if joint
representation is undertaken.
d) Do not represent both parties in litigation.
Note that litigation is an exception to the
rule that joint representation is permissible, with
adequate disclosure.
Therefore, you cannot
represent both spouses in a petition for a
Qualified Domestic Relations Order (discussed
below), even though both spouses are clearly in
agreement that it is needed.
Practice Note: When joint representation of
spouses is undertaken, the attorney-client
agreement is a good place for the disclosure
regarding joint representation. It should also be
in any marital property agreement in which joint
representation is undertaken.
2.
Avoiding Fraud
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23rd Annual Advanced Estate Planning and Probate Course
a) It is unethical to assist a client in committing
insist that a client apply for a benefit he or she
fraud.21
does not want for strictly philosophical reasons,
after full disclosure by the attorney of the client's
rights.
This sounds obvious, but it can be difficult
in application where the fraud is as to the client's
In general, the attorney should bring to the
intent. For example, an uncompensated transfer
client’s
attention the full range of relevant
is not penalized if it is "solely for some purpose
22
considerations.
Fordham University’s 1993
other than to obtain Medicaid services." This is
Conference
on
Ethical
Issues in Representing
a tougher standard to meet than the intent
Older Clients resulted in the following
requirements in the federal tax laws, which
recommendation for practice guidelines regarding
ordinarily do not penalize a transaction merely
“divestment of assets” of a client for the purpose
because tax avoidance was one motive for it.
of achieving Medicaid eligibility:
b) It is unethical to assist a client in failing to
disclose a material fact.23
The fact that a transfer was in cash or
consisted of tangible, untitled property and
cannot be traced does not mean it does not have
to be disclosed. The same applies to property
owned by the client that cannot be traced in any
legal records. Contrary to some clients' beliefs
and values, these disclosures are required in the
Medicaid application and in the oral interview
after it is filed.
3.
Diligent Representation
It is the client's philosophy regarding public
benefits, not the attorney's, that should govern.
“There is no question that the use of ... Medicaid
planning by competent persons is permissible and
that proper planning benefits their estates.”24 Tax
lawyers do not exhort their clients to decline tax
benefits they (the lawyers) do not think are in the
public interest. Public benefits lawyers cannot
behave differently. To do so, or to advise
incorrectly that planning would not be effective,
would be inconsistent with the disciplinary rules
and invite litigation for negligence or breach of
fiduciary duty.25 At the same time, as argued
above, it is not appropriate for an attorney to
21
Disciplinary Rules 3.04, 3.10, 4.01.
40 T.A.C. §15.431(d), Medicaid Eligibility
Handbook §2322.6.
23 Disciplinary Rules 3.04(a), 3.10, 4.01(b).
24 Matter of Klapper, NYLJ , Aug. 9, 1994, p. 26,
col. 1, Sup. Ct., Kings Co.
25 In In re Guardianship of Connor, 525 N.E. 2d
214 (Ill. App. 1988), a guardian was held liable for
damages for selling the ward’s home and spending the
proceeds on nursing home care, when the home was an
exempt resource under Medicaid law. See also
Disciplinary Rule 1.01.
22
1. In representing clients where divestment of
assets is or may be considered, the attorney
should:
a. Counsel clients about the full range of
long-term
care
issues,
options,
consequences, and costs relevant to the
client’s circumstances;
b. Endeavor to preserve and promote
dignity, self determination, and quality of
life of the elderly client in the face of
competing interests
and
difficult
alternatives; and
c. Strive to ascertain the client’s
fundamental values in order to be
responsive to the goals and objectives of
the client.26
This is consistent with Rule 2.1 of the Model
Rules of Professional Conduct:
Lawyer as Advisor: In representing a
client, a lawyer shall exercise independent
judgment and render candid advice.
In
rendering advice, a lawyer may refer not only
to law but to other considerations such as
moral, economic, social and political factors,
that may be relevant to the client’s situation.
Likewise, the Ethical Considerations speak
to the breadth of advice required and permitted:
Ethical Consideration 7-8: A lawyer
should exert his best efforts to insure that
decisions of his client are made only after the
26
Proceedings of the Conference on Ethical
Issues in Representing Older Clients, 62 FORDHAM L.
REV. 1063 (1994), reprinted in The Criminal Statute:
Understanding the Statute and Legislative Process,
course materials (Tab 1) for the 1997 Advanced
Institute of the National Academy of Elder Law
Attorneys.
Disability Benefits in the Estate Plan
client has been informed of relevant
considerations. A lawyer ought to initiate
this decision-making process if the client
does not do so. Advice of the lawyer to his
client need not be confined to purely legal
considerations...in assisting his client to
reach a proper decision, it is often desirable
for a lawyer to point out those factors which
may lead to a decision that is morally just as
well as legally permissible...In the final
analysis, however,...the decision whether to
forego legally available objectives or
methods because of nonlegal factors is
ultimately for the client and not for himself.
(emphasis added)
4.
Competent Representation
Medicaid law has been accurately
characterized as "an aggravated assault on the
English language." And that description was
directed only at the basic federal statute and
regulations, without consideration of the ofteninconsistent State laws and practices or the
constantly changing (and often unpublished)
DHS and HCFA interpretations. In the author's
opinion, competent practice in this area requires,
at a minimum, the following:
1. Access to and general familiarity with all
sources of law in the bibliography at Appendix
12 below; and
2. Familiarity with all planning techniques
discussed in this outline; and
3. Keeping up to date on changes in all the
sources of law and currently practiced techniques.
Practice Note: The most efficient way of
keeping up to date on Medicaid and other Elder
Law topics is through membership in the
National Academy of Elder Law Attorneys
(NAELA), which sends members its newsletter
and journal and announcements of national
educational conferences held twice per year. The
Texas Chapter of NAELA also provides a
newsletter and two statewide conference per
year.
For more information, call NAELA at
520/881-4005.
5.
Client Capacity and Gifting
A client who lacks legal capacity cannot
Y-21
make a gift. It would be unethical for an
attorney to assist in such a transaction.
Under Texas law, an agent under a
durable power of attorney generally cannot
make gifts of the principal's assets without
specific gifting powers.27 Even if DHS did not
question such a gift, it would leave the agent--and
the attorney--wide open to charges of exploitation
by family members or other observers.
To assess capacity, use a standardized
form. A form provides a disciplined way of
recording observations on which you base your
judgment. If the transaction is later challenged,
you will have a written record of the basis for
your judgment.28
E. Summary Of Medicaid Eligibility
Requirements
1.
Nationality and Residence
Nationality: The applicant must be (a) a U.
S. citizen or (b) an alien lawfully admitted for
permanent
residence
or
(c)
otherwise
permanently living in the U. S. under color of law
(as defined in the regulation).29 In addition, an
alien who entered the United States on or after
August 22, 1996 is ineligible for five years,
unless he or she is within one of the exceptions
for certain refugees and for designated veterans
and service members and their relatives.30
Residence: The applicant must be a resident
of Texas.
That is, he or she must have
established residence in Texas and intend to
remain here.31 No period of residency in Texas is
required. Travel out of Texas does not terminate
27
Gouldy v. Metcalf, 12 S.W. 830 (Tex. 1889);
but see Hanna v. Ladewig, 11 S.W. 133 (Tex. 1889)
and other cases cited in a note arguing that this is not
always the case, at 33 Real Estate, Probate & Trust
Law Reporter 42 (October 1994).
28 A form for assessing capacity is included as an
appendix to an excellent article on this subject in the
materials for the 1992 Symposium of the National
Academy of Elder Law Attorneys. A more
comprehensive form, together with extensive legal and
medical discussion, is contained in WALSH, ET AL.,
MENTAL CAPACITY, 2nd ed. (Shepard’s/McGraw-Hill
TAX AND ESTATE PLANNING SERIES 1994, looseleaf).
29 40 T.A.C. §15.300(a),(b).
30 8 U.S.C. §1613.
31
40 T.A.C. §15.301(a).
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23rd Annual Advanced Estate Planning and Probate Course
residency here, if there is an intent to return.
for a final decision (by National Heritage Life
Insurance Co.), rather than a preliminary
determination by the nursing home. (NHLIC can
2. Age, Blindness or Disability
overrule the nursing home’s determination.)
An applicant for nursing home care must be
either aged (65 or over), blind or disabled (under
the Social Security Disability definition).32 In
practice, this requirement is never an issue,
because the "medical necessity" requirement
(discussed next below) is more stringent than the
"disability" requirement.
3.
Medical Necessity for Nursing Facility Care
a) Nursing Home and Community Based
Alternatives Programs.
An applicant must meet the "medical
necessity" requirement both for nursing home
Medicaid and for the Community Based
Alternatives Program.33 The initial assessment is
made on form 3652-A (the CARE form) upon
admission, and a follow-up is done annually in
most cases. The assessment is usually done by
the Director of Nurses at the nursing home and by
a nurse and physician employed by the insurance
company contracted by DHS (currently, National
Heritage Life Insurance Co.). The decision is
appealable through the "fair hearing" process
discussed below.
Essentially, “medical necessity” requires a
medical disorder or disease requiring attention by
registered or licensed vocational nurses on a
regular basis. Inability to attend to “activities of
daily living,” such as bathing, grooming and
eating, is not sufficient. For more detail, see the
applicable regulations.34
Practice Note: To assess medical necessity
of a client residing in a Medicaid-certified
nursing home, you can simply ask the Director of
Nursing whether or not the client meets that
standard. For a client who does not live in a
nursing home, you can request a "pre-admission
assessment of medical necessity" from a
Medicaid-certified nursing home. To be sure, ask
32
40 T.A.C. §15.305(a).
40 T.A.C. §§19.601-19.604. For procedural
safeguards regarding discharge of a resident already
admitted, see 40 T.A.C. §19.302, 40 T.A.C. Chapter
79, and the DHS Fair Hearing, Fraud and Civil Rights
Handbook.
34
40 T.A.C. §19.2402 et seq.
33
Practice Note: The possibility of a long
period of need for care that does not meet the
“medical necessity” requirement is a major
reason to advise caution regarding gifting
strategies. A client with early Alzheimer’s, for
example, and no other significant medical
problems, may face many years of critical need
for custodial care such as that provided in
personal care homes, with no possibility of
Medicaid eligibility even if all resources have
been spent. Generally, such a person would be
ill-advised to give away all his or her assets, thus
becoming entirely dependent on the good will,
good judgment, financial solvency and continued
life and health of adult children or other
transferees..
b) Home care under the “Community Care”
programs
The Community Care programs have a less
stringent disability requirement. They require
disability as defined by SSI, with need for
assistance in at least some activities of daily
living as determined by the assessment
interview.35
4.
Income
a) Income limitation for an unmarried person.
In calendar 1999, the "income cap" in Texas
is $1,500 in "countable" income of the Medicaid
applicant. See below regarding what income is
countable and attributed to the applicant. This
amount changes on January 1 of every year with
inflation.
b) Income limitation for a married person with
an ineligible spouse.
The "income cap" is the same as for a single
person. The critical question is how the income
is apportioned between the spouses. See the
discussion below of the "name on the check rule."
35
40 T.A.C. §48.2907
Disability Benefits in the Estate Plan
c) Income limitation for married couple, both of
whom apply for Medicaid.
If both spouses reside in the same nursing
home, the incomes are combined, and the income
cap for the combined income is twice the cap for
an individual (currently, $3,000).36 However, if
the combined incomes exceed this cap, one
spouse can still be eligible as long as his or her
income alone is below the individual cap
(currently, $1,500).37
5.
Resources (Assets)
a) Resource limitation for an unmarried
applicant.
This limit is $2,000. This amount has
remained the same since 1989.
See the
discussion of “resources” below for how to
determine what resources are "countable."
b) Resource limitation for a married couple, with
an ineligible spouse not living in a medical
institution.
This limit is half the couple's combined
resources, subject to a minimum "protected
resource amount" of $16,392 and a maximum of
$81,960.38 These amounts may be increased in
certain circumstances as discussed below. The
minimum and maximum change every January 1
with inflation.
Y-23
for Medicaid is $2,000. Resources of the nonapplicant spouse are not deemed to the applicant
spouse because they are not regarded as living in
the same “household.”39 Therefore, the nonapplicant spouse can have unlimited resources.
Practice Note: When both spouses need
nursing home care, the first question to ask is
whether or not they would be better off
transferring all resources to one spouse, who
does not apply for Medicaid, and applying only
on behalf of the other spouse. The non-applicant
spouse is likely to be the one with the highest
income, although life expectancy may be another
important factor.
As with the “spousal
impoverishment” rules, all that is required to
transfer an account (bank, securities, deferred
annuity, etc.) is to retitle it. However, for the
same reasons as in “spousal” cases, it is usually
preferable from a Medicaid perspective to use a
marital property agreement to transfer all assets,
including even the residence, to the non-applicant
spouse; then provide in that spouse’s will for a
supplemental needs trust or other disposition to
avoid disqualifying the applicant spouse should
he or she be the survivor.
6.
Medicaid Facility, Medicaid Bed
To be eligible for Medicaid, a Texas resident
must be in a Medicaid-certified facility and in a
“Medicaid bed.” See VII.C.3. above for a
discussion of these requirements.
F. Income Requirements
c) Resource limitation for a married couple, both
of whom live in a nursing facility and apply for
Medicaid.
This limit is $3,000. Resources of both
spouses are counted toward this limit.
d) Resource limitation for a married couple, both
of whom live in a nursing facility, if only one
applies for Medicaid
The resource limit for the spouse applying
36 40 T.A.C. §15.501(f), Medicaid Eligibility
Handbook §3213.
37 40 T.A.C. §15.501(g), Medicaid Eligibility
Handbook §3213.
38 40 T.A.C. §15.503, Medicaid Eligibility
Handbook §§4133-4133.7.
1.
Income Definitions and Exclusions
a) Income definition
"Income is receipt of any property or service
a client can apply, either directly or by sale or
conversion, to meet basic needs for food, clothing
and shelter. Countable income is the amount of a
client's income after all exemptions and
exclusions."40 This is broader than the income tax
definition. For example, it includes gifts and
personal injury awards.
39 40 T.A.C. §15.410(a); Medicaid Eligibility
Handbook §4213.
40 40 T.A.C. §15.100 (Medicaid Eligibility
Handbook §§2410-2411).
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23rd Annual Advanced Estate Planning and Probate Course
Generally, when food, clothing or shelter are
as “income.”44
provided to the client by someone else, the rules
seem to require counting them as income under
b) Exempt income definition
complex rules developed in the SSI program for
counting “in-kind support and maintenance.”41
Exempt income is "income that is not
However, “in-kind support and maintenance” is
counted in eligibility nor applied income
not counted as income by the Medicaid “waiver
determination.”45
("Applied income" is the
programs” (specifically, Community Based
amount of the client's income that is paid toward
Alternatives, Community Living Assistance and
("applied to") his or her nursing home or other
Support Services, Home and Community-Based
care.) Important examples of exempt income
Services and Medically Dependent Children’s
include value of medical services provided free or
Program.)42
for which someone else pays the provider
directly; payments to providers of social services
Comment: As far as long term care services
by a government program; and specifically
are concerned, aside from the Primary Home
defined "infrequent or irregular income."
Care ( §1929(b)) Program, the exception
swallows up the rule. Whether the client seeks
The following are erroneously listed as
Medicaid for nursing home care or under one of
"exclusions" in the Medicaid Eligibility
the home care “waiver” programs, someone else
Handbook. Actually, they are "exemptions,"
can apparently provide food, clothing and shelter
because they are not counted for determining
without its being counted as income. Thus,
either eligibility or applied income: VA aid-andclients who need long term care under these
attendance allowances, VA reimbursement for
programs are able to escape the strict povertyunusual medical expenses, and VA housebound
level standard of living mandated by the SSI
allowances.46
program, if they do not also need SSI and if they
have family members or others to help them.
c) Excluded income definition
Apparently, this applies as well to persons
"Income that is not counted when
who have achieved eligibility by transferring
determining eligibility but that is counted to
their assets into an “exception trust,” which can
determine applied income."47 The $20 general
then provide them food, clothing and shelter—or
exclusion and the earned income exclusion do not
anything else except cash-- without affecting their
apply to Type Program 14 (Nursing Home
eligibility. Under a rule adopted in 1998, “A
Medicaid) and 1929b (Home Care) cases so are
payment to or for the benefit of the client is
useful primarily to persons receiving Medicaid
counted under trust provisions only if such a
through the SSI and AFDC programs. A new
payment is ordinarily counted as income.”43
rule sets out what deductions from employee
compensation are excluded by DHS in the
Payments received on a negotiable note
determination of applied income.48
(regardless of whether it is secured or not) are
counted as “income” only to the extent of the
amount of interest paid. However, the full
d) Certain VA income automatically reduced by
amount of all payments on a non-negotiable note,
Medicaid eligibility
including both principal and interest, are counted
41 40 T.A.C. §15.100, Medicaid Eligibility
Handbook §2451, 2451.3 et seq.
42 40 T.A.C. §15.455(b)(1), Medicaid Eligibility
Handbook §2451.1. The §1929(b) program (“Primary
Home Care”) is not a waiver program.
43
40 T.A.C. §§15.417(c)(1), 15.417(f)(1);
Medicaid Eligibility Handbook §§2313.42, 2313.45.
The author has asserted this position in two cases
involving self-funded trusts, in which the eligibility
workers appear not to have been aware of Medicaid
Eligibility Handbook §2451.1, but at this writing has
not yet received a response from the Department.
44 40 T.A.C. §15.455(e)(7), Medicaid Eligibility
Handbook §2453.7.
45 40 T.A.C. §15.100. See 40 T.A.C. §15.460,
(Medicaid Eligibility Handbook §2420-2421) for
income exemptions.
46 40 T.A.C. §15.465(e)(1) (Medicaid Eligibility
Handbook §2435,2436).
47 40 T.A.C. §15.100. See 40 T.A.C. §§15.46015.465 (Medicaid Eligibility Handbook §§2430-2439)
for income exclusions.
48 40 T.A.C. §15.453(a),(b); Medicaid Eligibility
Handbook §2441.
Disability Benefits in the Estate Plan
VA non-service connected pensions (which
are paid only to veterans with incomes below
certain levels) are automatically reduced to $90
per month when Medicaid eligibility is
established, unless the veteran has a spouse or
child.49 Therefore, only that amount is counted
for determining eligibility, and a Miller Trust is
not necessary for a single veteran receiving such
income.50 Note, however, that this does not apply
to service-connected disability or to retirement
pay, nor does it apply to a married veteran.
e) "Name on the check rule"
The federal "spousal impoverishment" rules
require that for the purpose of allocating the
income of a married Medicaid beneficiary and his
or her spouse after eligibility is established,
community property rules are disregarded.
Rather, income is allocated according to the
person or persons to whom it is payable on the
check or other instrument by which it is paid,
unless the instrument specifically provides
otherwise. That is, if a check or direct deposit is
payable only to the community spouse, none of it
is attributed to the institutionalized spouse (or
vice-versa), even if it is clearly community
property. If it is payable to both spouses, it is
attributed to them equally.51
The federal statute requires this treatment
only regarding post-eligibility treatment of
income. Although the Texas rules and manual do
not address this issue regarding determination of
eligibility, the practice of DHS is to apply the
same rule for determining eligibility.
f) Long-term care insurance benefits
49
38 U.S.C.A. §5503(f)(2).
One DHS representative has indicated that it is
necessary first to ask the VA to stop sending checks at
all, then reapply for the reduced monthly benefit after
establishing Medicaid eligibility. Otherwise, you may
be caught in a “chicken-or-egg” problem, because (in
the absence of a Miller Trust) you will never be able to
establish Medicaid eligibility on account of the VA
income. The author has not had a case involving this
problem and until hearing this statement was under the
impression that DHS would disregard the VA income
from the beginning on the ground that it would be
reduced as soon as eligibility was established. This
may be an area in which some workers apply more
common-sense solutions than others.
51
42 U.S.C.A. §1396r-5(b)(2).
50
Y-25
Such benefits are not counted as income, but
rather as “third-party resources.” As long as they
are paid directly to the nursing home, they do not
affect Medicaid eligibility.52 The effect of the
benefits will be to reduce or eliminate the amount
the Medicaid program will have to pay for
nursing home costs.
g) VA benefits
Likewise, payment of nursing home care by
the Veterans Administration does not affect
Medicaid eligibility.53 Therefore, it is clear that
clients may apply immediately for Medicaid,
despite potential VA eligibility; and subsequent
establishment of VA eligibility will not result in a
break in Medicaid benefits.
This can be
important if Medicaid is needed for services not
covered by Medicare, such as medications, and to
avoid Medicare’s copayments and deductibles.
2.
Rules Affecting Rental Income
Rental income is most commonly a concern
when an exempt residence is being rented for
cash. It can also be a factor when a rental
property is part of the community spouse's
"protected
resource
amount"
(discussed
immediately below).
In general, countable rental income is gross
income received, less actual expenses such as
(but not limited to) property taxes, utilities,
maintenance, repairs and advertising.54 A new
rule adds the following provisions:

Expenses are deducted only for the month in
which they are paid, regardless of when they
are incurred.55
52
40 T.A.C. §15.215(b)(5); Medicaid Eligibility
Handbook §1415.
53
40 T.A.C. §15.455(c)(3)(D); Medicaid
Eligibility Handbook §2452.33.
54 40 T.A.C. §15.455(e)(4); Medicaid Eligibility
Handbook §2453.4.
55 This seems inconsistent with the established
rule that fluctuating income is subjected to six-month
averaging, at least in the applied income calculation
(after eligibility is established). Medicaid Eligibility
Handbook §2464. It also would seem more difficult to
administer and less fair than 6-month averaging. For
example, it would seem that the client could establish
eligibility for any month in which a large payment for
property tax or insurance were made, then lose it again
in other months. A source in the Department says they
23rd Annual Advanced Estate Planning and Probate Course
been applied by the Department for several
 Payments made to a client's agent under a
years, is that the person paying the mortgage may
power of attorney are always treated as
be the tenant, so long as he or she subleases to
received by the client. Payments to other
someone else who will occupy the residence; and
"responsible parties" who provide a statement
the sublessor can even make a profit that will not
that they are not making the payments
count as income.
available to the client are not treated as
received by the client, if they made the rental
3. "Spousal Impoverishment" Rules Protecting
agreement with the tenant; but a referral may
Income of the Community Spouse
be made to Adult Protective Services (for
possible criminal referral)
The income of the community spouse
(determined under the "name on the check rule"
 Mortgage payments made by a tenant to the
discussed next above) is disregarded in
mortgage company are treated as countable
determining eligibility of the institutionalized
income to the client; but if the residence is
spouse.56 Therefore, planning techniques often
vacant and someone other than the client
focus on re-characterizing income to put it in the
pays the mortgage, those payments are not
name of the community spouse (for example,
treated as income.
through a QDRO, discussed below); or repositioning assets to convert them from countable
Practice Note: In the past, it has worked
resources to non-countable community spouse
well to rent the residence to a tenant who agrees
income (through an annuity, discussed below).
to pay all taxes, insurance, maintenance, repairs
and other expenses in lieu of rent. The expenses
a) The Qualified Domestic Relations Order
exactly offset the payments made, so there is no
net income to be counted; and the residence is
It is frequently advantageous to transfer
maintained at no net expense to the client.
income of the institutionalized spouse to the
Because the total is usually less than fair market
community spouse. This may be essential for
value of the rent, this is also a good deal for the
eligibility, or it may be valuable for increasing
tenant, who usually is a family member. This
the income available to the community spouse
would appear still to be an option under the
when "applied income" (income paid to the
proposed rules, so long as a mortgage payment is
nursing home or other provider) is determined
not being made. One DHS representative has told
after eligibility (discussed below).
Most
the author that it is necessary for payment of the
commonly,
the
income
involved
consists
of
expenses to go from the tenant to the client, then
qualified retirement benefits. Under the Internal
from the client to the provider (taxing district,
Revenue Code, these cannot be voluntarily
insurance company, etc.). However, because
alienated; but they can be transferred to a spouse
such a policy would serve only to increase the
by means of a Qualified Domestic Relations
paperwork for the DHS worker and the client
Order ("QDRO").57 In Texas, this can be done
representative, and because it has never been
without a divorce, in a suit for spousal support.58
imposed on a client of mine in practice, I
DHS accepts such re-characterization of income
question whether this is a firm decision of the
and does not insist on being cited in the suit.
agency.
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If there is a mortgage payment to be made
and the residence is occupied, this rule creates a
“Catch-22” dilemma: how can the client pay the
same funds both to the mortgage holder and to
the nursing home? An interpretation sometimes
given by DHS representatives is that the occupant
can pay everything except principal on the
mortgage, which must be paid by a non-occupant.
The same principles apply to shifting an IRA
to a spouse, even though an IRA is not a
"qualified" plan. Simply retitling the IRA in the
name of the spouse would require recognition of
the full value of the IRA in the year of the
retitling; but if it is transferred pursuant to a
QDRO, in a suit for spousal support, it will
apparently be treated as an IRA of the spouse,
with taxation deferred until the funds are
Another oral tradition, which has reportedly
56
will in fact continue to apply 6-month averaging in the
discretion of the eligibility worker.
42 U.S.C.A. §1396r-5(b)(1).
Internal Revenue Code §414(p)
58
Texas Family Code §2.501(a).
57
Disability Benefits in the Estate Plan
withdrawn.59 This may be necessary to transfer
property to the community spouse's name within
one year of establishing eligibility. Moreover, if
the IRA is then annuitized (as discussed below)
so as to pay only in the name of the community
spouse, it will no longer be treated as a resource
at all.
Tips on QDRO practice in this context:
 Both spouses must be represented by
counsel, as it is "litigation."
 Be very careful in drafting the order to
meet the requirements of the Internal Revenue
Code §414(p). To be sure, contact the plan
administrator and obtain advance approval of the
form of the order before presenting it to a judge.
 If the income is from the Employees
Retirement System, Teacher Retirement System,
or any other program of the State of Texas or a
political subdivision of the State, you must use
their form. Call the Office of General Counsel of
the relevant retirement system for a copy, and
consult the applicable state statute.60 Also note
that although TRS and ERS are governed by the
same statute, their general counsels require that
different forms be used for the order.
 Treat these like any other uncontested
family matter. Because they are agreed by both
parties, they are signed routinely without
question by judges, either at uncontested docket
call or in chambers without appearance
(depending on the practice of the court).
 You can accomplish the same thing with
a Miller Trust, as far as eligibility is concerned.
However, a QDRO is far better if any of the
retirement plan money would be paid to the
nursing home as applied income under a Miller
Trust. That is because with a QDRO, all the
shifted income goes to the community spouse.
 Obtaining approval of the QDRO can
sometimes take months, due to the complexity of
the tax law ( and the occasional inefficiency and
downright truculence of the pension plan
administrators).
Therefore, the author has
adopted a policy of establishing a Miller Trust
immediately, if it will accomplish Medicaid
eligibility, and pursuing the QDRO at the same
59
60
Internal Revenue Code §§71(b)(2), 408(d)(6).
Texas Government Code Chapter 804.
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time. When the QDRO is finally successful at
shifting pension income to the community spouse,
the amount of applied income can be adjusted;
and meanwhile, we usually achieve a month or
more of eligibility that otherwise would have
been lost.
b) Purchasing an annuity for the community
spouse
It is possible to convert resources to
community spouse income by purchasing an
annuity. For example, a couple has $100,000
more than the Protected Resource Amount. They
take countable property of that value and use it to
purchase a single-premium annuity of, say,
$1,000 per month for the life of the community
spouse (or for a term of years less than the
actuarial life expectancy of the community
spouse). They have reduced their countable
resources to the protected amount, and the $1,000
per month does not affect eligibility.
As long as the actuarial value of an
irrevocable annuity is at least as high as the value
of the resource used to purchase it, there is no
transfer penalty.61
(This is to discourage
transferring property for less than adequate
consideration to a family member.) An annuity
with a "years certain" period beyond the life
expectancy of the annuitant would not withstand
scrutiny, as the present value of the remainder
interest would be considered a penalized transfer.
The annuity must be for the life of the community
spouse, or for a term of years less than the life
expectancy of the community spouse, as set out
in the life expectancy table used by DHS.62
The proposed version of a new DHS rule
would have added the requirement that the
Medicaid program be the remainder beneficiary.
However, if applied to a spouse of the client, that
requirement would have violated the federal
statute, so it was removed from the final rule
before adoption.63 The requirement that the
61
40 T.A.C. §15.442(g), Medicaid Eligibility
Handbook §2342.8, State Medicaid Manual sec.
3258.9B.
62 Medicaid Eligibility Handbook Appendix IX.
The same table is in Appendix 2 hereto, at §3258.9B.
63 The more favorable treatment for an annuity
purchased by and for a community spouse was
effected by adding to the new annuity rule at 40
T.A.C. §15.442(g)(2) the qualification that the
requirements in that subparagraph apply only to an
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23rd Annual Advanced Estate Planning and Probate Course
annuity be issued by a licensed insurance
trusts.")
company (as opposed to a “private annuity” or
“non-negotiable note”) may or may not be valid
The Miller Trust solution works only for
under federal law. See the discussion at IV.E.5
institutional (nursing home) Medicaid and the
below for more details.
Community Based Alternative Program, and
other “home/community-based waiver services”
such as, presumably, Type Program 19
4. Reducing Income Through a "Miller Trust"
(Medically Dependent Children) and CLASS. It
(“Qualified Income Trust”)
is expressly excluded by DHS regulations as a
way of reducing countable income for Qualified
a) The problem
Medicare Beneficiary, Specified Low-Income
Medicare Beneficiary, and 1929(b) (“Primary
The Miller Trust addresses a cruel anomaly
Home Care,” “Frail Elderly”).66 The regulations
in Medicaid law in Texas and in the 12 other
are silent as to whether a Miller Trust can be used
states with an "income cap." Although the
to gain eligibility for other home care
average nursing home cost when paid privately is
(“Community Care”) programs such as Family
determined by DHS as $2,511 per month, the
Care.
Legislature has seen fit to deny nursing home
Medicaid benefits to anyone with more than
c) The requirements for the trust
$1,500 per month in income. Therefore, many
people who need nursing home care have too
OBRA 93, as interpreted by HCFA and
much income to qualify for Medicaid but too
DHS, requires that the trust have the following
little to afford nursing home care.
features:
b) The solution
Arguably, the most important change in
Medicaid law contained in "OBRA 93" was the
provision allowing for some relief from the
"income cap" by transferring income into a trust
with certain provisions.64 Such trusts are called
"Miller Trusts" after the case Miller v. Ibarra,65
which approved a somewhat similar trust in
Colorado. (They are also called "qualified
income trusts" and, by OBRA 93 mavens, "d4b
annuity “purchased by or for the client” (emphasis
added). A “client” is defined at 40 T.A.C. §15.100 as
“either an applicant for or a recipient of medical
assistance.” The redefinition of “client” in a later
amendment to the transfer rules, at 40 T.A.C.
§15.430(a), Medicaid Eligibility Handbook §2320.1,
includes the spouse of an applicant. However, the
general definition of “client” in §15.100 was not
repealed, and the context of the later definition within
the transfer rules indicates that its only purpose was to
attribute transfers by an applicant’s spouse to the
applicant. This interpretation is confirmed by the
explanation of the annuity rule when it was adopted in
the Texas Register. On behalf of the Texas Chapter of
the National Academy of Elder Law Attorney, the
author of this outline submitted to the Department the
comment to the rulemaking that resulted in exemption
of the community spouse from the “remainder-to-the
state” requirement when purchasing an annuity.
64 42 U.S.C.A. §1396p(d)(4)(B).
65
746 F. Supp. 19 (D. Colo. 1990).
a. Funded only with pension, Social
Security, and other income of the individual (and
accumulated income in the trust)67;
b. Irrevocable;
c. The State will receive all amounts
remaining in the trust upon the death of the
individual up to an amount equal to the total
medical assistance paid by Medicaid on behalf of
the individual; and
d. Require that the trustee:
(1) Pay to the beneficiary a monthly personal
needs allowance.
(2) Pay to the spouse (if any) of the
beneficiary a sum sufficient to provide a
minimum monthly maintenance needs
allowance, and
(3) Pay from the funds remaining the cost of
medical assistance provided to the
66
40 T.A.C. §15.417(f)(3)(D), adopted at 23
Texas Register 3021 (effective May 1, 1999).
67 Any transfer of "resources" to the trust will
make the trust “invalid,” except a small deposit of $10
or $20 of the client’s resources or another party’s
funds, if required by the bank to open the account, will
be disregarded. The Miller Trust rules are in the
Medicaid Eligibility Handbook at §2313.45.
Disability Benefits in the Estate Plan
beneficiary.68
In addition to the HCFA requirements, DHS
requires that the trust identify the sources of
income to be transferred to the trust. Also, DHS
"recommends" that the trustee not be the
beneficiary "because of potential problems
relating to discretionary distributions."69
New DHS regulations state, “...a trust which
provides that the trust can only be modified or
terminated by a court is a revocable trust because
the client or his responsible party can petition the
court to amend or terminate the trust."70 The new
regulation disregards the fact that any Texas trust
can always, as a matter of law, be modified by a
court if “because of circumstances not known to
or anticipated by the settlor, compliance with the
terms of the trust would defeat or substantially
impair the accomplishment of the purposes of the
trust.”71 Nevertheless, to avoid running afoul of
this new rule, practitioners must now delete from
all forms involving self-settled trusts that must be
irrevocable under DHS rules (including Miller
Trusts), any reference to modification or
amendment by trustees, courts or any other
parties.
Practice Note: A suggested form for a
Miller Trust is at Appendix 1. DHS has not
68
This does not accurately state the required
disposition of funds, as it excludes dispositions for
Medicare Part B premiums, other medical insurance,
unreimbursed medical expenses; and there is a
possibility in some cases for a further disbursement to
the spouse if money is left over after making full
payment for the Medicaid-covered items. However,
HCFA put this language in its Transmittal No. 64
(cited below), and DHS accordingly requires it in the
trust. This clearly does not alter the scheme for
"deductions from applied income," discussed below,
which is required by law.
69 DHS memo of October 30, 1996.
70 40 T.A.C. §15.17(e)(2), adopted at 23 Texas
Register 3021 (effective May 1, 1999). This is based
on HCFA’s misunderstanding of trust law, at State
Medicaid Manual §3259.1A.5., from HCFA
Transmittal No. 64 (November 1994) (Appendix 4
hereto)
71 TEXAS PROPERTY CODE § 112.054(a)(2); and
in order to accommodate DHS and its beneficiaries,
the Texas Legislature in 1997 specifically provided
that trusts created by guardianship (probate) courts and
trial courts as Supplemental Needs Trusts can be
modified to allow the ward to be eligible for public
benefits. TEXAS PROBATE CODE §868(d); TEXAS
PROPERTY CODE §142.005(g).
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approved a standard form for Miller Trusts, and
its Office of General Counsel has a policy of
characterizing all inquiries about trusts as
requests for "legal advice," which agency
attorneys are prohibited from giving. "The only
circumstances under which DHS legal staff will
review trust documents is where staff have
questions about a trust that has been submitted to
agency eligibility staff along with a Medicaid
application."72
A recurring problem is, “Who can sign a
Miller Trust for an incapacitated client?”
Unfortunately, DHS does not allow any
“responsible party” to sign, as it does regarding
the Medicaid application when there is no better
option.73 Therefore, an applicant who lacks
capacity to sign the trust instrument and who has
not appointed an agent in a power of attorney
may have to have a guardian appointed just for
this purpose. However, in the author’s opinion,
the mental capacity necessary for executing a
Miller Trust is quite low in circumstances in
which Medicaid eligibility is necessary for
survival and there is no reasonable alternative.
It doesn’t take a rocket scientist to understand
that signing that document is a good idea.
Trustees occasionally live outside the State
of Texas so prefer to establish Miller Trust
accounts out of state. In the two cases the author
has had involving out of state trust accounts, the
Department has raised no objection.
Be sure to have the signatures on the trust
acknowledged. Because Texas law does not
require acknowledgment, previous versions of the
form
at
Appendix
1
indicated
that
acknowledgment was optional. However, banks
so frequently require it anyway that it should be
done as a matter of course.
d) The trust administration requirements
DHS has the following policies pertaining to
trust administration:74
(1) The client may place all or only a portion
of his or her income in the trust; but if only a
72
DHS memo, supra..
40 T.A.C. §15.611(a), Medicaid Eligibility
Handbook §4113.
7440 T.A.C. §15.17(f)(3)(B), adopted at 23 Texas
Register 3021 (effective May 1, 1999).
73
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23rd Annual Advanced Estate Planning and Probate Course
portion is placed into it, the entire amount coming
initially advise the trustee to distribute according
from the same source must be placed in the trust.
to the DHS caseworker's instructions, then review
For example, if a client has income from Social
the instructions to ensure that all "deductions
Security and from a pension plan and does not
from applied income" in favor of the client are
want to place all income into the trust, she may
made.76
place into the trust only the Social Security
income or only the pension income; but she
A tougher issue is, “How much to distribute
cannot place only a portion of the income from
before the eligibility determination has been
Social Security or from the pension plan.
made?”
Some eligibility workers advise
distributing 100% of income from the Miller
Income tax refunds are not counted as
Trust to the nursing home, until they have
income for the purpose of eligibility so should
determined exactly how much should be so
not be placed in a Miller Trust. However, they
distributed, on the sensible theory that you can’t
are considered in the determination of applied
lose eligibility this way, and the nursing home
income so are likely to affect the distribution of
should refund any overpayment after eligibility is
75
funds from the trust in the month of receipt.
established. I depart from that advice only in
cases in which a community spouse must have the
Practice Note: Keeping some income out of
spousal allowance from the very beginning; and
the trust would be confusing to the caseworker
in such cases, I allow a wide margin for error in
and to the trustee. The author knows of no
advising how much to distribute to the nursing
advantage to doing so.
Therefore, it is
home.
recommended that if a Miller Trust is used, all
income be transferred to it. To the extent
The law is that any distribution to the
possible, this should be done by automatic
nursing home reduces countable income, not that
deposits to the trust's bank account, for the
any failure to pay 100% of required applied
convenience of the trustee. See Appendix 2 for a
income “invalidates” the trust. However, some
suggested form for instructions to a Miller Trust
eligibility workers apply the latter rule until
trustee.
persuaded or ordered to do otherwise. Likewise,
the failure to transfer 100% of income into the
It sometimes happens that the client seeks
trust does not “invalidate” the trust, for as long
legal counsel after having already spent part or
as 100% of any single income source goes into
all of the income received in the month in which
the trust, that amount (to the extent it is paid to
the trust needs to be established. Unfortunately,
the nursing home not later than the next calendar
some DHS officials have engrafted on the rules a
month) reduces countable income.
requirement that the income placed in the trust be
“traceable” to income received by the applicant,
(3) The trust is effective for the first month
as opposed to pre-existing funds of the applicant
that all the following have occurred: the client
or borrowed funds. This so clearly elevates form
has a valid, signed trust; a trust bank account has
over substance that it should not be regarded as
been established; and enough income has been
agency policy unless and until it is incorporated
placed in the trust to reduce the remaining
into the rules.
income below the income cap. If all other
eligibility requirements have been met as of the
(2) Distributions must be made no later than
first day of that month, benefits will be paid from
the last day of the month next following the
that date, provided an application is filed within
month of receipt.
three months from that date.
Practice Note: See the discussion below of
"what happens to income after eligibility" for a
breakdown of how these "distributions" are
made. As a practical matter, the attorney can
75
Although the author has found no written
authority on this, it comes from a usually reliable
source in the department and has been applied
consistently by eligibility workers in at least three
cases.
(4) Trust expenses, including attorney fees,
may be paid from the trust account.
76 To obtain the precise amount the worker
believes should be paid to the spouse, as applied
income, etc., ask the worker for a copy of the Form
1275 that he or she prepared in the case. It is the
worksheet on which the spousal allowance is
calculated.
Disability Benefits in the Estate Plan
Practice Note: The last provision is an
illusory promise in most cases, because all the
client's income is usually exhausted by partial
payment of the nursing home cost, and there is
nothing left for trust expenses or any other
distributions. Don't count on this for your trust
expenses and legal fees unless you are sure there
will be enough left over.
(5) If any payments are made from the trust
other than for "deductions from applied income"
(personal needs allowance of $30, medical
premiums and expenses), income to the
community spouse, and income applied to
nursing home expenses--all of which must be
paid first--the additional payments are subject to
the transfer penalty. That is, as explained below
in the discussion of the transfer rules, there will
be a penalty of one month of ineligibility for
every penalized transfer that exceeds the average
cost of nursing home care in Texas (currently
$2,511).
In the case of an unmarried person or where
both spouses are eligible, there is probably an
additional use of any funds left over after
payment of all applied income that will probably
be approved: any use for the benefit of the client,
so long as those funds plus other countable
income do not exceed the income cap of $1,500
per month.77 “Countable income” does not, under
the DHS regulation, include at least that income
paid into the trust and paid out as applied income
or for other medical services, and other
statements in the regulations indicate it does not
include any income directed to the trust.
Therefore, in most cases, it would seem that as
much as $1,500 per month can be paid out of the
trust for the client’s benefit, if such amount is
available after payment of personal needs
allowance, applied income, medical expenses and
spousal allowance if any.
Practice Note:
77
Having an additional
State Medicaid Manual §3259.7C5c. This
somewhat enigmatic passage appears to say that any
amounts used for the benefit of the individual will
count as income, and the new DHS rule at 40 T.A.C.
§15.417(f)(3)(D) says so expressly. Assuming that all
income goes into the Miller Trust and is therefore not
counted (unless used in this way), that would provide
for a maximum of $1,500 per month (currently) that
could go back to the client--far more than an
unmarried client is likely to have left after payment of
deductions and applied income.
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amount available for distribution to the
community spouse, after payment of the regular
spousal needs allowance and other required
payments, can be a powerful incentive for
Medicaid eligibility. In that situation, the nursing
home is reimbursed 100%, but reimbursement is
at the Medicaid rate, which is lower than the
private-pay rate. As indicated, an unmarried
person probably can take such distributions for
any needs he or she may have, but the money
must be spent quickly and/or given away every
month, to avoid buildup of more than $2,000 in
resources.
(6) Income must be placed in the trust during
the month of receipt, and any source of income
not directed to the trust during the month of
receipt is countable income. Therefore, if a client
has $1,800 total income in July and none of it is
deposited in the trust until August 1, the client
loses eligibility for July.
Practice Note: Given the complexity of the
foregoing rules, it is not surprising that clients
find them difficult to follow. Here is an informal
checklist for supervising client followup:
1. Be sure the following documents are in
proper form and copies are submitted to
DHS: trust instrument, bank form showing
trust account has been opened, and deposit
slip or other document showing initial
funding of the trust.
2. Do not allow more than $20 in funds other
than client income to be used to establish the
trust. Otherwise, it is “invalid.”
3. Advise the client as to the estimated amounts
to be paid from the trust before eligibility is
established, for the following: personal needs
($30), medical insurance, spousal allowance
(if any) and applied income. As suggested
above, you want to leave a wide margin for
error, even to the extent of paying 100% of
the income to the nursing home until the
worker determines how much should be paid.
4. Be sure the client understands that all income
received in any calendar month must go into
the trust during that month. For example, if
Social Security is direct deposited on the last
day of the month into the client’s personal
checking account, a check for that exact
amount must be written on the checking
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23rd Annual Advanced Estate Planning and Probate Course
account on that date and deposited in the
resource. Many contracts for immediate-pay
Miller Trust account. This will suffice even
annuities do not expressly say they are
though the check does not clear the same
irrevocable, probably because they are binding
day; but if the trustee waits until the next day
contracts and any possibility of revocation would
or later to deposit the check, the client will
make all the company’s actuarial calculations
lose eligibility for a month.
useless. If the contract does not say it is
irrevocable, ask the insurance agent for a
5. Many perfectly competent and functional
statement to that effect and give it to DHS, to
people prove incapable of following written
avoid delay in processing the application. Also
instructions for establishing and maintaining
be sure it does not have a provision saying it is
this kind of trust. It is complicated and nonassignable, which would give it a cash value.
intuitive, and individuals who comply only
Another problem with some annuities is that they
with instructions they think make sense will
are not irrevocable until the first check is cashed,
never make it without personal followup. The
or the expiration of a certain period of time, so
best practice is to require all bank records to
DHS counts the amount available by revocation
be sent to your office so you can check them
as a resource until they are truly irrevocable.
for compliance before sending them on to the
DHS worker; and in addition, just before the
The following addendum to the annuity
end of the all-important first month of
contract should solve all the foregoing problems:
planned eligibility, speak directly with the
“Notwithstanding any contrary provision herein,
trustee to be sure he/she has actually
this contract is immediately irrevocable and nonfollowed your instructions.
assignable from its inception.”
5.
Rules Pertaining to Annuities
In general, annuity payments are treated as
“income,” without regard to how much is actually
“return of principal” as opposed to investment
income.78 The difficult and important rules have
to do with whether or not the annuity contract is
also treated as a “resource” and whether or not
the purchase of the contract is subjected to a
transfer penalty.
If the payments come from a retirement plan
or annuity contract paying a certain amount per
month on an irrevocable basis, the investment in
the contract will not be counted as a resource.
That is because it cannot be drawn out by the
owner, except to the extent of the regular
payments. However, if the contract has not been
made irrevocable (sometimes referred to as
“annuitizing” the contract), it is still revocable
and therefore counted as a resource of the owner
to the extent the owner can convert it to cash.79
Practice Note: Some DHS workers require a
written statement (in the contract or an
addendum) to the effect that the annuity is
“irrevocable,” to avoid treating the contract as a
78
40 T.A.C. §15.455(d)(5)(A), Medicaid
Eligibility Handbook §2452.4
79 40 T.A.C. §15.442(g), Medicaid Eligibility
Handbook §2342.8.
The purchase of annuities in planning to
protect the community spouse is an important
planning technique, discussed at VII.E.3.
Rules recently of the Texas Department of
Human Services restrict the use of annuities by
the following rules:

Principal and interest must be paid in equal
monthly installments to the client in
sufficient amounts that the principal is paid
out during the life expectancy of the client
according to Medicaid Eligibility Handbook
Appendix IX .

The life expectancy of the payee (client or
spouse) according to Appendix IX must
“equal or exceed” the stated life of the
annuity.80
80 The HCFA policy at State Medicaid Manual
§3258.9B states that the life expectancy of the
individual must “coincide with” the life of the annuity.
However, in the next paragraph, it states that a 10-year
annuity for a person with a life expectancy of 14.96
years would be “actuarially sound.”
Therefore, it
does not appear that the intent is to require literally
that a person with a life expectancy of 14.96 years
must find an annuity that pays for 14.96 years, but
only that it should not pay for longer than that time.
Accordingly, in response to a comment to this effect
from the Texas Chapter of the National Academy of
Elder Law Attorneys, DHS revised the proposed rule
to add the “or exceed” language.


Disability Benefits in the Estate Plan
The annuity must be issued by a licensed
insurance company (which prevents use of
private annuities and similar devices such as
non-negotiable
and
self-cancelling
installment notes).81
If the client is named as the annuitant, the
State of Texas or DHS must be named as the
residual beneficiary of funds remaining in the
annuity at the client's death, to the extent of
Medicaid funds expended on the client.82
However, if the annuity is purchased by and
for the Community Spouse, this requirement
does not apply. (This exception for the
Community Spouse is contained in the
limitation on §15.442(g)(2) that the
requirements under that paragraph apply only
to an annuity “purchased by or for the client.”
It was added to the proposed rule in response
to a comment by the Texas Chapter of the
National Academy of Elder Law Attorneys to
the effect that such a requirement if applied
to the Community Spouse would violate
federal law.)83
Comment: One purpose of these rules is
apparently to stop the use of "balloon annuities,"
which pay interest only until one month before
the end of the client's actuarial life expectancy, at
which time the entire principal is paid.84
81
The DHS theory appears to be that nonnegotiable notes have no market value, so the purchase
of one is a transfer of the purchase price that is subject
to a transfer penalty.
82 In Medicaid terminology, the “client” is “either
an applicant for or a recipient of medical assistance.
40 T.A.C. §15.100, Medicaid Eligibility Handbook
§1120. A Community Spouse is by definition neither
of these.
83
This
would
violate
42
U.S.C.A.
§1396p(c)(2)(B(ii), to the effect that a transfer penalty
may not be imposed if assets are “transferred from the
individual’s spouse to another for the sole benefit of
the individual’s spouse.” See HCFA’s State Manual
§§3257B6, 5258.10 (Appendix 4 hereto) for a critical
definition of “sole benefit” requiring an annuity to be
“actuarially sound” (i.e., will not pay longer than the
actuarial life expectancy of the annuitant according to
the tables provided). Arguably, a private annuity or
non-negotiable installment note to the community
spouse would also be protected by this provision, but
the Department has indicated no willingness to extend
it that far.
84 “Balloon annuities” have already been declared
dead in a memo from DHS General Counsel dated
December 2, 1996, which provides that as of that date,
“We will not consider an annuity to qualify under
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The requirement that the Medicaid program be a
remainder beneficiary is found nowhere in the State
Medicaid Manual but has been implemented by a few
other states. Nothing in the federal statute even hints
at such a requirement, but HCFA appears to have
approved it. A possible rationale for this may be as
follows: OBRA 93 provides that the term “trust”
includes “any legal instrument or device that is
similar to a trust but includes an annuity only to such
extent and
in such manner as the Secretary
specifies.”85 HCFA and DHS may be reading this to
give HCFA essentially plenary authority over
annuities, in that they can set out requirements for
annuities, then make all annuities that fail to meet
their requirements useless for Medicaid planning,
simply by calling them “trusts.”
The requirement of issuance by a licensed
insurance company is contrary to the practice of
some states of approving private annuities and
similar instruments such as non-negotiable notes
and self-cancelling installment notes (SCINS).
Arguably, the federal statute requires such
approval.86 However, HCFA may approve the
“licensed insurance company” requirement,
perhaps on the same rationale as suggested in the
paragraph next above.
By this reasoning, attorneys and other
advisors who suggest private annuities, selfcanceling notes and similar devices in Texas
should advise clients that a transfer penalty will
probably be assessed; the only remedy would be
to file suit87; and the outcome is not certain.
Moreover, the agency has bolstered its position
by passage of the rules pertaining to notes,
discussed next below.
G. Rules Pertaining to Notes and Similar
Instruments
Payments received on a negotiable note
OBRA 93 which does not provide for even monthly
payments to the annuitant which would result in
recapture of the initial investment within the
annuitant’s lifetime as determined from the life
expectancy tables.”
85 42 U.S.C.A. §1396p(d)(6).
86 See, e.g., Alexander Bove, Making Resources
Disappear: The Magic of Annuities and SelfCanceling Notes, NATIONAL ACADEMY OF ELDER
LAW ATTORNEYS SYMPOSIUM 1996.
87 For a summary of the possibilities of and
limitations on litigation in this area, see IV. L. 4. of
this outline.
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23rd Annual Advanced Estate Planning and Probate Course
(regardless of whether it is secured or not) are
as a transfer without consideration.91 As in any
counted as “income” only to the extent of the
other transfer for less than adequate
amount of interest paid. However, the full
consideration, it is assumed that Medicaid
amount of all payments on a non-negotiable note,
qualification was a purpose of the transfer unless
including both principal and interest, are counted
the client proves otherwise. If payments are
as “income.”88
made, the interest is treated as income, and the
principal “reduces the transfer penalty.”
With regard to determining the amount of
client’s “resources,” new rules89 govern the
3. Non-Transferable, Non-Secured Instrument
valuation of notes and other contractual
arrangements in which the client is a creditor.
Because it cannot be sold for any amount of
Those rules are important also in applying the
cash, a non-transferable, non-secured instrument
transfer rules. The new rules are summarized as
is not treated as a resource.
Conversely,
follows:
whatever is paid for such an instrument is treated
as a transfer without consideration, subject to a
1. Transferable, Secured Instrument
transfer penalty.
If the instrument is both negotiable (actually,
transferable)90 and secured, its principal balance
is a countable resource. Therefore, there is no
transfer penalty for taking a note that is secured
by an asset conveyed, if the value of the asset is
at least equal to the face value of the note. If the
client furnishes a statement from someone in the
business of purchasing notes to the effect that the
note is worth less than its principal balance, the
lower value will be accepted.
2.
Transferable, Non-Secured Instrument
If the instrument is transferable but not
secured, its value is its “actual fair market value.”
The difference between the consideration paid
and the instrument’s fair market value is treated
88
40 T.A.C. §15.455(e)(7), Medicaid Eligibility
Handbook §2453.7.
89 40 T.A.C. §15.435, published at 23 Texas
Register 3028 (March 20, 1999, effective May 1,
1999).
90 The rule speaks of “loans” and “property
agreements” including even oral agreements, as
potentially being “negotiable.” However, a negotiable
instrument as defined in the Texas Business and
Commerce Code is by definition an instrument in
writing, with certain prescribed terms and other
qualities.
The intent therefore appears to be to
classify assignable evidences of debt in the same
category with negotiable instruments, for Medicaid
purposes. That is, the test is, as stated in the rule,
whether the client owns a “transferable instrument in
the instrument that can be converted to cash or spent
down properly.”
Comment: To find the purpose behind the
“negotiable instrument” rules, one need look no
further than the NAELA workshop materials and
other publications by practitioners who use
“non-negotiable” and/or “self-cancelling” notes
and “annuities” to shelter assets. The theory is
that a resource can be made to “disappear” by
exchanging it for a non-negotiable note or
annuity, which itself does not count as a resource
because it cannot be sold for cash. While
practitioners may mourn the loss of a “planning
opportunity” that apparently works in some
states, we at least have reasonably clear and
rational rules in place in Texas. More intrepid
advocates may wish to challenge them, but this
writer finds them consistent with the purposes of
the federal Medicaid laws and suspects that
arguments focusing on the verbiage of those
confusing laws would be received with skepticism
by the courts.
H. Resource Requirements
1.
General Definition of "Resources"
91 The provision at 40 T.A.C. §15.435(g)(4) to
the effect that any “negotiable” instrument is
presumed worth its principal balance seems by its
terms to apply without regard to whether it is secured
or not. However, the intent of §15.435(g)(2) appears
to be to require a discount routinely on unsecured
instruments. The author suspects that the latter policy
will be applied if the eligibility worker wants to assess
a transfer penalty, while the client will have the burden
of proving a discount if the worker wants to deny
eligibility by valuing the asset at its full principal
balance. Therefore, the prudent course of action for
planning purposes would be to obtain an appraisal and
assume the worst.
Disability Benefits in the Estate Plan
"Resources are cash, other liquid assets, or
any real or personal property or other nonliquid
assets owned by a client, his spouse, or parent,
that could be converted to cash."92 Instruments
that produce income, such as negotiable
promissory notes and bonds, are counted as
resources to the extent of their fair market value
(determined as discussed at VII.F. above). In
addition, the interest payments on such
instruments are counted as income in the month
when received by the client (and if the note is
nonnegotiable, payments of principal are counted
as well).93 If there is a mortgage on real property
owned by the client or a security interest on the
client’s personal property, only the equity in the
property is counted.
Practice Note: DHS accepts the appraised
value for property tax purposes as the
presumptive fair market value of real property.
Therefore, that is always the starting point, and
usually the ending point. However, in some cases
it may be worthwhile to obtain a professional
appraisal to show that the market value is lower-e.g., where there should be a discount for a
undivided interest, where the property is
unmarketable at any price (in which case it has
no countable value), or where the tax appraisal is
too high for some other reasons.
2.
When Counted
Resources are counted only as of 12:01 a.m.
on the first day of each month. Changes from
that time until one month later do not affect
countable resources for that month. Countable
resources are reduced by the amount of funds
encumbered before 12:01 a.m. of the first day of
the month. That is, if a check is outstanding at
that time, the bank balance at that time is reduced
by the amount of the check for the purpose of
determining countable resources.94
Practice Note: A critical part of the
Medicaid plan is to determine the date on which
you want DHS to "test for eligibility." It will
always be the first day of the first month after the
client has "spent down" resources or otherwise
92 40 T.A.C. §15.100, Medicaid Eligibility
Handbook §2310.
93 40 T.A.C. §15.455(e)(7), Medicaid Eligibility
Handbook §2453.7.
94
40 T.A.C. §§15.400(a),(b), 15.435(b)(2),
Medicaid Eligibility Handbook §2310.
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changed their position so as to become eligible.
Be sure your client (or whoever is assisting the
client) understands clearly the importance of this
date and what they have to do to achieve
eligibility.
A written plan is essential for
documenting and communicating this (and for
reminding yourself when the client calls and asks
what else they need to do).
3.
Requirement of "Accessibility”
To be counted, a resource must be both
owned (solely or in part) by the client and
"accessible to" the client. "If a client has the
right, authority or power to liquidate the property
or his share of it, the property is a resource. If a
client would be required to seek court action to
access or dispose of property, that property is not
considered a resource."95 A client's resources are
considered available to him when they are being
managed by a legal guardian, agent under power
of attorney or other fiduciary agent of the client,
unless a court denies the guardian or agent access
to the resources.96
Practice Note:
This requirement is
especially important regarding retirement
accounts. If the employee has a right to
withdraw the account immediately, it is
"accessible" (but DHS reduces its value by 20%
to account for income tax). Otherwise, it is not
counted as a resource at all until such time as it
can be withdrawn.
Another type of property governed by this
section is property under the administration of an
executor or administrator in a probate estate.
When questioned about such property, DHS
representatives usually say that because title to
inherited property vests at death, it is considered
immediately available to the client from that time
on.
That may be so when there is no
administration (for example, because there is no
will and no need for administration, or because a
will is probated as a muniment of title).
However, in cases in which there is an
administration, that position disregards the
authority of a personal representative of an estate
to deny access to the property to the beneficiaries
until the estate has been administered. If DHS
95 40 T.A.C. §15.415(a),(b), Medicaid Eligibility
Handbook §2313.
96 40 T.A.C. §15.415(e),(f); Medicaid Eligibility
Handbook §2313.4.
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23rd Annual Advanced Estate Planning and Probate Course
representatives cannot be persuaded of this
by the respective parties to the account, unless
distinction, it may be necessary to obtain a
there is clear and convincing evidence of a
probate court order essentially confirming that
different intent.100
Therefore, if Daughter
the administrator or executor is "denied access"
contributed 60% of the funds to an account on
to the property for the improper purpose of
which she and Mom are both parties, only the
distributing it to the client when, for example, the
40% contributed by Mom is Mom’s resource.
creditors have not yet been paid.97
Where two parties have utilized an account over
a period of time, it may be necessary to analyze
every deposit and withdrawal to determine the
4. Co-Owned Resources Generally
current percentage of ownership.
If the resource can be reduced to cash
without consent of the co-owner, or if the coowner gives the required consent, the full value is
counted. If the co-owner's consent is required
and is withheld, the property is not counted;
provided, if the co-owner who is refusing to
consent is an ineligible spouse living with the
client, the property is counted. Provided further,
if the property is an undivided interest in real
property, its value is counted anyway, on the
theory that an undivided interest can be sold
without the co-owner's consent.98
Practice Note: DHS will value an undivided
interest in real property by multiplying the tax
assessed value by the proportion of ownership of
the client. This is subject to challenge (probably
at a fair hearing), on the ground that the actual
market value is less due to the existence of coowners.
5.
Joint Bank Accounts
If a client has a joint bank account and can
legally withdraw funds from it, all the funds in
the account are considered a resource of the
client. However, this is only a presumption, and
the client must be allowed an opportunity to
prove that some or all of the funds are the
property of someone else.99
Practice Note: Funds in a financial account
are owned in proportion to the net contributions
97
Some probate judges may, however, refuse
such orders to independent executors on the ground
that they are not within the limited scope of judicial
action available in an independent administration.
98 40 T.A.C. §15.415(c), Medicaid Eligibility
Handbook §2313.1.
99 40 T.A.C. §15.435(m), Medicaid Eligibility
Handbook §2331.3. Although the regulation speaks
only of "bank accounts," presumably the same rules
would apply to other financial institutions such as
credit unions, brokerages and mutual funds.
6.
Trusts
Generally, property in a trust is a resource if
the client has the authority to revoke the trust; or
if the trustee has discretion to make distributions
to the client, and the client contributed the
property to the trust. See IV.J. on trusts for more
detail and for descriptions of some important
"exception" trusts.
7.
Discovery of Unknown Assets
If a client is unaware that he or she owns an
asset, it is not a resource during the period the
individual was unaware of ownership. It is
counted as income in the month of its discovery,
and if it is not spent down during that month, it
will be a resource as of the first day of the next
month.101
8. “Conversions of Resources” and “Lump
Sums”
If a client converts one type of property to
another, the new property is counted as a
"resource" or not according to the policy
regarding that type of property. Any cash
received from the sale of a resource is considered
a resource, not income.102 By contrast, a "lump
sum payment" other than from conversion of a
resource is countable income in the month of
receipt (so will usually result in at least one
month's disqualification) and is a countable
resource thereafter.103 Examples of “lump sums”
would be inheritances, death benefits, personal
injury awards, and payments of retroactive public
100
Texas Probate Code § 438(a).
40 T.A.C. §15.415(g), Medicaid Eligibility
Handbook §2313.5.
102 40 T.A.C. §§15.420, 15.440(c), Medicaid
Eligibility Handbook §§2314, 2344.
103 40 T.A.C. §15.450(b), Medicaid Eligibility
Handbook §2411.
101
Disability Benefits in the Estate Plan
benefits. However, death benefits are excluded
as income when they are used to pay the last
illness and burial expenses of the deceased; and
they are excluded as resources except to the
extent they have not been so used by the first day
of the second calendar month after the month of
receipt.104
Practice Note: These rules are extremely
important. A common example of “conversion of
resources” occurs when an automobile is sold.
Usually, the client can avoid any loss of
eligibility, especially if the amount is relatively
small. If the payment is a “lump sum” as defined
above, it will count as income in the month of
receipt so will ordinarily disqualify the client for
that month.
With either a “conversion” or a “lump
sum,” try to have the payment made as early in
the month as possible so the client has as much
time as possible to "spend it down" before the
first day of the next month. For example, the
client may pay debts or may purchase exempt
property (discussed below) or may prepay for
services to be received in the future. Anything
left at the beginning of the next month will be a
countable resource and will disqualify the client
if total resources exceed $2,000.
The same considerations apply to "lump-sum
payments" such as gifts, inheritances, personal
injury awards and lump-sum payments of
retroactive benefits, except the client will lose at
least a month of eligibility because the payment
counts as "income" in the month of receipt.
Regarding inheritances, see the discussion above
under "Requirement of Accessibility" for
principles determining when an inheritance is
"available."
9. Proceeds of Insurance on Excluded
Resources
Insurance proceeds resulting from losses to
excluded resources (for example, the residence or
an excluded automobile) are not counted as
resources, provided they are used to repair or
replace the excluded resource. Such use must be
within 6 months for personal property and within
104
40 T.A.C. §15.435(l), Medicaid Eligibility
Handbook §2332.5.
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9 months for real property.105
10. Life Estates and Remainder Interests
If
countable,
these
interests
are
presumptively valued according to the life estate
holder's age and the equity value of the property,
by application of a table of values in Appendix X
to the Medicaid Eligibility Handbook. The client
may rebut this presumption.106
11. Excluded Resources
The following is a summary of types of
property excluded from consideration as
"resources." It is not intended to cover every
detail in the legal sources but rather to provide a
plain-language checklist and source of citations.
Planning Technique: Converting property
from countable "resources" to assets excluded
from being counted as resources is a major
planning technique. It is the primary way of
reducing resources quickly so as to qualify as
soon as possible. Other options: (1) pay debts
(especially the home mortgage) and (2) prepay
for services to be performed in the future (e.g.,
legal services, beauty shop, rides, personal care,
etc.).
a) The home
One principal place of residence
excluded.107 The following rules apply:
is
(1) Intent to return required. The fact that
the client lives in a nursing home does not
preclude exclusion of a home. What is required
is that the client express an intent to return to the
home on Form 1245, Statement of Intent to
Return Home. If the client lacks capacity to do
this, it can be done by a relative, representative
payee, legal guardian or physician.
The
caseworker must also obtain a corroborating
statement from one of those persons. Neither the
law nor the Texas agency's practice requires that
there be any particular likelihood that the client
105 40 T.A.C. §15.425(a),(b), Medicaid Eligibility
Handbook §2315.
106 40 T.A.C. §15.441(b)(4), Medicaid Eligibility
Handbook §2341.3.
107 40 T.A.C. §15.442(a)(2), Medicaid Eligibility
Handbook §2341.11.
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23rd Annual Advanced Estate Planning and Probate Course
108
will in fact be able to return home. If a spouse
the exclusion to apply.113
or dependent relative (in certain specified degrees
of kinship) lives in the home, it is excluded,
c) Burial funds
apparently without any intent of the client to
return.109
A maximum of $1,500 of separately
identifiable burial funds, plus interest or other
(2) Home must be in Texas (usually). A
earnings after designation, is excluded. Such
home located outside Texas cannot be
funds may be in cash, financial accounts,
excluded.110 However, if the community spouse
securities or revocable burial arrangements. The
lives outside Texas, his or her home can be
designation is done on DHS Form 1252. The
excluded for the purpose of initial eligibility,
value of irrevocable burial arrangements and face
subject to the requirement that title be transferred
value of excluded life insurance is set off against
to the community spouse before the first annual
the $1,500 exclusion. The designation can be
review.111
made retroactively, and caseworkers are
instructed to allow clients to do so if that will
(3) Sale of the home. Placing the home on
make them eligible.114
the market for sale does not make it a resource.
If the client is purchasing a replacement home,
d) Prepaid burial contracts
the proceeds of the sale of the original home are
not countable resources until the end of the third
An irrevocable, prepaid burial contract is
full calendar month following the month of their
112
excluded,
regardless of value.115 All prepaid
receipt.
burial contracts sold before September 1, 1993
were required by law to be revocable as to 90%
b) Burial spaces
of the proceeds. Therefore, unless such a
contract is made irrevocable, 90% of its value
A "burial space" or agreement that
counts toward the $1,500 burial fund minimum.
represents the purchase of a burial space held for
the burial of the client, his or her spouse, or any
Technique: To maximize the amount paid
other member of the client's "immediate family"
for funeral and burial planning, purchase a
is excluded, regardless of value. "Burial space"
prepaid funeral contract and all the qualified
includes a burial plot, grave site, crypt,
burial spaces the client desires.
mausoleum, casket, urn, niche or other
repository, plus reasonable improvements or
Practice Note: If the client already has a
additions including vaults, headstones, markers or
contract that is revocable (which is true of all
plaques, caskets, arrangements for the opening
such contracts issued before September 1, 1993,
and closing of the grave site, and contracts for
to the extent of 90%), ask the funeral home for a
maintenance of the grave site. "Immediate
form to make it irrevocable. If the client is
family" includes the client's spouse, minor and
buying a contract for the first time, be sure the
adult children, stepchildren, adopted children,
funeral home understands that it is to be both
brothers, sisters, parents, adoptive parents, and
prepaid and irrevocable. Most funeral homes
the spouses of those individuals. It does not
have these forms. In any case, obtain a copy of
include grandchildren or the client's spouse's
whatever is signed, to be sure the right form is
immediate family. If the relationship is by
used.
marriage only, the marriage must be in effect for
108
40 T.A.C. §15.441(a)(3), Medicaid Eligibility
Handbook §2341.12.
109 40 T.A.C. §15.441(a)(4) (and see 40 T.A.C.
§100 for definition of "relative"), Medicaid Eligibility
Handbook §2341.13.
110 40 T.A.C. § 15.441(a)(2), Medicaid Eligibility
Handbook §2341.11.
111 40 T.A.C. §15.441(a)(9), Medicaid Eligibility
Handbook §2341.11.
112
40 T.A.C. §15.441(a)(6),(10), Medicaid
Eligibility Handbook §2341.15, 2341.16.
e) One automobile
(1) Unmarried individual, or married and
both spouses eligible: The value of one
113 40 T.A.C. §15.441(b)(6)(A),(B), Medicaid
Eligibility Handbook §2341.5.
114 40 T.A.C. §15.442(e), Medicaid Eligibility
Handbook §2342.5.
115 40 T.A.C. §15.435(h), Medicaid Eligibility
Handbook §2331.9.
Disability Benefits in the Estate Plan
automobile is excluded, to the extent of $4,500.
If the vehicle is worth more than $4,500, the
value over $4,500 is counted as a resource.
However, the automobile is excluded without
regard to value if it is used for any of the
following:
 Transportation to or from work or in a trade
or business by the client or spouse; or
 Transportation of a handicapped individual,
and the automobile is especially equipped to
permit the individual to drive it; or
 Transportation for treatment for a specific or
regular medical problem of the client, spouse,
or any other member of the household
(presumptively, an average of at least four
times per year).116
(2) Married, one spouse in the community:
one automobile is excluded regardless of its value
or use.117
f) Household goods and personal effects
(1) Unmarried individual, or both spouses
eligible: If the client's equity in these items
exceeds $2,000, it is counted as a resource.
However, caseworkers are instructed not to
develop the value of household goods and
personal effects unless a client lists items
exceeding $500 on the Medicaid application
(Form 1200) or discusses these items in the
interview. Further, the instructions state that
items used for everyday living, such as a set of
silver or an antique table, are not counted.118
(2) Married, one spouse in the community:
all personal and household effects are excluded,
regardless of value.119
g) Life insurance
(1) Term insurance (no cash value). All is
excluded, regardless of amount of death
benefit.120
116
40 T.A.C. §15.442(a), Medicaid
Handbook §2342.1.
117
42 U.S.C.A. §1396r-5(c)(5),
Eligibility Handbook §2342.1.
118 40 T.A.C. §15.442(b), Medicaid
Handbook §2342.2.
119
42 U.S.C.A. §1396r-5(c)(5),
Eligibility Handbook §2342.2.
120 40 T.A.C. §15.442(d), Medicaid
Handbook § 2342.4.
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(2) Cash value insurance (e.g., whole life,
universal life): The cash value (not including
dividend additions) is counted as a resource;
provided, if the total face value of policies owned
by the client (or a spouse, if any) is $1,500 or
less, the cash value is excluded.121
Technique: If there is countable cash value
insurance, determine whether there is an option
to convert it to term. If that can be done, the
countable value can be eliminated. There is no
transfer penalty, as the client received fair
market value. Otherwise, you will need to cash
them in and spend down the proceeds; or take out
a loan on the cash value and spend it down; or
transfer ownership and incur a transfer penalty
(if cash value of $2,511 or more is transferred).
Consider carefully whether the client's life
expectancy and the amount of the death benefit
indicate that taking out a loan on the cash value
would be prudent.
Practice Note: Many people have cash value
insurance, often in numerous small policies
purchased many years ago. Ask about them
specifically and insistently, and obtain copies so
you can determine yourself the cash value.
Although you may be able to estimate the cash
value from the policy, the best way by far is to fax
the insurance company a copy of a form
authorizing them to release information to you,
and obtain the cash value (as well as
convertibility to term) from them. Aggravating as
these policies are, it is far better to deal with
them before application than to have the
caseworker discover them in the interview, which
will often result in several months of lost
eligibility.
This, in a nutshell, is the strongest argument
for doing the application yourself rather than
leaving it to the client. Some small resource is
frequently discovered by the caseworker, in the
interview or in the documents that must be filed
with the application, and several months of
eligibility go down the drain.
Eligibility
Medicaid
h) Livestock
Eligibility
Livestock that is maintained as part of a
trade or business or exclusively for home
Medicaid
Eligibility
121
40 T.A.C. §15.442(c), Medicaid Eligibility
Handbook §2342.3.
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consumption is not counted.122
23rd Annual Advanced Estate Planning and Probate Course
support and maintenance.126
i) "Resources essential to self-support"
This exclusion applies to certain types of
property that produce income, which are
excluded as resources, but the income they
produce is counted like any other income.123 This
is divided into business property and nonbusiness
property, as follows:
(1) Business property. Property used in the
client's trade or business is excluded regardless of
value or rate of return. The property must be in
current use, or it must have been used previously
and there must be a reasonable expectation of its
being used again. It may be land and buildings,
equipment and supplies, inventory, livestock,
motor vehicles, and liquid assets needed for the
business.
(2) Nonbusiness income property.
"Nonbusiness" property such as rental property,
leased farm property and income producing
mineral rights is excluded to the extent its equity
value does not exceed $6,000, and the client
receives a net annual rate of return of at least 6%
of the equity value. There is some flexibility if
the rate of return drops below 6% due to "unusual
or adverse circumstances."124 Although the Texas
regulations do not qualify the term "property,"
DHS applies it to exclude liquid resources, other
than those used as part of a trade or business
(money in the cash register or in the operating
account). That interpretation is consistent with
the federal SSI regulation on which this exclusion
is based.125
(3) Nonbusiness property essential to selfsupport. Also excluded is personal property that
a client uses in connection with his or her
employment; and property used exclusively to
produce items for home consumption that
constitute a significant factor in the client's
122
40 T.A.C. §15.443(a), Medicaid Eligibility
Handbook §2343.1.
123 40 T.A.C. §15.443, Medicaid Eligibility
Handbook §2343.1-2343.4. See also 40 T.A.C.
§15.451, and the definition of “materially
participating” at 40 T.A.C. §15.100.
124 40 T.A.C. §15.443(b), Medicaid Eligibility
Handbook §2343.2.
125
20 C.F.R. §416.1220.
Practice Note: The distinction between
"business property" and "nonbusiness income
property" is critical, because the former is
unlimited in scope while the latter is limited to
$6,000 (and then only if it is tangible and earns
6% income). For example, a farm (including
land, buildings, equipment, livestock, etc.) owned
and operated by a community spouse is
completely excluded as a resource; but if the
same farm is rented to a tenant farmer, it is
counted as a resource.
The critical question appears to be whether
the owner "materially participates" in the farm or
other business. If so, the income should be
reported on Schedule F (for a farm) or C (for
another business) to the federal income tax
return. Self-employment tax is due, and the
property is exempt from consideration by
Medicaid. However, if it is properly reported on
Schedule E and Form 4835 as rental income, it
is not exempt for Medicaid purposes.
j) Retirement Benefits
Both the Texas Medicaid Eligibility
Handbook and the SSI rules provide, “Pension
funds owned by an ineligible spouse or parent are
excluded
from
resources
for
deeming
purposes.”127 However, DHS does not apply that
rule to “spousal impoverishment” cases involving
an ineligible spouse in the community, apparently
on the theory that the spousal impoverishment
provisions superseded the SSI rules.128 Based on
experience and oral tradition, the author believes
DHS applies the following policies to retirement
plans, such as IRA’s, Keogh and 401(k) accounts,
126
40 T.A.C. §15.443(c)(1), Medicaid Eligibility
Handbook §2343.3.
127 40 T.A.C. §15.410(a)(1), Medicaid Eligibility
Handbook §2312.1; 20 C.F.R. §416.1202(a).
128 This is arguably incorrect. Texas is an “SSI
state,” which means that pursuant to 42 U.S.C.A.
§1396a(a)(10)(A)(ii)(V), resource definitions should
be the same as in the SSI rules, including 20 C.F.R.
§416.1202(a). However, in Mistrick v. Division of
Medical Assistance and Health Services, 1999 N.J.
LEXIS 562 (June 8, 1999), the New Jersey Supreme
Court reversed a lower appellate court’s decision at
690 A.2d 651 (1997) holding that the SSI rules
applied. The state Supreme Court agreed with the
agency that the spousal impoverishment rules, being
later in time, superseded the SSI rules.
Disability Benefits in the Estate Plan
deferred compensation and like programs:

The countable amount is the amount that
could be withdrawn immediately after
mandatory deduction for income taxes and
early withdrawal penalties if any. (The
mandatory deduction for income taxes is 20%
for IRA’s but may be different for other types
of retirement accounts.)

If the account can be withdrawn only upon
termination of current employment, it is not
countable.

Availability of a loan secured by the account
does not make it countable. Therefore, the
community spouse is not required to quit her
job or take out a loan.

The retirement accounts of both spouses are
treated the same under these rules (i.e., no
exemption for pension funds of the
community spouse, although they often can
be exempted for the reasons stated above).
Practice Note: Scrutinize the relevant terms
of retirement accounts early and well. Do it
early so as to advise what part if any of an
account will be considered in determination of
the amount of the Protected Resource Amount
(when exclusion of an account can result in a
much smaller PRA). Do it well, by obtaining at
least a printed plan description setting out
conditions under which it can be withdrawn, and
preferably the plan trust agreement itself.
I. "Spousal Impoverishment" Rules
1.
Purpose of "Spousal Impoverishment" Rules
When one spouse goes into a nursing home,
the other spouse's living expenses ordinarily
continue much as before. If all the disabled
spouse's income went to pay the nursing home
bills, the spouse at home would usually have
substantially less income than before; and if the
spouses could have only $3,000 in resources
between them, the spouse at home would be truly
impoverished. This was in fact often the case
before the law was changed effective September
30, 1989, and it resulted in many "Medicaid
divorces." Accordingly, the purpose of the
federal law effective that date129 was to prevent
129
42 U.S.C.A. §1396-5.
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"spousal impoverishment."
Comment: In the author's experience, that
legislation has been quite effective in achieving
its purpose.
When the spousal protections
discussed in this outline are properly applied, in
cases in which Medicaid eligibility is truly
needed and desirable anyway, there is rarely an
economic reason for divorce to establish
eligibility. The author has seen only three cases
in which a divorce would be economically
advantageous for purely Medicaid reasons. All
three involved second or subsequent marriages in
which the community spouse had substantial
separate property--and none of the three couples
decided to divorce for this reason.
2. Eligibility for Spousal Impoverishment
Rules130
a) Institutionalization beginning on or after
September 30, 1989
One spouse (the "institutionalized spouse")
must have resided in a "medical institution or
nursing facility" for at least 30 days beginning on
or after September 30, 1989.
If
institutionalization began before that date and has
been continuous since, the rules in effect before
that date apply.
Technique: If the institutionalized spouse is
ineligible solely due to excess resources, and
spousal impoverishment rules do not apply
because the nursing home stay began before
September 30, 1989, transfer all property to the
community spouse in a marital property
agreement. The transfer is not penalized because
it is to a spouse, and the property is not deemed
to the institutionalized spouse because spousal
impoverishment rules do not apply. There is no
limit to the amount of property the community
spouse may own in this situation.
Technique: If you want the spousal
impoverishment rules to apply to someone who
has been continuously institutionalized since
130
Except where otherwise noted, all the rules
cited in the subsections that follow are contained in
Except where otherwise noted, all the rules cited in the
subsections that follow are contained in 40 T.A.C.
§15.503 and Medicaid Eligibility Handbook §§3232.2,
4121, 4133. The federal statute is 42 U.S.C.A. §13965.
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23rd Annual Advanced Estate Planning and Probate Course
before September 30, 1989, and if it is medically
feasible, bring them home for 30 days. When
Practice Note: When applying the spousal
they return to the nursing home, it will be a new
impoverishment rules, you usually have to assess
period of institutionalization, covered by the
resources on two dates: the PRA "snapshot" date,
spousal impoverishment rules.
and the date to be tested for eligibility. They will
be the same only in cases in which total
resources are below the minimum amount
b) One spouse (the "community spouse") is not
(explained below), or you are requesting an
institutionalized
increase in the PRA (also explained below). The
resources as of the "snapshot" date go on Form
The community spouse must not be in a
1272, and the resources as of the eligibility date
"medical institution" or "nursing facility."131 As
go on Form 1200. It may not be necessary to file
long as medical services are not included in the
Form 1272 if you are filing Form 1200 at the
basic monthly fee, a personal care home (or the
same time, but it appears to be a good way of
personal care part of a continuous care retirement
making clear the difference between the values on
center) is not a "medical institution," so a spouse
the snapshot date and the date to test for
living in such a facility is a "community
eligibility (and some workers say they prefer that
spouse."132
both forms be filed in all cases with a
“community spouse.”
3. Limitations on Income
See VII.E.3. above for discussion of this
topic; and see VII.E.4. regarding Miller Trusts
and VII.E.5 regarding annuities. For discussions
as to what income of the institutionalized spouse
is made available to the community spouse see
VII.I.5. below.
4.
Limitations on Resources
In summary, all resources of both spouses
are combined. A "protected resource amount" for
the community spouse is then determined,
according to the rules discussed below. Then,
within the first year of eligibility, all countable
assets in excess of $2,000 must be transferred to
the community spouse. The following is a
summary of the specific rules:
a) When the protected resource amount is
calculated
DHS takes a "snapshot" of all the countable
resources of both spouses, as of 12:01 a.m. of the
first day of the month in which the first
continuous period of institutionalization on or
after September 30, 1989 began.133
131
42 U.S.C.A. §1396r-5(h).
40 T.A.C. sec. 15.503 (b)(5).
133 The Texas rules and handbook provisions
until recently required that the "institution" must be
Title XIX (Medicaid)-certified. 40 T.A.C. §15.503(b),
Medicaid Eligibility Handbook §4133.1. However,
the federal law mandates that any "medical institution"
132
b) How the protected resource amount is
calculated
(1) All property is included, without regard
to its characterization as community or separate.
(2) The PRA is the greater of

One-half the couple's combined countable
resources, not to exceed the maximum set by
federal law ($81,960 in 1999) or

The minimum set by federal law ($16,392 in
1999).
Examples:
1. If combined resources total $200,000, PRA is
$81,960.
2. If combined resources total $100,000, PRA is
$50,000.
3. If combined resources total $20,000, PRA is
$16,392.
will do. This is important to clients who initially go
into a nursing home that is not Medicaid-certified,
then subsequently move to a Medicaid-certified
nursing home and apply for Medicaid. Typically, they
will have spent down many thousands of dollars in the
meantime so would have a much lower protected
resource amount under the rule in the handbook.
Recently, DHS officials have become aware of this
problem and amended the rule to provide that any
“medical institution” will do.
Disability Benefits in the Estate Plan
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Practice Note: Remember that in addition to
the PRA, the institutionalized spouse can have a
maximum of $2,000 in resources. Therefore, for
example, if the PRA is the minimum of $16,392,
the total both spouses can have together is
actually $18,392.

The total resources that can be protected are
equal to cost of a one-year CD that will
produce enough interest, when added to the
couple's total noninvestment countable
income, to give the community spouse a total
of $2,049 per month income (in 1999).
The minimum and maximum PRA amounts
applicable to a particular couple depend on the
year in which the “snapshot date” occurs.
Therefore, if the institutionalized spouse went
into a nursing home before 1999, consult the
Handbook for the correct amounts.134

The formula is: annual income needed X 100
divided by interest on one-year CD =
maximum dollar amount of resources to be
protected.

The interest rate to be assumed in doing the
calculation is the rate of a one-year CD as
published in the local paper or as provided by
a local bank.

This formula is used regardless of the actual
income paid by the couple's resources; and
they need not actually buy a one-year CD.

In determining the amount to be paid from
the institutionalized spouse's income to the
community spouse after eligibility, the
caseworker uses the actual dollar amount
being produced by the investments if it is in
excess of the amount a one-year CD would
produce; but if it is less than that amount, the
caseworker uses the amount a one-year CD
would produce.136

The total protected may not exceed the total
of the couple's resources on the "snapshot
date."137 (Therefore, the Community Spouse
should take care not to be so frugal or
financially successful as to improve her status
within the first year after the date of issuance
c) How the PRA can be increased to provide for
the spousal allowance
(1) The spousal allowance. Federal law
provides for a "minimum monthly maintenance
needs allowance" for the community spouse,
which in 1999 is $2,049 per month if the other
spouse is in a nursing facility. If the community
spouse's income (including that spouse's
investment income but not including any income
of the institutionalized spouse) is less than that
amount, the community spouse is entitled to keep
a "spousal allowance" consisting of enough of the
income of the institutionalized spouse (after
deduction of the $30 personal needs allowance of
the institutionalized spouse) to give the
community spouse the full spousal allowance
(unless the community spouse elects to give up
some income in order to keep more resources, as
discussed below). The rest of the income of the
institutionalized spouse, if any, goes to incurred
medical expenses and applied income (i.e., to the
nursing home).
(2) The right to a PRA increase to provide
for the spousal allowance. In some cases, all the
income of both spouses together is insufficient to
give the community spouse the full spousal
allowance. If either spouse establishes this, DHS
is required to increase the PRA to an amount
sufficient to provide the full minimum monthly
needs allowance.
A new DHS rule has the following essential
provisions:135
134
Medicaid Eligibility Handbook §4133.1.
40 T.A.C. §15.503(j), Medicaid Eligibility
Handbook §4133.8 and Appendix XXVII (reproduced
in Appendix 18 to this outline). An earlier version of
135
this outline reported that DHS was considering a rule
utilizing the cost of a single-premium annuity to
measure the increased PRA, which would in most
cases have prevented any increase in the PRA. That
rule was never published, and has been supplanted by
the rule just cited.
136 40 T.A.C. §15.503(j)(5), Medicaid Eligibility
Handbook §4133.8.
137 40 T.A.C. §15.503, 23 Tex Reg 12890
(effective March 1, 1999). In the author's opinion, this
rule is inconsistent with the federal statute and with
good policy. If the Community Spouse receives an
inheritance after the snapshot date and before the first
annual review date, why should she be in a worse
position than if she received it one day earlier or later?
The federal statute may allow a second request in this
case, as nothing in its language or purpose prevents a
second application for PRA increase.
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23rd Annual Advanced Estate Planning and Probate Course
of the notice of eligiblity, lest she lose
as follows: "...only to the extent income of the
eligibility as a result.)
institutionalized spouse is made available to (or
for the benefit of) the community spouse."139
This procedure is apparently not available in
Under the federal rules and the recently adopted
most Community Based Alternatives cases,
DHS procedure, the institutionalized spouse may
because the spousal allowance in those cases is
limit the amount of his or her income made
only the amount of the SSI benefit rate ($500 per
available to the community spouse in order to
month in 1999). This is somewhat balanced by
make the community spouse eligible for an
the fact that the “personal needs allowance” in
increased PRA under the formula discussed next
CBA cases is three times the SSI benefit rate
above.140 The only requirement is that there must
($1,500 per month). Therefore, both spouses
be a “diversion from the institutionalized spouse”
together can have almost as much as one spouse
of at least $1.00.141
when the other is in a nursing facility; but as the
Department currently interprets the rules, the
Technique: Determine whether the spouses'
PRA can be increased, if at all, only by enough to
combined incomes are low enough to protect all
give the ineligible spouse $500 per month in
their assets under the rule providing for
income rather than $2,049 per month under the
increasing the PRA to meet the minimum monthly
nursing home program.
needs allowance. (See (2) above.) If not, discuss
with clients the following options:
Example: The total of the noninvestment
incomes (e.g., Social Security and pension
(1) "spending down" to the PRA (e.g., by paying
incomes) of both spouses is $1,700 per month.
debts and buying exempt assets);
After the $30 per month personal needs
allowance and $70 per month Medicare
(2) "shifting resources" as described above; and
supplement insurance premium, $1,600 is left.138
A local bank offers one-year CD's with an
(3) purchasing an annuity for the community
interest rate of 5% per annum.
spouse (discussed at IV.E.3. above)
Income needed = $2,049 - $1,600 =
$449/month X 12 = $5,388/year
PRA = $5,388 X 100 = $538,800  5 =
$107,760
Practice Note: The PRA can be increased
only through a "fair hearing" (discussed below
under "Procedural Matters"). That means it is
necessary to apply, have the application denied,
and appeal the denial on the ground that the PRA
should be increased.
Be sure the client
understands that the application will be denied
and why it is necessary to do it this way.
(3) The right to "shift resources first" to
provide for a PRA increase. The federal
provision that requires the spousal allowance for
the community spouse out of the income of the
institutionalized spouse qualifies the requirement
138
The new rule does not expressly provide for
this deduction, but it is implicit in the recognition in
the rule that there is a need for an increased PRA when
income diversion from the institutionalized spouse is
insufficient, in combination with other income
available to the community spouse, to provide for the
total of $2,049 per month (in 1999).
If the clients decided to "shift resources"
(which may be in addition to "spending down" as
139
42 U.S.C.A. §1396r-5(d)(1)(B).
The better reasoned cases accept this
argument. Kimnach v. Ohio Department of Human
Services, 96 Ohio App.3d 640, discretionary appeal
not allowed, 71 Ohio St.3d 1447; Gruber v. Ohio
Department of Human Services, 98 Ohio App.3d 72
(1994), discretionary appeal not allowed, 71 Ohio 3d
1493; In addition, on 7/13/95, a federal district court
granted a motion for partial summary judgment to the
same effect in a class action: No. C-2-1094, U.S. Dist.
Ct., S.D. of Ohio, Eastern Div. However, in several
recent cases, courts have held otherwise. Cleary v.
Waldman, 959 F. Supp. 22 (D.C.N.J. 1997), affirmed,
199 WL 53046 (3rd Cir. Feb. 8, 1999); Thomas v.
Commissioner of the Division of Medical Assistance
(Mass. Sup. Jud. Ct., SJC-07344, August 14, 1997);
Golf v. New York State Department of Social Services,
(N. Y. Ct. of Appeals, April 2, 1999); Chambers v.
Ohio Department of Human Services, No. 96-3046 (6th
Cir., May 27, 1999) (petition for certiorari filed
August 25, 1999 in S. Ct. Dkt. No. 98-360).
141 Medicaid Eligibility Handbook Appendix
XXVII, “Step 2.” This is apparently based on
correspondence from HCFA to the effect that the
couple can give up income to protect resources, so
long as at least $1.00 of income of the insitutionalized
spouse goes to the community spouse.
140
Disability Benefits in the Estate Plan
far as possible), be sure they understand that the
Medicaid application will be denied initially.
Appeal the denial, and make your argument at
the fair hearing, providing your calculations as
to how much income should be withheld to
increase the PRA so as to protect all remaining
assets. The desired result at the hearing is an
order reversing the denial of eligibility, providing
for retroactive eligibility, stating the amount of
income to be withheld from the institutionalized
spouse, and setting the new PRA.
Example: Same example as in (2) above,
except instead of $1,600 in combined available
(after deductions) noninvestment income, the
spouses have $2,000.
Assume they have
$120,000 in resources.
To keep all their
resources, the institutionalized spouse needs to
withhold enough income so the amount available
to the community spouse, including all the
investment income, does not exceed $2,049.
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Technique: If the community spouse has
unusual expenses, such as unreimbursed medical
expenses or high debts, and if the
institutionalized spouse has sufficient income
available, consider applying this rule. Procedure
is the same as for requesting an increased PRA
(see b. and c. above).
d) Post-Eligibility Treatment of the Community
Spouse’s Resources
The federal statute clearly states that after
eligibility is established, “...no resources of the
community spouse shall be deemed available to
the institutionalized spouse.”143
Texas, however, has an unwritten, informal
policy144 understood by the author to be as
follows:

Between the certification date (date of notice
of eligibility, not effective date of eligibility)
and the first annual review, the protected
resource amount (plus $2,000 as the
“personal exemption” of the institutionalized
spouse) continues to limit the amount both
spouses can have while maintaining
eligibility; provided, separate property
acquired by the community spouse (e.g., by
gift, will, inheritance or beneficiary
designation) is not counted.

If the community spouse manages to save
enough funds during this period to exceed
this total, the institutionalized spouse may
lose eligibility.

Likewise, if the community spouse sells the
residence and the proceeds cause the total to
exceed the protected amount, eligibility is
jeopardized

After the first 12 months of eligibility (or
Investment income imputed = $120,000 X
.05  12 = $500/month
Noninvestment income kept = $2,049 $500 = $1,549/month
Applied income (to nursing home) =
$2,000 - $1,549= $451/month
Practice Note: This is a powerful technique
whenever assets are left over after the home
mortgage (if any) and other debts are paid, and
all needed home improvements and other needed
exempt items have been bought. It is arguably
always to the advantage of the community spouse
to "trade income for assets" this way, because if
the institutionalized spouse dies first, the assets
will still be there; and the death of the
institutionalized spouse usually reduces the total
income of the couple.
(4) The right to increase the minimum
monthly maintenance needs allowance. If it is
established at a fair hearing that the community
spouse needs income above the level of the
minimum monthly needs allowance ($2,049 in
1999), due to "exceptional circumstances
resulting in significant financial duress," the
minimum monthly needs allowance can be
increased.142
142
42 U.S.C.A. §1396r-5(e)(2)(B); 40 T.A.C.
§15.503(a)(3).
143
42 U.S.C.A. §1396r-5(c)(4).
This practice may arise from a
misinterpretation of the following language in the
Texas regulations: “After the initial eligibility period
(certification date to first annual review), only
resources in the name of the institutionalized spouse
are considered in the eligibility determination.” 40
T.A.C. §15.503(b), Medicaid Eligibility Handbook
§4133.2 para. 4. It does not follow logically that the
PRA should continue to limit the resources of the
Community Spouse until that time, and that
interpretation is flatly contrary to the federal law.
144


Y-46
23rd Annual Advanced Estate Planning and Probate Course
perhaps, after the first annual review), the
Community Based Alternatives Program.145
federal law is applied.
Logically enough, some caseworkers have
If the Institutionalized Spouse receives funds
interpreted this to mean that nobody will ever be
or property (e.g., by inheritance or
eligible for the CBA program until the spouses
settlement) at any time after eligibility, it will
have spent down to the minimum PRA (currently
be income in the month of receipt; but as
$16,392), plus the $2,000 personal exemption.
soon as it is transferred to the Community
That is clearly not the rule.
Spouse, it will not count as a resource of the
Institutionalized Spouse—unless, perhaps,
Technique: This problem can be avoided if
the transfer occurs in the first year after
the couple spends down very quickly, between the
certification.
time the application is filed and the time it is
acted upon.
For example, a couple with
If the Community Spouse transfers anything
$100,000 in countable resources can still keep
within the first year after certification, a
$50,000 (plus the $2,000 exempt amount) by
transfer penalty may be assessed against the
paying $48,000 on a home mortgage, home
Institutionalized Spouse; but not if the
improvements, etc. before the caseworker gets
transfer is after that first year.
around to denying the application.
Comment: The policy outlined above is
sometimes explained differently by different
representatives of the Department. Such policies
can cause clients to go from frustration to rage at
the Department, at government in general, and
even at their own attorneys. Elder Law attorneys
and Department officials have a common interest
in reducing these policies to clear regulations,
consistent with the federal law. That has been
done recently regarding trusts, annuities,
transfers and notes, to beneficial effect for all
involved.
e) Special rule applying to the Community Based
Alternatives Program
Another technique that has been suggested
(but not yet applied by the author) is for the
applicant spouse to establish “insitutionalized
spouse” status by entering a nursing home for at
least 30 days, then transfer to the Community
Based Alternatives program. This could also
have the effect, in areas where such transfers are
given priority, of avoiding the customary waiting
list for CBA (while saving the Medicaid program
money, as CBA always costs at least 5% less than
nursing home care to the program). Eligibility
workers are currently saying that the nursing
home stay must be for at least 6 months to avoid
the waiting list.
J. Transfer ("Gifting") Rules
In the Nursing Home program, the PRA
never changes. It is based on the countable
resources of both spouses as of the first day of the
first month one goes into a Medicaid-certified
nursing home, and it will be the same regardless
of when the application is filed.
However, in the Community Based
Alternatives Program, in most cases, nobody goes
into a nursing home. The PRA is based on the
countable resources of both spouses as of the first
day of the first month one spouse applies for
assistance. If the application is denied because
the couple has not yet spent down, and they
reapply, then a new PRA is determined, based on
countable resources on the first day of the month
of the new application. This despite state and
federal law declaring that the spousal
impoverishment protections apply to the
1.
Nature and Purpose
If there were no restrictions on making gifts,
many individuals would become eligible for
Medicaid simply by giving their assets to family
members. Therefore, to protect the integrity of
the program, the federal statute requires states to
penalize transfers for less than fair market value.
The basic rule (subject to exceptions
discussed below) is that a person making a
transfer for less than fair market value is
ineligible for Medicaid for one month for every
$2,511 gifted. The $2,511 amount represents
DHS' estimate of the average private-pay cost of
nursing home care in Texas. The amount is
145
42 C.F.R. §435.217; 40 T.A.C. §48.6008. The
author believes this policy is out of compliance with
federal law and is subject to challenge.
Disability Benefits in the Estate Plan
different in every state and is changed from time
to time (in Texas, on April 1 of recent years) with
inflation.146
Practice Note: Whenever gifts exceeding
$10,000 in value are made to any individual in a
calendar year, a gift tax return should be filed.
However, this dollar amount has nothing to do
with whether or not there is a Medicaid transfer
penalty.
2. Attempted "Criminalization" of Some
Medicaid-Motivated Transfers
Effective January 1, 1997, it purportedly
became a crime to knowingly and willfully
dispose of assets in order for an individual to
become eligible for Medicaid, if disposing of the
assets results in the imposition of a period of
ineligibility.147 This provision was amended,
effective August 5, 1997, to purport to
criminalize only counseling or assisting such
conduct for a fee.
However, enforcement of that law has been
enjoined in New York State Bar Association v.
Reno,
97-CV-1768-TJM-DRH,
(S.D.N.Y.).
Before the injunction issued, the U. S. Attorney
General announced that she would not defend the
constitutionality of the law, because “the
counseling prohibition in that provision is plainly
unconstitutional under the First Amendment and
because the assistance prohibition is not
severable from the counseling prohibition.”
However, the Attorney General offered to assist
Congress in drafting legislation that would
address its concerns in a consitutional way. On
September 14, 1998, the Court entered a
permanent injunction.
In April 1999, the
Attorney General withdrew her appeal.
Comment: The proponents of this law
accomplished their purpose simply by having it
on the books, creating fear and uncertainty
regarding the Medicaid law. Therefore, it would
not be surprising to see it reappear in another
146
In 1997, the transfer rules were expanded (to
include federal provisions added in 1993) and codified
at 40 T.A.C. §15.430, Medicaid Eligibility Handbook
§§2320-2329 .
147 The original provision is in the “Kennedy
Kassebaum” Act, Senate Bill 1028 (Health Insurance
Reform Act) §217, to be codified at 42 U.S.C.A.
§1320a-7b(a). The amendment is §4734 of H. R. 2015
(Balanced Budget Act of 1997).
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form. Until that time (or perhaps, until a new
Attorney General takes office) it appears that
attorneys may discharge their obligation of
providing complete and accurate legal counsel
regarding Medicaid-motivated transfers of assets
without fear of criminal prosecution.148
At the same time, as argued elsewhere in this
article, inducing and encouraging older and
disabled persons to dispose of their assets to
become eligible for Medicaid would in many
circumstances be highly detrimental to their
interests. The ethical practice is in the middle
ground of ensuring client capacity to make the
decision, providing accurate and objective
information, and encouraging an informed
decision that is truly the client’s. See the
discussion of ethical issues at VII.C.3. above.
3. Medicaid Programs Subject to the Transfer
Penalty
The following Texas programs are subject
to the transfer penalty:
a. Nursing Home Medicaid (SSI-Related MAO,
Type Program 14)
b. Community Based Alternatives Program
(1915(c) Waiver Program)
c. CLASS Program (also a 1915(c) Waiver
Program)
d. Home and Community-Based Services (HCS,
involving mental retardation)
The following Texas programs are not
subject to the transfer penalty:149
a. Community Care (e.g., Family Care, Primary
Home Care)
b. Medicaid attached to Supplemental Security
148 The judgment by its terms applies only to
members of the State Bar of New York. However, in
the author’s judgment, the risk that a future Attorney
General would prosecute an attorney under a law
subject to a permanent injunction by a federal court,
that a previous A.G. refused to defend, seems minimal.
The requirement of diligent and exclusive
representation of our clients would seem to demand
that if we choose to practice in this area, we accept
whatever small risk may remain and do our jobs for
our clients.
149 Medicaid Eligibility Handbook §2320; 40
T.A.C. §15.430(a)(4).
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23rd Annual Advanced Estate Planning and Probate Course
150
Income (SSI) and Temporary Assistance
months.
for Needy Families (TANF)
c. Qualified Medicaid Beneficiary Program
Note that under current rules, in Texas,
(QMB) and Specified Low-Income Medicaid
there is less than a 36-month penalty period if the
Beneficiary Program (SLMB)
transfer is less than 36 X $2,511 = $90,396.
Technique: If all the client needs is personal
care at home, available through the Community
Care programs, gifting modest amounts of
property may make sense. There is no penalty
period, and eligibility is immediate (assuming the
income and other requirements of the program
are met). Remember, though, that if the client
later needs more assistance at home through the
Community Based Alternatives Program, or
needs nursing home care, the transfer penalty
will apply.
Note also that if an application is filed
within the lookback period, the possible
limitation on penalties offered by the limited
lookback period is lost. For example, if a client
transfers $200,000 to an individual then applies
for Medicaid 35 months later, the total penalty
period will be $200,000  $2,511 = 79 months.
Had the client waited only one more month, the
transfer would have been outside the lookback
period so would have been disregarded. This is a
trap for the unwary.
4. Only Transfers Within the "Lookback
Period" Are Subject to Penalty
Practice Note: Notice that a gift made from
a revocable trust is subject to a 60 month
lookback period. However, if this is the only
problem, it can be overcome rather easily by a
competent client (or one with an agent acting
under a broad power of attorney with gifting
powers), by transferring the asset from the trust
to the client, then having the client make the gift.
Only transfers within the "lookback period"
are subject to penalty. That period ends on the
date a Medicaid application is filed (or, if later,
date of entry into a nursing home or other
medical institution) and begins-1. 60 months earlier, for transfers from or
to most trusts.151
2. 36 months earlier, for all other
transfers
Technique: Transfer an unlimited amount of
property, then wait the applicable period from
the date of the transfer before applying for
Medicaid. Essentially, if the transfer is to an
irrevocable trust whose corpus cannot be
disbursed to or for the benefit of the client (i.e.,
whose corpus is not counted as a resource of the
client), the waiting period is 60 months. For
transfers to one or more individuals, it is 36
150 However, legislation is pending in Congress
that would impose a transfer rule on SSI, and
therefore, presumably, on “Community Medicaid”
attached to SSI. See II.D. above.
151 42 U.S.C.A. §1396p(c)(1)(B); 40 T.A.C.
§15.430(e), Medicaid Eligibility Handbook §2323.
The federal statutory language refers only to transfers
from a trust, but HCFA interprets this to include also
transfers to a trust, if the trust is such that the corpus is
not treated as a resource of the individual. State
Medicaid Manual §3258.4E. The purpose of this
appears to be to discourage establishment of
irrevocable trusts that are not treated as resources of
the grantor.
5.
Certain Transfers Excepted From Penalty
The following transfers are not subject to
transfer penalties:152
1. Transfers of a home to
a. The client's spouse; or
b. A child of the client who is (1) under age 21
or (2) blind or permanently disabled; or
c. A sibling of the client who has an equity
interest in the home and who resided there for
at least one year immediately before the date
the client became institutionalized; or
d. A son or daughter of the client who was
residing in the client's home for at least two
years immediately before the date the client
became institutionalized and who provided
care to the client which permitted the client to
reside at home rather than in an institution or
facility.
2. Any transfers to the client's spouse or to
another for the sole benefit of the client's spouse
(e.g. trusts and annuities)
152
42 U.S.C.A. §1396p(c)(2); 40 T.A.C.
§15.430(d); Medicaid Eligibility Handbook §2322.
Disability Benefits in the Estate Plan
3. Any transfers from the client's spouse to
another for the sole benefit of the client's spouse
(again, trusts and annuities)
4. Any transfers to a trust established solely
for the benefit of the client's blind or disabled
child (regardless of age of the "child"), or to such
a child of the client directly.153
5. Any transfers to a trust established solely
for the benefit of an individual under 65 years of
age who is disabled
6. Any transfers of income to a Miller Trust
7. Transfers in which the client intended to
dispose of the property at fair market value (even
if actual consideration turned out to be less)
8. Transfers made exclusively for a purpose
other than to qualify for Medicaid
Technique: If a transfer creating an
unwanted penalty period has already been made,
determine whether it was made exclusively for
some purpose other than qualification for
Medicaid. If you can prove that at a fair hearing,
the penalty period will be avoided.
9. Transfers of property that has since been
returned to the client154
Technique: If all else fails, an ill-advised
153
Medicaid Eligibility Handbook §2322.1; State
Medicaid Manual §3258.10B. The term "solely for the
benefit" contains a trap for the unwary. It is
interpreted by HCFA to mean the trust instrument or
other document must provide for the spending of the
funds on the beneficiary during the beneficiary's
actuarial life expectancy. State Medicaid Manual
§3257B.6. Presumably, DHS would use the life
expectancy table at Medicaid Eligibility Handbook
Appendix IX, which it uses in evaluating annuities.
154 If the asset transferred was an exempt
resource, such as a residence, retroactive eligibility
can be established (assuming all other requirements
for retroactive eligibility are met). That is because the
client would have been eligible earlier but for the
transfer. However, if the asset transferred was not
exempt, eligibility can be established only after it has
been spent down. A return of only part of the transfer
will reduce the transfer penalty only partially (for
example, if half of the asset is return, half of the
penalty period is eliminated). 40 T.A.C. §15.430(h),
Medicaid Eligibility Handbook §2324.4.
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transfer can usually be reversed, allowing you to
start over with a better technique. Because the
rules allow partial reduction of the transfer
penalty by a partial return of the asset, the client
can accept a partial return resulting only in a
penalty period that has already run. The client
may then spend down the amount returned on
exempt assets if desired.
6.
Legal Capacity Requirement for Gifting
Legal capacity required. Like any other
legal transaction, a gift is invalid if the donor did
not understand the nature and purpose of the
transaction at the time of the gift. The transaction
may later be attacked by family members or
others by civil suits or even in criminal
proceedings. Other grounds, such as undue
influence and unconscionability, may be asserted.
Specific gifting powers required in
durable power of attorney. An agent under a
general and durable power of attorney arguably
does not have power to make transfers for less
than adequate consideration in Texas, unless the
instrument makes a specific grant of such
power.155 Even a guardian may not make a gift
on behalf of a ward, except for certain courtapproved tax-motivated and charitable transfers
and, effective September 1, 1997, for education
and maintenance of a ward’s spouse and other
dependents. The latter provision appears to allow
transfers to the community spouse, if approved
by the guardianship court.156
Practice Note: Donor capacity is a threshold
issue whenever gifting is considered.
No
capacity, no specific gifting power in a durable
power of attorney (or revocable trust), no gift.
Technique: When drafting durable powers of
attorney, particularly with older clients, discuss
with the client the possible need for gifting
powers. Such needs may include continuation of
family or charitable gifting, gifting for reduction
of federal income and estate taxes, and lawful
gifting for Medicaid purposes. Some points to
consider:
1. The gifting clause should be tailored
for the purposes intended, to avoid making it too
155
See IV.C.5. above
Texas Probate Code § 865, 866; and §776A,
eff. September 1, 1997.
156
23rd Annual Advanced Estate Planning and Probate Course
file the Medicaid application until after the
lookback period has passed. If that is done,
2. If gifting to the agent is desired,
the lookback period is in effect a maximum
avoid giving the agent the power to gift to himself
period of ineligibility.
or herself. That would be a "general power of
appointment" putting all the principal's property
b) Treatment of multiple transfers
(or the maximum value of the possible gifts, if
less) in the agent's gross estate for estate tax
If there are multiple uncompensated
purposes--potentially disastrous if the agent dies
transfers in which the penalty periods overlap, all
before the principal with a taxable estate.
such transfers during the lookback period are
Instead, appoint a special agent to make gifts to
totaled, and the total value is divided by the
the primary agent.
average private pay cost (currently, $2,511), to
calculate the penalty period.159 This prevents
3. If gifting of particular real property
application of the pre-OBRA 93 rule that allowed
is anticipated, include a description of the
penalty periods of multiple transfers to run
property. Contrary to law and reason, some title
concurrently, thus allowing disposal of a much
companies still require it.
larger amount of property in a given time period.
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broad or too narrow.
7.
Rules for Calculating the Penalty Period
a) Transfer of Resources Penalty Period
This DHS rules are contained in the
Medicaid Eligibility Handbook.157 In summary,
here is how to calculate the penalty period in any
transfer for less than fair market value:
a. Determine the difference between the value
of the property or money transferred, and the
value paid (if any) to the client. If the client
received nothing, use the full value of the
asset(s) transferred.
b. Divide that number by $2,511 (or whatever
number is effective at the time of the
application).158
c. Round down to a whole number of months.
d. Count the month in which the transfer is
made as a penalty month (even if it was on
the last day of the month).
e. The first date on which eligibility can be
established despite the transfer is the first day
of the first month after the penalty period.
(Remember that if the penalty period is more
than the look-back period of 36 or 60 months,
discussed above, the client can simply wait to
157
Medicaid Eligibility Handbook §2324.
This number changes annually. The amount
of $2,511 went into effect on 5/1/99. The number in
effect on the date of application controls, regardless of
the date of the transfer.
158
However, if the penalty periods of two
transfers do not overlap, they are treated as
separate transfers.160 This is designed to prevent
clients from making a small transfer to "start the
clock running," then making a larger transfer
later if Medicaid eligibility is needed, and
including the entire period between the two
transfers as a penalty period.
Technique If the client does not yet need
Medicaid but wants to make transfers, consider
making monthly transfers just under two times
the private-pay rate (presently, under 2 X $2,511
= $5,022). This works because a there is no
partial month penalty (you round down after
dividing by $2,511, and as long as the penalty
period is exactly one month, there are no
“overlapping” penalty periods that would
require aggregating the various transfers. For
example: A gift of $5,021 on January 30 creates
a penalty period of $5,021  $2,511 = 1.9996,
which when rounded down, is one month’s
ineligibility. Because the month of the transfer
counts as a penalty month, the transfer will not
preclude eligibility on February 1—nor will it
preclude the client’s making another transfer for
$5,021 at any time in February and waiting until
March (or any later month) to apply.
This avoids the possibility of any penalty at
all, while allowing transfer of substantial assets if
159 42 U.S.C.A. §1396p(c)(1)(E); 40 T.A.C.
§430(f), Medicaid Eligibility Handbook §2324 .
160 State Medicaid Manual §3258.5G-I; 40
T.A.C. §430(f)(5), Medicaid Eligibility Handbook
§2324.
Disability Benefits in the Estate Plan
many months elapse before Medicaid is needed.
It is a good substitute for lump-sum gifting and
"half-a-loaf" gifting, both of which run some risk
of creating poverty and ineligibility at the same
time (as discussed below). However, DHS may at
some time begin penalizing gifts under $2,511
with partial months of ineligibility. Therefore, it
would be prudent to keep a list of clients who
may be applying this technique so as to be able to
warn them if at some point it begins creating
almost twice the penalty period expected.
Technique: If the client needs long term care
immediately and wants to accelerate eligibility by
transfers, consider transferring an amount small
enough to leave sufficient savings to pay living
expenses during the penalty period. This is
sometimes called the "half-a-loaf" technique,
because the amount transferred may be
approximately half of countable resources. The
exact optimum amount to transfer depends on the
amount of living expenses and the amount of
income and can be calculated algebraically,
preferably on a computer spreadsheet; or you
can work it out by trial and error.
One advantage of this technique over
transferring all countable resources, either
monthly or all at once, is that the client incurs
only approximately half the penalty period. An
additional advantage over transferring all at
once is that the client maintains control of
enough resources to pay living expenses during
the penalty period without having to rely on
someone else. Given the risks involved in gifting
(discussed below), it is hard to justify exposing
the client to a penalty period in which he or she
must rely on someone else for living expenses.
Practice Note: Medicaid planning requests
commonly come in the form of requests for advice
on how to give away property so as to become
eligible for Medicaid--and the person calling is
usually a potential donee. If the attorney
represents the potential donor (which the author
advocates doing, unless the donor already has
qualified legal counsel), the attorney should
present clearly and forcefully the potential costs
and risks of gifting. Here is my list, along with
some techniques for reducing (but never
eliminating) the risks:
1. The donees may squander the property
(no matter how earnestly they plead they won't,
nor how firmly the client believes they won't).
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(Partial safeguard: put it in a joint accounting
requiring more than one signature, thus
increasing risk #2 below.)
2. The donees' creditors (present or future,
known or unknown, in or out of bankruptcy) may
seize it. (Always ask about solvency and possible
exposure of potential donees to creditors.)
3. The donees may refuse to return funds to
the donor on request, in the donor's "best
interests." The donor must absolutely and finally
part with legal control over the property.
4. A spouse of a donee may take it, either
directly or through divorce proceedings as a
result of intermingling with community funds.
5. A donee may die before the donor,
leaving the property to an inappropriate person.
(This risk can be minimized by having the donee
execute a will with a special needs trust funded
by an amount equal to the value of the property
transferred.)
6. If the transfer is of appreciated property
(e.g., stocks or real estate), the donee takes the
donor's basis, rather than taking a stepped-up
basis at the donor's death. Thus, the capital
gains tax ultimately generated by the transaction
may be quite substantial.
7. Family jealousy and conflict may result
from the way the property is distributed and/or
the way it is managed by the donees. Complaints
of undue influence and exploitation may be made
against all involved in the transaction--including
the attorney.
8. The law may change at any time,
lengthening the lookback period or otherwise
increasing the penalty, and it may be applied
retroactively.
9. Medicaid eligibility has certain inherent
disadvantages in any case. See II.A. for a
discussion.
The bottom line: In the author's experience,
gifting that creates a substantial penalty period is
usually not advisable--even apart from the risk of
criminal prosecution (which is at this writing, but
perhaps only temporarily, abated).
c) Application of the transfer penalty to purchase
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of annuities
23rd Annual Advanced Estate Planning and Probate Course
2. Calculation of Net Income
See VII.E.5. above.
K. What Happens To Client Income After
Eligibility
1. The Process Of “Determining Applied
Income”
After eligibility is established, the DHS
caseworker determines what is to be done with
the client's income.161
DHS calls this
"determining applied income," because that part
of the client's income that must be paid to the
nursing facility or other provider is called
"applied income." Ordinarily, the applied income
is less than the Medicaid-approved rate charged
by the nursing facility, and the Medicaid program
pays the balance.
To the extent applicable, the following
mandatory deductions are disregarded (treated as
already distributed) in the applied income
determination: income tax, Social Security tax,
required retirement withholdings, and required
uniform expenses. (Note that these deductions are
not made when calculating income for the
eligibility determination.)
3.
Income of unmarried clients is distributed
according to the following priorities:
1. Personal needs allowance ($30, except for
certain veterans’ benefits capped at $90 per
month)
2. Guardian fee allowance, if any
A similar process occurs in the Community
Based Alternatives program, in which the amount
paid by the client is called a “copayment.”
Essentially, under that program, the client may
keep the an amount equal to the income cap
($1,500 in 1999); and in addition, if the client is
married to an ineligible person, the spouse can
have a spousal allowance equal to the SSI federal
benefit rate ($500 in 1999) minus income paid in
the name of the spouse.162 Any additional income
must be paid as a copayment. Since a client with
more than $1,500 per month income can be
eligible only by use of a Miller Trust (unless the
income can be shifted with a QDRO, which
would ordinarily reduce it to below the income
cap), it appears that the copayment provisions
apply only in Miller Trust cases.
Practice Note: In cases with a community
spouse, it is often critical to anticipate what DHS
will do in the applied income determination. As
discussed above, this is the process in which it is
determined how much (if any) of the
institutionalized spouse's income the community
spouse may keep. That in turn may determine
whether or not the Protected Resource Amount
can be increased in order to give the community
spouse the full minimum monthly maintenance
needs allowance (currently, $2,049 per month).
161 Unless otherwise indicated, this section is
based on Medicaid Eligibility Handbook §§3232.13232.22.
162
40 T.A.C. §48.6009.
Unmarried Clients
3. "Incurred medical expenses" (Medicare
and other general health insurance premiums,
deductibles and coinsurance; and cost of
medical care and services not covered by
Medicaid, such as dental care)
4. Applied income
5. If any income remains, the client has the
option of using it for his or her own needs.
(This last category is likely to apply only
when a Miller Trust is being used to allow a
person with income over the income cap to
qualify.) There is no limit on the amount that
can be used for medical services (including
services of a private health aide). Amounts
used for other purposes count as income so
cannot exceed in any calendar month the
amount of the income cap (presently $1,500
per month). The trustee may allow it to
accumulate in the trust (as long as this
monthly contribution does not exceed $2,511
per month).163
4.
Couples With Both Spouses Eligible
Where both spouses are Medicaid eligible and
reside in the same nursing home, their
income is aggregated and distributed
163
40 T.A.C. §15.417(e)(3)(D),(E);
Medicaid Manual §3259.7C5c.
State
Disability Benefits in the Estate Plan
according to the following priorities:
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cost of medical care and services not covered
by Medicaid, such as dental care)
1. Personal needs allowance ($60, except
for certain veterans benefits capped at $90
per month per person)
8. Any remaining income should be paid to the
community spouse.165
2. Guardian fee allowance, if any
3. "Incurred
medical
expenses"
(Medicare and other general health insurance
premiums, deductibles and coinsurance; and
cost of medical care and services not covered
by Medicaid, such as dental care)
L. Trusts Affecting Medicaid Eligibility
4. Home
applicable
a) History and purpose of trusts established by
the client
maintenance allowance if
5. Applied income
6. Any needs of the couple or other
dispositions discussed above
5.
7. Pay applied income to the nursing home.
Spousal Impoverishment Cases
Where there is an ineligible spouse in the
community, only the net income of the
institutionalized spouse is considered.
The
community spouse can keep all income coming in
his or her name, without limit (although the
amount of it will affect the amount of the
institutionalized spouse's income the community
spouse may keep). The institutionalized spouse's
income is allocated according to the following
steps:
1. Determine the net earned and gross unearned
income of the institutionalized spouse.
2. Subtract the personal needs allowance of $30
and guardian fee allowance if any.
3. Add in the community spouse's net earned
and gross unearned income.
4. Subtract the minimum monthly
allowance (in 1999, $2,049).
needs
5. If there are dependents, determine the
dependent needs allowance.164
6. Subtract "incurred medical expenses"
(Medicare and other general health insurance
premiums, deductibles and coinsurance; and
164
Medicaid Eligibility Handbook §3232.21.
1. General Rules on Trusts "Established By"
The Client
In the past, the term "Medicaid Qualifying
Trust" was sometimes used to refer to a trust into
which the client transferred his or her property in
order to qualify for Medicaid, while giving the
trustee authority to distribute assets for the
client's benefit for needs not met by Medicaid.
The federal statute was then amended, using that
term to apply to any self-settled trust in which the
trustee had the discretion to transfer funds back to
the settlor, and providing that all assets of such a
trust would be treated as "available resources" of
the settlor. Thus, such trusts became in reality
Medicaid disqualifying trusts. The current statute
(known popularly as "OBRA 93"), continues and
refines this principle.166
Practice Note. The first thing to ask about a
trust or proposed trust is, "Did the Medicaid
applicant contribute the assets?" The second
question is, "Does the trustee have authority to
distribute to the Medicaid applicant?" If the
answers to both questions are "Yes," the trust will
165
This does not appear in the Texas rules or
handbook, but it is implicit in HCFA's interpretation of
the Miller Trust provisions of OBRA 93. State
Medicaid Manual §3259.7C3. Before the Miller
Trust, it was virtually impossible for anything to be
left over after payment of applied income, as the
institutionalized spouse would be eligible only if his or
her income did not exceed the income cap ($1,452 in
1997).
With a Miller Trust, however, the
institutionalized spouse's income can be much higher,
and payment to the community spouse of any balance
remaining after full reimbursement to the Medicaid
program is essential.
166 42 U.S.C.A. §1396p(d); 40 T.A.C. §§15.100,
15.417; Medicaid Eligibility Handbook §§2313.22313.46.
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23rd Annual Advanced Estate Planning and Probate Course
not help with Medicaid eligibility, because the
directly.
assets will be counted as resources of the
applicant--unless the trust falls within one of the
Technique: If there is a community spouse,
exceptions discussed below.
consider transferring all the institutionalized
spouse's property to the community spouse in a
marital property agreement (with deeds if real
b) Definition of "established by" the client
property is involved), and provide for a
supplemental needs trust (discussed below) for
A trust is "established by" an individual "if
the institutionalized spouse in the community
the assets of the individual were used to form all
spouse's will. If the community spouse dies first,
or part of the corpus of the trust and if any of the
the property will be available for the benefit of
following individuals established such trust other
the institutionalized spouse, because it will fall
than by will:
(1) the individual; (2) the
under the "except by will" exception above. That
individual's spouse; (3) a person, including a
is, the trust will be treated as having been
court or administrative body, with legal authority
established by someone other than the applicant.
to act in place of or on behalf of the individual or
Another advantage of this arrangement is that it
the individual's spouse; or (4) a person, including
will probably avoid the risk of estate recovery
any court or administrative body, acting at the
(discussed below) at the death of the
direction or upon the request of the individual or
institutionalized spouse, in the event the
the individual's spouse." (emphasis added)167
community spouse dies first, because the trust
property will not be in the institutionalized
Practice Note: The foregoing definition was
spouse's probate estate.
probably intended to bring settlements of lawsuits
within the restrictive rules governing trusts
c) Rules applying to revocable trusts established
"established by" the Medicaid applicant.
by the client.169
Therefore, the only way of reliably insulating
such recoveries (primarily in personal injury
suits) from consideration by Medicaid is to draft
(1) Corpus. The corpus is considered an
them as "Under-65 Supplemental Needs Trusts"
available resource for Medicaid purposes.
(if the client is under age 65), or to contribute to
The statute could be interpreted to mean this
a "Pooled Supplemental Needs Trust" (if the
includes even the home, which would
client is age 65 or over). Those "exception"
otherwise be excluded from consideration as
trusts are discussed below.
a resource.170 However, the current practice
of DHS (which is not contained in any rule)
A trust established with property owned by
is to extend the residence exemption to a
the spouse of a Medicaid recipient would seem at
client's home even though the legal owner is
first glance not to be subject to these rules,
a revocable trust.
because it is property of the spouse rather than
the Medicaid recipient.
However, under
(2) Income. Both income and assets
Medicaid law, the term “assets” is defined to
withdrawn from a trust are treated as
include assets of the spouse as well.168 Therefore,
“income” for Medicaid purposes.
the language “by will” in the statute quoted above
may be critical, and property in a supplemental
Practice Note: A revocable trust has the
needs trust created in a revocable trust may be
following potential disadvantages as an
treated as available to the surviving spouse. The
estate planning device if the grantor (or
preferable technique is, therefore, to use wills
either spouse) applies for Medicaid:
rather than a revocable trust for estate planning
1. The home, if there is one, may at some time
for a couple with one spouse who is likely to be
in the future be found to lose its exclusion
on Medicaid, and make the gift of the other
status.
spouse to a supplemental needs trust rather than
2. A supplemental needs trust established in the
to the survivor (Medicaid-eligible) spouse
revocable trust by a community spouse for
the institutionalized spouse may be counted
167 42 U.S.C.A. §1396p(d)(2)(A); 40 T.A.C.
§15.417(a)(3); Medicaid Eligibility Handbook
§2313.4.
168
42 U.S.C.A. §1396p(e)(1).
169
42 U.S.C.A. §1396p(d)(3); 40 T.A.C.
§15.417(d); Medicaid Eligibility Handbook §1313.43.
170
State Medicaid Manual §3259.6F.
Disability Benefits in the Estate Plan
as a resource (although it should not be if
established by will, as discussed immediately
above).
3. Withdrawals of corpus are treated as
“income.”
4. A gift from the trust is subject to a 60 month
lookback period.
If the Medicaid planning client already has a
revocable trust, consider carefully whether
one or more of these considerations indicate
it should be revoked and replaced with a willbased estate plan. If that is not currently
necessary, be sure someone has a power of
attorney giving the agent the authority to
revoke the trust, in the event it becomes
advisable in the future.
d) Rules applying to irrevocable trusts
established by the client.171
1. Corpus. Any portion of the corpus from
which payments may be made to the client is
considered an available resource.
2. Income. Any portion of the income from
which payments may be made to the client is
also considered an available resource.
3. Payments from the trust. Payments from any
portion of the corpus or income from which
payments may be made to the applicant are
considered income, if paid to the client; or if
paid to anyone else, are subject to the transfer
rules with a 60 month lookback period.
4. Transfer to the trust may be penalized. To
the extent that the corpus or income may not
be paid to or for the benefit of the client,
transfers to the trust are subject to a transfer
penalty (probably 60 months, as discussed
above under "Transfer Rules").
5. Hardship exception. The federal statute
requires States to establish procedures under
which the agency waives these trust rules if
the individual establishes that their
application would "work an undue hardship"
on the client.172 HCFA defines this as
follows:
"Undue hardship exists when
application of the trust provisions would
171
42 U.S.C.A. §1396p(d)(3); 40 T.A.C.
§15.417(d); Medicaid Eligibility Handbook §2313.44.
172
42 U.S.C.A. §1396p(d)(5).
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deprive the individual of medical care such
that his/her health or his/her life would be
endangered. Undue hardship also exists
when application of the trust provisions
would deprive the individual of food,
clothing, shelter, or other necessities of
life."173
2. Exceptions to General Rules Governing
Trusts "Established By" The Client
a) Under-65 Supplemental Needs Trusts.174
1. Purposes. The most common purpose of this
type of trust is to insulate from consideration
by Medicaid the proceeds of an award or
settlement based on a legal claim, most
commonly for personal injury. Another
important purpose, especially where home
care is involved, is simply to make the assets
of the client go further by qualifying for
Medicaid benefits before they are all used up.
2. Client eligibility requirements.
This
"exception" to the self-settled trust rules is
available only to persons meeting the
following requirements:

Under age 65 at the time the trust is
established. After the client reaches age
65, the trust's "exception" status
continues as to assets transferred into it
before age 65, but assets cannot be added
after the client turns 65.

Disabled as defined in the requirements
for Social Security Disability or SSI
benefits.
3. Trust requirements. The trust must meet the
following requirements:

Established for the benefit of the client
by a parent, grandparent, legal guardian
of the client, or a court.
 The State will receive all amounts
remaining in trust upon the death of the
client, up to an amount equal to the total
173 State Medicaid Manual §3259.8A; 40 T.A.C.
§15.417(g)(1); Medicaid Eligibility Handbook
§2313.46.
174 42 U.S.C.A. §1396(d)(4)(A); 40 T.A.C.
§15.417(f), Medicaid Eligibility Handbook §2313.45.
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23rd Annual Advanced Estate Planning and Probate Course
Medicaid payments made for the client.
Supplemental (or “Special”) Needs Trusts from
similarly named instruments funded by persons
 DHS currently requires the Medicaid lien
other than the client, which need not have the
to be satisfied before the trust is funded.
“remainder to Medicaid” provision. See 3.
below for a discussion of the requirements for
 Although the statute is silent as to
traditional Supplemental Needs Trusts not funded
provisions for distributions of corpus to
by the client.
or for the beneficiary, it is probably
necessary that such distributions either be
Forms for the self-funded trusts are in
entirely discretionary with the trustee, or
Appendices 6-15 below. Forms for trusts funded
limited to distributions that will
with assets not owned by the beneficiary are in
“supplement and not supplant” public
Appendices 3-5.
benefits.175 If “support” requirements are
included, Social Security or DHS may
b) Miller Trusts.177
argue that the corpus is “available”
because the beneficiary could compel
Because the Miller Trust was discussed at
distributions.
VII.E.4. above as a technique for attaining
income eligibility, there is no need for further
 Although the statute allows funding of
discussion here. See Appendix 1 for a form
the trust with any property owned by the
Miller Trust.
beneficiary, agency representatives in
some states have sometimes erroneously
c) Pooled Supplemental Needs Trusts.178
allowed such trusts to be funded only
with personal injury awards and not with
inheritances and property owned by the
(1) Purposes. These trusts have essentially the
beneficiary.176
same purpose as the Under-65 Supplemental
Needs Trust. However, the "pooled" trusts do not
 The trust must be irrevocable to comply
have a maximum age requirement (but see the
with the general trust rules discussed
discussion below of possible applicability of the
above, and in the case of Supplemental
transfer rule if the client is 65 or over). Also,
Security Income (SSI) recipients, to
pooled trusts may offer more professional and
comply with the SSI rules.
efficient management and lower per-client setup
costs.
Comment: Distinguish these self-funded
175 Clifton B. Kruse, Jr., O.B.R.A. ‘93 Disability
Trusts--A Status Report, 10 NAELA QUARTERLY No. 1
(Winter 1997), p. 15.
176 Kruse, supra.
One DHS attorney has
expressed an opinion that such a trust is “established
by” the applicant and not by a parent, guardian or
court, to the extent the applicant personally transfers
assets to the trust. In other states, and heretofore in
Texas, it has been thought that execution of the trust
instrument and transfer of a nominal consideration to
legally establish the trust would meet the statutory
requirements. The suggested limitation on such trusts
would establish two categories of disabled persons—
those with mental capacity to transfer assets personally
(who would be barred from this benefit) and those
without such capacity (for whom a guardian could be
appointed to do this). No such distinction appears in
the statute, nor any rational basis for such
discrimination against mentally competent persons
with disabilities. To the author’s knowledge, this
erroneous view of the law has not been applied to a
case at this writing.
(2) Client eligibility requirements. This
"exception" to the self-settled trust rules is
available only to persons meeting the following
requirements:

No age requirement. There has been some
question as to whether a transfer penalty
might apply to a transfer by a client age 65 or
over.179 However, Texas DHS representatives
177 42 U.S.C.A. §1396(d)(4)(B); 40 T.A.C.
§15.417(f)(3); Medicaid Eligibility Handbook
§2313.45.
178 42 U.S.C.A. §1396(d)(4)(C); 40 T.A.C.
§15.417(f)(2); Medicaid Eligibility Handbook
§2313.45
179 State Medicaid Manual §3259.7B.
This
interpretation is based on the restriction of the
exceptions to the transfer rule to trusts for the benefit
of an individual under age 65.
42 U.S.C.A.
§1396p(c)(2)(B)(iv). It is inconsistent with HCFA's
policy that transfers to Miller Trusts generally do not
Disability Benefits in the Estate Plan
have stated in a written memorandum that
they do not intend to penalize such transfers,
with no reference to an age limitation.180

Disabled as defined in the requirements for
Social Security Disability or SSI benefits.
(3) Trust requirements. The trust must meet
the following requirements:

The trust is established and managed by a
non-profit association.

A separate account is maintained for each
beneficiary of the trust, but, for purposes of
investment and management of funds, the
trust pools these accounts.

Accounts are established in the pooled trust
only for individuals who are disabled (as
defined for Socials Security and SSI benefits)
by a parent, grandparent, or legal guardian of
such individuals, by the individuals
themselves, or by a court.

To the extent that amounts remaining in the
client's account upon the death of the
beneficiary are not retained by the trust, the
State will receive all amounts remaining in
trust upon the death of the client, up to an
amount equal to the total Medicaid payments
made for the client.
(4) The ARC Pooled Trust. The Association
for Retarded Citizens (ARC) has recently
established a pooled trust that accepts
contributions from persons residing anywhere in
Texas.181 The Texas Department of Mental Health
and Mental Retardation has indicated (in a letter
to the author) that at least in cases in which
funding comes from someone other than the
beneficiary, a contribution to the ARC Pooled
Trust is not treated as the beneficiary’s asset by
the Department. (The Department declines to
share with members of the public its policies with
regard to other issues not addressed in the
statutes.)
incur a transfer penalty, based on the clear statutory
purpose of making such trusts effective.
180 Memorandum dated February 3, 1999 from
Jackie Johnson, Assistant Deputy Commissioner for
Long Term Care Services, to all Regional Directors of
Aged & Disabled Services.
181 For more information, call ARC at 800/2529729 (or 454-6694 from Austin).
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Practice Note:
The ARC pooled trust
provides professional management at less than
the cost charged by many corporate trustees. Its
effectiveness for sheltering certain assets has
been pre-established by negotiation with DHS--a
process not available to individuals. And it does
not require paying an attorney fee to establish the
trust (although legal counsel is definitely needed
to determine whether or not this is the best
disposition of the assets and to provide
independent advice as to the alternatives).
To the extent the remainder may exceed
reimbursements for Medicaid, the trust can pay
the remainder to other designated beneficiaries
(usually family members); and at the option of
the grantor, the trust may retain all or a portion
of the remainder before reimbursement to the
Medicaid
program.
Although
DHS
representatives have stated that they believe
Medicaid should be reimbursed before the trust
receives anything, the trust instrument says
otherwise. In the author’s opinion, DHS is
clearly wrong on this, but this issue may yet be
tested in an application for nursing home
Medicaid or the Community Based Alternatives
program.
The issue just discussed “muddies the
water” somewhat in the decision as to whether a
client should designate relatives to receive the
remainder, or direct some or all of it to the trust.
The latter choice is likely to be more attractive if
the alternative is that Medicaid will take most or
all of it otherwise. However, if it were clear that
Medicaid got its cut first, it would be more
difficult to decide to direct some or all of the
remaining assets to the trust and away from
family members. What is clear is that any
proportion of the remainder directed to the trust
will not go to family members, and attorneys
giving advice on this need to make that clear,
documenting clearly that they have done so.
3. Rules Affecting Trusts Not "Established By"
the Client
a) Nature and purpose of third-party-settled
Supplemental Needs Trusts
This section discusses a class of public
benefits-related trusts not affected by the OBRA
93 rules discussed above-- Supplemental Needs
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23rd Annual Advanced Estate Planning and Probate Course
Trusts (sometimes called "Special Needs Trusts")
(1) Source of corpus. As discussed
established and funded by someone other than
above, someone other than the client must have
the client.
contributed the corpus.
Such trusts may, for example, be established
by parents or other relatives of disabled persons
receiving SSI; by wills of community spouses of
nursing home residents; or (by will) by recipients
of gifts in the planning process. They may also
be established by defendants in personal injury
cases (or their insurers), for recipients of SSI
and/or Medicaid; but while such trusts will not
affect the right to monetary benefits of SSI, they
may preclude Medicaid eligibility if they do not
comply with the rules discussed above for trusts
established by the client.182
Trusts established by someone other than the
client need not have provisions for repaying
Medicaid benefits to the State, nor are they
affected by the age restrictions nor other
provisions discussed above. Instead, they have
their own requirements, which are found nowhere
in the statutes or regulations but have been
developed by 50 years of common law.183
The purpose of such trusts is to provide for
needs of the beneficiary not met by public
benefits programs. Accordingly, if the client
receives Medicaid through SSI, distributions
from them are highly restricted, as discussed
below. The public policy supporting such trusts
is to encourage private support for disabled
persons eligible for public benefits.
b) Requirements for third-party-created
Supplemental Needs Trusts
The following requirements have been
created by the case law:
182 HCFA takes the position that OBRA 93
applies even to Medicaid obtained through the cash
assistance programs. State Medicaid Manual §3259.1,
first paragraph. However, as of this writing, it is the
author’s understanding that DHS has not developed a
system for cutting off Medicaid for a client who is
eligible for SSI but not Medicaid.
183 For a more complete discussion, see CLIFTON
B. KRUSE, JR., THIRD PARTY AND SELF-CREATED
TRUSTS (1995); Palmer, Estate Planning for Public
Welfare Recipients,” 2 PROBATE & PROPERTY 43
(March/April 1988); Chamberlin, Estate Planning for
Families With Disabled Children, ILLINOIS BAR J. July
1987, page 612.
(2) Restrictions on trustee discretion.
Discretion of the trustee to utilize corpus and
income for support and maintenance may not
make the corpus an available resource. If the
client receives Medicaid in conjunction with SSI,
the trust probably should not contain mandatory
“support” language (such as “health, education,
maintenance and support”) and should either be
totally discretionary, or should state clearly that
trust assets are to be used to supplement, not
supplant, governmental benefit programs.184
However, in Texas, the Long Term Care
Medicaid program will not count the corpus of a
non-grantor trust as a resource, even if the trust
contains “support” requirements. Rather, all
distributions of income or principal are treated as
“income” for Medicaid purposes, except
distributions for “medical or social purposes.”185
184 PROGRAMS OPERATIONS MANUAL SYSTEM
(POMS) §01120.105,01120.200; SPEER’S FAMILY
LAW SERVICE, 6th Ed., §49:48. In a telephone
conference with a Social Security official in the Dallas
office in preparation of this article (April 1999), the
author was told that “supplemental needs” restrictions
are no longer required and that even a support trust’s
assets will not be treated as a resource by the SSI
program. However, there have been no amendments
to the rules or the POMS, and experts have so far been
unable to confirm this. Moreover, even if Social
Security Administration has changed its policy, there
are other important agencies (such as the Texas
Department of Mental Health and Mental Retardation)
that have not.
185 40 T.A.C. §15.415(d); Medicaid Eligibility
Handbook §2313.2. The resource and income
requirements of Medical Assistance Only benefits are
required by federal statute to be the same, in "SSI
states" such as Texas, as for the Supplemental Security
Income
program.
Social
Security
Act
§1902(a)(10)(ii)(V)
[42
U.S.C.A.
§1396a(a)(10)(A)(ii)(V)].
Therefore, the Texas
treatment of trusts is more beneficial to clients than
federal law requires, as the SSI program counts nongrantor trust assets as resources unless there is “special
needs” language. However, the counting of all
distributions as “income” appears inconsistent with
SSI law, which does not count as income payments
made directly to providers for goods and services other
than food, clothing and shelter. It is possible,
however, that the Texas rules can be harmonized with
SSI law by interpreting the exception for “medical or
social services” as allowing all the non-counted
distributions that SSI law would allow. This appears
to be an unresolved (and perhaps unconsidered) issue
Disability Benefits in the Estate Plan
(3) Irrevocability. The trust must be
irrevocable.186
M. Possible Recovery Of Medicaid Benefits
From Estates Of Medicaid Recipients
1. Purpose and Scope of the Federal
Requirement
OBRA 93 requires States as a condition of
participation in the Medicaid program to seek to
recover from the estates of certain Medicaid
recipients at their deaths the amounts correctly
paid on their behalf by the program.187 Texas is
presently out of compliance with this
requirement, because it has not adopted any such
“Estate Recovery” program. Therefore, at this
writing, practitioners need not become familiar
with it in great detail.
a) Beneficiaries affected
Such recovery is required from the estates of
persons of any age who are residents of nursing
homes or other medical institutions, if after notice
and a hearing it is determined that they cannot
reasonably be expected to return home. In
addition,
recovery
for
most
Medicaid
expenditures is required from the estates of all
persons age 65 or over when they receive medical
assistance.
b) Remedies required and allowed
as far as DHS is concerned. For additional authority
in support of applying SSI rules, see POMS
§00835.310 and Trust Company of Oklahoma v.
Oklahoma, 825 P.2d 1295 (Okla. S. Ct. 1995).
186 POMS §01120.200. Where the grantor is the
sole beneficiary, Texas cases hold that even a trust that
is irrevocable by its terms can be revoked. Seguin
State Bank & Trust Co. v. Locke, 102 S.W.2d 1050
(Tex. Comm. App. 1937). This is not a problem in the
types of trusts under discussion, because they are not
funded by the grantor. Where the grantor does fund
the trust (probably including even personal injury
cases), Medicaid is now available only if one of the
“exception” trusts discussed above is used. If the
Medicaid is obtained through SSI, the SSI requirement
of irrevocability probably still applies; but it should be
achievable simply by designating one or more
remainder beneficiaries, so the grantor will no longer
be the “sole beneficiary” and the property will not be
subject to disposition through the grantor’s will.
187
42 U.S.C.A. §1396p(b).
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Only recovery from the probate estate is
required. The State has the option of recovering
from the non-probate estate (e.g., trust interests
terminating on death and accounts subject to
rights of survivorship). It also has the option of
placing liens on real property to secure its claim
before death. Recovery may be made only after
the death of the client's surviving spouse, if any,
and only at a time when there is no surviving
child who is under the age of 21 or blind or
disabled. A lien on the home can be foreclosed
only when no sibling or son or daughter who
meet certain qualifications is residing in the
home.
c) Hardship exception
The State is required to establish procedures
for waiving Estate Recovery if it "would work an
undue hardship as determined on the basis of
criteria established by the Secretary [HCFA]."188
2.
Status in Texas
The Attorney General of Texas has advised
that implementation of Estate Recovery requires
legislation, and HCFA accordingly determined
that it would not take enforcement action until the
Legislature had an opportunity to act. However,
subsequently, the 1995 and 1997 sessions of the
Texas Legislature came and went without so
much as a bill proposing such legislation.
Technique: If Estate Recovery is a concern
and Medicaid is not yet needed, the client may
want to consider conveying the home and
retaining a life estate. Unless the Legislature
opts to include nonprobate assets in Estate
Recovery, the remainder interest would pass free
of the State's claim. There may be a transfer
penalty, but it will be less than if a full
conveyance were made. The amount of the
transfer penalty depends on the value of the
property and the age of the client.189 (As with any
gifting, be sure the client is well protected during
the penalty period.) To be relatively safe from
criminal penalties and to avoid an unlimited
lookback period, the client may want to wait at
least 36 months to apply for Medicaid.
188
42 U.S.C.A. §1396p(b)(3).
Medicaid Eligibility Handbook §2341.3,
Appendix X.
189
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Another (riskier) strategy would be to
recovery.
transfer the residence (probably but not
necessarily retaining a life estate), apply
N. Procedural Matters In Medicaid Practice
immediately, and argue that there is no penalty
1. Rulemaking by the Texas Department of
because the transfer was not done for the purpose
Human Services
of Medicaid eligibility. Since the residence is
exempt, there is no need to transfer any interest
The rulemaking process offers the following
in it to achieve eligibility--only to avoid estate
opportunities for insight into and participation in
recovery. This is likely to require a hearing, and
policy formation:
the Department may make extra effort to be
creative in finding a reason to apply the transfer
penalty; but logically, this would seem to be an
a) Aged and Disabled Advisory Committee
allowable strategy under the rules at this time.
Practice Note: If the client is considering
purchasing a home or making home
improvements to convert countable resources to
exempt resources, be sure they understand that
the home may eventually be sold to pay the State
back for Medicaid payments. On the other hand,
if you are suggesting transactions in anticipation
of Estate Recovery, it would be prudent to let the
client know that we do not know exactly what the
program will look like nor whether there will
ever be a program. Here are some of the
uncertainties at present:
1. If there is a community spouse who
survives the institutionalized spouse, it is unlikely
that Estate Recovery will ever reach the home-especially if it is taken out of the probate estate of
the institutionalized spouse in a marital property
agreement. By directing it into a supplemental
needs trust in the community spouse's will (or
otherwise directing it away from the
institutionalized spouse), you can also avoid
Estate Recovery in the event the institutionalized
spouse is the survivor.
2. We do not yet know the scope of the
"hardship exception," nor whether terminable
(nonprobate) interests will be included, nor
whether liens will be utilized.
3. The Estate Recovery program may not be
aggressively administered (which is said to be the
case in many States that already have such
programs).
4. Will the Legislature ever pass such a
program? At this writing, in the author’s
opinion, the answer is probably not, for the
foreseeable future. And if a “Medicaid block
grant” program is ever implemented, it appears
likely that Texas will opt not to have estate
This committee of agency and public
representatives meets several times per year.
Among other matters, it reviews drafts of
proposed rules before they are published in the
Texas Register. Members of the public may be
placed on the mailing list for the agenda
(including rule drafts) and may attend meetings.
b) Publication of proposed and final rules in the
Texas Register
Like all other agencies, DHS must publish
proposed rules in the Texas Register and invite
public comment before they become final.
Practice Note: Reading ADAC rule drafts
and Texas Register notices (under 40 T.A.C.
Chapter 15, Medicaid Eligibility) is a valuable
way of keeping current. There are usually
important rule changes between publications of
the West paperback edition of 40 T.A.C., and
many changes go into effect in practice even
before and during the rulemaking process.
Another way of keeping up (and obtaining
rules that can be searched by key word) is to
make an open records request for the full text of
the current version of 40 T.A.C. Chapter 15 on
computer disk, which at this writing is provided
at no cost. It can be ordered from Texas
Department of Human Services Rules &
Handbook Unit, P.O. Box 149030, Austin, Texas
78714-9030. Call 512/438-3706 for an order
form. At the same time, you can obtain on the
same disk additional chapters of 40 T.A.C.,
especially Chapter 19 (Nursing Facility
regulation), Chapter 48 (Home Care programs),
and Chapter 79 (Hearings).
The rules may be found on the Internet at
www.lamb.sos.state.tx.us/tac, and the Texas
Register is at www.lamb.sos.state.tx.us/texreg.
Disability Benefits in the Estate Plan
Much useful (though often outdated) information
may also be gleaned from the Texas Department
of
Human
Services
website
at
http://www.dhs.state.tx.us/.
2.
Fair Hearings
a) Purpose
The client has a right to appeal any DHS
action or inaction on a claim for assistance to a
"fair hearing."190
b) Procedure191
(1) Requesting hearing. The request must
made within 90 days of the effective date of the
decision appealed from or from notice of the
adverse action, whichever is later.192 To preserve
benefits that are being threatened, however, the
request must be postmarked or delivered within
10 days of the mailing of the DHS notice.193 The
request for hearing may be any clear expression
of a desire to appeal, and time limits run from the
date of the request even if the written petition for
fair hearing on the DHS form is filed later.194
(2) Discovery. The appellant has the right to
examine evidence to be used in the fair hearing,
obtain a copy of all medical evidence in the file,
file interrogatories, and have a prehearing
conference regarding medical information.195
(3) Rules of evidence. The hearing is
informal, and the rules of evidence do not
apply.196
(4) Record. All hearings are recorded by
tape recorder or stenographer. Tapes are kept at
least 90 days, and appellants may copy them at
their own expense.197
(5) Hearing Officer’s Authority.
190
DHS
40 T.A.C. §79.1103.
See 40 T.A.C. §79.1101-1317, 1501-1503 for
the complete rules regarding fair hearings. See also
DHS' FAIR HEARING, FRAUD AND CIVIL
RIGHTS HANDBOOK.
192 40 T.A.C. §79.1207(a).
193 40 T.A.C. §79.1204(a).
194 40 T.A.C. §79.1102.
195 40 T.A.C. §79.1302, §§79.1305-1307.
196 40 T.A.C. §79.1301(a).
197
40 T.A.C. §79.1301(d).
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regulations provide, “The hearing officer...may
not reverse a decision based on DHS policy an
appellant alleges is contrary to law or
unconstitutional (the recommendation to reverse
a decision must come from the office of the
general counsel.” However, the hearing officer
“decides if actions are in compliance with current
statutes, policies, or procedures.”198
Practice Note: DHS hearing officers seem to
understand this to mean that if a DHS policy
specialist (who usually participates in the
hearing via speaker phone) says a particular
course of action is in accord with DHS policy, the
agency wins on that issue. This reduces the
hearing officer’s role from quasi-judicial to that
of a fact-finder (essentially, a one-person jury),
with the policy specialist (and ultimately the
general counsel’s office) deciding whether
agency policy is lawful. Therefore, advocacy on
legal issues should be directed not just to the
hearing officer but to the policy specialist and/or
the DHS attorney involved in the case.
3.
Administrative Review
The hearing officer's decision may be
reviewed by the agency's legal staff in
"administrative review."199 This is done by the
Regional Counsel. If the Regional Counsel was
not involved in the case at or before the hearing
stage, this may be useful.
Practice Note: In view of the hearing
officer’s apparent lack of authority to find agency
policy unlawful, and the severe limits on judicial
review, appeal to the legal staff may be the only
appeal in many cases. On matters of state law,
there appears at present to be no way of
challenging even the most blatant violations of
rights if accomplished as agency “policy,”
unless the courts can be persuaded that they have
inherent constitutional authority to alter this
arrangement. As suggested below, loss of federal
entitlement status could deprive citizens of all
recourse against any policy the agency may
191
198
40 T.A.C. §79.1203(d)(8),(9). The author is
unaware of another agency whose policies are so
insulated from administrative review. Since the same
decisions are insulated from judicial review (other
than under the federal Civil Rights Act, as discussed
below), there would seem to be issues here both under
the Administrative Procedures Act and under the
Texas Constitution.
199
40 T.A.C. §79.1105.
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choose to establish.
4.
Judicial Review
23rd Annual Advanced Estate Planning and Probate Course
persons who are eligible for no other benefits,
this program is frequently overlooked as a vital
source of support.
There is no right to judicial review of a DHS
fair hearing under Texas law.200
However,
because Medicaid is an entitlement under federal
law, violation of rights based on the federal
statute and regulations is actionable by suit .201
One of the major features of the proposed
Medicaid block grant program (vetoed by
President Clinton) would be to remove
“entitlement” status for Medicaid. That would
appear to supersede the cases providing for
federal judicial review; and as indicated above,
there has never been a provision for judicial
review (or even review by hearing officers, where
an agency policy is challenged) of the application
of state law. Thus, Texans would be left with no
apparent legal recourse in the event of agency
error, no matter how clear or willful. Given the
Texas Legislature’s proclivity for underfunding
human needs programs, that is a troubling
prospect for aged and disabled Texans and their
families.
Because the Clinton Administration opposed
Medicaid block grants, the re-election of
President Clinton is generally believed to have
ensured continuation of federal guarantees at
least through this Administration. However, the
Administration's acquiescence in "welfare
reform," in which federal guarantees were
revoked for dependent children in favor of block
grants and most legal aliens with disabilities were
denied SSI and food stamps, suggests that the
whole program could change radically at any
time.
A. Eligibility
1. Resources
Maximum allowable resources for all
members of the household is $2,000; provided,
for households including a member or members
age 60 or over, the maximum is $3,000. 7 C.F.R.
§273.8.
Resources that are countable include fair
market value of all assets that can be converted to
cash, other than exempt assets. Some important
assets exempted from the definition of
“resources” are the following:






Home and surrounding property
Household goods, personal effects, one burial
plot per household member, and cash value
of life insurance policies
Cash value of pension plans or funds, except
IRA’s and certain Keogh plans
Licensed vehicles of any value if they are
income-producing or “equity exempt” under
certain rules; otherwise, value exempt is
limited to a maximum of $4,650 wholesale
value, and value above that amount is
counted
Income-producing property as determined by
specified standards
Property in irrevocable trusts meeting certain
requirements
7 C.F.R. §273.8
2. Trust Rules
VIII. FOOD STAMPS
Comment: Elderly and disabled people
account for 11.7% of food stamp recipients in
Texas. Because it is available to many disabled
Trust rules for food stamps are the same as
for Temporary Assistance for Needy Families.
See IX.A.2. below.
3. Transfer Rules
200
Texas Government Code §2001.223.
However, at this writing (May 1999), a bill providing
for such review has passed the House Human Services
Committee.
201 42 U.S.C.A. §§1983, 1988. Wilder v. Virginia
Hospital Assn., 496 U.S. 498, 110 S. Ct. 2510 (1990);
Wood v. Tompkins, 33 F.3d 600 (6th Cir. 1994); but
see Suter v. Artist M., 112 S. Ct. 1360 (1992).
Knowing transfer of resources for the
purpose of qualifying or attempting to qualify for
food stamps is penalized by disqualification of
the household for up to one year from the date of
discovery (by the Texas Department of Human
Services) of the transfer. The length of the
disqualification period is based on the amount by
Disability Benefits in the Estate Plan
which nonexempt transferred resources, when
added to other countable resources, exceeds the
allowable resource limits. If the nonexempt
resources that are transferred exceed the resource
limit by $5,000 or more, the full one-year period
of disqualification is assessed.
7 C.F.R.
§273.8(I); 40 T.A.C. §3.706(b).
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work of a parent or spouse under certain
specified rules. 8 U.S.C. §1612.
The penalty is the same whether the transfer
was before or after application. However, there is
a “lookback period” of only 3 months. That is,
an applicant who waits at least 3 months after the
transfer to apply for food stamps will not be
denied eligibility as a result of the transfer.
Resident aliens who do not fall into the
categories above are excluded from the food
stamp program, even if they resided in the United
States on August 22, 1996, and even if they are
receiving SSI benefits. 8 U.S.C. §1612(a)(2)(E).
(As this article went the press, it had just been
announced that the President planned to ask
Congress to restore food stamp benefits for
lawful permanent resident aliens.) However, all
aliens receiving SSI are eligible for Medicaid. 8
U.S.C. §1612(b)(2)(F).
4. Income
6. Work Requirements
Both eligibility for and amount of
benefits (food stamp “allotments”) depends upon
household income. If the household has an
elderly (age 60 or over) or disabled member, net
income after certain deductions is used.
Otherwise, gross income is used. 7 C.F.R.
§273.9(d); 40 T.A.C. §3.1002(b), §3.1003(b).
Generally, food stamp benefits will be
available for no more than 3 months in any 36month period, unless the recipient is working or
participating in a work program at least 20 hours
per week. However, persons in the following
categories are not subject to this rule:
5.
Citizenship/Immigration Status
Only U. S. citizens and aliens lawfully
admitted for permanent or temporary residence
can be eligible for food stamps. 40 T.A.C.
§3.601(b); 7 C.F.R. §273.4(a).
Moreover, even permanent resident
aliens are excluded from the food stamp program
unless they fall into one of the following
categories:



An asylee, refugee or person whose
deportation is withheld, for the first 5 years
after being granted that status; or for the first
5 years, a Cuban, a Haitian, an Amerasian,
certain Native Americans from Canada, and
the noncitizen children of a battered parent
Active duty troops, their spouses, their
unremarried surviving spouses, unmarried
dependent
children,
and
honorably
discharged veterans meeting the minimum
service requirement (generally, 24 months
active duty)
Persons who have earned 40 qualifying
quarters of Social Security coverage, or who
can be credited with such quarters due to the




Under 18 or over 50 years of age
Medically certified as physically or mentally
unfit for employment
A parent or other member of a household
with responsibility for a dependent child
A pregnant woman
7 U.S.C. §2015.
B. Benefits
Beneficiaries receive plastic debit cards
(“Lone Star Cards”) that can be used to purchase
food at participating stores.
(Literal food
“stamps” or coupons are no longer used in
Texas.)
C. Application
Application for food stamps is made to the
Texas Department of Human Services in the
county of residence of the applicant.
IX. TEMPORARY ASSISTANCE FOR
NEEDY FAMILIES (TANF, FORMERLY
AFDC)
A. Eligibility
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1. Resources
23rd Annual Advanced Estate Planning and Probate Course
4. Income
The resource limit for the certified
household group is $1,000 in nonexempt
resources. All property that can be readily
converted to cash is a resource, but resources in
the following categories (among others) are
exempt from consideration:



 Income-producing property
 One burial plot
The residence and surrounding property
without limit
Personal possessions
One vehicle used by the certified household
group, to the extent that the equity in the
vehicle does not exceed $4,650
2. Trust Rules
The corpus of a trust is not counted as a
resource, even if a household member is a
beneficiary, if (1) no household member can
revoke the trust or change the beneficiaries; (2)
the trustee is a court, institution, corporation or
organization not controlled by a household
member, or is court-appointed; and (3) trust
investments do not help nor involve any business
or corporation under control of a household
member. In addition, if the trust was established
with the household’s own funds, (4) it must allow
for payments only for educational or medical
expenses of the beneficiary. TDHS Income
Assistance Handbook §535.2.
3.
Transfer Rules
A household is ineligible if within three
months before application, or at any time after
certification, anyone in the household group
transferred a countable resource for less than its
fair market value so that they could qualify for
TANF or increase their grant. Length of time of
ineligibility depends upon amount transferred,
with a one-year maximum that takes effect if
more than $5,000 is transferred. 40 T.A.C.
§3.706; the Texas Department of Human Services
Income Assistance Handbook §5.61.
If a beneficiary anticipates receipt of a lump
sum that may need to be transferred, see the
discussion at 4.b. below of “lump sum income.”
a) How income affects eligibility
In essence, DHS determines how much
income is required to meet the “basic needs” of
household members. If all household members
together have less than 185% of the income
necessary for those needs, it is potentially
eligible. Certain deductions are then taken from
countable income. If net income after deductions
is then below 25% of the household’s “basic
needs,” the household is awarded a cash grant
sufficient to bring net income up to 25% of “basic
needs.” 40 T.A.C. §§3.1002-3.1004.
Income
includes
cash
gifts
and
contributions, as well as earned and unearned
receipts. All cash income of all “mandatory”
household members is counted, including even
those that may be disqualified (for example,
because of citizenship status or refusal to comply
with work registration requirements).
The
following are some of the most important
exclusions from countable income (to determine
whether the 185% test is met, before application
of “deductions”):










The first $50 of child support received
Earned income of a full-time student, or of a
part-time student employed less than 30
hours per week
Disability payments resulting from Agent
Orange Settlement Agreements or the
Radiation Exposure Compensation Act
Income of VISTA volunteers, payments
under the Domestic Volunteer Service Act
Earned income credits (payments from IRS)
Certain educational assistance payments
Value of food stamps
Unearned in-kind assistance
Noneducational loans
SSI income
40 T.A.C. §§3.901, 3.902.
If the 185% test is met, DHS then applies the
following “deductions” to earned household
income:


$90 of work-related expenses
Actual cost of care of dependents receiving
TANF, not to exceed $200 per month for
dependents under age 2 and $175 per month
for dependents age 2 or older

Disability Benefits in the Estate Plan
Earned-income disregard of $30 for the first
12 months, plus, only for the first 4 months,
1/3 of the remainder
Net income is then compared to 25% of
need, and the cash grant is the amount necessary
to bring the household up to 25% of need. For
example, a family of 3 with no net income
receives a cash grant of $188 per month. If they
have $100 in net income, they receive $88 per
month. A family of 2 with no income receives
$163 per month, and a family of 7 with no
income receives $313 per month. 40 T.A.C.
§3.1003; 45 C.F.R. §233.20(a)(11)(ii)(B).
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after being granted that status; or for the first
5 years, a Cuban, a Haitian, an Amerasian,
certain Native Americans from Canada, and
the noncitizen children of a battered parent

Active duty troops, their spouses, their
unremarried surviving spouses, unmarried
dependent
children,
and
honorably
discharged veterans meeting the minimum
service requirement (generally, 24 months
active duty)

Persons who have earned 40 qualifying
quarters of Social Security coverage, or who
can be credited with such quarters due to the
work of a parent or spouse under certain
specified rules. 8 U.S.C. §1612.
b) Lump sum income
Nonrecurring “lump sum” income to a
family member results in ineligibility of the
family for the full number of months derived by
dividing the total of the lump sum income by the
monthly need standard for a family that size. Not
included in the lump sum income are sums
earmarked and actually used for a specific
purpose, such as medical bills resulting from an
injury. 45 C.F.R. §233.20(a)(3)(ii)(F); 40 T.A.C.
§3.902(a)(13).
Resident aliens who do not fall into the
categories above are excluded from the food
stamp program, even if they resided in the United
States on August 22, 1996, and even if they are
receiving SSI benefits. 8 U.S.C. §1612(a)(2)(E).
However, all aliens receiving SSI are eligible for
Medicaid. 8 U.S.C. §1612(b)(2)(F).
6. Deprivation of Parental Assistance
Practice Note: Because of this harsh rule, a
family anticipating a lump sum such as a
personal injury settlement or inheritance may be
well advised to voluntarily disenroll from TANF
before receiving the lump sum. Otherwise, they
may be disqualified for a very long time.
To receive TANF, a child must be
“deprived” because of the death of parent(s),
absence of parent(s) from the home, or physical
or mental incapacity of a parent. Deprivation is
determined in regard either to the child’s legal
parent or to a stepparent.
5. Citizenship/Immigration Status
7. Time Limitation on Eligibility
With the exceptions noted below, only U. S.
citizens and aliens lawfully admitted for
permanent or temporary residence can be eligible
for TANF. 8 U.S.C. §1611, 1612.
Unless an exception applies, benefits are cut
off after a time limit of 12 to 36 months,
depending on the recipient’s combination of work
history and education. Exceptions are made for
personal hardship and local community economic
factors. The following are illustrative:
Even permanent resident aliens are excluded
from the TANF program unless they fall into one
of the following categories:



1 year of benefits: caretaker with a high
school diploma or better or at least 18 months
of recent work history. In addition to 1 year
of cash benefits, the caretaker receives an
additional year of “transitional benefits”
(Medicaid, Child Care and Transportation)

2 years of benefits: caretaker with 3 years of
high school or 6 to 18 months of recent work
Entered the United States before August 22,
1996 (otherwise, an alien entering the U. S.
on or after that date is ineligible for 5 years
from the date the alien was both in the U. S.
and achieved permanent resident alien status)
An asylee, refugee or person whose
deportation is withheld, for the first 5 years

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23rd Annual Advanced Estate Planning and Probate Course
history. Includes an additional 1 year of
The author gratefully acknowledges the
transitional benefits.
contributions of Renée C. Lovelace in the
preparation of the following discussion of
3 years of benefits: caretaker with less than 3
TDMHMR benefits.
The author is solely
years of high school and less than 6 months
responsible for the final product.
of recent work history.
Includes an
additional 1 year of transitional benefits.
A. Eligibility
When the time limit has expired, the
caretaker is no longer eligible to receive the cash
benefit for 5 years. However, the children
continue to receive benefits.
The foregoing time limitations on benefits
are pursuant to H. B. 1863, 1995 Texas
Legislature, whose provisions were accepted as a
“waiver program” by the U. S. Department of
Health & Human Services. These provisions
differ in important respects from the federal
“welfare reform” requirements, but they are
effective at least until the “waiver” expires in the
year 2002.
B. Benefits
The discussion of income above includes a
summary of how benefits are determined.
C. Application
Application is made to
Department of Human Services.
X.
the
Texas
MHMR PROGRAMS
The programs described below are those
administered and/or funded by the Texas
Department of Mental Health and Mental
Retardation (TDMHMR) and by the various
community MHMR centers around the State of
Texas. As the name implies, these programs
provide services for persons with mental health
needs, and for persons with mental retardation.
The Texas statutes and rules generally refer
to persons with mental health needs as “patients”
and to mental health institutions as “hospitals” or
“outpatient facilities.” They refer to persons with
mental retardation as “residents” and to their
residential facilities as “schools.”
Persons
utilizing local outpatient facilities are referred to
as “clients,” and the outpatient facilities are more
commonly called “centers.”
1.
Medicaid-Funded Services
Medicaid does not cover services for
patients between the ages of 21 and 65 in an
“institution for mental diseases.” 42 U.S.C.
§1396d(a); 42 C.F.R. §§ 440.1 - 440.180;
Connecticut Department of Income Maintenance
v. Heckler, 471 U.S. 524 (1985). Apparently for
that reason, many MHMR services, particularly
in the mental health area, are not funded by
Medicaid and therefore are governed only by
State laws.
Except as otherwise indicated, the discussion
below will assume that Medicaid funding is either
not involved or does not affect the general
principles discussed. If Medicaid funding is
involved, see the more comprehensive discussion
of the Medicaid rules in VII. Above.
Practice Note: The first step in planning for
an MHMR client is to determine whether or not
Medicaid funding is involved, or is likely to be
involved in the future. As will be shown below,
the Medicaid rules are far clearer and more
objective than the State rules. They therefore
lend themselves more readily to coordinating all
resources of the family, community and
government with long-term planning for the
client’s benefit.
2. Non-Medicaid-Funded Services
a) Right to Mental Health Services
State law requires the State to support,
maintain and treat both indigent and nonindigent
patients at the expense of the state. However, the
state is entitled to reimbursement for the support,
maintenance and treatment of a nonindigent
patient. Moreover, a patient who does not own a
“sufficient estate” is to be maintained at the
expense of the patient’s spouse, if able to do so;
or, if the patient is younger than 18 years of age,
of the patient’s father or mother, if able to do so.
TEXAS HEALTH & SAFETY CODE §552.013.
Disability Benefits in the Estate Plan
A “patient” is defined as an individual who
is receiving voluntary or involuntary services
under the Texas Mental Health Code. Such
services may be provided in a “mental hospital,”
which is for inpatient care and treatment for
persons with “mental illness.” “Mental illness” is
defined as an illness, disease or condition, other
than alcoholism or mental deficiency, that (a)
substantially impairs a person’s thoughts,
perception of reality, emotional process or
judgment; or (b) grossly impairs behavior as
demonstrated by recent disturbed behavior. Such
services may also be provided in a “community
center” or other “mental health facility,” which
are not defined as necessarily serving only
persons with “mental illness.” TEXAS HEALTH &
SAFETY CODE §571.003.
b) Right to Mental Retardation Services
The right to services extends to “persons
with mental retardation.” “Mental retardation” is
defined as “significantly subaverage general
intellectual functioning that is concurrent with
deficits in adaptive behavior and originates
during the developmental period.” A “person
with mental retardation” is defined as a person
determined by a psychologist licensed in Texas or
certified by TDMHMR to have subaverage
general intellectual functioning with deficits in
adaptive behavior. TEXAS HEALTH & SAFETY
CODE §591.003(13),(16); §593.005.
c) Responsibility to Pay for Services
The same rules regarding client and family
responsibility for payment apply both to mental
health and to mental retardation services
(assuming Medicaid is not paying). In general,
the client and/or the client’s spouse or parents (if
under 18) are responsible for paying part or all of
the cost of support, maintenance and treatment
(“SMT”) on a sliding scale, based on their ability
to pay, as determined by TDMHMR. TEXAS
HEALTH & SAFETY CODE §§552.012-552.019;
TEXAS HEALTH & SAFETY CODE §593.0072593.0081. That determination is “guided” by
rules of the Department at 25 T.A.C. §403.74 (for
residential facilities) and at 25 T.A.C. §403.49
(for community-based services).
A person responsible for payment may
appeal the department’s determination for
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consideration by a hearing officer. 25 T.A.C.
§403.75.
The requirement of payment is enforceable
by a civil suit to be filed by a county or district
attorney, or alternatively by the Attorney
General. TEXAS HEALTH & SAFETY CODE
§552.019(a),(f).
This requirement is also enforceable by the
department or a community center placing a lien
on all nonexempt real and personal property
owned or later acquired by a client or by a person
legally responsible for a client’s or patient’s
support. TEXAS HEALTH & SAFETY CODE
§533.004.
B. Benefits
1. Mental Health Facilities
There are “state hospitals” in Austin, Big
Spring, Kerrville, Rusk, San Antonio, Terrell,
Vernon, Waco and Wichita Falls. They provide a
broad range of in-patient and out-patient mental
health services.
2. Mental Retardation Services
State law requires the Texas Department of
Mental Health and Mental Retardation to make
“all reasonable efforts consistent with available
resources” to:

assure that each person with mental
retardation who needs mental retardation
services is given quality care, treatment,
training and rehabilitation appropriate to their
needs

initiate, carry out and evaluate procedures to
guarantee to persons with mental retardation
their rights under this subtitle (Subtitle D,
Title 7, TEXAS HEALTH & SAFETY CODE )

carry out the requirements of this subtitle,
including planning, initiating, coordinating,
promoting and evaluating all programs

provide, either directly or by cooperation,
negotiation, or contract with other agencies, a
continuum of services to persons with mental
retardation, including treatment and care,
education and training, sheltered workshop
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23rd Annual Advanced Estate Planning and Probate Course
programs, counseling and guidance, and
develop community residential facilities
 community-based crisis residential services
(including group homes, halfway houses and
or hospitalization
day-care facilities)
 community-based assessments, including the
TEXAS HEALTH & SAFETY CODE §591.011.
development of interdisciplinary treatment
plans and diagnosis and evaluation services
The “state schools” for persons with mental
retardation are located in Abilene, Austin,
 family support services, including respite
Brenham, Corpus Christi, Denton, Lubbock,
care
Lufkin, Mexia, Richmond, San Angelo, and San
Antonio.
The Department also funds and
 case management services
provides administrative and support services to
numerous group homes, halfway houses and day medication-related
services,
including
care facilities throughout the state.
medication clinics, laboratory monitoring,
medication
education,
mental
health
maintenance
education,
and
the
provision
of
3. Community Services
medication
TDMHMR approves and to some extent
supervises local MHMR organizations that
operate “community centers” for mental health,
mental retardation, or both. Such organizations
are for most purposes governmental entities,
though they may have substantial funding from
nongovernmental sources. TEXAS HEALTH &
SAFETY CODE §534.001.
The local MHMR centers are intended to
provide a continuum of services to Texans who
have mental illness or mental retardation, and
they may provide services to persons with
chemical dependency.
TEXAS HEALTH &
SAFETY CODE §534.0015. They are required to
provide screening services for admission to
TDMHMR facilities and to provide continuing
mental health services to persons referred by
facilities.
State law provides that a community center
shall charge reasonable fees for its services if not
prohibited by other laws or contracts, and it may
not deny services to a person because of inability
to pay. A center “has the same rights, privileges,
and powers for treating patients and clients that
the department has by law,” and the county or
district attorney of the center’s county is to
represent the center in collecting fees. TEXAS
HEALTH & SAFETY CODE §534.017.
Community centers are required by law to
ensure that the following services, at a minimum,
are available in their service areas:

24-hour emergency screening and rapid crisis
stabilization services

psychosocial
rehabilitation
programs,
including
social
support
activities,
independent living skills, and vocational
training

appropriate
community-based
services,
including the assignment of a case manager,
for each person discharged from a department
facility who is in need of care

to the extent resources are available, the
department is required to ensure that the
services listed above are available to children,
including adolescents, as well as adults, in
each service area; emphasize early
intervention services for children, including
adolescents, who meet the department’s
definition of being at high risk of developing
severe emotional disturbances or severe
mental illnesses; and ensure that services are
available to certain criminal defendants
required to submit to mental health treatment.
TEXAS HEALTH & SAFETY CODE 534.053.
4. Support Services
The department provides assistance to
clients and families of clients with mental
disabilities for the following expenses necessary
for living independently in the community:

purchase or lease of special equipment or
architectural modifications to improve or
facilitate the care, treatment, therapy, or
general living conditions
Disability Benefits in the Estate Plan

medical, surgical, therapeutic, diagnostic and
other health services made necessary by the
person’s mental disability

counseling and training programs

attendant care, home health aid services,
homemaker services, and support with
training, routine body functions, dressing,
preparation of food, and ambulation

respite support for a family that is the client


Y-69
considered the patient’s property and liable for
the patient’s support. TEXAS HEALTH & SAFETY
CODE §552.018. Essentially the same rule
applies to residents (persons with mental
retardation) (under §593.081) and to community
center clients (under §534.0175).
Under the statutes just cited, the following
are not considered “trusts” and are not entitled to
the exemption:

a guardianship established under the Texas
Probate Code
transportation services

transportation, room and board costs for
evaluation or treatment, if preapproved by the
department
a trust established under Chapter 142, Texas
Property Code (by a trial court for an
incapacitated plaintiff)

a facility custodial account established under
TEXAS HEALTH & SAFETY CODE §551.003

the provisions of a divorce decree or other
court order relating to child support
obligations

an administration of a decedent’s estate

an arrangement in which funds are held in the
registry or by the clerk of a court
TEXAS HEALTH & SAFETY CODE §535.004.
Assistance for the above needs is limited to
not more than $3,600 per year, except the client
may receive in addition a one-time grant of not
more than $3,600 for architectural renovation or
other capital expenditure to improve or facilitate
the care, treatment, therapy, general living
conditions, or access of a person with mental
disability. TEXAS HEALTH & SAFETY CODE
§535.007.
Comment: While the services described in
the statutes appear to be broad and appropriate,
funds for State programs do not cover all Texans
who qualify for services. Estimates vary, but as
many as 16,000 to 20,000 Texans around the
State may qualify for services yet remain on
lengthy waiting lists, not receiving services.
Advocates say that is the tip of the iceberg--as the
number of Texans who qualify for MHMR
services but who do not even keep their names on
a waiting list is likely to be a much higher
number.
C. Trust Rules
If a TDMHMR patient is the beneficiary of a
trust that has an aggregate principal of $50,000 or
less, the corpus or income of the trust is not
considered to be the property of the patient and is
not liable for the patient’s support. If the
aggregate principal of the trust exceeds $50,000,
only the portion exceeding that amount and the
income attributable to that portion can be
There are few reported cases dealing with
these trust statutes or litigation between the State
and trustees of trusts. While State claims and
litigation are likely on-going, there is not a
readily-available method for following such
cases. Many attorneys around the State have had
negotiations and even handled litigation between
trusts and the State, but it is difficult for attorneys
to locate other attorneys who have handled
similar cases.
The case apparently cited most frequently
for the State's authority to proceed against trusts
is State v. Rubion, 308 S.W.2d 4 (Tex. 1958).
Rubion held that the State did not have a right at
common law to demand payment from thirdparty trusts, but that such authority could be
provided by statute. The Texas statutes now
include the Health & Safety Code statute
provisions addressing trusts, which are referenced
above.
Because of the paucity of reported cases, a
number of "understandings" and attorney
comments are included here. Attorneys have
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23rd Annual Advanced Estate Planning and Probate Course
reported to this author that they understand
future from self-funded accounts with that
certain TDMHMR positions to include the
trust.
following:
The opinions and statements above are based
 The State almost always wins or settles
on reports from other attorneys, and are not
favorably to the State claims for
statements of policy by the department. The
reimbursement from trusts where the trust
department's positions are, of course, subject to
distribution standards include "support" and
change at any time.
"maintenance." This appears to be true
where the trustee is mandated to make
Another issue not expressly addressed in the
distributions for support and/or for
TDMHMR trust statutes is whether or not the
maintenance--and even when the trust terms
$50,000 protection applies to a trust created by or
provide that support and maintenance
on behalf of the beneficiary with his or her own
distributions are within the sole discretion of
property. The “142 trust,” created by a trial court
the trustee.
under Texas Property Code §142, is arguably of
this type, because it is funded by assets that
 There are no reported cases dealing with
otherwise would have gone to the beneficiary (or
State claims against fully discretionary trusts,
to his or her guardianship estate). Property of
although the State appears willing to litigate
self-settled trusts is not insulated from the claims
cases against fully discretionary trusts, even
of creditors of the beneficiary, even if they have a
where such trusts are created by third parties
“spendthrift” clause, so may be regarded as not
who have no duty to support the beneficiary.
insulated from TDMHMR’s statutory claims.
State support for their position apparently
Moreover, public policy as expressed by the
includes (a) Rubion,, (b) the Health & Safety
Medicaid laws and the cases in other states
Code trust statutes discussed above, and (c)
indicates that such trusts will not protect the
analogies to child support obligations. Texas
beneficiary’s assets from consideration by
Family Code Sec. 154.005(b) provides that
providers of public benefits, lest all who seek
child support obligations of a trust
such benefits throw the cloak of a self-settled
beneficiary can be enforced against the
trust over their property. By contrast, respecting
income of a discretionary trust. Cases have
the wishes of a third party who creates a
indicated that this encroachment into thirdsupplemental needs or discretionary trust has the
party-created discretionary trusts is warranted
effect of promoting policies favoring assistance
given the public policy interests. The State
of disabled persons by family members and
has apparently taken the same position,
others, with assets that otherwise would be
making the argument that recovery from
denied to them. Accordingly, it is the author’s
discretionary trusts support public policy
opinion that self-settled trusts are likely not to
interests. Note also the language in the
provide
protection
from
TDMHMR’s
Health & Safety Code. The department is
reimbursement claims.
authorized to seek reimbursement from the
"property" of those who receive services.
If the benefit being sought is “Long Term
Several of the trust statutes then go on to
Care Medicaid” in a TDMHMR facility,
define the person's property as including all
involving only Medicaid funds, then a very
amounts in a trust that exceed $50,000.
different set of trust rules comes into play. The
$50,000 dollar limitation does not apply to a trust
 To the author's knowledge, the State has not
settled by a third party, and the corpus is not
sought reimbursement from third-party
counted as a resource, even if the trust requires
supplemental care or special needs trusts that
payments of “support.” 40 T.A.C. §15.415(d),
do not reference support and maintenance.
Medicaid Eligibility Handbook §2313.2.

An attorney with Department has indicated in
a letter to the author that the Department does
not seek reimbursement from the ARC
Pooled Trust (discussed at VII.L.2.c. above);
but it appears there is uncertainty as to
whether reimbursement may be sought in the
Contrast this with the more restrictive
SSI/Community Medicaid rules pertaining to a
third-party-settled trust, discussed at II.C.1.
above. Among other matters, these rules may
require that even a third-party-settled trust be of
Disability Benefits in the Estate Plan
the “supplemental needs” or “discretionary”
variety.
Regarding self-settled trusts, Medicaid does
allow a beneficiary under age 65 to transfer his or
her own assets into a trust that will be disregarded
by the Medicaid program, provided (among other
requirements) it provides for reimbursement of
the program from trust assets at the death of the
beneficiary. 42 U.S.C. §1396p(d)(4)(a),(c). See
II.C.2. and VII.L.2. above for additional
information.
For a thorough discussion of how similar
issues have been dealt with in many jurisdictions,
see CLIFTON B. KRUSE, JR., THIRD-PARTY AND
SELF-CREATED TRUSTS, 2d ed., p. 68 (American
Bar Association 1998). Also see the bibliography
at the end of this article for citations to related
materials.
Dallas attorney Renée Lovelace has worked
with many families who seek to plan for family
members with serious disabilities, and has
concluded that in most cases two trusts are
needed in order to provide adequate flexibility
and protection of the trusts. Her approach is
addressed in Appendix 16.
D. Transfer Rules
The statutes and rules governing TDMHMR
and its community centers contain no provisions
as to the effect of a beneficiary’s transferring
assets in order to avoid claims for reimbursement.
The author has been told by agency
representatives that in establishing the charges for
support, maintenance and treatment (“SMT”),
they consider only assets owned by clients at the
time they seek or receive services (e.g., at the
time of voluntary or involuntary commitment to a
state hospital). Under this view, a transfer may
result in the agency’s disregarding such assets, if
the transfer is made before services are applied
for or received. However, depending on the
evidence of intent, the agency may take the
position that such transfers are in fraud of
creditors and seek to recover the assets from
transferees on that ground. If the person waits
until he or she is receiving MHMR services or
has an outstanding bill for such services, the
agency is highly likely to treat the transfer as a
fraudulent conveyance.
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In short, advice regarding transfers for the
purpose of avoiding financial responsibility for
TDMHMR or local MHMR services should be
given under the same constraints as any other
advice regarding transfers of assets with
protection from creditors in mind. A transfer is
fraudulent as to a creditor, whether the creditor’s
claim arose before or within a reasonable time
after the transfer, if the debtor made the transfer
with actual intent to hinder, delay or defraud any
creditor. TEX. BUS. & COMM. C. §24.005(a).
Moreover, it is unethical for an attorney to assist
or counsel a client to engage in conduct the
attorney knows is fraudulent. Texas Disciplinary
Rules of Professional Conduct Rules 1.02(c),
8.04(a)(3).
Different rules appear to apply to transfers
to qualify for public benefits for which there is no
right of reimbursement to the governmental
entity, in which case the provider is probably not
a “creditor” under the laws governing fraudulent
conveyances. In particular, refer to the Medicaid
laws if the benefit sought is financed entirely by
Medicaid. Unless the statute purporting to make
criminal the giving of advice is valid and
applicable, it is probably permissible to advise
and assist in transfers to qualify for Medicaid.
See the materials for this seminar on “Advanced
Medicaid Planning” for a more complete
discussion.
XI. VETERANS’ BENEFITS
The discussion below is quite general. It is
based primarily on the pamphlet “Federal
Benefits for Veterans and Dependents” (1998 ed.)
and on workshop materials prepared by Jerome I.
Solkoff, CELA and Scott Solkoff for the 1997
Symposium of the National Academy of Elder
Law Attorneys. More information about benefits
for a particular veteran can be obtained by calling
800/827-1000, which will provide a referral to a
local benefits counseling office.
The following are primary sources of law
on veterans’ benefits: U.S. Code Title 38 and
regulations at 38 C.F.R. §§ 3.1(a), (h); 3.12(a);
3.1(d),(e); 3.203; 3.301; 3.303; 3.303(a);
3.307(b); 3.309; 3.301; 3.302.
Comment: The U. S. Department of Veterans
Affairs is staffed by personnel who are generally
oriented toward finding benefits for applicants,
rather than denying or obscuring them.
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Therefore, although legal assistance is sometimes
needed for appeals involving difficult issues, the
 Clothing allowance of $491 for use of
involvement of attorneys is less likely to be
prosthetic or orthopedic appliance
necessary than for dealing with the civilian
programs.
 Disability
compensation
for
chronic
disabilities resulting from undiagnosed
This summary does not include benefits such
illnesses suffered by Persian Gulf veterans
as education and training, home loans, and
benefits for survivors that are available to nonUnder a special program for “unemployable
disabled veterans as well as to those with
veterans,” a veteran awarded 100% disability
disabilities.
compensation who nevertheless participates in a
vocational rehabilitation program and secures
employment will continue to receive disability
A. Disability Compensation
compensation without reduction until he or she
has worked continuously for 12 months.
1. Eligibility
Monthly disability compensation is payable
to veterans disabled by injury or disease incurred
or aggravated during active military service. The
service of the veteran must have been terminated
through separation or discharge under conditions
that were other than dishonorable.
2. Benefits
An eligible veteran with no dependents and
no offsetting military income (such as military
retirement pay, disability severance pay or
separation
incentive
payments)
receives
approximately $100 per month for a 10%
disability, graduated up to approximately $2,000
per month for a 100% disability (increasing with
inflation).
Veterans
with
service-connected
disabilities rated at least 30% are entitled to
additional allowances for dependents, with the
amount determined according to the number of
dependents and degree of disability. In addition,
a disabled veteran with a disability of at least
30%, and whose spouse is in need of aid and
attendance of another person, is entitled to an
additional allowance.
The following other benefits are available to
some disabled veterans:

Grants to buy or remodel homes to obtain
adaptations to disabilities

One-time payment of not more than $5,500
toward purchase of an automobile or other
conveyance adapted for use by the disabled
veteran
B. VA Pensions
1. Eligibility
Veterans with low incomes and not more
than $1,500 in countable assets may be eligible
for a monthly pension, if they meet the following
conditions:

90 days or more of active military service,
one day of which was during a period of war

Discharge from active duty under conditions
other than dishonorable

Permanent and total disability for reasons
traceable neither to military service nor to
willful misconduct

Income below the applicable maximum
pension rate, after unreimbursed medical
expenses are paid
2. Benefits
The following were the “improved pension
rates” in effect in 1997. A veteran with no
income received the amount indicated, with the
pension amount reduced dollar-for-dollar for
countable income:
Disability Benefits in the Estate Plan
Status
Max.
Annual
Pension
No dependent spouse or child
$8,665
One dependent spouse or child
$11,349
Permanently housebound with no
dependents
$10,591
Permanently housebound with
one dependent
$13,275
In need of regular aid and
attendance, no dependents
$13,859
In need of regular aid and
attendance, one dependent
$16,542
Two veterans married to one
another, neither housebound nor
in aid of attendance
$11,349
Increase for each
dependent child
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$90. At the same time, if you need eligibility
immediately, it may be better to establish a Miller
Trust for just 2 or 3 months than to lose eligibility
until the paperwork goes through to reduce the
VA income. Bear in mind that the reduction does
not apply to service-connected VA disability
compensation, nor to military retirement pay; nor
does it apply at all if the veteran is married or
has a dependent child.
C. Vocational Rehabilitation
1. Eligibility
Veterans and servicemembers are eligible
for monthly payments for training if they meet
the following conditions:

Service-connected disability rated at least
20% (or 10% if there is a “serious
employment handicap”)

Discharge or release other than dishonorable,
or hospitalized awaiting separation for a
service-connected disability

Need vocational rehabilitation to overcome
an employment handicap caused by the
service-connected disability
additional
$1,476
If a VA pension beneficiary is furnished
hospital or nursing home care by the VA, the
United States or a political subdivision thereof, or
the Medicaid program, the pension may be
reduced substantially. See 38 C.F.R. §5503. For
example, in the case of a veteran with neither a
spouse nor a dependent child, who is furnished
domiciliary care by the Department of Veterans
Affairs, the disability pension is reduced to $90
per month after the end of the third full calendar
month following the month of admission. 38
C.F.R. §5503(a)(1) Likewise, a veteran with
neither a spouse nor a dependent child who is in a
nursing facility on Medicaid will have his or her
VA pension reduced to $90 per month. However,
the veteran is allowed to keep the full $90 per
month, rather than being limited to a $30 personal
needs
allowance
like
other
Medicaid
beneficiaries. 38 C.F.R. §5503(f)(2),(3).
Practice Note: This potential reduction in
non-service-connected VA pension is important to
take into account in determining whether or not a
“Miller Trust” is required to secure Medicaid
eligibility for a veteran. You don’t want to
charge the client for this service, then find out
that it was not needed due to the reduction to
2. Benefits
Amount of monthly benefits depends on the
number of dependents, type of training, and
whether the training is full-time or a fraction
thereof. In 1997, benefits for a veteran with no
dependents ranged from $99.59 for 1/4-time
training to $396.22 for full-time training. The
same range for one with two dependents was
$145.06 and $579.17, respectively.
D. Health-Care Benefits
1. Hospital and Outpatient Care
VA hospital and outpatient care is divided
into two categories: “mandatory” coverage,
which the VA is required to provide to the extent
Congress appropriates funds; and “discretionary”
coverage, provided to the extent resources are
available in exchange for a copayment.
23rd Annual Advanced Estate Planning and Probate Course
who meet the “mandatory” criteria for hospital
and outpatient care. Veterans with a serviceconnected disability may be given first priority.
The mandatory category covers veterans
who meet any of the following requirements:
The following veterans may be provided
nursing
home care without regard to income
 Care is needed for a service-connected
eligibility:
condition
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a) Mandatory coverage

With service-connected disability

Discharge or release from active military
service was for a compensable serviceconnected disability
Exposed to herbicides while serving in
Vietnam

Exposed to ionizing radiation

Former prisoners of war

With a condition related to an environmental
exposure in the Persian Gulf

Veterans of the Mexican Border period or
World War I

Former prisoners of war

Veterans exposed to Agent Orange in
Vietnam, ionizing radiation, or environmental
hazards in the Persian Gulf

On VA pension

Eligible for Medicaid
Veterans whose annual income and net worth
is below the “means test” threshold. In 1997,
that was $19,912 per year for a single veteran
with no dependents or $23,896 if married (or
single with one dependent). The income
level was raised $1,330 for each additional
dependent.
When a copayment is charged for nursing
home care, it is the amount of the Medicare
deductible for inpatient hospital care ($768 in
1999), for every 90 days of nursing home care or
fraction thereof.



The veteran has a compensable serviceconnected condition
b) Discretionary coverage
All veterans not eligible for mandatory
hospital and outpatient coverage are eligible for
hospital care, medical services, and nursing home
care “to the extent resources and facilities are
available.” 38 U.S.C. §1710(a)(3). Such services
are further conditioned on payment of the
Medicare deductible ($768 in 1999) for the first
90 days of care during any 365-day period; and
for each additional 90 days of hospital care, the
patient is charged one-half the Medicare
deductible. In addition, the patient is charged
$10 per day for hospital care and $5 per day for
VA nursing home care, and a copayment for
outpatient care of 20% of the cost of an average
outpatient visit.
2. Nursing Home & Assisted Living Care
Nursing home care is always furnished, if at
all, on a “space-available” basis, even to persons
Veterans are sometimes transferred from VA
hospitals or nursing facilities to private nursing
homes under contract with the VA. However,
such care normally is not provided for more than
six months, except for veterans who need nursing
home care for a service-connected disability or
for veterans who were hospitalized primarily for
treatment of a service-connected disability.
Direct admission to private nursing homes at
VA expense is limited to (1) a service-connected
disability requiring nursing care; (2) transfer from
a military hospital prior to discharge; and (3)
post-discharge from a VA medical center.
Practice Note: Medicaid requires that an
applicant apply for VA nursing home care as well
as all other benefits for which he or she may be
eligible. This sometimes creates anxiety in
clients, who fear they will lose Medicaid
eligibility and be forced to move to a facility far
from home and/or less desirable than a local
Medicaid home. However, under the foregoing
rules, it is quite rare for a Medicaid applicant to
qualify for VA nursing home care. Moreover,
Disability Benefits in the Estate Plan
even if such qualification does occur, the VA
benefit should be treated as a “third-party
resource” and Medicaid eligibility established in
the meantime, so there will be no need to reapply
when the VA entitlement ends (usually after 6
months).
The VA also may provide “domiciliary
care,” a level of care below that provided in a
nursing facility that appears to correspond
generally to assisted living care. It is available to
veterans with annual incomes not exceeding the
annual rate of VA pension and to veterans who
have “no adequate means of support.”
3. Miscellaneous Medical Services
The following services are available to
veterans in various categories of serviceconnected disability, low income, war-related
exposure, etc.:











outpatient pharmacy services
outpatient dental treatment
examination and treatment of conditions
relating to Persian Gulf service, Agent
Orange and ionizing radiation
travel costs for VA care
alcohol and drug dependence treatment
prosthetic services
services and aids for blind veterans
home improvements and structural alterations
readjustment counseling
medical care for dependents and survivors
benefits for homeless veterans
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assisted living are available to persons with
disabilities. Information is usually available from
the local housing authority, which administers
most of these programs.
B. Local Medical Assistance Programs
In some areas, there are medical programs
providing physician care and other services to
persons who “fall through the cracks” because
they cannot afford medical care, do not have
adequate insurance, and do not qualify for
Medicaid or Medicare. An example is the City of
Austin Medical Assistance Program.
C. Emergency Room Assistance
Hospitals are required to provide emergency
care to persons in need regardless of ability to
pay. Although some individuals unfortunately
utilize this as their sole source of medical
assistance, it should be viewed as a last resort.
D. Indigent-Care Responsibilities of Hospitals
Under the federal Hill-Burton Act and other
laws, hospitals are required to provide some
services without compensation to indigent
persons. Some such services are reimbursed
indirectly under the Medicaid program’s
“Disproportionate Share Hospital Funds.” These
programs are of little use for planning purposes,
as they are ordinarily utilized as payers of last
resort when indigent patients have failed to
respond to collection efforts.
E. Application
E. Local Nonprofit Agencies
Call 800/827-1000 for the location of the
nearest VA benefits office.
XII. OTHER PUBLIC BENEFITS
The following is a list of benefits not
discussed above.
A. Subsidized Housing
Housing subsidies are provided in the form
of public housing (“projects”), low-income
housing built with tax breaks to the developer
(such as “235 housing”), and rent subsidies
(usually “Section 8 housing”). Some units with
Many areas have private nonprofit agencies
that assist persons with disabilities, often in
situations in which they would otherwise “fall
through the safety net.” Although they often
receive some funding from public agencies, their
benefits are not usually “entitlements” in a legal
sense. For a list of such agencies, contact your
local Area Agency on Aging, Alzheimers
Association, Association for Retarded Citizens or
similar organization serving persons with
disabilities.
F. Unlisted Agencies & Benefits
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23rd Annual Advanced Estate Planning and Probate Course
This section is here just to emphasize that
the benefits discussed above are not by any
means all the benefits available to persons with
disabilities, but only the major national programs.
One of the lesser-known programs may offer just
the help you or your client need, but only with
diligent work and advocacy will you find it. In
addition to the referral agencies named above,
you may want to call the Texas Department of
Human Services, Texas Department of MHMR, a
local MHMR agency, the Texas Department of
Aging, Legal Aid, veterans’ organizations or
relevant advocacy groups.
Agencies and groups serving persons with
disabilities truly form a “network.” You can find
almost anything available, no matter where you
start, if you are persistent and diligent. And you
will meet some very remarkable people on the
way.
Disability Benefits in the Estate Plan
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APPENDICES
APPENDIX 1: Miller Trust (Qualified Income Trust)--Trust Instrument
For discussion of the legal background and purposes of this form, see VII.F.4. above.
TRUST DECLARATION
OF
«Client Name:LIKE THIS»
This declaration of trust is made by «Client Name:LIKE THIS», hereinafter referred to as the
Settlor, who is also a beneficiary of this trust.
ARTICLE I
NAME OF TRUST AND TRUST PURPOSE
This trust shall be known as the «Client Name:LIKE THIS» INCOME TRUST. The Settlor of this
trust requires continuing medical and nursing supervision and is dependent upon others for «Client
Gender:his/her» personal care. The overriding purpose of this trust is obtain the necessary care from
whatever sources may be available. To that end this trust is designed to assist the Settlor in meeting the
requirements of eligibility for benefits under the Medical Assistance Program in the State of Texas, under
the provisions of 42 U.S.C.A. Sec. 1396p(d)(4)(B) as amended by The Omnibus Budget Reconciliation Act
of 1993 (effective August 10, 1993) and all other applicable laws, regulations and administrative
procedures.
ARTICLE II
SETTLOR
«Client Name:LIKE THIS» and the Texas Department of Human Services shall be the sole
beneficiaries of the trust. Settlor «Client Name:LIKE THIS» has Social Security number «SSN». «Client
Name:LIKE THIS» presently resides at «Street Address», «City», «State» «Zip Code».
ARTICLE III
APPOINTMENT OF TRUSTEE
Settlor hereby appoints «Miller Trustee1:LIKE THIS» as the Trustee of this trust. Trustee shall
serve without bond or supervision of any court.
ARTICLE IV
TRUST ESTATE
Section 1. Income Trust. «IF All Income»It is the settlor's intent to transfer all of «Client
Gender:his/her» income into the trust, to be held and managed as the trust estate.«END IF»«IF All Income
= FALSE»It is the settlor's intent to transfer all of the following income into the trust, and settlor directs
«Client Gender:his/her» agents to transfer this income and only this income into the trust: «Income to
Trust».«END IF» Only “income” of the settlor, as defined by the rules and laws governing the Medical
Assistance Program in Texas, may be transferred to the trust. «IF All Income»The trustee and all persons
who may act as the settlor’s agents are hereby instructed that all the settlor’s income from whatever source
shall be transferred to the trust for so long as the settlor is eligible for benefits under the Medical Assistance
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23rd Annual Advanced Estate Planning and Probate Course
Program (Medicaid) or seeking such eligibility.«END IF» The income to be deposited is from the
following sources: «Income».
Section 2. When Income Transferred. Income of the settlor to be transferred to the trust shall be so
transferred in the same month in which it is received by the settlor, unless a longer time is authorized by
regulation or written directive by the agency administering the Medical Assistance Program. Income may
be transferred directly from the income source to the trust.
«IF All Income = FALSE»
Section 3. All Income From Same Source. When income from any source is transferred to the trust
in a given month, all income from that source shall be transferred to the trust in the same month. For
example, the trustee may not transfer to the trust only a part of the settlor’s Social Security income in any
given month; either all or none must be transferred in that month.
«END IF»
ARTICLE V
DISPOSITION OF PRINCIPAL AND INCOME
Section 1. Maintenance of Qualification for Public Benefits. The overriding purpose of this trust is
to assure eligibility of the Settlor for Medical Assistance Program benefits. Therefore, the Trustee shall
make distributions from the trust in amounts and for the purposes necessary to maintain such eligibility,
notwithstanding any other provision of this document. Among the requirements of the Medical Assistance
Program at the time of establishment of this trust, which the Trustee shall meet as long as and to the extent
required, is the requirement that the trustee make payments from the trust in the following priority:
a. A monthly personal needs allowance ($30.00 per month as of this date); then
b. In the event the Beneficiary is married, a sum to the spouse of the Beneficiary sufficient to
provide the minimum monthly maintenance needs allowance for the spouse. All trust funds that
can be paid to the Settlor's spouse, if any, without reduction or loss of the Settlor's eligibility
for public benefits, shall be used by the Trustee for the benefit of the Settlor's spouse. The
Trustee may exercise discretion in determining the purposes for which such payments are made
but shall have no discretion to make such payments to or for the benefit of any person or entity
other than the Settlor's spouse. The trust cannot be terminated and distributed to any other
individuals or entities for any other purpose. Then,
c. From the funds remaining, the cost of medical assistance provided to the Beneficiary. To the
extent required by the Medical Assistance Program, income placed in the trust must be paid out
of the trust for medical care provided to the Settlor, including nursing facility or ICF/MR or
home/community-based waiver services provided to the Settlor.
Section 2. Miscellaneous Distributions. Subject to the requirements of the previous sections of this
article and of the Medical Assistance Program, in the event that funds are available, the Trustee may make
other distributions of principal and/or interest for the Settlor’s health, education, maintenance and support,
as the Trustee may in the Trustee's discretion deem advisable. Such other distributions may include,
without limitation, payment of the administrative fees of the trust, income tax owed by the trust, attorney
fees which the trust is obligated to pay (in proportion to whatever part of the trust benefits the Settlor), food
or clothing for the individual, or mortgage payments for the Settlor’s home.
Section 3. When Payments Made. Required payments must be made by the trust not later than the
last day of the month following the month of receipt of the income, or within any other time period that may
be required by the Medicaid program.
ARTICLE VI
TERMINATION OF TRUST
Disability Benefits in the Estate Plan
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Section 1. Irrevocability. This trust is irrevocable.
Section 2. Events of Termination. This Trust shall terminate upon the settlor's death. Upon
termination, the remaining trust property shall be distributed as set forth in Article VI. Sec. 3 below.
Section 3. Distribution Upon Termination. At the settlor's death, the Trustee shall distribute to the
Texas Department of Human Services or its successor agency any remaining trust property up to an amount
equal to the total medical assistance paid on behalf of «Client Name:LIKE THIS» by the Texas Medical
Assistance Program, as reimbursement. Provided, in the event that «Client Name:LIKE THIS» shall have
lived in more than one State, the funds remaining in the trust shall be distributed to each State in which
«Client Name:LIKE THIS» has received assistance under the Medical Assistance Program, based on the
State’s proportionate share of the total amount of Medical Assistance benefits paid by all of the States on
«Client Name:LIKE THIS»’s behalf. All trust property remaining thereafter shall be distributed to the
named beneficiaries of the last will and testament of «Client Name:LIKE THIS» in the amounts and/or
proportions therein required, as if the trust property were part of the probate estate; and in the event «Client
Name:LIKE THIS» dies intestate, the trust property shall be distributed to «Client Gender:his/her» heirs at
law as provided by Texas law at the time of «Client Gender:his/her» death.
ARTICLE VII
TRUST ADMINISTRATIVE AND PROTECTIVE PROVISIONS
Section 1. Jurisdiction. This trust shall be administered expeditiously and consistently with its
terms, free of any judicial intervention and without order, approval or other action by a court, subject only
to the jurisdiction of a court which is invoked by the trustee or other interested parties or as otherwise
provided by law.
Section 2. Reports. Periodic reports shall not be made unless required by the regulations of the
Texas Department of Human Services. The trust records shall be open at all reasonable times to inspection
by the Settlor of the trust, the Texas Department of Human Services, and their properly appointed
representatives.
ARTICLE VIII
POWERS OF TRUSTEE
Section 1. Property Code Title 9 Trust Provisions. In addition to all of those powers specifically
granted herein, the Trustee may exercise those powers set forth in Texas Property Code Title 9, Trusts Sec.
101.001-115.017, together with any amendments to such Code after the date of this document, including
without limitation the power to establish and manage a checking account in a bank, credit union, savings &
loan or other similar financial institution.
ARTICLE IX
TRUSTEE SUCCESSION AND ADMINISTRATIVE PROVISIONS
Section 1. Resignation or Death of the Trustee. Any Trustee may resign by giving thirty days
written notice to the Settlor, or to the guardian, conservator or other legal representative of the Settlor. Such
resignation shall be effective 30 days from the date notice is given. In the event the Trustee resigns,
becomes legally incapacitated or dies while holding office, «Miller Trustee2:LIKE THIS» shall serve as
successor Trustee. «IF Second Alternate»In the event that «Miller Trustee2:LIKE THIS» resigns, becomes
legally incapacitated or dies while holding office, without having appointed a successor, «Miller
Trustee3:LIKE THIS» shall serve as successor Trustee. «END IF»Any trustee may, while serving as
trustee, appoint one or more successor trustees and may thereby alter the plan for succession of trustees set
out herein. If any trustee resigns or dies while holding office, at a time when no successor trustee who is
able and willing to serve has been appointed, any interested person may apply to be appointed successor
trustee as set forth in Texas Property Code Sec. 113.083.
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Section 2. Representative of Settlor. The guardian of a Settlor under legal disability or, if none, the
agent acting under general power of attorney or, if none, the person having the right of custody of a minor
Settlor, may act for such Settlor for all purposes under the administrative provisions of this trust.
Section 3. Rights of Successors. Every successor Trustee shall have all the title, rights, powers,
privileges and duties conferred on or imposed upon the original Trustee, without any conveyance or
transfer. No successor Trustee shall be responsible for any act or omission to act on the part of any
previous Trustee.
Section 4. No Bond. No Trustee, or any successor, shall be required to give any bond in any
jurisdiction, and if, notwithstanding this direction, any bond is required by any law, statute or rule of court,
no sureties shall be required.
ARTICLE X
DEFINITIONS
Section 1. Reference to Codes. Except as otherwise provided, definitions of terms in this trust shall
be in accordance with the Texas Probate Code and Texas Property Code, as amended.
Section 2. Successor Agencies and Programs. All references in this trust to the Texas Department
of Human Services and the Medical Assistance Program shall include any successor public agency or
program.
ARTICLE XI
CONSTRUCTION
Section l. Conformity with Statutes. In case of ambiguity or conflict, this trust should be construed
so as to comply with the provisions of Texas Property Code, Title 9 Trusts, as amended.
Section 2. Applicable Law. The validity of this trust shall be determined by reference to the laws
of Texas. Questions of construction and administration of this trust shall be determined by reference to the
laws of Texas.
Section 3. Headings of Articles and Sections. The headings of articles and sections are included
solely for convenience of reference, and shall have no significance in the interpretation of this agreement.
Section 4. Construction of Number and Gender. Unless the context requires otherwise, words
denoting the singular may be construed as denoting the plural, and words of the plural may be construed as
denoting the singular, and words of one gender may be construed as denoting such other gender as is
appropriate.
Signed by «Client Name:LIKE THIS», settlor herein, and by «Miller Trustee1:LIKE THIS», who
accepts the office of Trustee, on this
day of
, 199 .
«Client Name:LIKE THIS», Settlor
«Miller Trustee1:LIKE THIS», Trustee
THE STATE OF TEXAS
SUBSCRIBED AND ACKNOWLEDGED before me by «Client Name:LIKE THIS» and «Miller
Trustee1:LIKE THIS», on this ______ day of ___________________, 19____.
Disability Benefits in the Estate Plan
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Notary Public, State of Texas
23rd Annual Advanced Estate Planning and Probate Course
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APPENDIX 2: Miller Trust (Qualified Income Trust)--Sample Letter
of Instruction to Trustee
For discussion of the legal background and purposes of this form, see VII.F.4. above.
«TODAY:July 4, 1976»
«Miller Trustee1:Like This»
«Miller Trustee1 Street:Like This»
«Miller Trustee1 City/State/Zip:Like This»
Re:
The «Client Name:Like This» Income Trust
Dear «Miller Trustee1 Salutation:Like This»:
This is to provide you instructions for establishing and managing the above-referenced trust, of which
you have agreed to be trustee.
Purpose of the Trust
The purpose of this trust is to make «Client Description:like this» eligible for Medicaid long term care
benefits by reducing the amount of income that is "counted" for eligibility purposes. Under the law, any
income that goes through the trust is not counted. If any income accumulates in the trust, then at «Client
Gender:his/her» death, it will be paid to the state to reimburse the Medicaid program for benefits «Client
Gender:he/she» has received. This allows «Client Description:like this» to receive more in benefits than
«Client Gender:his/her» income would otherwise buy, if it went directly to pay «Client Gender:his/her»
living expenses.
Steps Required to Establish the Trust
1.
Sign the trust document: This should be done before the first day of the month in which
«Client Description:like this» plans to become eligible for Medicaid. Both you and «Client
Description:like this» should sign. «IF TP51 Case = FALSE»Make a copy to go with the
Medicaid application. «END IF»Be sure to have the signatures acknowledged before a
notary, because some banks require this.
2.
Open a bank account: Go to the bank or credit union of your choice and open whatever
account is most convenient for writing a few checks per month--probably not more than
five, ordinarily. It can be the same type of account an individual would use, but the bank
will need to see the trust instrument and will need «Client Description:like this»’s Social
Security number to associate with the account. Only you should be authorized to draw on
the account, and there should be no survivorship provision. It should be in the name of the
trust only.
3.
Transfer income to the bank account: This must be done in the same month in which the
income is received. Even if the income is initially paid directly to the beneficiary or is
direct deposited to another account, you can transfer it to the trust, as long as you transfer it
into the trust account during the same month. For convenience, and to be sure it goes into
the trust account during the month of receipt, I suggest you arrange for direct deposit of the
income into the trust's bank account.
Deposit only income of the beneficiary into the trust’s account. Do not, for example,
deposit funds received before the month the trust is established.
Disability Benefits in the Estate Plan
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«IF All Income»
Transfer all the beneficiary’s income into the trust’s account in the same month in which
the income is received.
«END IF»
«IF Certain Income Only»
Transfer only the beneficiary’s «Certain Income to Miller Trust:pension/social security»
income into the trust’s account. Do not transfer only a part of the «Certain Income to
Miller Trust:pension/social security» income; and do not transfer any other income into the
trust’s account.
«END IF»
How to Write Checks on the Trust’s Bank Account
Mechanically, this is just like writing checks on your own account. However, it is very important that
you administer the trust according to the rules of the Medicaid program, to maintain «Client Description»’s
eligibility of the trust beneficiary. If you make a payment in the wrong amount or for the wrong purpose,
«Client Gender:he/she» may lose eligibility for a month or more.
In general, «Client Description»’s income (including that which goes through the trust and that which
does not, if any) should be paid in the priority indicated below. The "income" referred to below is «Client
Description»’s income, not the income of the trust.
(Note: This summary is just to help explain the system, not to replace the caseworker's instructions in
the particular case.)
First priority:
"Deductions from applied income." This includes, in order of priority,
the following: (1) a personal needs allowance for any needs of «Client
Description» (currently, $30 per month); (2) an allowance for «Client
Description»’s dependants and/or spouse, if any; and (3) all unreimbursed
medical expenses, including the Medicare Part B premium if any (usually
deducted from the Social Security check), medical insurance premiums if
any, and medical expenses not covered by public benefits or insurance
Second priority:
"Applied income." This is income that must be "applied" to «Client
Description»’s care--ordinarily, for nursing home expenses.
The Texas Department of Human Services caseworkers usually
recommend that until they have done all the necessary calculations, you
pay all the income to the nursing home each month. Then, after eligibility
is established, you should be able to obtain a refund from the nursing home
for any excess payments. That is the safest way to do it. «IF Client
Married»However, if it is important to begin making payments to the
applicant’s spouse immediately, I believe (but do not guarantee) that it will
be sufficient to pay «Applied Income» to the nursing home each month,
with the rest going to the spouse, medical insurance and the $30 per month
personal needs allowance.
«END IF»
«IF Client Married = NOT TRUE»
Third Priority:
Needs of «Client Description». If any income remains for the month, it
can be used for any needs of «Client Description»--provided that not more
than $1,500 is made available in any month, including both income coming
out of the trust to «Client Description» and income going directly to
«Client Description». Any amount in excess of $1,500 in a given month
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«END IF»
«IF Client Married»
Third Priority:
23rd Annual Advanced Estate Planning and Probate Course
must be paid for needs of «Client Description» other than food, clothing
and shelter. Any amount that is paid for medical needs of «Client
Description» (such as, for example, nursing home expenses) is not counted
toward the $1,500 per month income limit. (Note: The dollar amount of the
income limit changes every January 1. You may call the Texas
Department of Human Services or my office to determine the current
amount at any time.)
Needs of the beneficiary's spouse. If any income remains for the month,
it must be distributed to or for the benefit of «Client Description»'s spouse,
if any. You have the discretion either to pay it directly to the spouse or to
use it to pay for goods or services or debts of the spouse.
«END IF»
Make a record of all checks written: Record in your checkbook or computer record, as to each
check, the following: check number, date, payee, purpose, amount. This is essential for making sure you
can prove that the checks have been made for permissible purposes.
Records you should keep: If you write in your checkbook all the information indicated above, that
and your monthly statements from the bank will be all the records you need to keep--as long as the trust is
not generating enough income to require filing an income tax return. You will, of course, want to have a
file with the trust instrument, a copy of the Medicaid application and related documents, and
correspondence from DHS, me and others.
Income tax on trust income: Because «Client Description:like this» is both the creator (“grantor”) of
the trust and its beneficiary, any income the trust may have should be reported on the income tax return, if
any, of «Client Description:like this». There is no need to obtain a tax number nor to file an income tax
return for the trust. Just use the Social Security number of «Client Description:like this» as the tax number
of the trust when you open the bank account. Because some bank officers believe erroneously that it is
necessary to obtain a new tax number for the trust, a copy of a letter from the IRS indicating this is not
necessary is enclosed.
What happens if «Client Description:like this» is no longer a Medicaid beneficiary: If this occurs,
the money in the trust can be used for any needs «Client Description:like this» may have. However, if any
money is left in the trust at «Client Gender:his/her» death, it will go to the State to the extent of
unreimbursed Medicaid expenses.
I hope these instructions are helpful. If you have any questions, don't hesitate to call me.
Sincerely yours,
[ATTORNEY]
Disability Benefits in the Estate Plan
APPENDIX 3: Testamentary Contingent Trust With Short-Form
Supplemental Needs Provision
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For discussion of the legal background and purposes of this form, see II.C.1. and VII.L.3. above.
Comment on form: This is for a testamentary contingent trust intended to avoid loss of eligibility of a
person who but for the distribution would be eligible for disability benefits (such as SSI and Medicaid).
This is simply an extension of a contingent trust form commonly used to avoid the need for a guardianship
to manage assets for a minor or an incapacitated adult. In addition to avoiding a guardianship, this form is
intended to avoid the loss of benefits; and it is meant to do so for an adult who although not mentally
incapacitated, is "disabled" within the meaning of the SSI law. If the client prefers that the supplemental
needs feature not be provided, the paragraph providing for it can simply be omitted. Provisions applicable
generally to trusts created under the will, such as management powers, waiver of bond and appointment of
trustee, are assumed to be located elsewhere in the will.
Contingent Trusts. Any portion of my estate, or of a trust estate upon the trust's termination, which
would be distributable to a beneficiary who is under age «Age for Distribution», who is under a legal
disability, or who is (or, apart from this distribution, could be) a recipient of any public benefits by reason
of disability, instead shall be distributed to the trustee of a Contingent Trust. Each beneficiary's portion so
distributed shall be held and administered as a separate trust for the beneficiary.
Distributions to Beneficiary. The trustee may distribute to or for the benefit of the beneficiary, from
time to time, so much or all of the trust estate as, in the trustee's discretion, is in the beneficiary's best
interests, taking into account the age of the beneficiary, the beneficiary’s needs, any income the beneficiary
may have from other sources to the knowledge of the trustee, the effect of any distribution upon the income
and transfer tax liability of the beneficiary or of the trust, and any other factors deemed relevant by the
trustee.
Termination of the Trust. The trust shall terminate when the beneficiary attains age «Age for
Distribution» or dies before that age (or, in the case of a beneficiary who is under a legal disability other
than minority, when the disability is removed or the beneficiary dies). Provided, in the case of a beneficiary
who is or becomes a recipient of public benefits, the trust shall not terminate until the beneficiary dies or the
trustee, in his or her absolute discretion, determines that termination would be in the best interests of the
beneficiary. Upon termination, the trust estate shall be distributed as follows:
1. To the beneficiary, but if the beneficiary is not then living, to the beneficiary’s descendants.
2. If none of the beneficiary's descendants is then living, to my descendants.
3. If none of my descendants is then living, to the persons who would have taken property under
this will, in the portions they would have received, had I died at the time of termination of the
trust.
Maximum Term of Trust. Notwithstanding any other provision herein, no trust shall continue for a
period longer than 21 years after the death of the last to die of all the descendants of my parents and
grandparents «IF Married»and my «Gender of Client:wife/husband»'s parents and grandparents «END
IF»who were living at my death. Any trust still in force at that time shall terminate, and the trust estate
shall be distributed to the beneficiary.
Protection of Trust Assets (Spendthrift Provision). No beneficiary shall have the power to
anticipate, encumber or transfer his or her interest in the trust estate in any manner. No part of any trust
estate shall be liable for or charged with any debts, contracts, liabilities or torts of a beneficiary or subject to
seizure or other process by any creditor of a beneficiary.
«IF SNT Clause»
Supplemental Needs Trust. It is not my intention to displace public or private financial assistance
that may otherwise be available to any beneficiary. No beneficiary has any entitlement to the income or
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23rd Annual Advanced Estate Planning and Probate Course
corpus of this trust, except as my Trustee, in my Trustee's complete, sole, absolute and unfettered discretion,
elects to disburse. In this regard, my Trustee may act unreasonably and arbitrarily, as I could myself if I
were living and in control of these funds. Provided, distributions shall be limited so that no beneficiary is
disqualified from receiving public benefits to which he or she is otherwise entitled, and this trust shall be
administered so as to supplement and not supplant such benefits. My trustee may, however, make
distributions that would reduce public benefits without terminating them completely such as, for example,
by providing food, clothing and shelter to a beneficiary eligible for Supplemental Security Income in
exchange for a reduction of benefits under the "Presumed Value Rule," when the trustee in his uncontrolled
discretion determines such distributions to be in the best interests of the beneficiary.
«END IF»
Disability Benefits in the Estate Plan
APPENDIX 4: Long-Form Testamentary Supplemental Needs Trust
Y-87
For discussion of the legal background and purposes of this form, see II.C.1. and VII.L.3. above.
Comment on form: Where the need for disability benefits is known in advance, it may be preferable to
use this longer form rather than the "catch-all" short form. It demonstrates that the testator gave
consideration to the needs of the particular beneficiary and precludes all doubt as to the intent that the trust
should be administered so as to qualify the beneficiary for public benefits if possible. If aside from the trust
the beneficiary would not be eligible for public benefits, then by its terms it can be used as a discretionary
trust for any needs the beneficiary may have. Provisions applicable generally to trusts created under the
will, such as management powers, waiver of bond and appointment of trustee, are assumed to be located
elsewhere in the will.
THE «Special Child:LIKE THIS» TRUST. The share of my estate that is set aside for «Special
Child:LIKE THIS» shall be held by my Trustee, «Trustee1:LIKE THIS», or a successor trustee, in a trust
for the benefit of «SNT Beneficiary:LIKE THIS» in a Special Supplemental Needs Trust in accordance
with the following provisions:
Statement of intent. It is my intention by this trust to create a purely discretionary supplemental needs
fund for the benefit of «SNT Beneficiary:LIKE THIS». It is not my intention to displace public or private
financial assistance that may otherwise be available to «Gender of SNT Beneficiary:him/her». My primary
intent is to preserve the Beneficiary’s eligibility for public benefits, while making available funds to provide
for supplemental needs not provided by public benefits. Any provision herein that is found or construed to
lead to disqualification of the beneficiary for public benefits shall be deemed void or shall be construed in
such a manner as to accomplish this purpose.
Distribution standards. I do not want this trust eroded by my beneficiary’s creditors nor do I want
«Gender of SNT Beneficiary:his/her» public or private assistance benefits to be made unavailable to
«Gender of SNT Beneficiary:him/her» or terminated. Distributions shall be limited so that no beneficiary is
disqualified from receiving public benefits to which he or she is otherwise entitled, and this trust shall be
administered so as to supplement and not supplant such benefits. My trustee may, however, make
distributions that would reduce public benefits without terminating them completely such as, for example,
by providing food, clothing and shelter to a beneficiary eligible for Supplemental Security Income in
exchange for a reduction of benefits under the "Presumed Value Rule," when the trustee in his, her or its
uncontrolled discretion determines such distributions to be in the best interests of the beneficiary.
Trustee's discretion. The Trustee’s discretion in making supplemental disbursements as provided for
in his instrument is final as to all interested parties, including the state or any governmental agency or
agencies, even if the Trustee elects to make no disbursements at all. The Trustee’s sole and independent
judgment, rather than any other parties’ determination, is intended to be the criterion by which
disbursements are made. No court or any other person should substitute its or their judgment for the
discretionary decision or decisions made by the Trustee.
Examples of permissible distributions. The following are examples of the kinds of supplemental
disbursements that are appropriate for my Trustee to make from this trust. Such examples are not
exclusive: medical, dental and diagnostic work and treatment for which there are no private or public funds
otherwise available; medical procedures that are desirable in my Trustee’s discretion, even though they may
not be necessary or life-saving; supplemental nursing care and rehabilitative services; differentials in cost
between shared and private rooms in institutional settings; expenditures for travel, companionship, cultural
experiences, and expenses in bringing my beneficiary’s relatives and others for visitation; and any other
care and other benefits that assistance programs may not otherwise provide.
Income added to principal. Any income received by the Trustee not distributed to or for the benefit
of the trust beneficiary shall be added annually to the trust’s principal.
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Interests of remainder beneficiaries secondary. My Trustee shall consider all resource and income
limitations that affect my beneficiary’s right to public assistance programs. Distribution to or for the benefit
of my beneficiary shall be limited so that the beneficiary is not disqualified from receiving public benefits
to which «Gender of SNT Beneficiary:he/she» is otherwise entitled. My beneficiary’s probable and
possible future supplemental care needs should be considered by my Trustee in connection with the
disbursements made by my Trustee from this trust. The interests of remainder beneficiaries are of only
secondary importance.
Protection of trust assets. My Trustee should resist any request for payments from this trust for
services that any public or private agency has the obligation to provide to my beneficiary. My Trustee may
not be familiar with the federal, state and local agencies that have been created to financially assist disabled
persons. If this is the case, my Trustee should seek assistance in identifying public and private programs
that are or may be available to the beneficiary.
Spendthrift provisions. This is a spendthrift trust. No interest in the principal or income of this trust
shall be anticipated, assigned or encumbered or shall be subject to any creditor's claim or to legal process,
prior to its actual receipt by the beneficiary. Furthermore, because this trust is to be conserved and
maintained for the special needs of the beneficiary for life, no part of the corpus thereof, neither principal
nor undistributed income, shall be construed as part of the beneficiary’s "estate" or be subject to the claims
of voluntary or involuntary creditors for the provision of care and services, including residential care, by
any public entity, office, department or agency of the State of Texas, or any other state or governmental
entity, or the United States, or any other governmental agency.
Trustee Authority to Terminate Trust. If the existence of this supplementary needs trust adversely
affects the beneficiary from receiving public or private support benefits, my Trustee may arbitrarily
terminate this trust. If this occurs, the remainder interest will be accelerated, and the remainder
beneficiaries shall receive the accrued and undistributed income and corpus then held by the Trustee in the
event of voluntary termination, as provided for in this paragraph. It would be my hope and expectation that
the remainder beneficiaries will continue to provide for the nonsupport care needs of the beneficiary. This
request is an expression of my wishes. It is not binding on the remainder beneficiaries.
Termination of Trust. If not previously terminated, this trust shall terminate upon the death of «SNT
Beneficiary:LIKE THIS». Thereupon, the trustee shall distribute and deliver all of the principal and income
of the trust estate to the same persons, and in the same proportions, as would have taken all my property if I
had died on the date of the trust's termination, not survived by «SNT Beneficiary:LIKE THIS».
Trustee’s Powers. My Trustee shall have all rights, privileges and powers now or hereafter granted to
trustees by statute in Texas, in addition to all other powers granted trustees in this will. No Trustee shall be
required to post surety or personal bond while serving in this capacity. The Trustee may take whatever
legal steps may be necessary to initiate or continue any public-assistance program for which the beneficiary
is or may become eligible. The Trustee may bring such action in any court or regulatory agency having
jurisdiction over the matter, to secure a ruling or order that the Trust described in this article is not available
to the beneficiary for any purpose. Any expense of the Trustee, including reasonable attorney fees,
specifically incurred in connection with matters relating to determination of eligibility of the beneficiary for
public or private support, but not limited to such services, shall be a proper charge to the Trust.
Trustee's Power to Direct Trust Corpus to a Pooled Trust. The trustee shall have the power to direct
the corpus of this trust, or whatever portion of the corpus of this trust the trustee deems appropriate, into a
pooled trust managed by a non-profit organization, should the trustee, in the trustee's sole discretion, believe
that such arrangement is in the best interests of «SNT Beneficiary:LIKE THIS».
Choice of Law. This agreement is entered into and executed in the state of Texas and shall be
administered in accordance with the laws of that state.
«END IF»
Disability Benefits in the Estate Plan
APPENDIX 5: Inter Vivos Supplemental Needs Trust Created by Third Party
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For discussion of the legal background and purposes of this form, see II.C.1. and VII.L.3. above.
Source of forms: This form, and all the forms below pertaining to court-created trusts, are reprinted
(with minor changes by the author) with permission from Deborah A. Green, Special Trusts: §§867, 142,
1396 Supplemental Needs Trusts- When and How to Use Them, State Bar of Texas Advanced Estate
Planning
and
Probate
Law
Course,
1998
(available
for
downloading
at
http://www.texasprobate.com/articles/). Ms. Green acknowledges substantial contributions to these forms
by Glenn M. Karisch, whose publication Court-Created Trusts, State Bar of Texas Advanced Drafting:
Estate
Planning
and
Probate
Course,
1995
(available
for
downloading
at
http://www.texasprobate.com/articles/) should also be consulted. Like most forms in this field, all the
"supplemental needs trust" forms in this publication include some language from forms originally
developed by Clifton B. Kruse, Jr. However, they have been substantially modified to conform to Texas
law and practice. For Mr. Kruse's forms and extensive commentary, see CLIFTON B. KRUSE, JR., THIRDPARTY AND SELF-CREATED TRUSTS, 2d ed., p. 68 (American Bar Association 1998). Also see the
bibliography at the end of this article for citations to related materials. The author has modified the forms
somewhat, for example, to expressly allow distributions to utilize the benefits of the "presumed value rule"
in the SSI program. Each form should be tailored to the particular client's needs.
An additional option is provided by The Association for Retarded Citizens (in Austin), which has
recently developed a “pooled trust” as authorized by 42 U.S.C. §1396p(d)(4)(c) that meets the
requirements discussed above for a self-settled Medicaid trust. This can apparently be used pursuant to an
order in a guardianship case under Probate Code §867. It may be more problematic if the order is from a
trial court because of the requirement of Property Code §142.005(b)(1) that the minor or incapacitated
person be the "sole beneficiary of the trust;" but it would seem that a "subaccount" in the pooled trust
should considered the functional equivalent of a trust with a single beneficiary, as the "pooling" is for
investment purposes only. For more information, call the ARC at 800/252-9729 (454-6694 in the Austin
area).
This is not a court-created trust, nor does it meet the requirements of 42 U. S. C. §1396p(d)(4)(A).
Rather, this is a form of trust which may be used by a parent or other relative as a means of transferring
property from the parent or relative for the benefit of a person receiving governmental assistance without
disqualifying that person from receiving such assistance. The most significant distinction between this
trust and a (d)(4)(A) trust is that this trust contains no provision for reimbursing the state upon the death of
the beneficiary, since reimbursement is not required for a trust holding a third party’s funds (rather than the
beneficiary’s funds).
SUPPLEMENTAL NEEDS TRUST FOR __________________
This trust agreement is made by and between ____________________ (“Settlor”) as settlor and
__________________ (“Trustee”) as trustee in order to create a trust (the “Trust”) for the primary benefit
of _____________ (“Beneficiary”).
1. Transfer to Trust.
Settlor transfers to Trustee the property described on Schedule "A"
attached hereto as the initial trust estate of the Trust. The Trustee accepts such property. Additional
property acceptable to the Trustee may be transferred to the Trust from time to time by anyone and added to
the trust estate.
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23rd Annual Advanced Estate Planning and Probate Course
[2. Trust Irrevocable. This trust is irrevocable.][2. Trust Revocable. This trust may be revoked or
amended in whole or in part by Settlor during Settlor’s lifetime. After Settlor’s death, this Trust shall
become irrevocable.]
3. Distributions During Term of Trust. The following provisions shall govern distributions from the
Trust during the term of this Trust:
A. Purpose and Intent. This Trust is intended to be construed and administered as a
“supplemental needs” trust. Without limiting the foregoing, neither the corpus of the Trust nor distributions
from the Trust shall ever cause the Beneficiary to be disqualified to receive those public benefits or
assistance under a state or federal program to which the Beneficiary then may be entitled but for the
existence of this Trust or but for the distributions from this Trust.
B. Distribution Standard. During the term of this Trust, the Trustee shall apply for the benefit
of the Beneficiary those amounts of the principal and/or income of the Trust for the satisfaction of the
Beneficiary’s supplemental needs (defined below), as the Trustee, in the Trustee's sole and absolute
discretion, may from time to time deem appropriate, subject to the strict limitations set out in this
instrument. Any income of the trust not distributed shall be added to the principal.
C. Supplemental Needs. As used in this instrument, "supplemental needs" refers to the requisites for
maintaining the Beneficiary’s health, safety, and welfare when the Trustee determines, in its discretion, that
such needs are not being provided for by any public or private agency, including any state, the United
States, or any insurance carrier with insurance policies covering the Beneficiary. The Trustee is prohibited
from expending any of the trust principal or income for any property, services, benefits, or medical care
which are being received by, or which are otherwise available to, the Beneficiary from any governmental
source or from any insurance carrier required to cover the Beneficiary. Further, the Trustee is prohibited
from expending any of the trust principal or income for any such property, services, benefits, or medical
care if that restriction is necessary in order to qualify the Beneficiary for such governmental or insurance
carrier benefits because an application for such property, services, benefits, or medical care has been filed
with an applicable governmental agency or insurance carrier on the Beneficiary's behalf. The trustee may,
however, make distributions that would reduce public benefits without terminating them completely such
as, for example, by providing food, clothing and shelter to a beneficiary eligible for Supplemental Security
Income in exchange for a reduction of benefits under the "Presumed Value Rule," when the trustee in his,
her or its uncontrolled discretion determines such distributions to be in the best interests of the beneficiary.
The Trustee may pay any deductible amounts for the Beneficiary on any insurance policies covering the
Beneficiary so long as that payment does not disqualify the Beneficiary from receipt of benefits. The
Trustee shall cooperate with the Beneficiary’s conservator, guardian, or legal representative to seek support
and maintenance for the Beneficiary from all available resources, including but not limited to, the
Supplemental Social Security Income Program (SSI), Supplemental Income Program (SIP) of Texas, the
Old Age Survivor and Disability Insurance Program (OASDI), the Medicaid Program, and any additional
similar or successor programs, and from any private sources. The Trustee may supplement, but shall not
supplant, services, benefits, and medical care received or requested by or on behalf of the Beneficiary that
are available through any governmental or private resource.
D. Payment of Income Taxes. The Trustee shall pay any income tax liability of the Beneficiary
which results from income received by the Trust but reported on the income tax return of the Beneficiary.
The funds used to pay this income tax liability shall be paid directly to the appropriate taxing authority and
shall not be available to the Beneficiary. The Beneficiary shall not have any right to or interest in any of
these funds paid by the Trustee. Further, these funds are not a resource of the Beneficiary and shall not be
treated as a distribution of cash for purposes of Medicaid qualification.
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4. Facility of Payment. Notwithstanding anything to the contrary in this instrument, the Trustee, in
its sole discretion, may make any distribution required or permitted to be made under this instrument in any
of the following ways (regardless of whether or not the Beneficiary is a minor or is incapacitated): (a) To
the Beneficiary directly; (b) To the guardian of the Beneficiary’s person or estate; (c) By reimbursing the
person who is actually taking care of the Beneficiary, even though the person is not the legal guardian, for
expenditures made by the person for the benefit of the Beneficiary; or (d) By paying for a good or service
directly to the provider of that good or service.
5.
Termination of Trust. The Trust will terminate on the death of the Beneficiary.
6. Distribution Upon Termination of Trust. Upon termination of the Trust, the trustee shall
distribute the principal and any undistributed income of the Trust to the Beneficiary’s descendants, per
stirpes, and if the Beneficiary has no descendants who are then living, to Settlor’s descendants, per stirpes,
and if none of such persons is then living, to Settlor’s heirs at law.
7. Compensation of the Trustee. The Trustee shall be entitled to reasonable compensation, which
compensation shall not exceed that customarily charged by corporate fiduciaries in ____________, Texas.
In addition, the Trustee may be reimbursed from the trust estate for expenses it reasonably incurs.
8. Powers of Trustee. The Trustee shall have all of the powers of trustees under the Texas Trust
Code. The terms and provisions of the Texas Trust Code shall apply to this Trust, to the extent they are not
in conflict with the terms of this instrument.
9.
No Bond Required. The Trustee shall serve without giving a bond.
10. Successor Trustees. If the Trustee resigns, ________________ shall become successor Trustee.
Each successor trustee shall have all of the rights, powers and duties of the Trustee.
11. Spendthrift Trust. To the extent permitted by law, the interest of the Beneficiary shall be held
subject to a spendthrift trust as provided in Section 112.035 of the Texas Property Code.
Signed this ____ day of _____________, ____.
___________________________________
Settlor
___________________________________
Trustee
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23rd Annual Advanced Estate Planning and Probate Course
APPENDIX 6: Application to Create 142 Trust
For discussion of the legal background and purposes of this form, and the forms in Appendices 7 through
15 below, see II.C.2. and VII.L.1.-2. above.
NO.
__________________________, AS
GUARDIAN AD LITEM FOR
[A MINOR] [AN INCAPACITATED
PERSON
V.
__________________________,
DEFENDANT
§
§
§
§
§
§
§
§
IN THE
DISTRICT COURT OF
_____________COUNTY, TEXAS
APPLICATION TO CREATE TRUST
UNDER SECTION 142.005 OF THE TEXAS PROPERTY CODE
___________ ("Guardian Ad Litem"), guardian ad litem for _____________ ("Plaintiff"), a [minor]
[incapacitated person under Tex. Prop. Code §142.007], files this Application to Create Trust Under Section
142.005 of the Texas Property Code (the "Application"). In support of this Application, Guardian Ad Litem
would show the Court as follows:
1. Plaintiff is entitled to judgment in the above entitled and numbered cause. [Describe other parties,
nature of judgment, etc., if desired].
2. Plaintiff is [a minor] [a person who is impaired because of mental illness, mental deficiency,
physical illness or disability, advanced age, chronic use of drugs, chronic intoxication, or other cause to the
extent that Plaintiff lacks sufficient understanding or capacity to make or communicate responsible decisions
concerning Plaintiff's person].
Plaintiff has no legal guardian.
4. Creation of a trust pursuant to Tex. Prop. Code §142.005 containing the terms and provisions of
the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of
Plaintiff.
OPTIONAL SUPPLEMENTAL NEEDS TRUST PROVISION:
5. It would be in the best interests of the Ward for the trust to be a special needs trust as specified under
42 U.S.C. Section 1396p(d)(4)(A).
6. The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are
necessary to establish a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).
5.[7.]
________________ ("Trustee") is a trust company or a state or national bank having trust
powers in Texas and is willing to serve as trustee of the trust for Plaintiff's benefit.
6.[8.]
Section 142.005 (b) (6) of the Texas Property Code provides that the trustee of a trust created
pursuant to Tex. Prop. Code § 142.005 shall receive reasonable compensation paid from the trust’s income,
principal, or both on application to and approval of the Court. Guardian Ad Litem asks the Court to
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approve the fees and compensation that are payable to Trustee under the terms of the trust instrument
approved by the Court.
7.[9.]
Upon entry of judgment and creation of the trust, the clerk of this court and/or all parties to
this proceeding holding funds which are payable to or for the benefit of Plaintiff should be ordered to pay
and deliver such funds to Trustee as part of the trust estate of such trust. [Modify as needed to fit
settlement/judgment terms.]
8.[10.] Upon entry of judgment and creation of the trust, Guardian Ad Litem should be paid a
reasonable fee for services rendered, should be reimbursed for expenses, and should be discharged as
guardian ad litem for Plaintiff.
PRAYER
Guardian Ad Litem prays that the Court will make the findings and determinations described above,
that the Court will create a trust for the benefit of Plaintiff under Tex. Prop. Code § 142.005 with those
terms and provisions set forth in Exhibit "A" attached hereto and incorporated herein; that the Court will
name Trustee as trustee of such trust; [that the trust shall be a special needs trust as specified under 42
U.S.C. Section 1396p(d)(4)(A);] that the clerk of this Court and/or any party to this proceeding holding
funds which are payable to or for the benefit of Plaintiff shall be ordered to pay and deliver such funds to
Trustee as part of the trust estate of such trust; that the Court shall order that the fees and compensation
authorized to be paid to Trustee by the terms of the trust instrument are reasonable; that the Court will order
that the Trustee is authorized to pay itself such fees and compensation and reimburse itself for expenses as
provided in the trust instrument without further application to or order from this Court; that the Court will
award Guardian Ad Litem a reasonable fee, to be paid by Trustee upon funding of the trust (if not sooner
paid); that the Court will discharge Guardian Ad Litem; and that the Court will grant such other and further
relief to which Plaintiff may be entitled.
Respectfully submitted,
GUARDIAN AD LITEM
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23rd Annual Advanced Estate Planning and Probate Course
APPENDIX 7: Order Creating 142 Trust
NO.
__________________________, AS
GUARDIAN AD LITEM FOR
[A MINOR] [AN INCAPACITATED
PERSON
V.
__________________________,
DEFENDANT
§
§
§
§
§
§
§
§
IN THE
DISTRICT COURT OF
_____________COUNTY, TEXAS
ORDER CREATING TRUST
UNDER SECTION 142.005 OF THE TEXAS PROPERTY CODE
On this day the Court considered the Application to Create Trust Under Section 142.005 of the Texas
Property Code (the "Application") filed in this proceeding by ____________ ("Guardian Ad Litem"),
guardian ad litem for _____________ ("Plaintiff"), a [minor] [incapacitated person under Tex. Prop. Code
§142.007]. Based upon the Application, the pleadings of the parties in this proceeding, the evidence
presented and the argument of counsel, the Court finds that:
1.
Plaintiff is entitled to judgment in the above entitled and numbered cause.
2. Plaintiff is [a minor] [a person who is impaired because of mental illness, mental deficiency,
physical illness or disability, advanced age, chronic use of drugs, chronic intoxication, or other cause to the
extent that Plaintiff lacks sufficient understanding or capacity to make or communicate responsible
decisions concerning Plaintiff's person].
3.
Plaintiff has no legal guardian.
4. Creation of a trust pursuant to Tex. Prop. Code §142.005 containing the terms and provisions of
the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of
Plaintiff.
OPTIONAL SUPPLEMENTAL NEEDS TRUST PROVISION:
5. It would be in the best interests of Plaintiff for the trust to be a special needs trust as specified
under 42 U.S.C. Section 1396p(d)(4)(A).
6. The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are
necessary to establish a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).
5.[7.]
______________ ("Trustee") is a trust company or a state or national bank having trust
powers in Texas and is willing to serve as trustee of the trust for Plaintiff's benefit.
6.[8.]
The fees and compensation that are payable to Trustee under the terms of the trust instrument
are reasonable and should be approved by the Court.
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7.[9.]
That the clerk of this Court and/or all parties to this proceeding holding funds which are
payable to or for the benefit of Plaintiff should be ordered to pay and deliver such funds to Trustee as part
of the trust estate of such trust. [Modify as needed to fit settlement/judgment terms.]
7.[10.] Upon entry of judgment and creation of the trust, Guardian Ad Litem should be paid a
reasonable fee for services rendered, should be reimbursed for expenses, and should be discharged as
guardian ad litem for Plaintiff.
IT IS, THEREFORE, ORDERED that a trust for the benefit of Plaintiff under Tex. Prop. Code §
142.005 is hereby created with those terms and provisions set forth in Exhibit "A" attached hereto and
incorporated herein; that [TRUSTEE] shall be trustee of such trust; [that the trust shall be a special needs
trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the clerk of this Court and/or any party to
this proceeding holding funds which are payable to or for the benefit of Plaintiff are ordered to pay and
deliver such funds to Trustee as part of the trust estate of such trust; that the fees and compensation
authorized to be paid to Trustee by the terms of the trust instrument are reasonable and are approved by the
Court, and the Trustee is authorized to pay itself such fees and compensation and reimburse itself for
expenses as provided in the trust instrument without further application to or order from this Court; that
Guardian Ad Litem is awarded a fee of $_______, to be paid by Trustee upon funding of the trust (if not
sooner paid); and that Guardian Ad Litem is hereby discharged, will be paid a reasonable fee, be reimbursed
for costs, and be discharged.
Signed this ____ day of _______________, 199__.
_____________________________________
Judge Presiding
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APPENDIX 8: Trust Instrument for 142 Trust
NO.
__________________________, AS
GUARDIAN AD LITEM FOR
[A MINOR] [AN INCAPACITATED
PERSON
V.
__________________________,
DEFENDANT
§
§
§
§
§
§
§
§
IN THE
DISTRICT COURT OF
_____________COUNTY, TEXAS
COURT-CREATED TRUST FOR _______________________
This declaration of trust creates a trust (the "Trust") for the benefit of ____________________ (the
"Beneficiary"), [a minor][an incapacitated person (within the meaning of Tex. Prop. Code §142.007)]
with __________________ (the "Trustee") as trustee.
a. Authority for Creation. This Trust is created by the order of the District Court of _____________
County, Texas, ____ Judicial District (the "Court") in Cause No. _________, styled
___________________________, as Guardian Ad Litem for ________________________, [a Minor][an
Incapacitated Person], v. ________________________________, pursuant to Tex. Prop. Code § 142.005.
b. Transfer to Trust.
The initial trust estate of the Trust shall be the property described on
Schedule "A" attached hereto. Additional property acceptable to the Trustee may be transferred to the Trust
from time to time and added to the trust estate.
c. Distributions During Term of Trust. The Beneficiary shall be the sole beneficiary of the Trust.
Prior to termination of the Trust, the Trustee may disburse that amount of the Trust's principal, income, or
both as the Trustee in its sole discretion determines to be reasonably necessary for the health, education,
support, or maintenance of the Beneficiary. Distributions, payments, uses, and applications of all trust
funds may be made to the legal or natural guardian of the Beneficiary or to the person having custody of the
Beneficiary or may be made directly to or expended for the benefit, support, or maintenance of the
Beneficiary without the intervention of any legal guardian or other legal representative of the Beneficiary.
The income of the Trust that the Trustee does not disburse or under this section must be added to the
principal of the Trust.
d. Termination of Trust. The Trust will terminate on the earlier of: (a) the death of the Beneficiary;
or (b) [on the Beneficiary’s twenty-fifth (25th) birthday][when the Beneficiary regains capacity (within the
meaning of Tex. Prop. Code §142.007]. The Trust also may be terminated in whole or in part at any time
by order of the Court.
e. Distribution Upon Termination of Trust. Upon termination of the Trust, the trustee shall
distribute the principal and any undistributed income of the Trust to the Beneficiary, outright and free of
trust, or, if the Beneficiary is then deceased, to the representative of the deceased Beneficiary’s estate.
If This is a (d)(4)(A) trust, use the following alternative paragraphs c., d. and e. instead
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c. Distributions During Term of Trust. The following provisions shall govern distributions from the
Trust during the term of this Trust:
1. Purpose and Intent. This Trust is created pursuant to 42 U. S. C. §1396p(d)(4)(A). It is
intended to be construed and administered as a “supplemental needs” trust under 42 U. S. C.
§1396p(d)(4)(A). Without limiting the foregoing, neither the corpus of the Trust nor distributions from the
Trust shall ever cause the Beneficiary to be disqualified to receive those public benefits or assistance under
a state or federal program to which the Beneficiary then may be entitled but for the existence of this Trust
or but for the distributions from this Trust.
2. Distribution Standard. During the term of this Trust, the Trustee shall apply for the benefit
of the Beneficiary those amounts of the principal and/or income of the Trust for the satisfaction of the
Beneficiary’s supplemental needs (defined below), as the Trustee, in the Trustee's sole and absolute
discretion, may from time to time deem appropriate, subject to the strict limitations set out in this
instrument. Any income of the trust not distributed shall be added to the principal. Distributions,
payments, uses, and applications of all trust funds may be made to the legal or natural guardian of the
Beneficiary or to the person having custody of the Beneficiary or may be expended directly for the benefit
of the Beneficiary without the intervention of any legal guardian or other legal representative of the
Beneficiary.
3. Supplemental Needs. As used in this instrument, "supplemental needs" refers to the
requisites, as allowed for in 42 U. S. C. §1396p(d)(4)(A), for maintaining the Beneficiary’s health, safety,
and welfare when the Trustee determines, in its discretion, that such needs are not being provided for by
any public or private agency, including any state, the United States, or any insurance carrier with insurance
policies covering the Beneficiary. The Trustee is prohibited from expending any of the trust principal or
income for any property, services, benefits, or medical care which are being received by, or which are
otherwise available to, the Beneficiary from any governmental source or from any insurance carrier
required to cover the Beneficiary. The trustee may, however, make distributions that would reduce public
benefits without terminating them completely such as, for example, by providing food, clothing and shelter
to a beneficiary eligible for Supplemental Security Income in exchange for a reduction of benefits under
the "Presumed Value Rule," when the trustee in his, her or its uncontrolled discretion determines such
distributions to be in the best interests of the beneficiary. Provided, the Trustee is prohibited from
expending any of the trust principal or income for any such property, services, benefits, or medical care if
that restriction is necessary in order to qualify the Beneficiary for such governmental or insurance carrier
benefits because an application for such property, services, benefits, or medical care has been filed with an
applicable governmental agency or insurance carrier on the Beneficiary's behalf. The Trustee may pay any
deductible amounts for the Beneficiary on any insurance policies covering the Beneficiary so long as that
payment does not disqualify the Beneficiary from receipt of benefits. The Trustee shall cooperate with the
Beneficiary’s conservator, guardian, or legal representative to seek support and maintenance for the
Beneficiary from all available resources, including but not limited to, the Supplemental Social Security
Income Program (SSI), Supplemental Income Program (SIP) of Texas, the Old Age Survivor and
Disability Insurance Program (OASDI), the Medicaid Program, and any additional similar or successor
programs, and from any private sources. To the extent required by 42 U. S. C. §1396p(d)(4)(A) and other
applicable laws and regulations regarding trusts of this type, the Trustee may supplement, but shall not
supplant, services, benefits, and medical care received or requested by or on behalf of the Beneficiary that
are available through any governmental or private resource.
4. Payment of Income Taxes. The Trustee shall pay any income tax liability of the Beneficiary
which results from income received by the Trust but reported on the income tax return of the Beneficiary.
The funds used to pay this income tax liability shall be paid directly to the appropriate taxing authority and
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23rd Annual Advanced Estate Planning and Probate Course
shall not be available to the Beneficiary. The Beneficiary shall not have any right to or interest in any of
these funds paid by the Trustee. Further, these funds are not a resource of the Beneficiary and shall not be
treated as a distribution of cash for purposes of Medicaid qualification.
d. Termination of Trust. The Trust will terminate on the death of the Beneficiary. The Trust also
may be terminated in whole or in part at any time by order of the Court.
e. Distribution Upon Termination of Trust. Upon termination of the Trust, the trustee shall
distribute the principal and any undistributed income of the Trust as follows:
1. First, the Trustee shall pay all amounts required to be reimbursed pursuant to 42 U. S. C.
§1396p(d)(4)(A). The Trustee shall reimburse those states where the Beneficiary has received Medical
Assistance payments from the state, based upon the state's proportionate share of the total amount of
Medicaid benefits paid by all of the states on the Beneficiary’s behalf, the smallest amount (if any) as
applicable law then requires the Trust to pay. The Trustee's duty to reimburse the state upon termination
shall apply to the extent there are remaining assets in this trust and shall apply irrespective of any other
provision of this instrument. The Trustee shall reimburse the state only for those benefits provided to the
Beneficiary which are subject to such reimbursement claim.
2. After the satisfaction of these obligations, the Trustee shall distribute the remaining
property, if any, to the Beneficiary, outright and free of trust, or, if the Beneficiary is then deceased, to the
representative of the deceased Beneficiary’s estate.
f. Compensation of the Trustee. The Trustee is entitled to reasonable compensation paid from the
Trust’s income, principal, or both on application to and approval of the Court. Unless otherwise ordered by
the Court, the fees and other charges described on the Trustee’s then-current fee schedule are hereby
approved by the Court as reasonable compensation to the Trustee, and the Trustee is entitled to pay itself
such fees and other charges without further application to or approval of the Court. In addition, the Trustee
may be reimbursed from the trust estate for expenses it reasonably incurs in connection with the Trust.
g. Powers of Trustee. The Trustee shall have all of the powers of trustees under the Texas Trust
Code. The terms and provisions of the Texas Trust Code shall apply to this Trust, to the extent they are not
in conflict with Tex. Prop. Code § 142.005 or with the terms of this instrument.
h.
No Bond Required. The Trustee shall serve without giving a bond.
i. Successor Trustees. In the event of the corporate reorganization, merger or acquisition of the
Trustee, the resulting successor organization shall automatically become the successor trustee. The Trustee
may resign with the approval of the Court and may be removed by order of the Court. Upon the resignation
or removal of the Trustee, the Court shall appoint a successor trustee. Each successor trustee shall have all
of the rights, powers and duties of the Trustee.
j. Spendthrift Trust. To the extent permitted by law, the interest of the Beneficiary shall be held
subject to a spendthrift trust as provided in Section 112.035 of the Texas Property Code.
k. Amendment, Modification or Revocation. The Court may amend, modify, or revoke the Trust at
any time before the date of the Trust's termination. Neither the Beneficiary nor the guardian of the
Beneficiary's estate may revoke the Trust.
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l. Effective Date. This Trust shall be effective upon the last to occur of (A) the entry of an order
creating the Trust by the Court, (B) the execution of this Declaration of Trust by the Trustee indicating its
acceptance of the Trust; and (C) the receipt by the Trustee of the initial trust estate.
TRUSTEE'S ACCEPTANCE:
By:_______________________
Name:_____________________
Title:______________________
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23rd Annual Advanced Estate Planning and Probate Course
APPENDIX 9: Application for Guardianship and/or Creation of
Guardianship Management Trust (867 Trust)
NO.
Guardianship of
«Ward:Like This», [An Incapacitated
Person] [A Minor]
§
§
§
§
§
In the Probate Court
of
______________ County, Texas
APPLICATION FOR GUARDIANSHIP AND/OR CREATION OF
GUARDIANSHIP MANAGEMENT TRUST
______________ (“Applicant”) files this application for the appointment of a guardian and/or for
creation of a guardianship management trust for the benefit of ____________ (the “Proposed Ward”), [a
minor][an incapacitated person], pursuant to Tex. Prob. Code Ann. §867. In support of this application,
Applicant would show the Court as follows:
1. The Proposed Ward is [a minor][an incapacitated person]. The Proposed Ward’s name, sex, date
of birth and address are as follows:_______________.
2.
Applicant’s name, address and relationship to the Proposed Ward are as follows: __________.
3. Applicant is seeking the creation of a guardianship management trust pursuant to Tex. Prob. Code
Ann. §867. Only if required by the Court for creation of a guardianship management trust, or, alternatively,
only if the Court refuses to create a guardianship management trust, Applicant seeks the appointment of a
guardian of the estate and person of the Proposed Ward.
4. The nature and degree of the Proposed Ward’s incapacity, the specific areas of protection and
assistance requested, and the limitation of rights requested to be included in the Court’s order are as
follows:___________________.
5. The facts requiring the guardianship management trust to be created and the interest of Applicant
in such creation are as follows: The Proposed Ward needs the assistance of a trustee in managing the
Proposed Ward’s estate. Creation of a guardianship management trust, rather than a guardianship of the
estate, is in the best interests of the Proposed Ward. Applicant believes that creation of a guardianship
management trust is in the Proposed Ward’s best interests. [Add more facts as desired or appropriate.]
6.
No guardianship exists for the Proposed Ward, to the knowledge of Applicant.
7. The name and address of any person or institution having the care and custody of the Proposed
Ward is as follows:_______________.
8. The approximate value and description of the Proposed Ward’s property, including any
compensation, pension, insurance, or allowance to which the Proposed Ward may be entitled, to the
knowledge of Applicant, is as follows:_______________.
9. The requested term of the guardianship management trust is as stated in the proposed form of the
trust attached hereto as Exhibit “A” and incorporated herein.
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10. The name and address of any person whom the applicant knows to hold a power of attorney
signed by the Proposed Ward and a description of the type of power of attorney is as follows:___________.
11. [If the Proposed Ward is a minor, include the names of the parents and next of kin of the
Proposed Ward and a statement as to whether either or both of the parents are deceased.]
12. [If the Proposed Ward is a minor, include a statement as to whether the minor was the subject of
a legal or conservatorship proceeding within the preceding two-year period and, if so, the court involved,
the nature of the proceeding, and the final disposition, if any, of the proceeding.]
13. [If the Proposed Ward is 60 years of age or older, include the names and addresses, to the best of
Applicant’s knowledge, of the Proposed Ward’s spouse, siblings, and children, or, if there is no spouse,
sibling, or child, the names and addresses of the Proposed Ward’s next of kin.]
14. This Court has venue over this proceeding because the Proposed Ward is a resident of and is
domiciled in ______________ County, Texas.
15. Creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867 containing
the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein
would be in the best interests of the Proposed Ward. [If desired, state the reasons for creation of the 867
Trust.]
OPTIONAL SUPPLEMENTAL NEEDS TRUST PROVISIONS:
16. It would be in the best interests of the Proposed Ward for the trust to be a supplemental needs
trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).
17. The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are
necessary and appropriate for the Proposed Ward to be eligible to receive public benefits or assistance
under a state or federal program that is not otherwise available to the Proposed Ward.
18. _________________ ("Trustee") is a trust company or a state or national bank having trust
powers in Texas and is willing to serve as trustee of the guardianship management trust for the Proposed
Ward’s benefit.
19. The Court should direct that, upon creation of the guardianship management trust, each person
holding property of the Proposed Ward [including, but not limited to, ____________________ (specifically
identify third parties holding the Proposed Ward’s funds)] shall deliver all of such assets to Trustee, to be
held by Trustee as the trust estate of the trust.
20. No guardianship of the Proposed Ward’s person or estate is necessary, and the Court should order
than none be created. However, if the Court refuses to create a guardianship management trust for the
Ward, or, alternatively, if the Court requires the appointment of a guardian of the estate and/or guardian of
the person of the Proposed Ward as a condition to the creation of the guardianship management trust,
Applicant asks that _________ (the “Proposed Guardian”) be appointed the guardian of the estate and/or
guardian of the person of the Proposed Ward. The Proposed Guardian is qualified and is not disqualified to
serve as guardian of the person and/or estate of the Proposed Ward.
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PRAYER
Applicant prays that, after proper notice and service of citation, the Court will appoint an attorney ad
litem for the Proposed Ward; that the Court will make the findings and determinations described above and
necessary for the creation of a guardianship management trust for the benefit of the Proposed Ward; that the
Court will create a guardianship management trust for the benefit of the Proposed Ward pursuant to Tex.
Prob. Code Ann. §867 with those terms and provisions set forth in Exhibit "A" attached hereto and
incorporated herein; that the Court will name Trustee as trustee of such trust; [that the trust shall be a
supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the Court will order
each person holding property of the Proposed Ward to deliver all of such assets to Trustee, to be held by
Trustee as the trust estate of the trust; that the Court will find that no guardianship of the estate and/or
person of the Proposed Ward is necessary, or, alternatively, that the Court will appoint the Proposed
Guardian as guardian of the person and/or estate of the Proposed Ward; and that the Court will grant such
other and further relief to which Plaintiff may be entitled.
Respectfully submitted,
ATTORNEY FOR APPLICANT
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APPENDIX 10: Application for Creation of Guardianship Management Trust (867 Trust)
With Supplemental Needs Provisions
NO.
Guardianship of
,
Incapacitated Person] [A Minor]
[An
§
§
§
§
§
In the Probate Court
of
______________ County, Texas
APPLICATION FOR CREATION OF GUARDIANSHIP MANAGEMENT TRUST
________________________ (“Applicant”), attorney ad litem for _____________________ (the
“Proposed Ward”), [a minor][an incapacitated person], files this application for the creation of a
guardianship management trust for the benefit of the Proposed Ward pursuant to Tex. Prob. Code Ann.
§867. In support of this application, Applicant would show the Court as follows:
1. The Proposed Ward is [a minor][an incapacitated person]. The Proposed Ward’s name, sex, date
of birth and address are as follows:_________________.
2. Applicant is the court-appointed attorney ad litem for the Proposed Ward. Applicant’s name and
address are as follows:_________________.
3. Applicant seeks neither a guardianship of the person or estate of the Proposed Ward; rather,
Applicant seeks the creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867.
4. The nature and degree of the Proposed Ward’s incapacity, the specific areas of protection and
assistance requested, and the limitation of rights requested to be included in the Court’s order are as
follows:_____________.
5. The facts requiring the guardianship management trust to be created and the interest of Applicant
in such creation are as follows: The Proposed Ward needs the assistance of a trustee in managing the
Proposed Ward’s estate. Creation of a guardianship management trust, rather than a guardianship of the
estate, is in the best interests of the Proposed Ward. Applicant is the court-appointed attorney ad litem for
the Proposed Ward and believes that creation of a guardianship management trust is in the Proposed Ward’s
best interests. [Add more facts as desired or appropriate.]
6. No guardianship exists for the Proposed Ward, to the knowledge of Applicant. _____________
has filed an application for appointment of a guardian, and that application is pending in this Court under
this cause number. [If accurate: _________________ consents to the creation of a guardianship
management trust in lieu of a guardianship of the estate pursuant to Tex. Prob. Code Ann. §867.]
7. The name and address of any person or institution having the care and custody of the Proposed
Ward is as follows:________________.
8. The approximate value and description of the Proposed Ward’s property, including any
compensation, pension, insurance, or allowance to which the Proposed Ward may be entitled, to the
knowledge of Applicant, is as follows:_____________.
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9. The requested term of the guardianship management trust is as stated in the proposed form of the
trust attached hereto as Exhibit “A” and incorporated herein.
10. The name and address of any person whom the applicant knows to hold a power of attorney
signed by the Proposed Ward and a description of the type of power of attorney is as follows:___________.
11. [If the Proposed Ward is a minor, include the names of the parents and next of kin of the
Proposed Ward and a statement as to whether either or both of the parents are deceased.]
12. [If the Proposed Ward is a minor, include a statement as to whether the minor was the subject of
a legal or conservatorship proceeding within the preceding two-year period and, if so, the court involved,
the nature of the proceeding, and the final disposition, if any, of the proceeding.]
13. [If the Proposed Ward is 60 years of age or older, include the names and addresses, to the best of
Applicant’s knowledge, of the Proposed Ward’s spouse, siblings, and children, or, if there is no spouse,
sibling, or child, the names and addresses of the Proposed Ward’s next of kin.]
14. This Court has venue over this proceeding because the Proposed Ward is a resident of and is
domiciled in ______________ County, Texas.
15. Creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867 containing
the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein
would be in the best interests of the Proposed Ward. [If desired, state the reasons for creation of the 867
Trust.]
OPTIONAL SUPPLEMENTAL NEEDS TRUST PROVISIONS:
16. It would be in the best interests of the Proposed Ward for the trust to be a supplemental needs
trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).
17. The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are
necessary and appropriate for the Proposed Ward to be eligible to receive public benefits or assistance
under a state or federal program that is not otherwise available to the Proposed Ward.
18. _______________ ("Trustee") is a trust company or a state or national bank having trust powers
in Texas and is willing to serve as trustee of the guardianship management trust for the Proposed Ward’s
benefit.
19. The Court should direct that, upon creation of the guardianship management trust, each person
holding property of the Proposed Ward [including, but not limited to, _____________ (specifically identify
third parties holding the Proposed Ward’s funds)] shall deliver all of such assets to Trustee, to be held by
Trustee as the trust estate of the trust.
20. No guardianship of the Proposed Ward’s estate is necessary.
21. [If desired: No guardianship of the Proposed Ward’s person is necessary.]
22. Upon entry of the Court’s order creating the guardianship management trust, Applicant, attorney
ad litem for the Proposed Ward, should be paid a reasonable fee from the trust and should be discharged.
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PRAYER
Applicant prays that the Court will make the findings and determinations described above and
necessary for the creation of a guardianship management trust for the benefit of the Proposed Ward; that the
Court will create a guardianship management trust for the benefit of the Proposed Ward pursuant to Tex.
Prob. Code Ann. §867 with those terms and provisions set forth in Exhibit "A" attached hereto and
incorporated herein; that the Court will name Trustee as trustee of such trust; [that the trust shall be a
supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the Court will order
each person holding property of the Proposed Ward to deliver all of such assets to Trustee, to be held by
Trustee as the trust estate of the trust; that the Court will award Applicant a reasonable fee as attorney ad
litem, to be paid by Trustee upon funding of the trust (if not sooner paid); that the Court will discharge
Applicant as attorney ad litem; and that the Court will grant such other and further relief to which Plaintiff
may be entitled.
Respectfully submitted,
ATTORNEY AD LITEM
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APPENDIX 11: Order Creating Guardianship Management Trust (867 Trust)
With Supplemental Needs Provisions
NO.
Guardianship of
«Ward:Like This», [An Incapacitated
Person] [A Minor]
§
§
§
§
§
In the Probate Court
of
______________ County, Texas
ORDER CREATING GUARDIANSHIP MANAGEMENT TRUST
On this day the Court considered the Application for Guardianship And/Or Creation of Guardianship
Management Trust filed by __________________ (“Applicant”) and the Application for Creation of
Guardianship Management Trust filed by ___________________ (“Attorney Ad Litem”), attorney ad litem,
regarding _______________________ (“the Ward”), [a minor][an incapacitated person]. [The Ward
attended the hearing on the above applications.][The Court finds that the Ward’s attendance at the hearing
on the above applications is not necessary.] After considering the above applications, the evidence
presented, and the arguments of counsel, the Court finds by clear and convincing evidence that the Ward is
an incapacitated person; that it is in the best interest of the Ward for the court to create a guardianship
management trust for the Ward pursuant to Tex. Prob. Code Ann. §867; that the rights of the Ward or the
Ward’s property will be protected by the creation of a guardianship management trust; and that, if a
guardianship management trust is created for the Ward, no guardianship of the estate and/or person of the
Ward is necessary. The Court further finds by a preponderance of the evidence that the Court has venue of
this matter because the Ward resides in this county; [that the Ward is a minor][that the Ward is totally
without capacity as provided by the Texas Probate Code to care for himself or herself and to manage the
Ward’s property][that the Ward lacks the capacity to do some, but not all, of the tasks necessary to care for
himself or herself or to manage the Ward’s property]; that the Ward’s incapacity is evidenced by recurring
acts or occurrences within the preceding six-month period and not by isolated instances of negligence or
bad judgment; that creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867
containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated
herein would be in the best interests of the Proposed Ward; [that it would be in the best interests of the
Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);
that the terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary
and appropriate for the Ward to be eligible to receive public benefits or assistance under a state or federal
program that is not otherwise available to the Ward;] that ____________________________ ("Trustee") is
a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of
the guardianship management trust for the Ward’s benefit; that the Court should direct that, upon creation
of the guardianship management trust, each person holding property of the Ward [including, but not limited
to, ____________________________ (specifically identify third parties holding the Ward’s funds)] shall
deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; and that upon entry
of the Court’s order creating the guardianship management trust, Attorney Ad Litem, should be paid the
amount stated below from the trust as a reasonable fee for serving in such capacity and should be
discharged.
IT IS, THEREFORE, ORDERED that:
1.
The Ward is an incapacitated person;
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2. A guardianship management trust for the benefit of the Ward is established pursuant to Tex. Prob.
Code Ann. §867 with the terms and provisions set forth on Exhibit “A” attached hereto and incorporated
herein;
3.
No guardianship of the estate and/or person of the Ward is necessary;
4. [The Ward is a minor][The Ward is totally without capacity as provided by the Texas Probate
Code to care for himself or herself and to manage the Ward’s property][The Ward lacks the capacity to do
the following actions: ______________________________________________];
5. [It is in the best interests of the Ward for the trust to be a supplemental needs trust as specified
under 42 U.S.C. Section 1396p(d)(4)(A), and the terms of the trust instrument attached hereto as Exhibit
"A" and incorporated herein are necessary and appropriate for the Ward to be eligible to receive public
benefits or assistance under a state or federal program that is not otherwise available to the Ward;]
6. ____________________________ ("Trustee"), a trust company or a state or national bank
having trust powers in Texas, is appointed as trustee of the guardianship management trust and is ordered to
administer such trust in accordance with applicable law and in accordance with the terms and provisions of
the trust instrument attached hereto as Exhibit “A;”
7. Upon creation of the guardianship management trust, each person holding property of the Ward
[including, but not limited to, ____________________________ (specifically identify third parties holding
the Ward’s funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the
trust; and
8. Attorney Ad Litem is awarded a fee in the amount of $_________________ from the trust as a
reasonable fee for serving in such capacity and is hereby discharged.
SIGNED this ____ day of ______________, _____.
_________________________________________
Judge Presiding
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APPENDIX 12: Application for Creation of 867 Trust in Existing Guardianship
NO.
Guardianship of
«Ward:Like This», [An Incapacitated
Person] [A Minor]
§
§
§
§
§
In the Probate Court
of
______________ County, Texas
APPLICATION FOR CREATION OF GUARDIANSHIP MANAGEMENT TRUST
________________________ (“Applicant”), [guardian of the estate of][attorney ad litem for]
_____________________ (the “Ward”), [a minor][an incapacitated person], files this application for the
creation of a guardianship management trust for the benefit of the Ward pursuant to Tex. Prob. Code Ann.
§867. In support of this application, Applicant would show the Court as follows:
1. The Ward is [a minor][an incapacitated person]. A guardianship of the estate of the Ward exists
in this Court.
2. Creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867 containing
the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein
would be in the best interests of Plaintiff. [If desired, state the reasons for creation of the 867 Trust.]
OPTIONAL SUPPLEMENTAL NEEDS TRUST PROVISIONS:
3. It would be in the best interests of the Ward for the trust to be a supplemental needs trust as
specified under 42 U.S.C. Section 1396p(d)(4)(A).
4. The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are
necessary and appropriate for the Ward to be eligible to receive public benefits or assistance under a state
or federal program that is not otherwise available to the Ward.
3.[5.]
__________________ ("Trustee") is a trust company or a state or national bank having trust
powers in Texas and is willing to serve as trustee of the guardianship management trust for the Ward’s
benefit.
4.[6.]
The Court should direct that, upon creation of the guardianship management trust, the
guardian of the estate of the Ward and any other person holding property of the Ward [including, but not
limited to, ____________________________ (specifically identify third parties holding the Ward’s funds)]
shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust.
5.[7.]
Upon creation of the guardianship management trust and upon the transfer of all assets in the
possession or control of the guardian of the estate of the Ward to Trustee, the Court should discharge the
guardian of the ward’s estate pursuant to Tex. Prob. Code Ann. §868A.
6.[8.]
[If desired or appropriate:]Upon entry of the Court’s order creating the guardianship
management trust, __________________, attorney ad litem for the Ward, should be paid a reasonable fee
from the guardianship estate or the trust and should be discharged.
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PRAYER
Applicant prays that the Court will make the findings and determinations described above, that the
Court will create a guardianship management trust for the benefit of the Ward pursuant to Tex. Prob. Code
Ann. §867 with those terms and provisions set forth in Exhibit "A" attached hereto and incorporated herein;
that the Court will name Trustee as trustee of such trust; [that the trust shall be a supplemental needs trust
as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the Court will order the guardian of the estate of
the Ward and any other person holding property of the Ward to deliver all of such assets to Trustee, to be
held by Trustee as the trust estate of the trust; that upon creation of the guardianship management trust and
upon the transfer of all assets in the possession or control of the guardian of the estate of the Ward to
Trustee, the guardian of the Ward’s estate shall be discharged pursuant to Tex. Prob. Code Ann. §868A;
[that the Court will award _______________, attorney ad litem, a reasonable fee, to be paid by the
guardian of the estate of the Ward or by Trustee upon funding of the trust (if not sooner paid)]; that the
Court will discharge said attorney ad litem; and that the Court will grant such other and further relief to
which Plaintiff may be entitled.
Respectfully submitted,
ATTORNEY FOR APPLICANT
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APPENDIX 13: Order Creating 867 Trust in Existing Guardianship
NO. _______
GUARDIANSHIP OF
_________________________,
[A MINOR][AN INCAPACITATED PERSON]
§
§
§
§
§
IN THE PROBATE COURT
OF
______________ COUNTY, TEXAS
ORDER CREATING GUARDIANSHIP MANAGEMENT TRUST
On this day the Court considered the Application for Creation of Guardianship Management Trust
filed by ___________________, [attorney ad litem for ___________________ (“the Ward”)][guardian
of the estate of ______________________ (“the Ward”)], [a minor][an incapacitated person]. After
considering the above applications, the evidence presented, and the arguments of counsel, the Court finds
that the Ward is an incapacitated person; that it is in the best interest of the Ward for the Court to create a
guardianship management trust for the Ward pursuant to Tex. Prob. Code Ann. §867 containing the terms
and provisions of the trust instrument attached hereto as Exhibit “A” and incorporated herein; [that it
would be in the best interests of the Ward for the trust to be a supplemental needs trust as specified under
42 U.S.C. Section 1396p(d)(4)(A); that the terms of the trust instrument attached hereto as Exhibit "A"
and incorporated herein are necessary and appropriate for the Ward to be eligible to receive public
benefits or assistance under a state or federal program that is not otherwise available to the Ward;] that
____________________________ ("Trustee") is a trust company or a state or national bank having trust
powers in Texas and is willing to serve as trustee of the guardianship management trust for the Ward’s
benefit; that the Court should direct that, upon creation of the guardianship management trust, the
guardian of the estate of the Ward and each person holding property of the Ward [including, but not
limited to, ____________________________ (specifically identify third parties holding the Ward’s
funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; that,
upon creation of the guardianship management trust and the transfer of all assets in the possession and
control of the guardian of the estate of the Ward to the Trustee, no guardianship of the estate of the Ward
is necessary and _____________ should be discharged as guardian of the estate; and that upon entry of
the Court’s order creating the guardianship management trust, _________________, attorney ad litem,
should be paid the amount stated below from the trust as a reasonable fee for serving in such capacity and
should be discharged.
IT IS, THEREFORE, ORDERED that:
1. A guardianship management trust for the benefit of the Ward is established pursuant to Tex.
Prob. Code Ann. §867 with the terms and provisions set forth on Exhibit “A” attached hereto and
incorporated herein;
2. [It is in the best interests of the Ward for the trust to be a supplemental needs trust as specified
under 42 U.S.C. Section 1396p(d)(4)(A), and the terms of the trust instrument attached hereto as Exhibit
"A" and incorporated herein are necessary and appropriate for the Ward to be eligible to receive public
benefits or assistance under a state or federal program that is not otherwise available to the Ward;]
3. ____________________________ ("Trustee"), a trust company or a state or national bank
having trust powers in Texas, is appointed as trustee of the guardianship management trust and is ordered
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to administer such trust in accordance with applicable law and in accordance with the terms and
provisions of the trust instrument attached hereto as Exhibit “A;”
4. The guardian of the estate of the Ward and each person holding property of the Ward
[including, but not limited to, ____________________________ (specifically identify third parties
holding the Ward’s funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust
estate of the trust;
5. Upon creation of the guardianship management trust and the transfer of all assets in the
possession and control of the guardian of the estate of the Ward to the Trustee, no guardianship of the
estate of the Ward is necessary and _____________ should be discharged as guardian of the estate[; and
6. ______________________, attorney ad litem, is awarded a fee in the amount of
$_________________ from the trust as a reasonable fee for serving in such capacity and is hereby
discharged.]
SIGNED this ____ day of ______________, _____.
_________________________________________
Judge Presiding
23rd Annual Advanced Estate Planning and Probate Course
APPENDIX 14: Trust Instrument for Guardianship (867) Trust
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An alternative to creating a new trust is to utilize the ARC Pooled Trust, discussed at VII.L.2.c. above. It
can be used either as a self-funded or third-party-funded supplemental needs trust; and, with the court’s
permission, it can be used an 867 trust.
NO.
Guardianship of
_____________,
[An
Person] [A Minor]
Incapacitated
§
§
§
§
§
In the Probate Court
of
______________ County, Texas
GUARDIANSHIP MANAGEMENT TRUST FOR _______________________
This declaration of trust creates a management trust (the "Trust") for the benefit of
____________________ (the "Beneficiary") with __________________ (the "Trustee") as trustee.
1. Authority for Creation. This Trust is created by the order of the Probate Court of
_____________ County, Texas (the "Court") in Cause No. _________, Guardianship of the Estate of the
Beneficiary, pursuant to Sections 867 -- 873 of the Texas Probate Code.
2. Transfer to Trust.
The initial trust estate of the Trust shall be the property described on
Schedule "A" attached hereto. Additional property acceptable to the Trustee may be transferred to the
Trust from time to time and added to the trust estate.
3. Distributions During Term of Trust. The Beneficiary shall be the sole beneficiary of the Trust.
Prior to termination of the Trust, the Trustee may disburse that amount of the Trust's principal or income
as the Trustee determines is necessary to expend for the health, education, support, or maintenance of the
Beneficiary. In addition, the Trustee may make a distribution, payment, use, or application of trust funds
for the health, education, support, or maintenance of the Beneficiary or of another person whom the
Beneficiary is legally obligated to support, as necessary and without the intervention of a guardian or
other representative of the Beneficiary, to: (A) the Beneficiary’s guardian; (B) a person who has physical
custody of the Beneficiary or another person whom the Beneficiary is legally obligated to support; or (C)
a person providing a good or service to the Beneficiary or another person whom the Beneficiary is legally
obligated to support. The income of the Trust that the Trustee does not disburse under this section must
be added to the principal of the Trust.
4. Termination of Trust. The Trust will terminate on the earlier of: (a) the death of the
Beneficiary; or (b) [on the Beneficiary’s eighteenth (18th) birthday, unless the Court orders that the trust
shall terminate on a date later than the Beneficiary’s eighteenth (18th) birthday, which date may not be
later than the Beneficiary’s twenty-fifth (25th) birthday][on the date the Court determines that continuing
the trust is no longer in the Beneficiary’s best interests]. The Trust also may be terminated in whole or in
part at any time by order of the Court.
5. Distribution Upon Termination of Trust. Upon termination of the Trust, the trustee shall
prepare and file the final account required by Tex. Prob. Code Ann. § 873 and, upon approval of the
Court and unless otherwise provided by the Court, shall distribute the principal and any undistributed
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income of the Trust to the Beneficiary, outright and free of trust, or, if the Beneficiary is then deceased, to
the representative of the deceased Beneficiary’s estate.
If This is a (d)(4)(A) trust, use the following alternative paragraphs 3., 4. and 5. instead
3. Distributions During Term of Trust. The following provisions shall govern distributions from the
Trust during the term of this Trust:
A. Purpose and Intent. This Trust is created pursuant to 42 U. S. C. §1396p(d)(4)(A). It is
intended to be construed and administered as a “supplemental needs” trust under 42 U. S. C.
§1396p(d)(4)(A). Without limiting the foregoing, neither the corpus of the Trust nor distributions from the
Trust shall ever cause the Beneficiary to be disqualified to receive those public benefits or assistance under
a state or federal program to which the Beneficiary then may be entitled but for the existence of this Trust
or but for the distributions from this Trust.
B. Distribution Standard. During the term of this Trust, the Trustee shall apply for the benefit
of the Beneficiary those amounts of the principal and/or income of the Trust for the satisfaction of the
Beneficiary’s supplemental needs (defined below), as the Trustee, in the Trustee's sole and absolute
discretion, may from time to time deem appropriate, subject to the strict limitations set out in this
instrument. Any income of the trust not distributed shall be added to the principal. The Trustee may apply
such trust funds for the benefit of the Beneficiary, as necessary and without the intervention of a guardian
or other representative of the Beneficiary, to: (A) the Beneficiary’s guardian; (B) a person who has physical
custody of the Beneficiary; or (C) a person providing a good or service to the Beneficiary.
C. Supplemental Needs. As used in this instrument, "supplemental needs" refers to the requisites, as
allowed for in 42 U. S. C. §1396p(d)(4)(A), for maintaining the Beneficiary’s health, safety, and welfare
when the Trustee determines, in its discretion, that such needs are not being provided for by any public or
private agency, including any state, the United States, or any insurance carrier with insurance policies
covering the Beneficiary. The Trustee is prohibited from expending any of the trust principal or income for
any property, services, benefits, or medical care which are being received by, or which are otherwise
available to, the Beneficiary from any governmental source or from any insurance carrier required to cover
the Beneficiary. The trustee may, however, make distributions that would reduce public benefits without
terminating them completely such as, for example, by providing food, clothing and shelter to a beneficiary
eligible for Supplemental Security Income in exchange for a reduction of benefits under the "Presumed
Value Rule," when the trustee in his, her or its uncontrolled discretion determines such distributions to be in
the best interests of the beneficiary. Provided, the Trustee is prohibited from expending any of the trust
principal or income for any such property, services, benefits, or medical care if that restriction is necessary
in order to qualify the Beneficiary for such governmental or insurance carrier benefits. The Trustee may
pay any deductible amounts for the Beneficiary on any insurance policies covering the Beneficiary so long
as that payment does not disqualify the Beneficiary from receipt of benefits. The Trustee shall cooperate
with the Beneficiary’s conservator, guardian, or legal representative to seek support and maintenance for
the Beneficiary from all available resources, including but not limited to, the Supplemental Social Security
Income Program (SSI), Supplemental Income Program (SIP) of Texas, the Old Age Survivor and Disability
Insurance Program (OASDI), the Medicaid Program, and any additional similar or successor programs, and
from any private sources. To the extent required by 42 U. S. C. §1396p(d)(4)(A) and other applicable laws
and regulations regarding trusts of this type, the Trustee may supplement, but shall not supplant, services,
benefits, and medical care received or requested by or on behalf of the Beneficiary that are available
through any governmental or private resource.
D. Payment of Income Taxes. The Trustee shall pay any income tax liability of the Beneficiary
which results from income received by the Trust but reported on the income tax return of the Beneficiary.
The funds used to pay this income tax liability shall be paid directly to the appropriate taxing authority and
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shall not be available to the Beneficiary. The Beneficiary shall not have any right to or interest in any of
these funds paid by the Trustee. Further, these funds are not a resource of the Beneficiary and shall not be
treated as a distribution of cash for purposes of Medicaid qualification.
4. Termination of Trust. The Trust will terminate on the death of the Beneficiary. The Trust also
may be terminated in whole or in part at any time by order of the Court.
5. Distribution Upon Termination of Trust. Upon termination of the Trust, the trustee shall
distribute the principal and any undistributed income of the Trust as follows:
A. First, the Trustee shall pay all amounts required to be reimbursed pursuant to 42 U. S. C.
§1396p(d)(4)(A). The Trustee shall reimburse those states where the Beneficiary has received Medical
Assistance payments from the state, based upon the state's proportionate share of the total amount of
Medicaid benefits paid by all of the states on the Beneficiary’s behalf, the smallest amount (if any) as
applicable law then requires the Trust to pay. The Trustee's duty to reimburse the state upon termination
shall apply to the extent there are remaining assets in this trust and shall apply irrespective of any other
provision of this instrument. The Trustee shall reimburse the state only for those benefits provided to the
Beneficiary which are subject to such reimbursement claim.
B. After the satisfaction of these obligations, the Trustee shall distribute the remaining property,
if any, to the Beneficiary, outright and free of trust, or, if the Beneficiary is then deceased, to the
representative of the deceased Beneficiary’s estate.
6. Annual Accountings. The Trustee shall prepare and file with the court an annual accounting of
transactions in the Trust in the same manner and form that is required of a guardian of the estate under the
Texas Probate Code. The Trustee shall provide a copy of the annual account to the Guardian of the
Beneficiary's Estate and Person. The annual account is subject to review and approval by the Court in the
same manner that is required of an annual account prepared by a guardian of the estate under the Texas
Probate Code.
7. Compensation of the Trustee. The Trustee, on annual application to the Court and subject to the
Court's approval, is entitled to receive reasonable compensation for services that the Trustee provided to
the Beneficiary as the Beneficiary's Trustee that is (A) to be paid from the Trust's income, principal, or
both and (B) determined in the same manner as compensation of a guardian of the estate under Section 665
of the Texas Probate Code; provided, however, that the Trustee shall not be entitled to compensation based
on distributions to the Guardian of the Estate of the Beneficiary for purposes of making gifts pursuant to
Section 865 of the Texas Probate Code. The Trustee may be reimbursed from the trust estate for expenses
it reasonably incurs with the approval of the Court.
8. Powers of Trustee. The Trustee shall have all of the powers of trustees under the Texas Trust
Code. The Trustee may invest the trust estate in investments permitted under the Texas Trust Code
without further order of the Court and is not required to invest the trust estate in investments permitted by
Section 855 of the Texas Probate Code. The terms and provisions of the Texas Trust Code shall apply to
this Trust, to the extent they are not in conflict with Tex. Prob. Code Ann. §§ 867-873 or with the terms of
this instrument.
9. No Bond Required. The Trustee shall serve without giving a bond. Neither the Guardian of the
Estate of the Beneficiary nor the surety on the Guardian's bond (if any) shall be liable for an act or
omission of the Trustee.
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10. Successor Trustees. In the event of the corporate reorganization, merger or acquisition of the
Trustee, the resulting successor organization shall automatically become the successor trustee. The
Trustee may resign with the approval of the Court and may be removed by order of the Court. Upon the
resignation or removal of the Trustee, the Court shall appoint a successor trustee. Each successor trustee
shall have all of the rights, powers and duties of the Trustee.
11. Spendthrift Trust. To the extent permitted by law, the interest of the Beneficiary shall be held
subject to a spendthrift trust as provided in Section 112.035 of the Texas Property Code.
12 Amendment, Modification or Revocation. The Court may amend, modify, or revoke the Trust at
any time before the date of the Trust's termination. Neither the Beneficiary nor the guardian of the
Beneficiary's estate may revoke the Trust.
13. Effective Date. This Trust shall be effective upon the last to occur of (A) the entry of an order
creating the Trust by the Court, (B) the execution of this Declaration of Trust by the Trustee indicating its
acceptance of the Trust; and (C) the receipt by the Trustee of the initial trust estate.
TRUSTEE'S ACCEPTANCE:
By:_______________________
Name:_____________________
Title:______________________
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APPENDIX 15: Under-65 Supplemental Needs Trust Created by Parent or Grandparent
THE «Beneficiary Name:LIKE THIS» SUPPLEMENTAL NEEDS TRUST
This trust agreement is made by me, «SNT Settlor:Like This», of «SNT Settlor Address», as
Grantor, with «SNT Trustee1:Like This», of «SNT Trustee1 Address», who, with all successors in trust,
is called the "Trustee."
ARTICLE ONE
NAME OF THE TRUST
established under this Agreement shall be known as THE «Beneficiary
Name:LIKE THIS» SUPPLEMENTAL NEEDS TRUST. It is established pursuant to 42 U.S.C.A.
§1396p, as amended effective August 10, 1993.
The
Trust
ARTICLE TWO
TRUST ESTATE, TRUSTEE AND BENEFICIARY
Grantor hereby appoints «SNT Trustee1:Like This» as Trustee of this trust. Grantor hereby
grants and assigns to «SNT Trustee1:Like This» (hereinafter referred to as Trustee) the sum of One
Hundred Dollars ($100.00) as the initial corpus of the Trust. Such property, together with any additions
acceptable to the Trustee, plus any interest, income and other accruals received on this corpus, shall
constitute the Trust Estate.
The primary beneficiary of the Trust, who is referred to in this document as Beneficiary, shall be
«Beneficiary Name:Like This» of «Street Address», «City», «State» «Zip Code». Grantor is the
Beneficiary’s «Grantor Relationship».
Prior to any other remaining assets going to the beneficiary or «Beneficiary Gender:his/her»
estate, the TEXAS DEPARTMENT OF HUMAN SERVICES and any other agency providing benefits to
the Beneficiary under a Medical Assistance Program shall have a vested remainder interest in and shall be
a recipient of assets remaining in the trust at the death of the Beneficiary to the extent set forth herein.
ARTICLE THREE
DISPOSITION OF PRINCIPAL AND INCOME
Payments. The Trustee shall pay or apply for the benefit of «Beneficiary Name» during
«Beneficiary Gender:his/her» lifetime, those amounts from the principal or income, or both, of the Trust,
for the satisfaction of the Beneficiary’s supplemental needs, as the Trustee, in the Trustee’s sole and
absolute discretion, may from time to time deem reasonable or necessary subject to the strict limitations
set out in this instrument. Any income of the Trust not so distributed shall be added to principal.
The Trustee is prohibited from expending any of the Trust principal or income for the property,
services, benefits or medical care otherwise available to «Beneficiary Name» from any governmental or
from any private insurance carrier required to cover the Beneficiary. The Trustee may, but is not required
to, pay any deductible amounts for «Beneficiary Name» on any insurance policies covering «Beneficiary
Gender:him/her». To the extent required by the Statutes and other applicable laws and regulations
regarding trusts of this type, the Trustee may supplement, but may not supplant, services, benefits,
assistance and medical care, as described above, that is available through any governmental or private
resource. The trustee may, however, make distributions that would reduce public benefits without
terminating them completely such as, for example, by providing food, clothing and shelter to a
beneficiary eligible for Supplemental Security Income in exchange for a reduction of benefits under the
"Presumed Value Rule," when the trustee in his, her or its uncontrolled discretion determines such
distributions to be in the best interests of the beneficiary.
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Supplemental Needs. As used in this instrument, “supplemental needs” refers to the requisites
for maintaining «Beneficiary Name»’s health, safety and welfare when the Trustee determines, in the
Trustee’s discretion, that the means for satisfying such needs are not available from any public or private
agency, including any state or the United States.
The Trustee should cooperate with the Beneficiary’s conservator, guardian or legal representative
to seek assistance and services for «Beneficiary Gender:him/her» from all available resources, including
but not limited to, the Supplemental Security Income Program (SSI), Supplemental Income Program
(SIP) of Texas, the Old Age Survivor and Disability Program (OASDI), the Medicaid Program, and any
additional, similar and successor programs, and from any private sources if such assistance would be
beneficial to «Beneficiary Name».
Court approval not required. Unless otherwise directed by a court of competent jurisdiction,
distributions may be made from this Trust without prior court approval.
ARTICLE FOUR
TRUST TERMINATION: PAYMENT AND
DISTRIBUTIONS ON DEATH OF THE BENEFICIARY
Trust Termination. Unless sooner terminated by exhaustion of corpus or otherwise, this trust
shall terminate upon the death of «Beneficiary Name». At the time of termination, any remaining assets
in this Trust shall be distributed as follows:
Payment of Debts, Estate Taxes & Expenses. Subject to the provisions below, the Trustee shall
first reimburse those states where «Beneficiary Name» has received unreimbursed Medical Assistance
payments from the state, based on the state’s proportionate share of the total amount of unreimbursed
Medical Assistance benefits paid by all of the states on «Beneficiary Name»’s behalf, for only those
benefits provided to the Beneficiary during the Beneficiary’s lifetime which are subject to such
reimbursement claim. The Trustee’s duty to reimburse the state(s) upon termination shall apply only to
the extent there are remaining assets in this Trust and shall apply irrespective of any other provision of
this Trust.
Because «Beneficiary Name» is currently a resident of the State of Texas, for this purpose the
Texas Department of Human Services, or other successor or applicable state agency administering the
State of Texas’ Medical Assistance Program, and/or any other state where «Beneficiary Name» may
hereafter receive such medical assistance benefits, shall have a vested remainder interest in this Trust if it
is conclusively determined that «Beneficiary Name» has received benefits from the state for which a
governmental claim for benefit reimbursement against trusts of this type is then allowed. The Trust shall
reimburse only those benefits provided to the Beneficiary during «Beneficiary Gender:his/her» lifetime
which are subject to such reimbursement claim.
After satisfaction of these obligations, if termination has occurred due to the Beneficiary’s death,
the Trustee is authorized to pay all inheritance or other similar taxes which may be imposed upon the
Beneficiary’s estate, together with any expenses of «Beneficiary Gender:his/her» last illness, funeral and
burial costs, enforceable debts, and reasonable administration expenses.
«IF Named Remaindermen»
Distribution of Residue. If any Trust assets remain after the satisfaction of the provisions above,
the residue of this Trust shall be distributed as follows:
(1) To «Remainder Beneficiaries»
(2) If the person or persons named in (1) predecease the Beneficiary, to those persons who would
be entitled to the Beneficiary’s estate under the laws of descent and distribution of decedents
who have died intestate in the state of residence of «Beneficiary Name» at the time of
«Beneficiary Gender:his/her» death;
«END IF»
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«IF Named Remaindermen = FALSE»
Distribution of Residue. If any Trust assets remain after the satisfaction of the provisions above,
the residue of this Trust shall be distributed to the estate of «Beneficiary Name»
«END IF»
Provided, however, this balance shall not be liable to creditors of «Beneficiary Name» except to
the extent provided herein.
ARTICLE FIVE
TRUST ADMINISTRATION
AND PROTECTIVE PROVISIONS
Spendthrift Trust. This is a Discretionary Non-Support Spendthrift Trust. None of the
principal or income of the Trust Estate or any interest therein shall be anticipated, assigned, encumbered
or be subject to creditors’ claims or to any legal process. This Trust is to be conserved and maintained
only for the supplemental needs of the Beneficiary. No part of the of the Trust Estate shall be construed
as part of the Beneficiary’s estate, or be subject to the claims of voluntary or involuntary creditors of the
Beneficiary. No part of the Trust Estate shall be liable nor available to the Beneficiary’s creditors during
«Beneficiary Gender:his/her» lifetime or after «Beneficiary Gender:his/her» death. Further, neither the
Beneficiary nor any creditor of the Beneficiary may compel a distribution from this trust.
Payment for Supplemental Needs only. No part of the Trust shall be used to supplant or
replace public assistance benefits of any county, state or federal agency that has a legal responsibility to
serve and provided assistance for persons with disabilities that are the same or similar to the
Beneficiary’s. If the Trustee is required to release any of the Trust Estate to the Beneficiary to pay for
benefits that public assistance programs are authorized to provide, if not for the existence of the Trust, or
if the Trustee is requested to petition a court or any administrative agency for the release of the Trust
principal or income for such purpose, the Trustee is authorized to deny such request, and is authorized, in
the Trustee’s sole discretion, to take whatever administrative or judicial steps the Trustee deems
necessary to continue public assistance program eligibility for the Beneficiary.
Payment of Income Taxes and Expenses. The Trustee shall pay any income tax liability of the
Beneficiary that results from income received by the Trust but properly reported on the income tax return
of «Beneficiary Name». This amount is to be specified in writing and delivered by the Beneficiary’s
accountant or tax preparer to the Trustee. The Trustee shall solely and conclusively rely on this amount.
The funds used to pay this income tax liability shall be paid directly to the appropriate tax authority and
shall not be available to the Beneficiary or be counted as a disqualifying financial resource against the
Beneficiary. The Beneficiary shall not have any right to or interest in any of these funds paid by the
Trustee. Further, these funds are not a resource of the Beneficiary and should not be treated as a
distribution of income for purposes of Medical Assistance qualification or continuation.
Trustee’s fees and expenses. Any Trustee acting under the terms of this instrument shall be
entitled to reasonable fees for Trustee services according to the compensations allowed by the Texas
Probate Code for Trustees of trusts of this type. The Trustee shall also be entitled to reimbursement of
reasonable costs expended by the Trustee. «IF Approval of Expenses»Provided, Trustee’s reimbursement
shall be subject to prior approval of such reimbursement by the «Court Name» of «County» County,
Texas.«END IF»
Professional Fees and Expenses. All reasonable expenses in establishing, maintaining,
administering, and defending this Trust, including but not limited to reasonable attorney fees, accounting
fees, Trustee fees, and costs shall be a proper charge to the Trust.
ARTICLE SIX
POWERS AND DUTIES OF THE TRUSTEE
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Powers. The situs of this Trust is Texas, and the Trustee may exercise all the powers awarded to
Trustees in the Texas Trust Code and through the applicable provisions of the Texas Probate Code, as
amended, subject to the limitations created in this Trust Instrument. In addition, the Trustee may invest in
non-income producing assets where such investment is appropriate in the Trustee's opinion for the proper
management of trust assets. The validity of this Trust shall be determined by the laws, including valid
regulations, of the United States and the State of Texas.
No power enumerated in this instrument shall be construed to enable any person to purchase,
exchange, or otherwise deal with or dispose of the principal or income of this trust for less than adequate
and full consideration in money or money’s worth.
Duties. The Trustee shall provide accountings annually to the Court and to the Beneficiary’s
conservator, guardian or legal representative when requested. These accountings shall set forth all
receipts and distributions made during the reporting period and assets held in Trust at the end of the
period.
Identification of appropriate public benefits. It is recognized that the Trustee may not be
licensed nor skilled in identifying programs of public assistance. The Trustee may seek the counsel and
assistance of any guardian or conservator of the Beneficiary, or others, including any state and local
agencies that are established to assist persons with disabilities. The Trustee should use available
resources to assist in identifying programs that may be of social, financial, developmental or other
assistance to the Beneficiary. The Trustee shall not in any event, however, be liable to any beneficiary,
or the remainder beneficiaries of the Trust or to any other party, for such acts undertaken as Trustee in
good faith. The Trustee shall not be liable for failure to identify all programs or resources that may be
available to the Beneficiary because of the Beneficiary's disabilities.
ARTICLE SEVEN
TRUSTEE'S SUCCESSION AND
ADMINISTRATIVE PROVISIONS
If «SNT Trustee1:LIKE THIS» fails or ceases to serve as Trustee at any time, «SNT
Trustee2:LIKE THIS», of «SNT Trustee2 Address» shall serve as successor Trustee. Any person who
serves as Trustee or Successor Trustee shall have the authority to appoint a successor Trustee, which
appointment will supersede the order of succession herein prescribed. To be binding and effective, a
designation of successor trustee must be in writing and must be acknowledged. The instrument of
designation must be executed during the time that person is actually serving as Trustee. Any successor
Trustee shall have the authority vested in a Trustee by original appointment.
Any Trustee may resign by giving thirty days prior written notice to the Beneficiary and his
conservator, guardian, or legal representative, if any.
ARTICLE EIGHT
IRREVOCABLE NATURE OF THE TRUST
AND BOND REQUIREMENT
This Trust shall be irrevocable. The Beneficiary shall have no right or power, whether alone or in
conjunction with others, in whatever capacity, to alter, amend, revoke or terminate this Trust, or any of
the terms of this Trust Agreement, in whole or in part, or to designate the persons who shall possess or
enjoy the Trust Estate, except as is set out specifically in this instrument.
Except as may otherwise be required by order of a Court, the Trustee shall not be required to give
any bond or other security for the faithful performance of the Trustee’s duties under this Trust. No
Trustee shall be liable for any loss of Trust assets, except for any loss caused by the Trustee’s bad faith or
negligence.
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IN WITNESS WHEREOF, «SNT Settlor:Like This», Grantor, and «SNT Trustee1:Like This»,
Trustee, have signed this document the day of
, 19
.
«SNT Settlor:LIKE THIS», Grantor
«SNT Trustee1:LIKE THIS», Trustee
THE STATE OF TEXAS
SUBSCRIBED AND ACKNOWLEDGED before me by «SNT Settlor:LIKE THIS», as Grantor,
and by «SNT Trustee1:LIKE THIS», as Trustee, on this ______ day of ___________________, 19____.
Notary Public, State of Texas
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APPENDIX 16: Third-Party-Funded Supplemental Needs Trusts--A Multiple-Trust Approach
or, "The Renée C. Lovelace Texas Two-Trust Waltz"
The Law Office of
RENÉE C. LOVELACE, P.C.
A Professional Corporation
P.O. Box 38387
Dallas, Texas 75238
Renée Colwill Lovelace, M.B.A., J.D., C.E.L.A.*
Telephone: (214) 503-7694
*Certified as an Elder Law Attorney
by the National Elder Law Foundation
Fax: (214) 503-7695
E-mail: ReneeLovel@aol.com
Our Refere
15816-001
MEMORANDUM
TO:
H. Clyde Farrell
FROM: Renée Lovelace
DATE: May 5, 1999
RE:
Third-Party Trust Planning for Persons With Serious Disabilities
This memorandum discusses briefly, in general terms only (without statutory cites), how I
address the following issues in my practice when working with parents of a seriously disabled adult
or minor child:
•
•
•
•
•
•
Framework for Third-Party SNT Planning
Protecting Advocates--a Scarce Resource--Helps to Protect the Beneficiary
Factors In Selecting and Using the Two-Trust Approach
Components of Planning That Includes the SNT and the “Annual-Cap”
Discretionary Trust
Components of the SNT
Components of the “Annual-Cap” Discretionary Trust
My planning approach and the planning approaches of others are discussed in more detail in:
The Texas Attorneys’ Planning Guide
for Representing Families With Disabled Family Members:
*Starting Points*
In Helping Caregivers Build Networks of Care
The guide is on computer disk (WordPerfect 5.1) and was a project of Planned Living
Assistance Network of North Texas, Inc., a non-profit private case management organization in
Dallas. Production of the Guide was funded by The Texas Bar Foundation, The Hogg
Foundation for Mental Health, and The Dallas Bar Foundation. Ordering information (there are
still free copies available as of this date, but there may not be by the end of the summer) may be
obtained by sending an e-mail to <TexAttyGd@aol.com>. After the free copies are gone, I expect
that copies will be sold for $10.00.
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As you and I have discussed, we should consider working with the next Texas Legislative
Session to “put ourselves out of work” by seeking support for a statute that would protect all
qualifying trusts for persons with disabilities--like the statutes already on the books in Illinois,
Maryland, and New York. (But in Texas, we could do it even better. .. . )
The Framework I Recommend to Most Clients for Third-Party SNT Planning
In planning for beneficiaries with serious disabilities, in all but the smallest testamentary
estates, I recommend using two trusts. I believe this approach provides the most flexibility and
protection for beneficiaries with serious disabilities, for whom careful planning is critical.
While clients with large estates often carefully plan to protect transfers of wealth, I believe that
it is a serious mistake to do less than comprehensive and tailored planning for family members with
disabilities--even (or especially) with modest estates.
Healthy heirs, if wealth is wasted by poor planning, often are simply “not as wealthy.” But
heirs with serious disabilities, if proper planning is not a priority, may lose significant once-in-alifetime opportunities--that will greatly reduce their quality of life options for the rest of their lives.
The alternative--careful and tailored planning--even where we are talking about “only $50,000"
or “only $75,000," but especially with higher dollar values, may give the person with disabilities an
enormously improved quality of life, with more interesting and more healthy options, better living
conditions, better job opportunities, and enhanced social opportunities. Providing a good plan for
family members with disabilities helps everyone in the family have a better quality of life--perhaps
for generations.
Thus I recommend that most clients carefully examine their overall planning and tailor a plan
that appears to position their loved one--and the rest of their family--in the best possible way for the
future.
Protecting Advocates--a Scarce Resource--Helps to Protect the Beneficiary
Good planning for the person with disabilities may--in our overly stressful and busy world-enable other family members to have a more pleasant and healthy relationship with the beneficiary.
Friends and advocates for the person with disabilities are critical to the person receiving
consistently good care and opportunities, and this is a component that is often not emphasized
strongly enough. Because committed advocates are scarce and valuable (whether family or friends),
it is critical, I believe, to do planning where the time and emotional resources of the advocates are
less likely to be “used up” with the technical administrative and search-for-resources duties.
But because great advocates can, unfortunately, sometimes “move on” or even become
exploitive as the circumstances of their own lives change, I believe it is critical that “checks and
balances” be built into the plan.
Clyde, as you know, I have a step-son with serious mental illness, and I have a son and
daughter who I hope will be his life-long advocates and friends. I want Corley, Bryan, and Jessie-all three of them--to have good lives, with trust structures that do not unnecessarily complicate their
lives or cause any of them anguish (in the many, many years ahead) that I can avoid by careful
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planning. I cannot guarantee that Bryan and Jessie will always keep Corley’s needs as a priority,
but I truly believe that they will--and thus I have worked to give them tools to assist Corley in a
manner that lets them enjoy Corley as a brother, without the guilt and pressure of feeling that their
entire lives must be focused on providing for his care.
Good planning now is the best “gift” that families can give to the beneficiary--and to each
other.
Factors In Selecting and Using the Two-Trust Approach
There are many pieces to the “trust planning” and “long-term care planning” puzzle, if the
objective is to make the most of scarce resources for a person with disabilities--perhaps for fifty
years or more-- and if the chaotic field of public benefits plays a role (and public benefits almost
always play a role--even as a last-ditch safety net for very wealthy clients).
Some of the factors to consider in planning to use two trusts, a Supplemental Care Trust and an
Annual-Cap Discretionary Trust, are the following:
•
With larger estates, it is likely not significantly more expensive to administer two
trusts than one. Because the trusts are designed to work together, some corporate
trustees charge fees only slightly more than the fees for one trust.
•
Where an individual is a trustee, the benefactor could utilize the Arc Pooled Trust as
the Supplemental Care Trust, and the individual could administer the Annual-Cap
Discretionary Trust.
•
Trusts continue to be attacked by those entities seeking payment from trusts. I
understand that some medical chains have hired attorneys to consolidate information
on trust invasion, and I believe that in the future un-paid medical creditors will be
likely to pursue large trusts under any available theory.
•
Different public benefits programs have different trust rules. At the present time, I
believe that it may not be possible to effectively draft a trust in Texas that has
sufficient flexibility in supplementing support costs where supplemental support is
necessary, without putting the trust at risk (1) to the State as a creditor for services
authorized by the Texas Department of Mental Health and Mental Retardation
(TDMHMR) in State Hospitals or State Schools, (2) to MHMR Community Centers
for services provided by such centers, (3) creditors who provide “necessaries,” and
(4) medical creditors for “emergencies.” I think that the cost of having two trusts is
small compared to the additional flexibility and the reduction in risks.
•
As you know, the State (TDMHMR) has indicated that it will rely on (1) the Health
& Safety Code statutes that provide that trust funds in excess of $50,000 are
available for repayment for State services, and (2) public policy arguments
analogous to the cases where income from discretionary trusts was held to be
available to pay the trust beneficiary’s past-due child support obligations (which is
now a statutory trust invasion right). I believe it is important to have a trust plan in
place in which the equities are on the side of the trust beneficiary, even if a limited
amount of trust corpus is available to repay the State for services. I view this, as
most of my clients view this, as “insurance” that may prevent an attack, and as a
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defense if the trust is attacked by creditors. This trust approach does not “refuse to
pay a dime” to creditors such as the State when valuable services are provided at
taxpayer expense, but may--in those circumstances where other discretionary trusts
are found to be available--be available for repayment as well, but only up to a
capped annual amount.
•
SSD and other programs that are not currently means-tested may be means tested in
the future, and thus even where it does not now appear that an SNT is necessary, the
protection an SNT would provide may be necessary in the future.
•
If the SNT is completely unnecessary at some point in the beneficiary’s life, the trust
is structured so that it likely can be amended and/or merged with the Discretionary
Trust.
•
While many of the nation’s top estate planners are anguished over the view that
discretionary trusts--which in theory should be the best protected trusts--are inferior
to SNT’s for public benefits protection, I believe discretionary trusts are more at
risk. One nationally-recognized estate planner told me he feared the “social worker
attorneys had moved into trusts and mucked them up.” However it has happened,
the collision of money and staggering medical needs has made trust issues
complicated.
Components of Planning That Includes the SNT and the “Annual-Cap” Discretionary
Trust
In representing clients who seek to plan for beneficiaries who are elderly or who have
disabilities, there is often a difficult combination of social and legal issues. Ideally, the
benefactor/client would bring the following information--in addition to all the typical family
information and resources inventory--to the attorney at the planning meeting:
•
a summary of the disabilities of the beneficiary
•
a listing of current public benefits the beneficiary is receiving (source of benefit,
amount, frequency, restrictions, etc.), as well as the types of benefits to which the
beneficiary may be entitled upon the retirement, disability, or death of a parent or
other benefactor
•
if the beneficiary is currently working (with or without social and medical supports
provided by the family) and is not receiving benefits, the types of benefits (and
amounts) that the beneficiary would receive if he or she were to stop working and
qualify for benefits
•
if the beneficiary is currently working, a description of the social and medical
supports that are important to his or her independence
•
a feasibility analysis of future job opportunities and living options for the beneficiary
•
names of three or more advocates close in age to the beneficiary who can serve as
trust protectors, or in other advocacy roles
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•
a description of other members of the beneficiary’s support network--family, friends,
and others
In “real life,” most clients bring none of this information to the attorney.
I do not believe that it is possible for the attorney to do adequate (i.e, the “best possible”)
planning for his or her clients without this information. Non-profit advocacy groups provide a wide
variety of valuable information to their members, but most have not yet developed the resources that
would enable members to bring to the attorney the information that the attorney needs to best
protect the interests of the disabled family member.
When the attorney turns around and tries to obtain or develop the information needed, costs
escalate. Sometimes the client pays these additional costs--sometimes the attorney pays these
additional costs. But someone pays.
In order to keep costs down, many clients agree to only do the type of planning that I believe
should be done on one’s death-bed, simple and inexpensive planning such as including only an SNT
in the plan.
The components of planning that I typically use, which are affected by the type of information
gathered above, include the following:
1.
A testamentary Supplemental Care Trust that is prohibited from making support
distributions and which can be amended or terminated by the trustee under the
provisions of the trust in order to better satisfy the intentions of the grantor.
2.
A testamentary “Annual-Cap” Discretionary Trust that may be able to make support
distributions for the beneficiary under some circumstances (limited to an annual
cap), and which may be amended and “spent down” but not terminated. In addition
to having an annual maximum amount over which the trustee has full discretion,
there are several ways in which the maximum annual “full discretion” amount may
be exceeded: First, the trustee has authority to buy a house/condo (or an interest in a
house or condo) as an asset of the trust, or buy a house/condo (or an interest) and
distribute it to the beneficiary, or may pay for additions or modifications to the house
of another if the beneficiary will benefit from such expenditures. Second, several
persons are selected to hold special non-fiduciary powers of appointment which can
be used to make additional distributions. I understand from Noel Ice that this is a
technique he believes to be very effective, although the power holders must be
carefully selected (lest someone who is inattentive to the public benefits
ramifications directs the trustee to make disqualifying distributions).
3.
An Additional Provision in the Power of Attorney that permits funding of trusts for
the disabled child during the parents’ lifetimes if the parents need nursing home
Medicaid or if other catastrophic events occur. As you know, transfers to qualifying
trusts for persons with disabilities are not transfers that are penalized (resulting in a
period of ineligibility) for Medicaid. This “gift from Congress” should be used in
virtually every modest estate where there is a disabled child--yet this provision is
frequently not used.
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4.
Further diversifying risks to the “beneficiary’s share” of property by considering
investments such as the following, depending on the facts of the case (which is why
the collection of information is so important):
a.
Directing a small to modest amount of the “beneficiary's share” directly to
other trusted family or friends from the outset either during the grantor’s life
or at the grantor’s death (whether by Will or trust), with the hope that these
trusted family members or friends will hold such funds in reserve and use the
funds for the beneficiary in case of temporary shortfalls or gaps in services.
b.
To the extent that the grantor provides other family or friends with a portion
of what the grantor considers to be the “beneficiary’s share,” requesting that
such advocates put the funds into a separate bank account and consider funds
in such accounts to be set aside for the beneficiary's future care, if necessary.
If possible, the grantor could request that the advocates use a “payable on
death” account that directs the funds to the beneficiary’s supplemental care
trust at such person’s death. If such a transfer would generate estate tax
costs (by using up some of the person’s unified credit), the person could
withhold from the account an amount necessary to compensate his or her
heirs.
c.
Consider purchasing life insurance policies (and establishing insurance
trusts) on the grantor’s life and the lives of various advocates for the
beneficiary to stagger funding into the trusts over the beneficiary’s lifetime.
In that way the beneficiary's trusts may be replenished over time, when the
beneficiary loses advocates or caregivers. Life insurance trusts can be
extremely valuable in planning for persons with disabilities. The grantor’s
funds are are less likely to be exhausted during the grantor’s life, either
through normal expenses or through a catastrophic event. Further, life
insurance proceeds have creditor protection that could be very valuable in
the future.
d.
Consider creating another trust that is fully discretionary for the benefit of
the beneficiary and others. A "pot trust" likely will reduce the risk that
there will be State claims against the trust.
e.
If the grantor’s assets include retirement benefits, consider using a trust that
qualifies as a “designated beneficiary” for those benefits. This structure
could be enormously valuable as this arrangement would avoid the problem
of having a huge trust sitting out there, begging for creditor attack, plus
funding the trust with proceeds that are typically exempt from creditor
claims.
f..
Preparing another trust for funding by other family members or otherwise
ensuring that others in the family--both up and down and sideways in the
family tree--do not inadvertently leave assets to the beneficiary in a manner
that destroys all of the parents’ careful planning.
g.
Considering charitable remainder trusts that fund the supplemental care
trust or the discretionary trust. Again, the technique would stagger funding
into the beneficiary’s trust(s) over the beneficiary’s lifetime, creating a more
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protective plan. Further, where the parent/grantor holds a large block of
low-basis stock, the charitable remainder trust planning sometimes can result
in higher payments going into the beneficiary’s trusts than the parent could
generate by selling the stock, paying capital gains, and reinvesting the
proceeds.
h.
Paying for a good Personal Care Assessment for the beneficiary, so that the
trustees and advocates have a good grasp on the beneficiary’s strengths and
needs for assistance, and understand how to make the most of future
opportunities.
As you know, the “people” factors in this planning are as important as the
“numbers” factors. And both sets of factors lead to an analysis of planning steps that
are often difficult to quantify. By trying to quantify these factors, however, I believe
that we will get much closer to a “best possible” plan for the person with disabilities.
5.
Using funds to prevent other costly steps such as:
a.
Having parents or grandparents establish a simple “under-65 disability
trust” so that if the beneficiary inherits a small amount later in his or her life,
that amount can be protected without requiring a court or guardian
b.
Establishing a sub-account in the Arc of Texas Master Pooled Trust to
benefit from the unique and valuable information distributed by the trust
administrators, even if the sub-account is not used.
c.
Paying for the services of an attorney who will represent the family member
with disabilities in their own advance medical and business planning, so
that a costly guardianship will not be necessary later.
Components of the SNT
Prohibitions.
The trust permits distributions for the beneficiary’s “supplemental care” only and prohibits
payments for (a) food, (b) clothing, (c) housing, (d) claims for medical care otherwise available
from Medicare, Medicaid, or other source, or that is covered by private insurance, and (e) claims
for medical care--whether or not provided in an emergency--that is not pre-approved by the trustee.
Selecting the Trustee of the Trust.
If the client has children or other family members who have the skills of a CPA, the
compassion of Mother Teresa, and a great deal of time on their hands, I suggest the parent name that
person as trustee.
Similarly, if the parent has a family member who will hire assistance as necessary to administer
the trust, that person may also be a good choice as trustee.
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While children and other family members may in some cases be good choices for trustee, it is
important that the selection not be automatic, as in many cases family members are very poor
choices to serve as trustee of SNTs.
Tax Risks to Trustees Who Are Vested Remainder Beneficiaries.
Because of the broad discretion in the trust, I believe that there is likely a risk that a trustee who
is a remainder beneficiary could be found to have a general power of appointment over trust assets,
causing includability in the trustee’s estate, or causing trust distributions to be re-cast as taxable gifts
by the trustee to the beneficiary.
By the way, while many highly-respected estate planners with whom I have discussed this
issue believe this is a near-ludicrous concern, others agree that the combination of broad
discretion + a trustee who is a vested remainder beneficiary = a potentially serious
problem. I suggest using a corporate trustee or at least a trustee who is not a remainder
beneficiary. If clients are adamant that the trustee be a remainder beneficiary, perhaps the
risk could be reduced by (1) having the trustee/remainder beneficiary’s interest distributed
into another trust where distributions are subject to an ascertainable standard, or (2) giving
the beneficiary a special power of appointment so that the trustee/remainder beneficiary’s
interest is not vested, or (3) having the trustee subject to removal from the position by a
Trust Protector.
I suggest that trustees obtain current advice before accepting the position of trustee (lest there
be a technical problem with the “release” of a general power of appointment) as well as advice on
distributions at the time that distributions are made.
Trust Protector.
Because of the extremely broad discretion in these trusts, most trusts could benefit from a
“check and balance” structure where another person (who is not eligible to serve as trustee, but who
may be a good advocate) has the power to remove and replace the trustee. I almost always
recommend that clients have separate trustees and Trust Protectors.
Amendment and Termination Provisions.
The Supplemental Care Trust can be terminated by the trustee under certain conditions and the
trustee also has the authority to amend the trust, in the trustee's discretion, to achieve the grantor’s
intentions for the trust. If creditors’ claims attach to the trust corpus (which we do not anticipate) it
is possible that the termination provisions cannot be used (fraud on creditors issues).
Annuities As Trust Assets.
Both the Discretionary Trust and Supplemental Care Trust permit the trustee to purchase an
irrevocable annuity based on the beneficiary's life expectancy. In the case of the Discretionary
Trust, the value of the annuity (to the extent the value exceeds the $50,000 protected amount under
the Texas Health and Safety Code) may still be considered available to the State for reimbursement
of services (with the biggest risks being expensive State hospital (psychiatric) care or State school
services), but would achieve several other objectives:
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1.
The funds available in the trust would be paced over the expected term of the
beneficiary's life, providing guidance to the trustee and the beneficiary on
distributions from the trust.
2.
Should the beneficiary incur large bills for his or her medical or support needs and
should the State or a creditor pursue reimbursement from the trust, at least an
equitable argument will have been established for limiting reimbursement. While a
$100,000 to $1,000,000 trust looks huge to a creditor and possibly to a judge or jury,
one can perhaps better argue for the preservation of the trust throughout one's life if
funds available to be paid from the trust are limited and paced throughout the
beneficiary's life; annuity payments do not appear to be nearly so generous.
Certainly the purchase of an annuity in a trust could have undesirable tax ramifications
and the trustee should obtain advice before making that type of trust investment decision.
This is a trade-off to be reviewed during trust administration.
Other Components.
Not all components of the Supplemental Care Trust are included in this memorandum.
For other components, look at the Supplemental Care Trust form that follows--both sections of
the trust and also the “boxes” of comments, discussion points, requests for additional information,
and caveats.
Components of the “Annual-Cap” Discretionary Trust
In addition to the provisions of the Supplemental Care Trust described above, the Discretionary
Trust provides as follows:
Limited “Full Discretion” Distribution Provisions.
In the Supplemental Care Trust, restrictions on payments for the beneficiary’s support are
warranted to reduce the likelihood that the trusts will be subject to creditor's claims, or that
distributions from the trusts will cause the beneficiary to be ineligible for benefits. But where
clients also would like for the beneficiary to be productive (which most clients and also most
beneficiaries want) and be encouraged to work, it is important that trust distributions be permitted
for support under some circumstances.
In the trust form that I often use, the “full discretion” component of the trust is subject to an
annual cap. The full discretion provisions and calculations to determine the cap are located in
Sections B-4(c)(4) and B-4(c)(5).
Let me explain why I think we are walking on such a narrow “sort-of-safe-harbor” path.
In addition to goods and services that can be purchased under the terms of the Supplemental
Care Trust, many people need access to trust funds that can be used for food, clothing and shelter if
and when those items need to be supplemented. Say, for example, the trustee of the beneficiary’s
trusts could provide a satisfactory arrangement for him or her that costs $1,500 per month. Yet the
Supplemental Care Trust cannot supplement basic support. This is the key difficulty in planning for
these circumstances. If basic support payments are permitted from the trust, the trust then becomes
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“available” for many state and federal purposes--i.e., in order for the funds to be protected, use of
the funds cannot be as flexible as you would like.
Thus this second trust that is referred to as a “Discretionary Trust,” which is still structured to
protect public benefits, has a little more flexibility to supplement basic support. That flexibility, of
course, brings more risk that the State will seek reimbursement for services, and thus I have
structured this type of trust to attempt to restrict the amounts that can be paid out of the trust
annually. Thus even if the State were to seek reimbursement for services, that reimbursement
should arguably be limited to an “annuitized” amount--meaning the amount an annuity would pay if
the full amount of the trust were invested in an annuity equal to the beneficiary’s life expectancy.
This type of trust has not been tested in Texas and there is no guarantee that it will work or
will always solve the problems faced by the trustee, but I believe this step to be the best that
families can do to attempt to adequately and appropriately provide for the long-term care of
family members with disabilities.
The Discretionary Trust is to a great extent duplicative of the Supplemental Care Trust and,
together with the other planning components addressed above, is part of a client’s risk
diversification strategy that I believe will be helpful to their child’s future protection.
If the flexibility included in the Discretionary Trust causes the beneficiary to lose benefits, then
the trustee could distribute funds from this trust first (before using the funds from the Supplemental
Care Trust) and then terminate this trust.
Amendment But No Termination.
The Discretionary Trust provisions permitting the trustee to amend the trust are slightly more
flexible than the amendment provisions of the Supplemental Care Trust. The Discretionary Trust is
the client’s “first line of defense” in meeting the beneficiary’s basic needs if public benefits become
insufficient, and the Trustee may need to move quickly under some circumstances to preserve that
trust. There are cases in which the Discretionary Trust should be funded with fewer dollars than the
Supplemental Care Trust, with the intent of putting less at risk.
The termination provision is a two-edged sword; some planners for beneficiaries with
disabilities always use termination or “explosion” clauses--some never use them. I tend to keep the
termination provision in Supplemental Care Trusts where there is a close and warm family, but still
not include that provision in the Discretionary Trust. The Discretionary Trust permits advance
payments, payments for housing, and includes non-fiduciary powers of appointment so that
additional unrestricted distributions can be made (see Section B-4(c)(7)). With these extra layers of
protection, I feel more comfortable knowing that there is not an “explosion” clause in that trust.
Other Components.
Not all components of the Discretionary Trust are included in this memorandum.
For other components, look at the Discretionary Trust form that follows--both sections of the
trust and also the “boxes” of comments, discussion points, requests for additional information, and
caveats.
Conclusion
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To protect families with seriously disabled family members who already face daunting day-today challenges, we along with other advocates should consider seeking the adoption of a statute in
Texas that will permit families to do less complicated long-term planning yet not risk loss of critical
public benefits. Until we have such a protective statute, however, I believe that the two-trust
approach is warranted.
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This form is provided for discussion purposes only.
The author makes no warranty that this trust will achieve the objectives that the author has so
diligently (and exhaustively) sought to achieve. The author would be grateful for any comments
on this form or suggestions for improvement; please direct such comments by e-mail to
<ReneeLovel@aol.com>.
This Supplemental Care Trust form is drafted:
*
To be used as a component in a carefully-structured plan, and not to be used as the
only planning component for a person with serious disabilities.
*
To be used in conjunction with the discretionary trust form that follows.
*
To be included in a parent’s carefully and thoroughly drafted Will, incorporating
trustee and administrative provisions of the other trusts created by the Will (with
definitions and structure here following the “Hobie M. Gates” Will form of
Professor Stanley Johanson).
*
With broad trustee discretion controlled through the use of a Trust Protector.
Supplemental Care Trust
B-3
The *Beneficiary* [full name of Beneficiary] Supplemental Care Trust.
Any property that is directed to my *son/daughter*, *Bene* [Beneficiary’s First Name], or that would
otherwise be distributable to *Bene*, or that is directed to the trustee of the *Beneficiary* Supplemental
Care Trust (the "*B.I.* [Beneficiary’s Initials] Supplemental Trust") shall be distributed to the trustee of
the *B.I.* Supplemental Trust and shall be held, administered, and distributed in accordance with
the following provisions:
(a)
Intent of Grantor. It is my intention in creating and funding this trust to create a
purely discretionary non-support supplemental care fund for the benefit of my *son/daughter*, *Bene*,
and not to displace financial assistance from any other private or public source that may otherwise
be available to *him/her*. My intentions are further clarified below.
Read the section below and point out ways to better tailor this provision to fit *Bene*
(1)
*Bene*'s Needs Are Long Term. My *son/daughter* *Bene*, for whose primary
benefit this trust is created, has from time to time suffered from [*describe illness or disability*]
serious mental illness and mental and physical disabilities that sometimes have and may
throughout *his/her* future require special medical care, treatment, social, advocacy, and
custodial services. Because of the constant advances that are being made in brain research
and the development of new therapeutic drugs and procedures, [*modify for relevant information
here*] it is my hope that *Bene* may be able throughout *his/her* life to live as [*independent,
comfortable, productive and self-fulfilling*] a life as possible. The purpose of this trust is to
maximize all available resources and apply them so that *Bene* may have the best possible
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chance of becoming and remaining happy, comfortable, and as self-sufficient as possible. In
view of the potentially enormous expense of providing quality care for a person who has
[*describe disability or illness*] a serious mental illness and mental and physical disabilities, I am
unable to meet my objectives for *Bene* solely from my own resources and to provide for
other family members. Therefore it is my intention not to disqualify *Bene* from other
benefits, but to enable *Bene* to remain qualified for funds and services available to *him/her*
from all other sources including private, federal, state, county, and local benefits and
services (such other sources, whether funds or goods or services, will be referred to
collectively as "public benefits") to the greatest extent possible.
(2)
Access to Supplemental Funds Is Vital and Public Benefits Are
Uncertain. It is important that *Bene* maintain a high level of human dignity and that *his/her*
care be humane. Public benefits and other public and charitable programs are often helpful,
but the future of public benefits programs is unpredictable and such programs are likely to
sustain numerous changes throughout *Bene*'s life. My intention is to establish a trust for
*Bene* that is capable of lasting and providing supplemental care throughout *Bene*'s entire
life. If this trust were to be eroded by creditors, subjected to liens or encumbrances, or cause
public benefits to be unavailable or terminated, it is likely that the trust corpus would be
depleted prior to *Bene*'s death, especially if the cost of care is high. In such event there
would be no reserve for supplementing basic needs throughout the remainder of *Bene*'s life.
(3)
My Intent Should Control Interpretation of This Trust. The provisions
contained in this trust should be interpreted by the trustee in light of the concerns and intent
set out in Sections B-3(a)(1) and B-3(a)(2) above. If any provision of the trust could
possibly be construed as disqualifying *Bene* from benefits such as Social Security Disability
Insurance (SSDI), Supplemental Security Income (SSI), Medicaid, Medicare, county
services, or other similar or successor benefits programs during periods of time when *Bene*
would otherwise qualify for such benefits, or if any provision of the trust could possibly be
construed as subjecting the trust’s income or principal to the claims of federal, state, county,
local or other entities that would otherwise provide services without charge, the trust shall be
construed as having been intended to not disqualify *Bene* for such benefits and to not be
available to *Bene*'s creditors. The language of this trust shall be interpreted or automatically
modified accordingly.
(b)
Trust Estate. The trust estate shall consist of all property, real or personal,
transferred to the trustee by anyone or any entity with the consent of the trustee. All such property
may be referred to herein as the "trust estate." The trust estate shall not include any property that the
trustee refuses to accept, any earnings of *Bene*, any public benefits paid to *Bene*, or any other funds
that have belonged to *Bene*.
(c)
Discretionary Supplemental Care Distributions. Constrained only by the specific
provisions set forth in this trust and other applicable laws and regulations, the trustee may distribute
for the benefit of *Bene* for *his/her* lifetime such amounts from the principal or income, or both, of
this trust up to the whole thereof, as the trustee in the trustee's sole, absolute, complete, and
unfettered discretion may from time to time deem advisable to provide for *Bene*'s special nonsupport supplemental care. Any income not distributed annually shall be added to principal.
(1)
Purpose of Trust Is for Supplemental Care. I am aware that while many
public benefits programs include funds for food, clothing, shelter, and certain medical care,
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such public benefits funds do not provide for many of the goods and services that may be
needed by *Bene* in order for *him/her* to have a happy, productive, and comfortable life. The
purpose of this trust is to make distributions for *Bene*’s supplemental care during *his/her* life
and not to provide basic support. No distributions from or part of the trust shall be used to
supplant or replace any public benefits or any benefits due from any insurance carrier or
under any other insurance policy covering *Bene*.
Review the supplemental care suggestions below and add specific types of distributions that
may benefit *Bene*. Also, delete any references that are clearly inapplicable. Further, where a
beneficiary may otherwise be eligible for special education funds, consider deleting references to
educational services.
(A)
Examples of Supplemental Care. Illustrative of the kinds of
supplemental, non-support disbursements that would be appropriate for the trustee to
make from this trust, if the trustee in the trustee’s sole discretion determines such
distributions to be in *Bene*’s best interests, include, but are not limited to, the
following: vocational, college, or other education costs; private rehabilitation
training; sophisticated medical or dental or diagnostic work or treatment that is not
covered by public benefits, including plastic surgery or other non-necessary medical
or therapeutic procedures; experimental or other non-traditional medical or healthrelated goods or services that are not covered by Medicaid, Medicare, or insurance,
or are not otherwise available to *Bene*; dental care if not otherwise available;
recreation and transportation; differentials in costs between shared and private rooms
in institutional and other settings (but only where distributions would not reduce
benefits that would otherwise be available to *Bene*); supplemental nursing or case
management care and similar care that assistance programs may not otherwise
provide; telephone and television service, travel and companions for travel; reading,
driving and cultural experiences; payments to bring *Bene*'s family members or
friends for visits; or supplemental care assistance of any kind the trustee deems
appropriate and reasonable. The trustee may also pay any premium or deductible
amounts for *Bene* on any insurance policies covering *him/her* if the trustee in his or
her sole discretion deems such payments to be in *Bene*’s best interests.
(B)
Purchase of Goods for Supplemental Care. The trustee may
purchase goods the ownership of which does not jeopardize public benefits and may
distribute such goods to *Bene* when the trustee in the trustee's sole and absolute
discretion determines that distribution of such items will not jeopardize public
benefits. The trustee may in the trustee's sole and absolute discretion purchase and
hold personal and/or real property as assets of the trust.
(C)
Limitations on Trustee's Discretion.
(i)
Prohibited Expenditures. The trustee shall not make
distributions for food, clothing, or shelter, or for medical care that is covered
by or provided by Medicaid, Medicare, insurance, or other public benefits or
charitable programs. The trustee shall not make distributions directly to
*Bene* when distributions of cash or property would result in a reduction of
public benefits or when the trustee knows that distributions of cash or
property will have a significant negative impact on other benefits that *Bene*
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is receiving or for which *he/she* is otherwise eligible. The trustee shall deny
any request by any public or private entity to disburse trust funds for support
or other care or services if the trustee believes such entity has the obligation
to provide such services to *Bene*, or if the trustee believes that such entity
would provide services to *Bene* but for the existence of trusts established for
*him/her*.
The provision below re marriage may not be enforceable; there is a possibility that it may be
void as against public policy. But here again, the purpose is to show the grantors’ intent for the
trust and to permit the grantors’ intent to be achieved to the greatest extent possible.
Let me know if you are opposed to this provision.
(ii)
Marital Agreement With Spouse Required. If *Bene*
marries, the trustee may not distribute any trust principal or income unless
and until *Bene* and *his/her* spouse have entered into a marital property
agreement (i) in which *Bene* and *his/her* spouse agree that all distributions
from the trust shall be *Bene*'s separate property, and (ii) in which *Bene*'s
spouse waives any and all community property claims, if any, to trust
principal and income, whether or not distributed.
(2)
Obtaining Public Benefits. In the event that *Bene* is unable to maintain and
support *him/her*self independently, the trustee may seek, or hire assistance in seeking,
support and maintenance for *Bene* from all available public and private resources. The
trustee shall take into consideration the applicable resources and income limitations of any
public benefits program for which *Bene* is or could become eligible. I acknowledge that the
trustee is not an expert in public benefits programs and the trustee shall not be liable for the
trustee’s failure to locate and access all programs of support for which *Bene* may be eligible.
Further, the trustee may cooperate with any conservator, guardian, legal representative of, or
other advocate for, *Bene* to seek support and maintenance for *Bene* from all available
resources, including but not limited to, Social Security Disability Insurance (SSDI),
Supplemental Security Income (SSI), any supplemental income program of any state,
Medicaid, Medicare, U.S. Civil Service Commission, Veterans Administration benefits, and
any additional, similar or successor programs, and from any private support sources. All
references in this instrument to "Medicaid" include any other state's Medicaid program
equivalent or any medical assistance program that in the future may supplement or replace
Medicaid.
(3)
Intention Is to Not Disqualify *Bene* from Receiving Public Benefits. This
trust is not created with the intention of qualifying *Bene* for public benefits, but is expressly
created with the intention of not disqualifying *Bene* for benefits to which *Bene* would be
entitled but for the existence of this trust and other trusts for *his/her* benefit. I hope and
intend that this trust will be used to assist *Bene* when *he/she* [*is unable to work and*] must rely
on public benefits, although I also hope and intend that this trust be used to assist *Bene*
whenever possible to develop and retain a healthy and productive life that would not require
*his/her* dependence on public benefits. To further my intention that this trust not displace
public benefits for *Bene* when *Bene* would otherwise be entitled to public benefits, I direct
that no income or principal of this trust shall be used to supplant or replace public benefits
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that any local, state, federal or other governmental agency has a responsibility to provide to
persons with disabilities that are the same as or similar to the disabilities that *Bene* may be
experiencing and to which *Bene* would be entitled but for the existence of this trust and
other trusts established for *him/her*. For purposes of determining *Bene*'s public benefits
eligibility, no part of the principal or undistributed income of the trust shall be considered
available to *him/her*. If the trustee is required to release principal or income of the trust to or
on behalf of *Bene* to pay for benefits or services that assistance programs are otherwise
authorized to provide were it not for the existence of this trust or other trusts, or in the event
the trustee is required to petition the court or any other administrative agency for the release
of trust principal or income for such purposes, the trustee is authorized, in the trustee's sole
discretion, to take whatever administrative or judicial steps may be necessary to continue the
public benefits program eligibility for *Bene*, including obtaining instructions from a court of
competent jurisdiction ruling that the trust corpus is not available to *Bene* for either
eligibility or repayment purposes.
Consider relationships in the Section below: We need to discuss remainder beneficiary issues
and options. In general, permitting the trustee to consider the interests of remainder beneficiaries
is often good from the standpoint of enhancing protection from creditors during *Bene*'s lifetime.
At the same time, such a provision could be detrimental (in that it could arguably permit a
costly dispute) if remainder beneficiaries pressure the trustee to spend less on *Bene* so that more
can be preserved for them.
(4)
*Bene*'s Interests Are Primary. In carrying out the provisions of this trust,
the trustee shall be mindful of *Bene*’s probable future supplemental care needs, but shall not
consider the interests of the trust remainder beneficiaries [*option*] unless the trustee
determines that modest trust expenditures could be made to greatly enhance the remainder
beneficiaries’ interest. For example, if there are steps that could be taken to significantly
reduce transfer taxes or similar costs that would otherwise substantially reduce the
remainder beneficiaries’ interests, and if such steps do not significantly reduce or impair
*Bene*’s interests, then the trustee may in the trustee’s sole and absolute discretion consider
the remainder beneficiaries’ interests and take such steps.
(5)
Trustee's Discretion Is Sole and Absolute. The trustee's discretion in
making distributions and in administering this trust to further my intentions and the purposes
of this trust shall be sole, absolute, complete, and unfettered. No person or entity, including
any governmental entity or agency, shall have any power or ability whatsoever to question
the discretion of the trustee in making distributions from this trust. Under no circumstances
can *Bene* compel a distribution from the trust for any purpose. The trustee's discretion in
making supplemental, non-support disbursements as provided for in this instrument is final
as to all interested parties, even if the trustee elects to make no disbursements at all. Further,
the trustee may be arbitrary and unreasonable. The trustee's sole and independent judgment,
rather than any other parties' determination, is intended to be the criterion by which
disbursements are made. No court or any other person should substitute its or their
judgment for the decision or decisions made by the trustee.
It is important to discuss trustee options and issues. Consider trustee provisions carefully. I
strongly encourage you not to leave your *other child name* as a trustee due to possible tax risks
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to *him/her. Given the size of your estate, I view the tax risks to *name* as too great. The
annual trustee fees for *Bene*’s trusts may be a small price to pay for "insurance" that *name*’s
remainder interest will not be considered a taxable interest. However, because you have decided
that your family wishes to accept these risks and to leave *name* as trustee, this trust provides
that *Bene* have at least a special power of appointment (to appoint among your descendants,
Contingent Beneficiaries named in your Will, or *option, charities* to at least reduce the
possibility that *name*'s interest would be considered a vested interest in this trust (causing tax
problems for *her/him). We will discuss this issue further when we meet.
(d)
Trustee Appointment. Except where the provisions of the *B.I.* Supplemental
Trust are inconsistent with the other provisions of my Will affecting trustees, the provisions of my
Will shall apply to the trustees of the *B.I.* Supplemental Trust and are incorporated into this trust
by reference. [*Option*] However, no person or entity who is a current or contingent remainder
beneficiary of the trust may serve as trustee of the *B.I.* Supplemental Trust. Such person or entity
may, if next in succession, appoint another trustee.
(e)
Trustee's Powers and Duties. Except where the terms of the *B.I.* Supplemental
Trust are inconsistent with other provisions of my Will, all other provisions in my Will that affect
trusts shall apply to the *B.I.* Supplemental Trust. Where the terms of the *B.I.* Supplemental
Trust and the terms of my Will are inconsistent, the terms of the *B.I.* Supplemental Trust shall
control. The following provisions specifically apply to the *B.I.* Supplemental Trust.
(1)
Nonproductive Property, Annuities. The trustee shall specifically have the
power (A) to invest in and to retain non-income producing assets, and (B) to purchase an
annuity or annuities for terms equal to or less than *Bene*'s life expectancy.
(2)
Authority to Amend or Restate Trust. In order to accomplish my
intentions and the purposes of this trust, the trustee shall explicitly have the power and
authority to request a court order to amend or restate the trust, or without court approval to
amend or restate the trust, should the trustee have reason to believe that *Bene* would qualify
for significant public benefits but for the existence of the *B.I.* Supplemental Trust (or other
provisions that I or others have made for *Bene*) under the trust's current terms, or that the
assets of the trust are likely to be found liable for expenses of care or services associated
with *Bene*'s disabilities.
(A)
Opinion of Counsel Required. In such case, the trustee must rely
on an opinion of counsel that *Bene* would likely qualify for significant public
benefits but for the existence of this trust (and other trusts that I or others have
established), or that this trust is likely to be found liable for expenses of care or
services associated with *Bene*'s disabilities, unless the trust is amended.
(B)
Trustee or Court Action. Upon obtaining such opinion of counsel
as described above in Section B-3(e)(2)(A), the trustee may request that a court
order amendment or restatement of this trust, or the trustee may itself amend or
restate this trust without court involvement, so that the terms of this trust permit
*Bene* to qualify for such benefits and/or so that this trust will not be liable for the
expenses of care or services associated with *Bene*'s disabilities.
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(C)
Additional Amendment or Restatement Purposes. The trustee
may also amend or restate this trust, subject to the limitations stated herein, in order
to permit the trustee:
(i)
to cope with tax and/or other circumstantial changes that may
otherwise significantly impair or reduce *Bene*'s interests, and
(ii)
to take advantage of changed trust drafting approaches to
coping with potential trust problems (or to otherwise improve the clarity and
administerability of the trust provisions)
in whatever ways the trustee, in the exercise of the trustee's sole discretion, may
deem appropriate in *Bene*'s best interests, as interpreted by the trustee alone. [*option*]
Benefits to remainder beneficiaries may be considered if steps can be taken to
enhance their interests without significantly reducing or impairing *Bene*’s interests.
The trustee shall be guided by what, in the judgment of such trustee, would
apparently be my original intent for this trust in light of the then circumstances.
Again, depending on the amount funding the trusts and the family composition and
objectives, remainder beneficiaries’ interests may be considered as they are above. There are
benefits and risks in including the remainder beneficiaries’ interests in the provision above.
(D)
Limitations. The amendment or restatement must not:
(i) extend the period of the trust's existence beyond the already
applicable rule against perpetuities limitation period specified in Section *__
of my Will,
(ii)
disqualify the trust from significant deductions, credits,
exclusions, or other tax benefits for which the trust was qualified prior to
amendment,
(iii)
reduce the likelihood of achieving my intentions for the trust,
or
(iv)
reduce the restrictions or limitations on the trustee's limited
power of amendment under this section.
(E)
Exculpation. No trustee shall be liable for any exercise of or failure
to exercise this limited power of amendment and restatement (or for a release of this
power) if such trustee acted in good faith in taking or failing to take any such action
(whether or not requested to do so by *Bene*, any of *Bene*’s representatives, any
creditor of *Bene*, or any provider of goods or services to *Bene*).
(3)
Trustee's Power to Direct Trust Corpus to a Pooled Trust. The trustee
will explicitly have the power to direct the corpus of this trust, or whatever portion of the
corpus of this trust as the trustee deems appropriate, into a pooled trust managed by a nonprofit organization, should the trustee, in the trustee's sole discretion, believe that such
arrangement is in *Bene*'s best interests. In such case, the trustee shall explicitly have my
permission to establish in my name and on my behalf, even though I may then be deceased,
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an account to benefit *Bene*. [*option*] If the pooled trust currently being established by the
Arc of Texas (the “Arc of Texas Master Pooled Trust”) has been operational for two years,
then unless the Arc of Texas has stated its intention to discontinue operation of the trust, the
trustee shall direct the entire corpus of this trust to the Arc of Texas Master Pooled Trust.
[*end option*] If the Arc trust sub-account for *Bene* is terminated at a future time due to
discontinuation of the Arc of Texas Master Pooled Trust or for any other reason, the funds
in *Bene*’s sub-account that were originally directed from this trust shall be distributed to a
new trust, which will have provisions that are substantially identical to the *B.I.*
Supplemental Trust.
Consider whether the Arc transfer covered above should be optional or mandatory.
If trusted friends or family with a long and consistent history of acting in *Bene*’s best
interests are to be trustees, you may wish to have the transfer be discretionary. There are also
circumstances where you would prefer that the transfer be mandatory.
I suggest you establish a sub-account at this time to complete the forms, and ensure that if the
Arc trust is used in the future that the use is in accordance with your desires. Further, the Arc
routinely publishes useful planning information to its members. Also, even though the language
above authorizes the trustee to establish a sub-account, that may not be possible and in some
cases court involvement or a guardianship would be needed to establish the sub-account. Thus
there could be significant benefits from establishing a sub-account during your lifetime.
(4)
Trustee Authority to Terminate Trust. Notwithstanding anything to the
contrary contained in this trust, in the event that this trust has the effect of rendering *Bene*
ineligible for any significant public benefits, or if assets of the trust are likely to be found to
be liable for expenses of care or services associated with *Bene*'s disabilities, then the trustee
is authorized, but not required, to terminate this trust.
(A)
Administrative or Judicial Proceedings. In determining whether
the existence of this trust has the effect of rendering *Bene* ineligible for any program
of public benefit or whether the assets of the trust may be found to be liable for
expenses of care or services associated with *Bene*'s disabilities, the trustee is granted
full and complete discretion to initiate either administrative or judicial proceedings,
or both, for the purpose of determining eligibility or liability, respectively. All costs
relating thereto, including reasonable attorney fees, shall be a proper charge to the
trust.
(B)
Opinion of Counsel Required. In making the determination of
whether the existence of this trust has the effect of rendering *Bene* ineligible for any
program of public benefit, the trustee shall obtain from competent counsel an
opinion that but for this trust, and/or other trusts established for *Bene*’s benefit,
*he/she* is likely to be eligible for at least one public benefits program that will
provide her with significant and needed goods and services. In making the
determination of whether the assets of the trust are likely to be liable for expenses of
care or services associated with *Bene*'s disabilities, the trustee shall obtain from
competent counsel an opinion that the existence of the trust is likely to result in such
liability.
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There are many possible options for distribution here, which should be discussed when we
meet. It would be preferable to not have all the funds distributed outright to other family
members due to the perceived conflicts of interest involved. CONFIRM THIS.
(C)
Distribution Upon Termination. In the event the trustee terminates
this trust during *Bene*’s lifetime, the undistributed balance of the trust shall be
distributed one half to *Bene*'s descendants who survive *him/her*, or if none, then one
half in accordance with Section *__ of my Will, determined as the date of my death
is the date of the trust’s termination. The other one half shall be distributed for
*Bene*'s benefit under such terms and conditions as the trustee, in the trustee's sole
discretion, believes to be in *Bene*'s best interests.
There is a concern that the latter half “best interests” distribution may potentially be a
general power of appointment in the trustee. Review the facts of the case (especially the size of
the trust and the size of the trustee’s estate) carefully prior to using. Also, it may be inadvisable
to use where the trustee is a remainder beneficiary.
(D)
Request of Grantor. It is my wish that after the termination of this
trust, if *Bene* is still living and if there has been a voluntary termination of the trust
in accordance with the provisions of this section, that to the extent legally
permissible the persons or entities receiving the proceeds of this trust, will conserve,
manage and distribute the proceeds of the former trust for the benefit of *Bene* to
ensure that *Bene* receives sufficient funds for *his/her* basic living and supplemental
needs when public benefits are unavailable or insufficient. This request pertaining to
the use and management of trust proceeds after the termination of the trust is not
mandatory, but is an expression of my wishes only.
(5)
Use of the Planned Living Assistance Network of North Texas, Inc. or
Other Case Management or Care Organizations. It is my wish but not my directive that
my trustee become familiar with the Planned Living Assistance Network of North Texas,
Inc. ("PLAN") or any similar or successor corporation that provides services to people with
disabilities, and that the trustee consider services offered by PLAN or such other care,
advocacy, or case management organization when the trustee in the trustee's discretion
believes that such services would benefit *Bene*. To the extent the trustee deems it to be in
*Bene*'s best interests, advance payments for services, in whatever amounts the trustee in its
discretion determines, may be made.
Whether PLAN or other case management organization is named here, remember that
advocacy and private case management services are often key to weaving the network of support
and care that results in a good quality of life for the Beneficiary. We want the trustee to always
be mindful that advocacy and case management are not just “additional and optional services”
but that these may be the most important services funded by the trust.
(f)
Beneficiaries of Trust Residue Upon *Bene*'s Death. Unless sooner terminated, the
trust created for *Bene* shall terminate upon *his/her* death.
(1)
Expenses. Upon *Bene*'s death, the trustee may pay inheritance, estate, or
other death taxes that are incurred due to assets of this trust passing in accordance with these
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provisions or otherwise, funeral expenses, and expenses related to administration and
distribution of the trust estate if, in the trustee's discretion, other satisfactory provisions have
not been made for the payment of such expenses.
There are multiple options for final distribution. When we meet, we may discuss trustee and
beneficiary issues, and some of the tax concerns where trustees are remainder beneficiaries.
(2)
Distribution of Remainder. Any trust corpus and undistributed income not
disposed of at *Bene*’s death shall be distributed to *Bene*'s descendants who survive *him/her*,
[*option*] provided, however, that for purposes of the *B.I.* Supplemental Trust, *Bene*'s
descendants shall not include any person adopted by *him/her*. If *Bene* has no descendants
who survive *him/her* the remaining trust amounts shall be distributed in accordance with
Section ___ of my Will, under the terms stated in that section, except that if alternate
beneficiaries must be determined, they will be determined as of the date of *Bene*'s death
rather than as of the date of my death.
*Alternative*
Consider the final distribution provisions carefully in estates in which GSTT issues are a
factor. Consider the pros and cons of including a general power of appointment as well as other
tax-planning techniques, while also considering creditor and estate recovery issues.
(2)
Distribution of Remainder.
(A)
Special Power of Appointment. *Bene* shall have a special power to
appoint the remainder of this trust not disposed of under Section B-3(f)(1) above to
any of my descendants or Contingent Beneficiaries on such terms and conditions,
and either in trust or outright, as *he/she* shall elect.
(B)
Alternate Disposition. In default of the exercise of such power of
appoint, any remaining trust corpus and undistributed income not disposed of under
Section B-3(f)(1) above shall be distributed one-half to *Bene*'s descendants who
survive *him/her* provided, however, that for purposes of the *B.I.* Supplemental
Trust, *Bene*'s descendants shall not include any person adopted by *him/her*. The
other one-half, or if *Bene* has no descendants who survive *him/her* then all, of
remaining trust amounts shall be distributed in accordance with Section *___ of my
Will, under the terms stated in that section, except that if alternate beneficiaries must
be determined, they will be determined as of the date of *Bene*'s death rather than as
of the date of my death.
Texas statutes permit invasion of certain trusts for purposes of past-due child support
payment obligations of the trust beneficiary. While the provision that “*Bene*’s descendants shall
not include any person adopted by *him/her*” may not prevent such invasion from happening (if,
for example, *Bene* were to adopt the children of a spouse), the provision is included to reduce the
possibility of *Bene* being exploited, to the extent possible. This provision certainly is optional.
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(g)
Unsupervised Administration. The *B.I.* Supplemental Trust may be
administered by the trustee of the *B.I.* Supplemental Trust free from the control of any
court that may otherwise have jurisdiction over any portion of my estate.
(h)
General Administration. The trustee is authorized and encouraged to
obtain competent legal and accounting services, as necessary. All reasonable expenses in
establishing, maintaining, administering, amending, and defending this trust, including but
not limited to reasonable attorney fees, accounting fees, trustee fees, and costs, shall be a
proper charge to the trust.
(i)
Spendthrift Trust. This is a spendthrift trust. No interest in the principal or
income of this trust shall be subject to anticipation or assignment by *Bene* or attachment by
or the interference by or control of any creditor of *Bene* or be taken or reached by any legal
or equitable process in satisfaction of any debt or liability of *Bene* prior to its actual receipt
by *him/her*. Creditors and claimants, for purposes of the spendthrift provisions of this trust,
shall specifically include governmental or tort claims, and any person or agency seeking
spousal or child support or payment for services or goods deemed to be necessities. This
trust is not a resource to *Bene*. Principal and income of this trust may become available to
*Bene* or for *his/her* benefit only in the trustee's discretion, as provided for in this trust.
--end of Supplemental Care Trust insert section--
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This form is provided for discussion purposes only.
The author makes no warranty that this trust will achieve the objectives that the author has so
diligently (and exhaustively) sought to achieve. The author would be grateful for any comments
on this form or suggestions for improvement; please direct such comments by e-mail to
<ReneeLovel@aol.com>.
This Discretionary Trust form is drafted:
*
To be used as a component in a carefully-structured plan, and not to be used as the
only planning component for a person with serious disabilities.
*
To be used in conjunction with the supplemental care trust form immediately
preceding (note that this form is almost identical to the supplemental care trust,
but for certain distribution provisions).
*
To be included in a parent’s carefully and thoroughly drafted Will, incorporating
trustee and administrative provisions of the other trusts created by the Will (with
definitions and structure following the “Hobie M. Gates” will form of Professor
Stanley Johanson).
*
With broad trustee discretion controlled through the use of a Trust Protector.
Discretionary Trust
B-4.
*Beneficiary* Discretionary Trust.
Any property that is directed to the trustee of the *Beneficiary* Discretionary Trust (the "*B.I.*
Discretionary Trust") shall be distributed to the trustee and shall be held, administered, and
distributed in accordance with the following provisions:
(a)
Intent of Grantor. It is my intention in creating and funding this trust to create a
purely discretionary supplemental fund for the benefit of my *son/daughter* *Bene* and not to displace
financial assistance from any other private or public source that may otherwise be available to
*him/her*. My intent is further clarified below.
Read the section below and point out ways to better tailor this provision to fit *Bene*
(1)
*Bene*'s Needs Are Long Term. My *son/daughter* *Bene*, for whose primary
benefit this trust is created, has from time to time suffered from [*describe illness or disability*]
serious mental illness and mental and physical disabilities that sometimes have and may
throughout *his/her* future require special medical care, treatment, social, advocacy, and
custodial services. Because of the constant advances that are being made in brain research
and the development of new therapeutic drugs and procedures, [*modify for relevant information
here*] it is my hope that *Bene* may be able throughout *his/her* life to live as [*independent,
comfortable, productive and self-fulfilling*] a life as possible. The purpose of this trust is to
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maximize all available resources and apply them so that *Bene* may have the best possible
chance of becoming and remaining happy, comfortable, and as self-sufficient as possible. In
view of the potentially enormous expense of providing quality care for a person who has
[*describe disability or illness*] a serious mental illness and mental and physical disabilities, I am
unable to meet my objectives for *Bene* solely from my own resources and to provide for
other family members. Therefore it is my intention not to disqualify *Bene* from other
benefits, but to enable *Bene* to remain qualified for funds and services available to *him/her*
from all other sources including private, federal, state, county, and local benefits and
services (such other sources, whether funds or goods or services, will be referred to
collectively as "public benefits") to the greatest extent possible.
(2)
Access to Supplemental Funds Is Vital and Public Benefits Are
Uncertain. It is important that *Bene* maintain a high level of human dignity and that *his/her*
care be humane. Public benefits and other public and charitable programs are often helpful,
but the future of public benefits programs is unpredictable and such programs are likely to
sustain numerous changes throughout *Bene* life. My intention is to establish a trust for
*Bene* that is capable of lasting and providing supplemental care throughout *Bene* entire life.
If this trust were to be eroded by creditors, subjected to liens or encumbrances, or cause
public benefits to be unavailable or terminated, it is likely that the trust corpus would be
depleted prior to *Bene*'s death, especially if the cost of care is high. In such event there
would be no reserve for supplementing basic needs throughout the remainder of *Bene*'s life.
(3)
My Intent Should Control Interpretation of This Trust. The provisions
contained in this trust should be interpreted by the trustee in light of the concerns and intent
set out in Sections B-4(a)(1) and B-4(a)(2) above. If any provision of the trust could
possibly be construed as disqualifying *Bene* from benefits such as Social Security Disability
Insurance (SSDI), Supplemental Security Income (SSI), Medicaid, Medicare, county
services, or other similar or successor benefits programs during periods of time when *Bene*
would otherwise qualify for such benefits, or if any provision of the trust could possibly be
construed as subjecting the trust income or principal to the claims of federal, state, county,
local, or other entities that would otherwise provide services without charge, the trust shall
be construed as having been intended to not disqualify *Bene* for such benefits and to not be
available to *Bene*'s creditors. The language of this trust shall be interpreted or automatically
modified accordingly.
(b)
Trust Estate. The trust estate shall consist of all property, real or personal,
transferred to the trustee by anyone or by any entity with the consent of the trustee. All such
property may be referred to herein as the "trust estate." The trust estate shall not include any
property that the trustee refuses to accept, any earnings of *Bene*, any public benefits paid to *Bene*,
or any other funds that have belonged to *Bene*.
(c)
Supplemental and Discretionary Distributions. Constrained only by the specific
provisions set forth in this trust or other applicable laws or regulations, the trustee may distribute for
the benefit of *Bene* for *his/her* lifetime such amounts from the principal or income, or both, of
this trust up to the whole thereof, as the trustee in the trustee's sole, absolute, complete, and
unfettered discretion may from time to time deem advisable to provide for *Bene*'s comfort and
happiness. Any income not distributed annually shall be added to principal.
It is important to understand the relationship between the family members and prospective
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remainder beneficiaries in order to properly advise on the provisions below.
Consider relationships here; we need to discuss remainder beneficiary issues and options. In
general, permitting the trustee to consider the interests of remainder beneficiaries is good from
the standpoint of enhancing protection from creditors during *Bene*'s lifetime.
At the same time, such a provision could be detrimental (in that it could arguably permit a
costly dispute) if the remainder beneficiaries pressure the trustee to spend less on *Bene* so that
more can be preserved for them.
(1)
*Bene*'s Interests Are Primary. In carrying out the provisions of this trust,
the trustee shall be mindful of *Bene*'s probable future supplemental care needs, but not of
the interests of the trust remainder beneficiaries [*option*] unless the trustee determines that
modest trust expenditures could be made to greatly enhance a remainder beneficiary’s
interests. For example, if there are steps that could be taken to significantly reduce transfer
taxes or similar costs that would otherwise substantially reduce a remainder beneficiary’s
interest, and if such steps do not significantly reduce or impair *Bene*’s interests, then the
trustee may in the trustee’s sole and absolute discretion consider the remainder
beneficiaries’ interests and take such steps.
(2)
Trustee's Discretion Is Sole and Absolute. The trustee's discretion in
making distributions and in administering this trust to further my intentions and the purposes
of this trust shall be sole, absolute, complete, and unfettered, subject only to the express
purposes and limitations contained in this trust. No person or entity, including any
governmental entity or agency, shall have any power or ability whatsoever to challenge the
discretion of the trustee in making distributions from this trust. Under no circumstances can
*Bene* compel a distribution from the trust for any purpose. The trustee's discretion in
making disbursements as provided for in this instrument is final as to all interested parties,
even if the trustee elects to make no disbursements at all. Further, the trustee may be
arbitrary and unreasonable. The trustee's sole and independent judgment, rather than any
other parties' determination, is intended to be the criterion by which disbursements are
made. No court or any other person should substitute its or their judgment for the decision
or decisions made by the trustee.
(3)
Limitations On Distributions.
(A)
Prohibited Expenditures. The trustee shall not make distributions
for food, clothing, or shelter, or for medical care that is covered by or provided by
Medicaid, Medicare, insurance, or other public benefits or charitable programs. The
trustee shall not make distributions directly to *Bene* when distributions of cash or
property would result in a reduction of public benefits or when the trustee knows
that distributions of cash or property will have a significant negative impact on other
benefits that *Bene* is receiving or for which *he/she* is otherwise eligible. The trustee
shall deny any request by any public or private entity to disburse trust funds for
support or other care or services if the trustee believes such entity has the obligation
to provide such services to *Bene*, or if the trustee believes that such entity would
provide services to *Bene* but for the existence of trusts established for *him/her*.
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The provision below re marriage may not be enforceable; there is a possibility that it may be
void as against public policy. But here again, the purpose is to show the grantors’ intent for the
trust and to permit the grantors’ intent to be achieved to the greatest extent possible. Let me
know if you want to change this provision.
(B)
Marital Agreement With Spouse Required. If *Bene* marries, the
trustee may not distribute any trust principal or income unless and until *Bene* and
*his/her* spouse have entered into a marital property agreement in which (i) *Bene* and
*his/her* spouse agree that all distributions from the trust shall be *Bene*'s separate
property, and (ii) *Bene*'s spouse waives any and all community property claims, if
any, to trust principal and income, whether or not distributed.
(4)
Exception to Limitations. Notwithstanding the provisions of Section B4(c)(3)(A) above or other provisions contained in this trust, the trustee in the trustee’s sole
discretion may make distributions disregarding the provisions of this trust that would
otherwise prohibit certain distributions even if such distributions may result in an
impairment or diminution of *Bene*'s receipt of or eligibility for public benefits or assistance,
but only if the trustee determines (i) that *Bene*'s best interests cannot be met adequately
without such distributions, and (ii) that it is in *Bene*'s best interests to suffer the consequent
effects, if any, on *Bene*'s eligibility for or receipt of public benefits. Provided, however, that
if the mere existence of the trustee's authority to make distributions pursuant to this
subparagraph shall result in *Bene*'s loss of public benefits, regardless of whether such
authority is actually exercised, this subparagraph shall be null and void and the trustee's
authority to make such distributions shall cease and shall be limited as provided in Section
B-4(c)(3)(A) above, without exception. To the extent that the trustee determines that it is in
the beneficiary’s best interests to make distributions for purposes that could risk the loss of
public benefits and to suffer the consequent loss in public benefits, if any, such distributions
shall specifically be subject to the limitation set forth in Section B-4(c)(5) below.
(5)
Annual “Cap” On Non-Supplemental Expenses or Accrual of
Creditors’ Claims. I intend for this trust to benefit *Bene* throughout *Bene*’s entire life.
Thus if the trustee decides to use the provisions of Section B-4(c)(4) above and to make
distributions that would otherwise not be permitted by this trust, I direct that the following
types of distributions or claims be limited to an annual maximum (an aggregate annual
maximum for all distributions and claims of the type that follow) or “cap”:
(A)
distributions made pursuant to the trustee’s full discretion under
Section B-4(c)(4) above that would otherwise not be permitted under the terms of
this trust, and
(B)
claims of creditors for that year for goods and services provided to
*Bene* with the trustee’s consent that would not be permitted under the terms of this
trust except for the trustee’s full discretion under Section B-4(c)(4) above.
The annual maximum or “cap” for the distributions described above shall be equal to
the “amount that an annuity would have paid during that year,” which in turn shall
be defined as follows: If the trust corpus is invested completely in an annuity or
annuities, then the “cap” will be equal to annuity income paid into the trust that year.
If, however, the trust is funded with assets other than annuities, the annual “cap”
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shall equal an amount that an annuity would have paid during that year had the
entire corpus of the trust been invested in annuities. Calculation of the “amount that
an annuity would have paid during that year” shall be made by the trustee in good
faith, based on quotations from at least three annuity providers for an annuity that
would pay for a term certain equal to *Bene*’s life expectancy determined as of
January 1 of that year. I recognize and acknowledge that the limitation provided
under these terms may not be exact, and that the trustee in good faith will endeavor
to limit claims against the trust such that the trust will reimburse creditors only to the
extent that the trust terms permit reimbursement. It is my intention that both
distributions from and claims against the trust be pro-rated throughout *Bene*’s life to
the extent that the trustee is reasonably able to accomplish this objective, so that the
trust funds are more likely to benefit *Bene* for *Bene*’s entire life. The trustee is
specifically authorized to make such distributions on a monthly, quarterly, or once-ayear basis, as the trustee in his or her sole discretion determines to have the least
negative impact on public benefits for which *Bene* would otherwise be eligible.
(6)
Additional Specific Exception to Limitations. Should the trustee in the
trustee’s sole discretion determine that it is in *Bene*’s best interests to purchase a house or
condominium or rights in an appropriate residential facility that would be distributed to
*Bene*, the annual limitation on creditor’s claims or expenditures shall not apply. This
provision is permissive only, and the trustee shall not be required to purchase housing or to
provide other support or shelter to *Bene* solely due to the existence of this provision.
Further, the trustee may, at the trustee’s election, purchase real property as an asset of the
trust or may pay for improvements to the home of another, without regard to the benefit to
such person, in order to provide present or future housing to *Bene*, if the trustee believes that
it is in *Bene*’s best interests to do so. It shall not be deemed a breach of a trustee’s fiduciary
duty, nor an incident of self dealing, for the trustee to permit any person selected by the
trustee (including the trustee) to join in the purchase of a residence or to co-own property for
the purpose of providing housing for *Bene* if the trustee in the trustee’s sole discretion
determines that such purchase is made in *Bene*’s best interests.
This provision below re a special non-fiduciary power of appointment may offer extra
protection to *Bene*. It is important to know who can be trusted with this type of power, and to
give this power only to persons who will act cautiously, with good judgment, and who are
inclined to seek the advice of competent counsel. A inappropriate use of this power could cause
problems with public benefits to which *Bene* may otherwise be entitled. Also, if *Bene* is younger
than the those to whom the powers are provided, then there may be no one with this power when
*Bene* is older.
It is also important to carefully consider the risks if the person holding the power becomes a
trustee of this trust.
(7)
Distribution by Non-Fiduciaries. In addition to the trustee’s authority to make
distributions, *____________________________ and *________________________ are each
hereby granted a special non-fiduciary power (in each person’s individual capacity and not in any
person’s capacity as trustee) to appoint so much of the trust estate for *Bene*’s benefit as either one
chooses. [*option*] The cumulative amount that can be appointed under this provision shall be the
“amount that an annuity would have paid during that year” as defined in Section B-4(c)(5) above.
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Such amount may be appointed despite any other distributions made in the same year by the trustee,
and shall not reduce the amount that the trustee may distribute under Sections B-4(c)(4) and B4(c)(5) above. [*end option*] I suggest but do not require that such persons obtain counsel and
carefully coordinate such distributions. Such persons shall never have an obligation to any person
or entity, for any reason, to make such appointment. Each person named in this Section shall have
the right to designate a successor to *himself or herself* by executing a written document, duly
acknowledged, and delivering such document to the trustee. No person with a possible duty to
provide support to *Bene* (such as a spouse) may be granted nor may exercise this power.
As with the Supplemental Care Trust, it is important to determine trustee options and discuss
issues.
Consider the trustee provisions carefully.
I strongly encourage you not to leave your *other child name* as a trustee due to possible
tax risks to *him/her. Given the size of the estate that you are leaving your family, I view the tax
risks to *name* as too great. The annual trustee fees for *Bene*’s trusts may be a small price to
pay for the "insurance" that *name*’s remainder interest will not be considered a taxable
interest.
However, because you have decided that your family wishes to accept these risks and to
leave *name* as trustee, this trust provides that *Bene* have at least a special power of
appointment (to appoint among your descendants or any other of your Contingent Beneficiaries
[*option, or charities] named in your Will) to at least reduce the possibility that *name*'s interest
could ever be considered a vested interest in this trust (causing tax problems for *her/him). We
will discuss this issue further when we meet.
(d)
Trustee Appointment. Except where the provisions of the *B.I.* Discretionary
Trust are inconsistent with the other provisions of my Will affecting trustees, the provisions of my
Will shall apply to the trustees of the *B.I.* Discretionary Trust and are incorporated into this trust
by reference.
[*Option*] However, no person or entity who is a current or contingent remainder beneficiary of
the trust may serve as trustee of the *B.I.* Discretionary Trust. Such person or entity may, if next in
succession, appoint another trustee.
(e)
Trustee's Powers and Duties. Except where the terms of the *B.I.* Discretionary
Trust are inconsistent with my Will, the other provisions of my Will shall apply to the *B.I.*
Discretionary Trust. Where the terms of the *B.I.* Discretionary Trust and my Will are
inconsistent, the terms of the *B.I.* Discretionary Trust shall control. The following provisions
specifically apply to the *B.I.* Discretionary Trust.
(1)
Nonproductive Property, Annuities. The trustee shall specifically have the
power (A) to invest in and to retain non-income producing assets, and (B) to purchase an
annuity or annuities for terms equal to or less than *Bene*’s life expectancy.
(2)
Authority to Amend or Restate Trust. In order to accomplish my
intentions and the purposes of this trust, the trustee shall explicitly have the power and
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authority to request a court order to amend or restate the trust, or without court approval to
amend or restate the trust, under the following provisions:
(A)
Purposes. The trustee may amend or restate the trust, subject to the
limitations stated herein, in order to achieve the following objectives:
(i)
to enable *Bene* to qualify for significant public benefits for
which *he/she* is not qualified under the current terms of the trust,
(ii)
term needs,
to better protect and preserve the trust estate for *Bene*'s long-
(iii)
to cope with tax and/or other circumstantial changes that may
significantly affect *Bene*'s interests, and
(iv)
to take advantage of changed trust drafting approaches to
coping with potential trust problems (or to otherwise improve the clarity and
administerability of the trust provisions) in order to better achieve my
intentions for and the purposes of this trust
in whatever ways the trustee, in the exercise of the trustee's sole discretion, may
deem appropriate in *Bene*'s best interests. Benefits to remainder beneficiaries may
be considered if steps can be taken without reducing or impairing benefits to *Bene*.
The trustee shall be guided by what, in the judgment of such trustee, would
apparently be my original intentions for this trust in light of the then circumstances.
(B)
Limitations. The amendment or restatement must not:
(i)
extend the period of the trust's existence beyond the already
applicable rule against perpetuities limitation period specified in Section __
of my Will,
(ii)
give a trustee any powers or discretions that would result in
adverse transfer tax consequences,
(iii)
disqualify the trust from significant deductions, credits,
exclusions, or other tax benefits for which the trust was qualified prior to
amendment,
(iv)
reduce the likelihood of achieving my intentions for the trust,
or
(v)
reduce the restrictions or limitations on the trustee's limited
power of amendment under this section.
(C)
Exculpation. No trustee shall be liable for any exercise of or failure
to exercise this limited power of amendment and restatement (or for a release of this
power) if such trustee acted in good faith in taking or failing to take any such action
(whether or not requested to do so by *Bene*, *Bene*’s representative, any creditor of
*Bene*, or any provider of goods or services to *Bene*).
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(3)
Trustee's Power to Direct Trust Corpus to a Pooled Trust. The trustee
will explicitly have the power to direct the corpus of this trust, or whatever portion of the
corpus of this trust as the trustee deems appropriate, into a pooled trust managed by a nonprofit organization, should the trustee, in the trustee's sole discretion, believe that such
arrangement is in *Bene*'s best interests. In such case, the trustee shall explicitly have my
permission to establish in my name and on my behalf, even though I may then be deceased,
an account to benefit *Bene*. If the pooled trust sub-account for *Bene* is terminated at a
future time due to discontinuation of the trust or for any other reason, the funds in *Bene*’s
sub-account that were originally directed from this trust shall be distributed to a new trust,
which will have provisions substantially identical to the *B.I.* Discretionary Trust.
In the Supplemental Care Trust, the pooled trust transfer may be optional or mandatory.
That option is inadvisable in the Discretionary Trust because the terms of the Discretionary Trust
(with the provisions permitting full discretion, the purchase of housing, and special non-fiduciary
powers of appointment) do not have counterparts in the Arc Master Pooled Trust, which is
currently the only pooled trust generally available in Texas. I believe it is still a good idea to
retain this provision as an option.
I suggest you establish a sub-account at this time to complete the forms, and ensure that if the
Arc trust is used in the future that the use is in accordance with your desires. Further, the Arc
routinely publishes useful planning information to its members. Also, even though the language
above authorizes the trustee to establish a sub-account, that may not be possible and in some
cases court involvement or a guardianship would be needed to establish the sub-account.
Thus there could be significant benefits from establishing a sub-account during your lifetime.
(4)
Use of the Planned Living Assistance Network of North Texas, Inc. or
Other Case Management or Care Organizations. It is my wish but not my directive that
my trustee become familiar with the Planned Living Assistance Network of North Texas,
Inc. ("PLAN") or any similar or successor corporation that provides services to people with
disabilities, and that the trustee consider the services offered by PLAN or such other care,
advocacy, or case management organization when the trustee in the trustee's discretion
believes that such services would benefit *Bene*. To the extent the trustee deems it to be in
*Bene*'s best interests, advance payments for services, in whatever amounts the trustee in its
discretion determines, may be made.
Whether PLAN or other case management organization is named here, remember that
advocacy and private case management services are often key to weaving the network of support
and care that results in a good quality of life for the Beneficiary. We want the trustee to always
be mindful that advocacy and case management are not just “additional and optional services”
but that these may be the most important services funded by the trust.
(f)
Beneficiaries of Trust Residue Upon *Bene*'s Death. Unless sooner terminated,
this trust shall terminate upon *Bene*’s death.
(1)
Expenses. Upon *Bene*'s death, the trustee may pay inheritance, estate, or
other death taxes that are incurred due to assets of this trust passing in accordance with these
provisions or otherwise, funeral expenses, and expenses related to administration and
Disability Benefits in the Estate Plan
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distribution of the trust estate if, in the trustee's discretion, other satisfactory provisions have
not been made for the payment of such expenses.
There are multiple options for final distribution. When we meet, we may discuss trustee and
beneficiary issues, and some of the tax concerns where trustees are remainder beneficiaries.
(2)
Distribution of Remainder. Any trust corpus and undistributed income not
disposed of at *Bene*’s death shall be distributed to *Bene*'s descendants who survive *him/her*,
[*option*] provided, however, that for purposes of the *B.I.* Discretionary Trust, *Bene*'s
descendants shall not include any person adopted by *him/her*. If *Bene* has no descendants
who survive *him/her* the remaining trust amounts shall be distributed in accordance with
Section ___ of my Will, under the terms stated in that section, except that if alternate
beneficiaries must be determined, they will be determined as of the date of *Bene*'s death
rather than as of the date of my death.
*Alternative*
Consider the final distribution provisions carefully in estates in which GSTT issues are
important. Consider the pros and cons of including a general power of appointment as well as
other tax-planning techniques, while also considering creditor and estate (or trust?) recovery
issues.
(2)
Distribution of Remainder.
(A)
Special Power of Appointment. *Bene* shall have a special power to
appoint the remainder of this trust not disposed of under Section B-4(f)(1) above to
any of my descendants or Contingent Beneficiaries on such terms and conditions,
and either in trust or outright, as *he/she* shall elect.
(B)
Alternate Disposition. In default of the exercise of such power of
appoint, any remaining trust corpus and undistributed income not disposed of under
Section B-4(f)(1) above shall be distributed to one-half to *Bene*'s descendants who
survive *him/her* provided, however, that for purposes of the *B.I.* Discretionary
Trust, *Bene*'s descendants shall not include any person adopted by *him/her*. The
other one-half shall be distributed in equal shares to my descendants or, if I have no
descendants, to my Contingent Beneficiaries, determined as if I had died on the date
of *Bene*'s death.
Texas statutes permit invasion of certain trusts for purposes of past-due child support
payment obligations of the trust beneficiary. While the provision that “*Bene*’s descendants shall
not include any person adopted by *him/her*” may not prevent such invasion from happening (if,
for example, *Bene* were to adopt the children of a spouse), the provision is included to reduce the
possibility of *Bene* being exploited, to the extent possible. This provision certainly is optional.
(g)
Unsupervised Administration.
The *B.I.* Discretionary Trust may be
administered by the trustee of the *B.I.* Discretionary Trust free from the control of any court that
may otherwise have jurisdiction over any portion of my estate.
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(h)
Administration Costs. The trustee is authorized and encouraged to obtain
competent legal and accounting services, as necessary. All reasonable expenses in establishing,
maintaining, administering, amending, and defending this trust, including but not limited to
reasonable attorney fees, accounting fees, trustee fees, and costs, shall be a proper charge to the
trust.
(i)
Spendthrift Trust. This is a spendthrift trust. No interest in the principal or income
of this trust shall be subject to anticipation or assignment by *Bene* or attachment by or the
interference by or control of any creditor of *Bene* or be taken or reached by any legal or equitable
process in satisfaction of any debt or liability of *Bene* prior to its actual receipt by *him/her*.
Creditors and claimants, for purposes of the spendthrift provisions of this trust, shall specifically
include governmental or tort claims, and any person or agency seeking spousal or child support or
payment for services or goods provided to *Bene*, even if deemed to be necessities. This trust is not
a resource to *Bene* Principal and income of this trust may become available to *Bene* or for *his/her*
benefit only in the trustee's discretion, as provided for in this trust.
--end of Discretionary Trust insert section--
Disability Benefits in the Estate Plan
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APPENDIX 17: Summary of Public Benefits Financial Eligibility Requirements in Texas
Resources
Individual Limit- SSI &
MAO Medicaid
Couple Limit-SSI or both
spouses in NH on Medicaid
QMB/SLMB Individual
Limit
QMB/SLMB Couple
Limit
MAO Minimum PRA
Limit
MAO Maximum PRA
Limit
Income/Allowances
SSI- Individual
SSI- Couple
MAO MaximumIndividual
MAO MaximumCouple
Ineligible Spouse Income
Allowance
(MAO)
Medicare Part B Premium
(usually)
1/3 Federal Benefit
Amount- Individual
1/3 Federal Benefit
Amount- Couple
1/3 Federal Benefit
Amount + 20- Individual
1/3 Federal Benefit
Amount+20- Couple
QMB- Individual
QMB- Couple
QMB Deeming- Allowed
for Spouse
SLMB- Individual
SLMB- Couple
Effective 1-1-98
(except as otherwise
stated)
$2,000.00
Effective 1-1-99
(except as otherwise
stated)
$2,000.00
$3,000.00
$3,000.00
$4,000.00
$4,000.00
$6,000.00
$6,000.00
$16,152.00
$16,392
$80,760.00
$81,960
Effective 1-1-98
Effective 1-1-99
$484.00 + 20= $504.00
$741.00 + 20 = $761.00
$1,482.00
$500.00 + 20=$520
$750.00 + 20= $770.00
$1,500.00
$2,964.00
$3,000.00
$2,019.00
$2,049.00
($43.80)
$45.50
$164.67
$166.67
$247.00
$250.00
$184.67
$186.67
$267.00
$270.00
$671.00 +20 = $691.00
$904.00 + 20 = $924.00
$227.00
$687.00 + 20= $707.00
$922.00 + 20= $942.00
$805.00 + 20 = $825.00
$1,085.00 + 20 =
$1,105.00
Until 5/1/99: $2,498.00
$824.00 +20= $844.00
$1,106.00 + 20=
$1,126.00
Transfer Penalty Amount
Beginning 5/1/99:
$2,511.00
QMB: Qualified Medicare Beneficiary (Medicare premiums, deductibles & copayments paid)
SLMB: Specified Low-Income Medicare Beneficiary (Medicare Part B premium paid)
MAO: Medical Assistance Only Medicaid (for long term care)
Federal Benefit Amount: Maximum SSI payment ($500 in 1999)
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APPENDIX 18: Calculation of "In-Kind Support" Income by SSI (& Other Planning Issues)
This appendix is used with the kind permission of its authors, Renée C. Lovelace and Roger Gette. It
is from a draft of RENÉE C. LOVELACE (PROJECT DIRECTOR), THE TEXAS ATTORNEY'S PLANNING GUIDE
FOR REPRESENTING FAMILIES WITH DISABLED FAMILY MEMBERS: STARTING POINTS IN HELPING
CAREGIVERS BUILD NETWORKS OF CARE (to be published in mid-1999). See the Bibliography in
Appendix 23 below for ordering information.
For discussion of the legal rules these examples illustrate, see II.A.3.(d) above.
Family With an Adult Child With Disabilities
(1)
*General Issues for the Family With An Adult Child With Disabilities
In addition to all typical estate planning issues (which we suggest be handled by an experienced
estate planning attorney), consider the following:
(a)
Future Plans. Are there “second generation caregivers” in place to facilitate the
transition of care responsibilities or advocacy assistance?
(i)
If so, consider the capacity and level of functioning of the person with
disabilities.

Guardianship? Consider whether it would be appropriate to establish a guardianship prior to the
deaths of both parents, in order to facilitate changes in residence and issues relating to health care.

Powers and Directives? Consider whether it would be appropriate for the person with disabilities
to execute powers of attorney and health care powers of attorney naming the parents and/or
second generation of caregivers as agents.
(ii)
If not, what are the family’s plans for the child’s living arrangements
after their deaths?

Encourage Planning. If they have no plans, consider encouraging them to find a non-profit
organization that will assist them in making plans for residential and social care in the future.

Default Planning. If there are no plans in place, consider specifying that a trustee has authority to
hire caregivers or advocates to assist with living and social changes. Consider how quickly such
persons could be hired after the parents’ deaths so that crisis can be avoided at that time.
(b)
Future Benefits. If the child was determined to be disabled prior to age 22, it is
likely that the child will be eligible for SSD benefits based on a parent’s work history. Such benefits
typically begin when a parent (or sometimes other qualifying family members) retires, becomes disabled,
or dies.
The family should contact SSA to determine the expected amount of SSD payment. If the SSD
payment is likely to cause ineligibility for SSI, contact DHS to determine whether one of the Medicaid
continuation programs apply. (If the clients contact DHS and do not get the answer they want, they
should persist in finding out why the family member would not qualify.)
(c)
Trusts and Estate Planning. Carefully analyze whether the child with
disabilities has adequate coverage for support (versus supplemental) needs, and whether trusts or planning
should be focused on separating future supplemental and support needs, or whether it is more appropriate
to plan only for supplemental needs.
Disability Benefits in the Estate Plan
(2)
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Issues Specific to Certain Situations, Such As Child. . .
(a)
(b)
(c)
Living At Home
Living Independently
Living In an Institution
(a)
Living At Home. In addition to the general considerations above, consider
whether the family wishes to plan for the child with disabilities to stay in the home after the death of the
parents. Also consider whether current benefits the child with disabilities is receiving and whether there
are changes that could improve the family’s benefits and living situation.
(i)
Future Living Arrangements. If the family would like for the adult
child with disabilities to be able to live in the home after their deaths, consider the feasibility of this
arrangement. The family should bring to you (after working on this themselves or with assistance of an
advocacy group) at least an informal “feasibility analysis” and budget.
(ii)
Future Benefits. If the child was determined to be disabled prior to age
22, it is likely that the child will be eligible for SSD benefits based on a parent’s work history. Such
benefits typically begin when a parent (or sometimes another qualifying family member) retires, becomes
disabled, or dies. The family should contact SSA to determine the expected amount of SSD payment. If
the SSD payment is likely to cause ineligibility for SSI, contact DHS to determine whether one of the
Medicaid continuation programs apply. (If the clients contact DHS and do not get the answer they want,
they should persist with questions until it is clear why the family member would not qualify--and whether
there are steps that can be taken to protect qualification.)
(iii)
Current Benefits. If the child is receiving SSI, is the monthly SSI check
being reduced by one-third because the child is considered to be “living in the household of another?”
Also, watch for situations where the family tells you that the child is ineligible for SSI but the child
does receive SSD. Make a special note to watch for situations where the SSD amounts are between
$353.33 and $520.00. Usually SSD eligibility in that range without SSI eligibility indicates that SSI
eligibility is only 2/3 of the FBR--meaning (by deductive reasoning. . . ) that the child is considered to be
living in the household of another.
In each case where an adult child with disabilities is deemed by SSA to be “living in the household
of another,” and hence eligible only for 2/3 of the typical maximum SSI payment (the FBR, $500 in
1999) consider whether the person may be able to enter into a sharing or rent/room and board
arrangement with the family, and become entitled to the full SSI maximum benefit.
(iv)
Trusts. The facts of the case may indicate that a discretionary or support
trust is warranted in the specific case, either alone or in conjunction with an SNT. Depending on the costs
of the housing arrangement, income level of the child (is he or she likely to work?), informal support
systems, etc., it may be worth the risk to public benefits to permit the trusts to provide more support.
EXAMPLE--MARY
Mary is 25 and has mild mental retardation. She lives with her parents and walks to her job at a
Kroger grocery store. Because she lives with her parents and neither shares expenses nor pays rent, her
SSI eligibility amount will be reduced by the “One-Third Reduction Rule.” She has no impairmentrelated work expenses. She earns approximately $400 per month. Both parents are living and neither
parent is retired or disabled. Thus she does not yet receive an SSDI monthly benefit based on their work
histories. She has insufficient past earnings to qualify for SSDI on her own record.
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The key “financial components” in calculating Mary’s SSI benefits are (1) $400 per month of earned
income, + (2) one-third reduction of the federal benefit rate (FBR) based on her “living in the household
of another.”
MARY’S DATA:
Current Federal Benefit Rate (FBR is the maximum monthly SSI payment)
Gross monthly income from wages and self-employment
Total unearned income, not counting in-kind support & maintenance
Expenses of self-employment
Impairment-related work expenses of a wage earner
Excludable infrequent or irregular income (maximum of $10 per month) .00
Excludable earned income of blind or disabled child in school (maximum of $400)
General exclusion from income (applied first against unearned income)
Apply One-Third Reduction Rule (yes=1, no=0)
Apply Presumed Maximum Value (PMV) Rule (yes=1, no=0)
CALCULATIONS RELATING TO EARNED INCOME:
Amount of $20 exclusion applied against earned income
Net earned income after $20 exclusion (and other exclusions, if any)
Earned income exclusion (maximum $65 per month)
Remaining earned income
Exclusion of ½ of remaining earned income
Countable earned income
CALCULATIONS RELATING TO UNEARNED INCOME:
Amount of $20 exclusion applied against unearned income
Total countable unearned income, not counting in-kind support & maintenance
Increase from one-third reduction rule
Increase from presumed maximum value rule
Countable unearned income
CALCULATIONS OF SSI BENEFIT:
Federal Benefit Rate
Less countable earned income
Less countable unearned income
Net Monthly SSI Benefit
$ 500.00
400.00
.00
.00
.00
.00
20.00
1
0
$
20.00
380.00
65.00
315.00
157.50
157.50
$
.00
.00
166.67
.00
166.67
$ 500.00
157.50
166.67
175.83
Mary’s total actual income (SSI benefit--$175.83 [minus] impairment-related work expenses-$0.00 [plus] other income--$400.00)
$575.83
COMMENTS:

For example, if her parents wished to supplement Mary’s quality of life, but increase overall
family income, they could consider having Mary use of portion of her income to pay her pro rata
share of household expenses.

If, under the calculations that follow below, Mary paid $275 per month under a sharing
arrangement with her parents, her SSI monthly benefit payment would increase by $166.67 (the
amount of the one-third reduction--which would no longer apply) and she would receive a
monthly benefit of $343.50 rather than $175.83.
DETERMINATION OF COST OF PRO RATA SHARE OF HOUSEHOLD EXPENSES
Annual cost to all household members of food
Annual cost to all household members of rent or mortgage payments
$6,000.00
.00
Disability Benefits in the Estate Plan
Annual cost to all household members of property taxes
Annual cost to all household members of heating fuel, gas & electricity
Annual cost to all household members of water, sewage, & garbage
Total annual household expenses
Total monthly household expenses
Number of household members
Pro rata share of household expenses
Y-157
600.00
2,400.00
900.00
$9,900.00
$ 825.00
3
$ 275.00
(b)
Living Independently. In addition to the general considerations above, consider
whether the family believes that an arrangement can be structured to continue the independent
arrangement that is currently established.
(i)
Future Plans. Are there “second generation caregivers or advocates” in
place?
If so, consider whether it would be appropriate for the person with disabilities to execute powers of
attorney and health care powers of attorney naming the parents and/or second generation of caregivers as
agents to prevent some of the potentially costly delays in obtaining services or addressing disputes and/or
business matters.
.If not, what are the family’s plans for assisting the child’s living arrangements after their deaths? If
they have no plans, consider encouraging them to find a non-profit organization that will assist them in
making plans.
If there are no plans in place, consider specifying that a trustee has authority to hire caregivers or
advocates to assist with living and social changes. Consider how quickly such persons could be hired
after the parents’ deaths so that crisis can be avoided at that time.
The Planned Living Assistance Network of North Texas, Inc. (“PLAN”) was formed by parents
in the Dallas area to assist with exactly this type of situation. A private case manager, with whom the
child with disabilities develops a relationship during the parents’ lives, is prepared to assist with
transitions at the parents’ deaths or disability. To protect this arrangement, the trustee of a trust may be
specifically directed to consider whether continuing the arrangement is in the best interests of the
disabled child. If no such organization exists in your client’s area, consider including language in the
trust to encourage the trustee to seek out and pay advocates. Many geriatric care managers also work
with adults with disabilities.
(ii)
Future Benefits. If the child was determined to be disabled prior to age
22, it is likely that the child will be eligible for SSD benefits based on a parent’s work history. Such
benefits typically begin when a parent (or sometimes another qualifying family member) retires, becomes
disabled, or dies. The family should contact SSA to determine the expected amount of SSD payment. If
the SSD payment is likely to cause ineligibility for SSI, contact DHS to determine whether one of the
Medicaid continuation programs apply. (If the clients contact DHS and do not get the answer they want,
they should persist with questions until it is clear why the family member would not qualify--and whether
there are steps that can be taken to protect qualification.)
(iii)
Current Benefits. If the child is receiving SSI, is the family
supplementing expenses in a manner that results in a decrease in SSI benefits?
Where an SSI beneficiary or applicant is not technically “living in the household of another”
but another person is supplementing the SSI beneficiary’s or applicant’s “food, clothing, or
shelter,” then the “presumed maximum value” (PMV) reduction in benefits will apply. See the
discussion above on PMV (Section *). Generally, when the family becomes aware of how the
rules work, they will find that it is better for the person with disabilities when the family
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supplements many of the other numerous needs that the person will have--and budgets carefully
to cover as much of the food, clothing and shelter components as possible with the SSI payment.
Remember that by using the Diaz case (see Section ** above), benefactors may be able to
supplement an individual’s rent without loss of SSI benefits.
Consider whether there is a way in which the family may supplement quality of life without
reducing benefits. See the example on “David” which follows below:
(iv)
Trusts. The facts of the case may indicate that a discretionary or support
trust is warranted in the specific case, either alone or in conjunction with an SNT. Depending on the
child’s monthly average living costs, income level (is he or she likely to continue to work?), informal
support systems, etc., it may be worth the risk to public benefits to permit the trusts to provide more
support.
EXAMPLE NO. 2--DAVID
David is 30 and has schizophrenia. He lives with a roommate in a small apartment, spending about
$525 per month on his rent, food, and clothing. He has flexible hours working only a few hours a week
for a local business doing computer programming. He makes about $400 per month and spends $150 on
impairment-related work expenses in connection to his computer.
David was not found to be disabled prior to age 22, so he will not receive benefits based on his
parents’ work history. He receives a small SSD payment ($130 per month) based on his own past work
history. His parents do not subsidize his basic living expenses, but they recently purchased a car for him.
They have arranged with a local gas station to be billed for David’s monthly gas purchases. There is no
reduction to David’s benefits based on these supplemental contributions by his parents since the payments
do not pay for David’s food, clothing, or shelter.
In David’s case, he is living nearly at a subsistence level ($525 of his total income of $577.50--see
calculations below--is spent monthly on food, clothing, and shelter). Fortunately for David, he likes his
roommate and can share expenses. Also, his parents’ contribution of a car makes his life more pleasant.
By keeping Medicaid through his SSI eligibility, his medication and other medical costs--exceeding
$1,000 per month, are covered.
Note that if David had a greater income, losing SSI but not gaining health insurance, he would fall
into the “black gap” of having too much income to qualify but not nearly enough to cover basic living
plus needed medical costs. What would typically happen in that scenario is that with medical benefits
gone, David could decompensate to a point where he could not work at all, and at that time he would
likely re-qualify for benefits again. It is quite possible, however, that he could, without medication,
decompensate to a level where tens of thousands of tax-payers’ dollars would be consumed prior to the
time that he returned to living independently.
DAVID’S DATA:
Current Federal Benefit Rate (FBR is the maximum monthly SSI payment)
Gross monthly income from wages and self-employment
Total unearned income, not counting in-kind support & maintenance
Expenses of self-employment
Impairment-related work expenses of a wage earner
Excludable infrequent or irregular income (maximum of $10 per month)
.00
Excludable earned income of blind or disabled child in school (maximum of $400)
General exclusion from income (applied first against unearned income)
Apply One-Third Reduction Rule (yes=1, no=0)
Apply Presumed Maximum Value (PMV) Rule (yes=1, no=0)
$ 500.00
400.00
130.00
.00
150.00
.00
20.00
0
0
Disability Benefits in the Estate Plan
CALCULATIONS RELATING TO EARNED INCOME:
Amount of $20 exclusion applied against earned income
Net earned income after $20 exclusion (and other exclusions, if any)
Earned income exclusion (maximum $65 per month)
Remaining earned income
Exclusion of ½ of remaining earned income
Countable earned income
CALCULATIONS RELATING TO UNEARNED INCOME:
Amount of $20 exclusion applied against unearned income
Total countable unearned income, not counting in-kind support & maintenance
Increase from one-third reduction rule
Increase from presumed maximum value rule
Countable unearned income
CALCULATIONS OF SSI BENEFIT:
Federal Benefit Rate
Less countable earned income
Less countable unearned income
Net Monthly SSI Benefit
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$
.00
250.00
65.00
185.00
92.50
92.50
$
20.00
110.00
.00
.00
110.00
$ 500.00
92.50
110.00
297.50
David’s total actual income (SSI benefit--$297.50 [minus] impairment-related work expenses-$150.00 [plus] other income--$400.00 + $130.00)
$ 677.50
COMMENTS:
A key role for attorneys in working with families is to look carefully at the SSI
“numbers” and determine how benefits can be increased currently and maintained in a
position where the person with disabilities can live as independently and as comfortably
as possible.
If, for example, David’s parents bought him his food rather than contributing to a
car, then his SSI payments would be reduced by the PMV, or at least dollar for dollar (up
to the PMV) by the amount of food contributed to David by his parents. By
supplementing David’s needs with items that are not “food, clothing, or shelter,” David
suffers no reduction in monthly benefits. If the parents have limited resources, it is
important that their money be used to enhance David’s life--helping him maintain his
independence and ability to work--rather than displacing public benefits dollar for dollar-with the possible result of the entire arrangement “crashing” and David losing the fragile
structure that enables him to work and live independently.
Take special note of the fact that we are NOT talking here about “mining for gold”
in taxpayer dollars--with the objective of “exploiting taxpayer resources.”
Far, far from it. What we are seeking is an approach to the illogical and frustrating
“numbers game” that responsible attorneys, families, and caregivers will “play” in order
to prevent catastrophic losses of the fragile network of benefits that may keep a person
with serious disabilities in a living situation that is as comfortable, productive, and
independent as possible.
Keep in mind how fragile the network of support can be--due to some of the
convoluted public benefits rules.
Try to find someone in your community--attorney or non-attorney--who has decided
to become a “public benefits expert” as it will generally not be economical for an
attorney who has overhead to pay to try to fully master this area while making a living in
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other legal fields; unless one is salaried, it is difficult to “make a living” mastering
enormous bodies of information that apply primarily to persons who may not even have
enough money to live on; paying an attorney is out of the question. It is unlikely that
most attorneys will represent enough third-party benefactors to pay for the acquisition of
a useful level of expertise in public benefits.
(c)
Living In an Institution. In addition to the general considerations above,
consider whether the family believes that the institutional arrangement will continue indefinitely into the
future, and who the advocates and “monitors” of care will be in the future.
(i)
Future Plans. Are there “second generation caregivers or advocates” in
place?
If so, consider whether it would be appropriate to establish a guardianship prior to the death of both
parents, in order to ensure continued care and to address issues relating to health care.
If not, what are the family’s plans for having the child’s quality of care monitored after their deaths?
If they have no plans, consider encouraging them to find a non-profit organization that will assist them in
making plans. If there are no plans in place, consider specifying that a trustee has authority to hire
caregivers or advocates to assist with social needs and any changes that may be necessary in the future.
(ii)
Future Benefits. If the child is receiving services in a State facility, it is
likely that the facility will monitor public benefits eligibility. Whether the child receives SSI, SSD,
Medicaid, or other benefits will usually not affect the child’s care in the facility. These issues may,
however, become important if the family wishes to consider residential care arrangements outside of the
facility. If that is the case, the family should contact SSA to determine the expected amount of SSD
payment. If the SSD payment is likely to cause ineligibility for SSI, contact DHS to determine whether
one of the Medicaid continuation programs would apply to the family member under the facts of their
situation. It may be worth an investment by the family to pay for a careful analysis of future benefits and
the impact of their current situation (institutional care) on the child’s future benefits, if any.
(iii)
Current Benefits. Medicaid pays for certain services provided by the
State, but not for others. If Medicaid does not pay for services, the child’s estate (or the estate of other
responsible persons) may be required to reimburse the State for services. If a family member is required
to reimburse the State for services provided to a child over age 18, investigate the basis for the
requirement to determine if steps can be taken to terminate the reimbursement requirement. This may be
the case, for example, where an agreement such as a child support obligation causes a parent to have
continuing liability for a child when the obligation would otherwise terminate at the child’s 18 th birthday.
(Funds saved could be directed to a supplemental care trust and used to supplement, rather than supplant,
services provided by the State.)
(iv)
Trusts. The facts of the case may indicate that a discretionary or support
trust is warranted in the specific case, either alone or in conjunction with an SNT. Depending on the
possible need for better private care arrangements, costs of such an arrangement, benefits levels, and other
factors, it may be worth the risk to public benefits to permit the trusts to provide more support. But be
careful. Right now, to the best of the authors’ knowledge, all funds in discretionary trusts (and, in the
future, possibly supplemental care trusts as well) are at risk of being counted as available to pay for State
care by TDMHMR. With costs at State hospitals and schools of $5,000, $10,000 or more each month,
funds in the trust could be depleted at a rate of $60,000 - $120,000 (or more) each year. Thus if the trusts
are discretionary, it may be advisable to limit the amount that is discretionary to an annual cap, so that
trust funds are paced through an individual’s life. While even this type of trust structure may not protect
the trust, it would likely at least make a case that would be more difficult for a court to decide adversely:
as the grantor’s intent to have funds paced throughout the life of the beneficiary would be clearly stated in
the trust.
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However, if the clients believe that the child will always be institutionalized, the family may wish to
establish only a supplemental care trust, seeking specifically to forbid payments for food, clothing,
shelter, and medical care.
Family With a Minor Child With Disabilities
(1)
General Issues for the Family With A Minor Child With Disabilities
In addition to all typical estate planning issues (that we suggest be handled by an experienced estate
planning attorney), consider the following:
(a)
Understanding the Disability and Lifetime Medical and Social Needs. It is
important in drafting the long-term plan and trusts that the family and the attorney understand what it is
likely that the child will need in the future. Ideally, the family should bring this type of information to the
attorney. The attorney could perhaps suggest web sites (see the web sites in this attorney guide) on
specific disabilities, to gather information about future needs, such as: (i) is it likely that the child will be
able to work in the future? (ii) are medical costs likely to be high or modest? (iii) is it possible that the
child may someday be able to live independently? (iv) is the disability the type that is typically covered
by Medicare? Medicaid? The State? (Remember that the trust rules differ, and thus the trust components
may shift based on the facts of the specific case.)
(b)
Current Crisis Plans. It is, of course, imperative that parents have Wills. It is
especially important that planning be done for the survivor of the parents, if one parent should
unexpectedly die or become disabled. Well this is true of all persons, especially those with small
children, it is critical in families where there is so little “margin for error” that the family would retain as
much security and structure as possible if one parent died or became disabled.
(c)
Future Plans. Are there “second-generation caregivers” in place to facilitate the
transition of care responsibilities or advocacy assistance?
If so, the parents’ wills and trusts should support the available caregiving and advocacy options by
naming guardians and trustees (consider recommending that guardians and trustees not be the same
persons to provide “checks and balances”), and to clearly permit or direct use of trust funds for advocacy
and caregiving.
If the family has not identified second-generation caregivers, what are the family’s plans?

Encourage Planning. If they have no plans, consider encouraging them to find a non-profit
organization that will assist them in making plans for residential and social care in the future.

Default Planning. If there are no plans in place, consider specifying that a trustee has authority to
hire caregivers or advocates to assist with living and social changes. Consider how quickly such
persons could be hired after the parents’ deaths so that crisis can be avoided at that time.
(d)
Future Benefits. If the child meets the Social Security definition of
“disabled” prior to age 22, it is likely that the child will be eligible for SSD benefits based on a parent’s
work history. Such benefits typically begin when a parent (or sometimes other qualifying family
members) retires, becomes disabled, or dies.
The family should contact SSA to determine the expected amount of SSD payment. If the SSD
payment is likely to cause ineligibility for SSI, contact DHS to determine whether one of the Medicaid
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continuation programs apply. (If the clients contact DHS and do not get the answer they want, they
should persist in finding out why the family member would not qualify.)
(e)
Current Benefits.
(i)
SSI. If parental income and resources are low enough, children
who are determined by SSA to be disabled may receive SSI. If one or more of the parents is working, it is
often difficult for the child to qualify for SSI given that parental income is usually “deemed” to the child
with disabilities.
When a child will not qualify for SSI and hence SSI-linked Medicaid (or TANF-linked Medicaid, or
another direct Medicaid-access program), there is the possibility of qualifying for a Medicaid waiver
program. There are programs designed to assist parents of children with disabilities, but they may be
difficult to locate. See the DHS web site at <www.dhs.state.tx.us> under the section “***” for programs
for children. Clients should also contact MHMR, local non-profit organizations, and the local DHS office
to look for and apply for benefit programs. These programs must generally be tracked down (as they tend
to change frequently) and hence it often requires a diligent search to access benefits.
Medicaid pays for certain services provided by the State, but not for others. If Medicaid does not
pay for services, the parents may be required to reimburse the State for services, based on the State’s
assessment of the family’s financial resources. If the child is receiving services in a State facility, the
facility may monitor public benefits eligibility. Where the child is found not to be eligible for SSI or
Medicaid, parents may want to follow up to determine why the child is not eligible (often the child will
not be eligible for other public benefits, but it is worth a follow-up by the family). If the family’s funds
are preserved through public benefits eligibility (and the family does not have a right of reimbursement),
the family could direct the saved funds into a supplemental care trust for the child’s future quality of life
needs.
(ii)
Special Education. Special education is sometimes referred to
as the “only public benefit truly available to all children with disabilities.” Many parents, having
struggled to obtain special education services, would find that statement laughable. Other parents, having
accessed excellent and comprehensive services, would say that special education services and benefits
made “all the difference in the world.” What factors determine who is able to access the best special
education services, and who is unable to “find the key”?
Suggest that clients heed this advice: Parents should become as immersed in special education
provisions and information as they possibly can. If they are too busy and exhausted to focus on the key
strategic issues, suggest that they access support groups and organizations--early in their child’s life--to
get into a pipeline of information. Suggest that they determine if there is a compassionate and responsible
relative or friend (sometimes early retirees, especially those with business backgrounds, are perfect) and
see if that person will become the special education expert.
Alternatively, suggest that the clients find an attorney who concentrates in special education (or you
may elect to become such an attorney)--at the earliest possible time--to understand how many of the
hardest and most well-intentioned steps that parents can take may “backfire” and preclude access to
special education services.
The strategic issues are far beyond the scope of this guide, other than to provide a warning that,
again, the provision of services sometimes seems illogical and unfair--with the most intensely committed
and hardest working families being denied services. Why? Sometimes, with everyone in the family
“working their fingers to the bone,” a “satisfactory” arrangement can be maintained for a period of time.
If the family is not careful, their past successes (achieved at staggering costs to all) can actually become
the basis for denying them assistance in the future--with a finding that the family has managed well
enough alone--and does not need assistance.
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Bottom Line: Parents of young children with serious disabilities are well advised to become proactive experts in special education services--or to link up with persons or groups that have this expertise.
While families with resources may decide that they would rather private pay for services--and many
choose to do so, given the flexibility private arrangements provide to the family--it is sometimes difficult
for families to obtain all the data that they need to make that choice.
(f)
Trusts. The facts of the case may indicate that a discretionary or support
trust is warranted in the specific case, either alone or in conjunction with an SNT. Depending on the
child’s monthly average living costs, income level (is he or she likely to continue to work?), informal
support systems, etc., it may be worth the risk to public benefits to permit the trusts to provide more
support.
Keep in mind that if State or community MHMR services are provided to the child, it is likely that
the State will seek reimbursement from support trusts and also from discretionary trusts--even trusts
established by third parties with no duty of support. Thus if one believes that the child will always be
institutionalized, the family may decide to establish only a supplemental care trust. If, however, the
family wishes to retain the option of having a trust that could pay a limited amount toward support, then
your client may wish to consider a discretionary trust as well. In that case, consider limiting the amounts
available for support under the trustee’s full discretion, so that principal distributions would be pro-rated
throughout the child’s life expectancy. It is possible that the State will seek reimbursement from the fully
discretionary portion of any trust.
Not researched for this guide is the issue of whether trust assets can be reached where the trusts were
established by a person who has a duty of support to the beneficiary. There are two situations where this
issue could arise: (a) where the grantor is alive and the support obligation continues, and (b) where the
grantor is deceased, and arguably the support obligation has ceased as well.
(2)
Issues Specific to Certain Situations, Such As Child Living. In addition to the
general considerations listed above, consider the following:
(a)
At Home. If there are second-generation caregivers identified, then
there is an opportunity for the family and attorney to structure planning so that the child’s living and care
structure remains as secure as possible, and so that the transitioning of care can be almost seamless. The
caregivers and trustees would be identified in advance, with trusts drafted to become effective upon death.
Generally it the structure is less cumbersome if there is an informal network of support, such as family or
even the caregivers, who can cover modest expenses until the Will is filed and probate initiated--which
should be a soon as possible. While the executor is able to select whichever attorney he or she would like
to use, the drafting attorney may wish to suggest to clients that they pre-select an attorney to handle the
probate and to retain a copy of the file (either the drafting attorney or another attorney of their choice) so
that the probate can be handled quickly.
(b)
In an Institution--State School, ICF/MR Facility, or Other. Under
many circumstances, a child who is living for extended periods of time outside the home may be found to
be his or her “own household” for purposes of SSI or Medicaid eligibility. Where a minor child is living
in an institution or residential care facility, the clients may be well advised to pay for an analysis of public
benefits eligibility, to determine the conditions under which a child may become eligible for various
benefits and to assess what may happen with those benefits in the future. Otherwise there is a risk that
eligibility for SSD may, with little warning, bump a child out of eligibility for a program when a parent
dies, retires, or becomes disabled.
“Intermediate Care Facilities/Mental Retardation” are typically referred to as “ICF/MR facilities.”
While the facilities are licensed by TDMHMR, services are funded by MAO Medicaid. The income and
resource rules are the same as for nursing home Medicaid.
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Family In Which a Primary Income Earner Becomes Disabled Under Age 65
(1)
Completely Disabling Catastrophic Medical Events. One of the most complex,
perplexing, and traumatic situations is the disability of an adult under age 65, where the disability occurs
in a catastrophic medical event.
There is not a good planning solution in this Guide. The scenario is included here to provide general
comments only.
For persons under age 65, there is a 29-month gap between disability and Medicare coverage.
Medical costs associated with the initial event may be $100,000 or more. Costs incurred in the first 29
months can be staggering. There are gaps and caps in private insurance that will sometimes leave these
costs uncovered. The authors have seen, for example, high costs that continued after even very large
private insurance policies were depleted.
Where the catastrophic medical event results in a medical condition that requires hospital care (for
example, medical care that would generally be covered by Medicare and supplemental or “medi-gap”
policies), the hospital and medical providers may be creditors who will make claims against the assets of
the patient and his or her spouse.
Where the catastrophic medical event results in a medical condition that requires long-term custodial
care (for example, the care provided in a nursing home), a different set of issues exist. If the person who
is now disabled does not have long-term care insurance, the planning may be very similar to planning for
MAO (medical assistance only, not SSI-linked) Medicaid coverage for a person of any age.
Persons who experience a catastrophic medical event after carefully planning for retirement-following the most responsible and prudent financial planning principles--may be hit especially hard
unless they had purchased long-term care insurance.
Take the following example:

Prior to the disabling event, Bill and Janet, both age 45, had a house worth $200,000 with a
$100,000 mortgage, $100,000 in liquid savings, and $400,000 in IRA’s and other retirement
vehicles. Bill and Janet consider the $100,000 in liquid savings as having been “set aside” for the
children’s educations.

Bill had a catastrophic medical event 12 months ago. There is no personal injury claim, and his
insurance is reaching the lifetime limit. If he needs continuing medical care, the hospital may be
a creditor and seek repayment from the family’s assets.

While Bill has been disabled for 12 months, he has only been eligible for SSD for seven months,
as SSD eligibility begins 5 months after disability. He is not, however, eligible for Medicare for
another 19 months--which is 24 months after he became eligible for SSD, and 29 months since
the date of disability. (If the person was age 65 or over, for example, Medicare coverage would
already be in place).

In the next 17 months, Bill’s uncovered medical bills may be in the multiple $100,000's. The
family is likely to be ineligible for any public assistance, for they are far too “wealthy.” While
IRA’s and other retirement benefits may be protected under some circumstances, most public
benefits programs require that one liquidate resources that can be liquidated. Retirement benefits
that are liquidated may incur costs, even if penalties are waived under hardship provisions.
The answer to this case is not in this guide. Recognize that this is an enormously difficult situation.
Recognize that it may be well worth the family’s investment to permit you to co-counsel with one or more
Disability Benefits in the Estate Plan
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of the most experienced elder law attorneys in the country--very quickly as medical debts accumulate
rapidly. Conducting the analysis and planning may require the services of an experienced elder law
attorney and either a tax attorney or CPA in order to best protect the family from complete financial
destitution.
If the individual ends up needing custodial care, note that the analysis is similar to nursing home
Medicaid eligibility. There are usually several practical differences, however. These include the fact that
retirement benefits tend to be higher, more varied, and more complex than one sees with nursing home
Medicaid cases, and the spouse in the community is more likely to have children at home. Treatment of
retirement benefits is not always consistent. In these types of cases, it would be wise to consult with an
attorney would is familiar with retirement benefits and under-age 65 MAO Medicaid eligibility.
In these types of cases, extreme measures may be considered, including divorce or transfers of assets
from one spouse to another. No measures may be taken in fraud of creditors; it is absolutely worth no
one’s time or effort to “hide” or “circumvent” the system. If, however, assets could be protected in an
under-65 disability trust (or perhaps the Arc pooled trust), it is possible that Bill could qualify for
Medicaid for future medical services. This may be extremely complicated planning to properly address
and where legally possible to avoid creditor issues, and to maximize protection for the spouse and family.
(2)
Gradually Disabling Conditions. The two financial components in these cases
tend to be (1) medical expenses, and (2) lost income.

If a person is impoverished and not working, that person may become eligible for SSI when he or
she meets the disability determination. SSI would provide a monthly payment for support costs
($500 per month for an individual in 1999), and linkage to Medicaid would provide medical
coverage.

If a person or their spouse is working and covered by private health insurance, it is possible that
all medical costs will be covered. If the person with the disabling condition has long-term
disability insurance, some level of income replacement is possible. Many families arrange their
lives, and often extended family rearrange their lives, so that the family can continue with no
public benefits and little outside assistance, other than perhaps some home health care when
Medicare coverage becomes available. If this is a client’s situation, consider the scope of their
health insurance coverage and when it is likely that they will approach the caps on coverage. If
there are not ongoing high medical costs, it is possible in some situations to pay privately for
whatever care the individual needs in addition to that provided by Medicare. Private coverage of
costs should always be considered because of the flexibility and freedom the family will enjoy by
not being dependent on public benefits.

If a family has disqualifying resources (i.e., in excess of a few thousand dollars) but limited
health care coverage (either due to termination of coverage or reaching a cap on coverage), they
face some of the most difficult decisions in this area. They may have a choice between
liquidating resources for care costs and avoiding dependence on public benefits for as long as
possible, or seeking to obtain public benefits through one of the federally-blessed approaches.
For example, (1) exchanging non-exempt property (stock) for exempt property (certain home
improvements, medical devices, specially-equipped automobile, etc.) and transferring funds into
an Under-65 Disability Trust once the person meets a determination of disability.
Note: a person can have extremely high medical costs yet not meet the definition of
“disabled.”
(3)
Ability to Work With Supports While Disabled. There are other disabling illnesses
and conditions that impair a person’s capabilities, but where the person is still able to work with supports.
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There are many situations in which persons with disabilities can work enough so that they lose
benefits, but not enough to cover their medical and support costs. It is important to be aware that this is
yet another “black gap” where there are not always solutions.
There are, however, some steps that can be taken to protect the fragile systems of support and care
that permit a person with disabilities to work.
EXAMPLE NO. 3--KAREN
Karen is 35 and has a mental illness known as bi-polar disorder. With medication and social
supports, Karen lives comfortably and most months during the year works very creatively and
productively.
But Karen goes through periods of time when she is unable to work at all. She is self-employed and
does not have health insurance. Her medication costs exceed $500 per month. Karen aims for the time
when she can obtain health insurance, but is unable to afford the policies that will cover her at this time.
Karen is in the process of purchasing her own home. Karen inherited about $35,000 when her
mother died, and used those funds for a down payment on a small house. Her monthly mortgage and
other house and living expenses are approximately $600 per month. Karen is excited about the level of
independence and comfort that she has worked so hard to build. But she worries that she could lose her
home if she is unable to work for several months and cannot pay her bills. With the $2,000 limit on
countable resources, she is unable to save a “nest egg” to cover all her monthly expenses if she would be
unable to work for an extended period of time.
KAREN’S DATA:
Current Federal Benefit Rate (FBR is the maximum monthly SSI payment)
Gross monthly income from wages and self-employment
Total unearned income, not counting in-kind support & maintenance
Expenses of self-employment
Impairment-related work expenses of a wage earner
Excludable infrequent or irregular income (maximum of $10 per month)
.00
Excludable earned income of blind or disabled child in school (maximum of $400)
General exclusion from income (applied first against unearned income)
Apply One-Third Reduction Rule (yes=1, no=0)
Apply Presumed Maximum Value (PMV) Rule (yes=1, no=0)
$ 500.00
1,150.00
0.00
100.00
.00
.00
20.00
0
0
*
Take special care to seek to extend Medicaid benefits through one of the continuation
programs (promptly call SSA and DHS) if income exceeds $500, which is often the
threshold level for determining whether an individual can engage in “substantial gainful
activity,” and thereby determine if the person meets the definition of “disabled”
*
Keep in mind that individuals must separately meet all of the SSI eligibility requirement
including the definition of (1) disability, and (2) having low income. One risk in
“working with the numbers” is that even though a person may remain eligible by having
sufficiently low countable income, the increased income may “bump” the individual out
of the “disabled” category. More on this in the comments at the end of Karen’s case,
immediately below.
CALCULATIONS RELATING TO EARNED INCOME:
Amount of $20 exclusion applied against earned income
Net earned income after $20 exclusion (and other exclusions, if any)
Earned income exclusion (maximum $65 per month)
$
20.00
1,030.00
65.00
Disability Benefits in the Estate Plan
Remaining earned income
Exclusion of ½ of remaining earned income
Countable earned income
CALCULATIONS RELATING TO UNEARNED INCOME:
Amount of $20 exclusion applied against unearned income
Total countable unearned income, not counting in-kind support & maintenance
Increase from one-third reduction rule
Increase from presumed maximum value rule
Countable unearned income
CALCULATIONS OF SSI BENEFIT:
Federal Benefit Rate
Less countable earned income
Less countable unearned income
Net Monthly SSI Benefit
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482.50
482.50
$
.00
.00
.00
.00
.00
$ 500.00
482.50
.00
17.50
Karen’s total actual income (SSI benefit--$17.50 [minus] expenses of self employment--$100
[plus] other income--$1,150.00)
$1,067.50
COMMENTS:
A reasoned response to Karen’s situation might be: “Why is she consuming taxpayer dollars??!!”
Karen would prefer not to consume taxpayer dollars, but she cannot afford the medical “supports”
she needs to enable her to function “successfully.” Without the public benefits she receives, she could be
homeless and completely off the taxpayer roles. **Take special note of these facts:

Karen risks the loss of all her benefits--not because of the earned income calculations which, you
will note, still permit her to receive a small SSI check as well as the Medicaid benefits upon
which she depends--but because she may be re-classified as “not disabled” due to her earnings
(which exceed $500 per month).

As social, emotional, and medical supports have advanced in assisting persons with serious
disabilities to lead productive lives in our society, the “disability” definitions have not changed to
reflect a key issue--which is that without such supports the person remains unable to earn enough
money to risk being bumped off the disability definition.

Restatement of the preceding paragraph: A person who would consume staggering medical goods
and services--and who would be completely unproductive due to his or her disability, can be
“bumped out” of the disability category by working. Simply by earning over $500 per month and
being re-classified as “not disabled” due to the person’s ability to participate in a “substantial
gainful activity,” they can lose the very benefits that enable them to work.

When they are no longer classified as “disabled” and the supports that helped them earn income
are lost, they will likely once again--very rapidly--become unable to work and meet the definition
of “disabled.”

Thus if a family spends $1,000 per month on medication and social supports, enabling an
individual to earn $700, they are already $300 “in the red,” even before paying for food, clothing,
and shelter, because at that point the public benefits will likely be lost, and what the individual is
able to earn--which exceeds the disability definition--is not enough to pay for the supports to keep
them working.

Recognizing this circular problem is very, very important for practitioners. There are limited but
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very useful Medicaid and Medicare continuation programs available. When an SSI or SSD
recipient’s work earnings increase, the consumer or parent or other advocate should immediately
contact SSA and the DHS office to ensure that Medicaid and/or Medicare will continue when
cash payments are lost.

A person who is “disabled but working” should become expert on the special rules for
Impairment Related Work Expenses, which can cover broad range of expenses and hence reduce
the “earnings” that are countable as income.
Disability Benefits in the Estate Plan
APPENDIX 19: Calculation of Increased Protected Resource Amount
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For discussion of the purposes of this form, see VII.I.4.(c) above.
APPENDIX XXVII
WORKSHEET FOR EXPANDED PRA ON APPEAL
STEP 1
STEP 2
*(See
below)
STEP 3
footnotes
Enter the minimum monthly maintenance
needs
allowance (MMMNA).
Enter community spouse’s non-resourceproduced (non-investment) income, including
diversion from the institutionalized spouse, if
any (minimum diversion is $1).
Subtract Step 2 from Step 1 and enter the
difference here.
If Step 3 is $0 or a negative number, STOP.
PRA (a)
may not be expanded (except for
financial duress).
S
If StepT3 is greater than $0, proceed to Step
5
E
P
$
-$
=
$
4
STEP 5
Multiply the amount in Step 3 by 12
STEP 6
Enter the product here.
Multiply the amount in Step 5 by 100.
X 12
= $
X100
Enter the product here.
Enter the interest rate (number not
percentage)(b)
for a 1-yr. CD here.
S
DivideTthe amount in Step 6 by the above
number andE enter the quotient here.
P
= $
__________
=
$_________
7
If Step 7 is GREATER THAN the original PRA, this amount becomes the new PRA.
If Step 7 is EQUAL TO OR LESS THAN the original PRA, use original PRA.
*
Footnotes to Step 2:
(1) The client must divert at least $1 per month to the community spouse.
(2) If community spouse’s non-investment income exceeds the MMMNA, no expansion of the PRA is
Allowed (except for financial duress).
Source: Medicaid Eligibility Handbook
Texas Dept. of Human Services
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APPENDIX 20: Texas Department of Mental Health and Mental Retardation Fee Guidelines
I. CHARGES FOR SUPPORT, MAINTENANCE AND TRAINING (“SMT”)
IN MENTAL RETARDATION AND MENTAL HEALTH FACILITIES
25 T.A.C. § 403.74. Determination and Notification of Fees
(a) Assessment of fees for services charged to parents of minor clients.
(1) The following fee computation chart is used as a guideline in determining
fees charged to parents of minor clients for SMT provided by department mental
retardation and mental health facilities, as authorized by the Texas Health and
Safety Code, s552.017 and s593.075.
The parents of a client who is under 18 years of age will pay, if able to do
so, the portions of the cost of SMT for that client as may be applicable
under the following formula:
If the amount shown as "Net Taxable
Income" of the parents as reported on
their latest current financial
statement or on their latest federal
income tax return, at the election of
the parent, is:
Less than $4,000
4,000-4,999
5,000-5,999
6,000-6,999
7,000-7,999
8,000-8,999
9,000-9,999
For each additional $1000
of taxable income
The monthly fee
per client
shall be:
$ 0
10
20
30
40
50
60
Add $10
(2) A judgment in a divorce proceeding that provides for child support
payments does not limit the fee that may be set, nor does the judgment exempt
either parent from liability for SMT charges of the client.
(3) Failure of a parent to provide current income information may result in a
determined fee equal to the facility's current maximum rate.
(4) A guardian's personal finances/assets are not considered in determining a
fee for a minor client.
(b) Assessment of fees for services charged to adult clients and spouses of
clients or other responsible entities.
(1) Clients and their spouses or other responsible entity who possess
sufficient property to reimburse the state for the cost of the client's SMT and
who are able to pay the cost shall be charged the facility's current maximum
rate. Clients and their spouses or other responsible entities whose property is
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23rd Annual Advanced Estate Planning and Probate Course
not sufficient to reimburse the state for the cost of the client's SMT and who
are not able to pay the cost shall be charged less than the facility's current
maximum rate, based upon their ability to pay as determined in accordance with
this section.
(2) The following provisions apply to the determination of a fee for the SMT
of a client who is a beneficiary of a trust or trusts.
(A) In accordance with the Texas Health and Safety Code, s552.018 and
s593.081, no portion of the corpus or income of a trust or trusts, with an
aggregate principal amount not to exceed $50,000, of which a client is the
beneficiary, is considered to be the property of the client or the client's
estate, and no portion of the corpus or income of the trust(s) is liable for
the SMT of the client, regardless of the client's age.
(B) A trust or trusts established prior to January 1, 1978, for a person
with mental retardation and which otherwise meet the requirements of the law
and this section is deemed entitled to the benefit of this section in the same
manner as if the trust(s) had been established on or after January 1, 1978. A
trust or trusts established for a person with mental illness and which
otherwise meets the requirements of the law and this section is deemed entitled
to the benefit of this section for charges for services provided on and after
September 1, 1989.
(C) The ascertainment of income and principal with respect to any trust(s)
subject to this section and the apportionment of the receipts and expenses of
the trust(s) is, unless otherwise legally directed, governed by the Texas Trust
Act, Texas Property Code, s111.001, et seq.
(D) If a client is a beneficiary of a trust or trusts with an aggregate
principal amount which exceeds $50,000, then only that portion of the corpus of
the trust(s) which exceeds $50,000, and the income attributable to such excess
corpus, is liable for the SMT of the client.
(i) If a client is a beneficiary of two or more trusts with an aggregate
principal amount which exceeds $50,000, then that portion of the corpus of
the trust or trusts established first in time which equals $50,000, and the
income attributable to such corpus, is exempt from liability for the SMT of the
client.
(ii) If a client is a beneficiary of a trust or trusts with an aggregate
amount which increases from an amount which is equal to or less than $50,000,
to an amount which exceeds $50,000, then that portion of the corpus of the
trust(s) which exceeds $50,000, and the income attributable to that excess
portion of the corpus, is liable for the SMT of the client from the date on
which the aggregate principal amount of the trust(s) exceeds $50,000 and
continues to be liable for the SMT provided until the aggregate principal
amount of the trust(s) does not exceed $50,000.
(E) In order to qualify for the exemption granted by the Texas Health and
Safety Code, s552.018 and s593.081, a trust must be created by a written
instrument and a copy of the trust instrument must be provided to the
department. A trustee of the trust must, upon request, provide the department
with a current financial statement which reflects the value of the trust estate.
(F) The following are not entitled to the exemption granted by statutes:
(i) a guardianship established pursuant to the Texas Probate Code;
(ii) a trust established pursuant to Texas Property Code, Chapter 142;
(iii) the facility custodial account established pursuant to the Texas
Health and Safety Code, Chapter 551;
(iv) the provisions of a divorce decree or other court order relating to
child support obligations;
(v) an administration of a decedent's estate; or
(vi) an arrangement whereby funds are held in the registry or by the clerk
Disability Benefits in the Estate Plan
of a court.
(G) The collection of charges assessed against any portion of the corpus or
income of a trust or trusts liable for the SMT of a client may be deferred in
the discretion of the department when the deferral of the collection is deemed
to be in the best interest of the State of Texas.
(3) In addition to income as described in paragraph (4) of this subsection,
other factors considered in determining a fee are:
(A) the ownership of real and personal property;
(B) expected duration of the client's stay in the facility;
(C) insurance coverage;
(D) benefits from governmental and nongovernmental agencies and
institutions; and
(E) exceptional financial hardship.
(4) Income is considered in the determination of fees.
(A) The following fee computation chart is used as a guide in determining
fees for the SMT provided to clients in department mental health facilities.
Gross family monthly income: Less $400 per month for each income producing
member of the family, $100 per month for each nonincome-producing member of
the family (exclude client), except when a nonincome-producing member of the
family is attending a college or university, $200 per month may be deducted.
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23rd Annual Advanced Estate Planning and Probate Course
The monthly fee is between:
Y-174
If balance is between:
$ 0-249
250-499
500-749
750-999
1,000-1,249
1,250-1,499
1,500-1,749
1,750-1,999
2,000-2,249
2,250-2,499
2,500-2,749
2,750-2,999
formula continues
in increments of $250
As agreed, not to exceed $25
25-75
75-125
125-175
175-225
225-275
275-325
325-375
375-425
425-475
475-525
525-575
formula continues
in increments of $50
(B) The following fee computation chart is used as a guide in determining
fees for the SMT provided to clients in department mental retardation
facilities who receive work earnings.
The following table is based solely upon projected monthly income from work
earnings.
If the projected monthly
income from work
earnings is between:
$0-65
66-75
76-85
86-95
96-110
111-125
126-140
141-160
161-180
181-200
For each additional $20
The monthly fee
charged against
work earnings is:
$0
5
10
15
25
35
45
60
75
90
Add $15
(5) A guardian's personal finances/assets are not considered in determining a
fee for an adult client.
(c) Absences from facility. The day of admission, death, or return from an
absence is considered a full day at the facility. The day of discharge,
transfer, or departure for an absence is considered a full day away from the
facility. Except when payment is prohibited by law or contract, charges
continue:
(1) for the entire period of an absence when the client remains under the
care, custody, and control of facility personnel;
(2) for the entire period when the client is absent from the facility for
admission to an inpatient medical facility and charges for the medical
services are not paid by a third-party payor; and
(3) for the first three days of any other absence from the facility from
which a return is planned.
Disability Benefits in the Estate Plan
(d) Revision of fees. A new fee may be determined each time the reimbursement
manager receives information indicating a change in property ownership or
income.
(e) Information upon admission. Upon admission, or shortly afterward, the
reimbursement manager or designee provides the client, family member, and/or
person responsible for payment with:
(1) information regarding the facility's current maximum rate;
(2) information on the department's policy for determining a fee based upon
an ability to pay; and
(3) the appropriate property/financial/expenses forms, referred to in s403.77
of this title (relating to Exhibits) as Exhibit A.
(f) Notification of fee. After a fee has been determined, the person
responsible for payment is notified in writing. The notice includes:
(1) the name of the client receiving SMT from the facility;
(2) the fee determined to be charged per month;
(3) the source of funds upon which the determined fee was based;
(4) the effective date of the fee;
(5) a statement of the recipient's right to appeal if the recipient disagrees
with the fee and information on how to initiate an appeal;
(6) instructions to notify the facility's reimbursement manager if property
ownership or income changes; and
(7) information on possible payments from a third party payor.
Source: The provisions of this s403.74 adopted to be effective August 18, 1995,
20 TexReg 5865.
CHARGES FOR COMMUNITY-BASED SERVICES
40 T.A.C. § 403.49. Monthly Ability-To-Pay Fee Schedule
The Monthly Ability-To-Pay Fee Schedule, referenced as Exhibit A, copies of
which are available by contacting TDMHMR, Policy Development, P.O. Box 12668,
Austin, Texas 78711-2668, is based on 150% of the current Federal Poverty
Guidelines. The department may revise the Monthly Ability-To-Pay Fee Schedule,
based on any changes in the Federal Poverty Guidelines, to be effective on
September 1 of the next state fiscal year. The department will distribute the
revised fee schedule to:
(1) all local MHMR authorities, who are responsible for ensuring that their
affected contractors are provided a copy; and
(2) its designated providers.
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23rd Annual Advanced Estate Planning and Probate Course
TEXAS DEPARTMENT OF MENTAL HEALTH AND MENTAL RETARDATION
MONTHLY ABILITY-TO-PAY FEE SCHEDULE
------------------------------------------------------------------------------Maximum Monthly Fee by Family Size
------------------------------------------Annual Monthly 1 2 3 4 5 6 7 8 9+ % Monthly
Gross
Gross
Income
Income Income
(Size =1)
------------------------------------------------------------------------------$ 7,870 $ 622 $0 $0 $0 $0 $0 $0 $0 $0 $0
2.00%
------------------------------------------------------------------------------9,330
777 0 0 0 0 0 0 0 0 0
2.25%
------------------------------------------------------------------------------11,190
932 23 0 0 0 0 0 0 0 0
2.50%
------------------------------------------------------------------------------13,050 1,087 30 23 0 0 0 0 0 0 0
2.75%
------------------------------------------------------------------------------14,910 1,242 37 30 23 0 0 0 0 0 0
3.00%
------------------------------------------------------------------------------16,770 1,397 45 37 30 23 0 0 0 0 0
3.25%
------------------------------------------------------------------------------18,630 1,552 54 45 37 30 23 0 0 0 0
3.50%
------------------------------------------------------------------------------20,490 1,707 64 54 45 37 30 23 0 0 0
3.75%
------------------------------------------------------------------------------22,350 1,862 74 64 54 45 37 30 23 0 0
4.00%
------------------------------------------------------------------------------24,210 2,017 86 74 64 54 45 37 30 23 0
4.25%
------------------------------------------------------------------------------26,070 2,172 98 86 74 64 54 45 37 30 23
4.50%
------------------------------------------------------------------------------27,930 2,327 111 98 86 74 64 54 45 37 30
4.75%
------------------------------------------------------------------------------29,790 2,482 124 111 98 86 74 64 54 45 37
5.00%
------------------------------------------------------------------------------31,650 2,637 138 124 111 98 86 74 64 54 45
5.25%
------------------------------------------------------------------------------33,510 2,792 154 138 124 111 98 86 74 64 54
5.50%
------------------------------------------------------------------------------35,370 2,947 169 154 138 124 111 98 86 74 64
5.75%
------------------------------------------------------------------------------37,230 3,102 186 169 154 138 124 111 98 86 74
6.00%
------------------------------------------------------------------------------39,090 3,257 204 186 169 154 138 124 111 98 86
6.25%
------------------------------------------------------------------------------40,950 3,412 222 204 186 169 154 138 124 111 98
6.50%
------------------------------------------------------------------------------42,810 3,567 241 222 204 186 169 154 138 124 111
6.75%
------------------------------------------------------------------------------44,670 3,722 261 241 222 204 186 169 154 138 124
7.00%
------------------------------------------------------------------------------46,530 3,877 281 261 241 222 204 186 169 154 138
7.25%
------------------------------------------------------------------------------48,390 4,032 302 281 261 241 222 204 186 169 154
7.50%
Disability Benefits in the Estate Plan
------------------------------------------------------------------------------50,250 4,187 324 302 281 261 241 222 204 186 169
7.75%
------------------------------------------------------------------------------52,110 4,342 347 324 302 281 261 241 222 204 186
8.00%
------------------------------------------------------------------------------53,970 4,497 371 347 324 302 281 261 241 222 204
8.25%
------------------------------------------------------------------------------55,830 4,652 395 371 347 324 302 281 261 241 222
8.50%
------------------------------------------------------------------------------57,690 4,807 421 395 371 347 324 302 281 261 241
8.75%
------------------------------------------------------------------------------59,550 4,962 447 421 395 371 347 324 302 281 261
9.00%
------------------------------------------------------------------------------61,410 5,117 473 447 421 395 371 347 324 302 281
9.25%
------------------------------------------------------------------------------64,270 5,272 501 473 447 421 395 371 347 324 302
9.50%
------------------------------------------------------------------------------65,130 5,427 529 501 473 447 421 395 371 347 324
9.75%
------------------------------------------------------------------------------66,990 5,582 558 529 501 473 447 421 395 371 347
10.00%
------------------------------------------------------------------------------68,850 5,737 588 558 529 501 473 447 421 395 371
10.25%
------------------------------------------------------------------------------70,710 5,892 619 588 558 529 501 473 447 421 395
10.50%
------------------------------------------------------------------------------72,570 6,047 650 619 588 558 529 501 473 447 421
10.75%
------------------------------------------------------------------------------74,430 6,227 685 650 619 588 558 529 501 473 447
11.00%
------------------------------------------------------------------------------76,290 6,357 715 685 650 619 588 558 529 501 473
11.25%
------------------------------------------------------------------------------78,150 6,512 749 715 685 650 619 588 558 529 501
11.50%
------------------------------------------------------------------------------80,010 6,667 783 749 715 685 650 619 588 558 529
11.75%
------------------------------------------------------------------------------81,870 6,822 819 783 749 715 685 650 619 588 558
12.00%
------------------------------------------------------------------------------83,730 6,977 855 819 783 749 715 685 650 619 588
12.25%
------------------------------------------------------------------------------85,590 7,132 891 855 819 783 749 715 685 650 619
12.50%
------------------------------------------------------------------------------87,450 7,287 929 891 855 819 783 749 715 685 650
12.75%
------------------------------------------------------------------------------89,310 7,442 967 929 891 855 819 783 749 715 685
13.00%
------------------------------------------------------------------------------91,170 7,597 1,006 967 929 891 855 819 783 749 715
13.25%
------------------------------------------------------------------------------93,030 7,752 1,047 1,006 967 929 891 855 819 783 749
13.50%
------------------------------------------------------------------------------94,890 7,907 1,087 1,047 1,006 967 929 891 855 819 783
13.75%
------------------------------------------------------------------------------96,750 8,062 1,129 1,087 1,047 1,006 967 929 891 855 819
14.00%
------------------------------------------------------------------------------98,610 8,217 1,171 1,129 1,087 1,047 1,006 967 929 891 855
14.25%
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23rd Annual Advanced Estate Planning and Probate Course
------------------------------------------------------------------------------100,470 8,372 1,214 1,171 1,129 1,087 1,047 1,006 967 929 891
14.50%
-------------------------------------------------------------------------------
Disability Benefits in the Estate Plan
APPENDIX 21: Limits On Eligibility Of Aliens For Public Benefits
Y-179
See next page for definitions of alien classifications (A-D) and types of benefits (1-3)
Classification of Alien
“Emergency
Benefits” (1)
“ResidentAlien-Only”
Benefits (2)
SSI
Food Stamps
I. “Qualified” (A), entered U.S. before 8/22/96,
with either “SS status” (B) or “veteran status” (C)
Yes
Yes
Yes
Yes
II. “Qualified” (A), entered U.S. before 8/22/96,
with “refugee status” (D)
Yes
Yes
Yes
Benefits
5 Years Only
III. “Qualified” (A), entered U.S. before 8/22/96,
not “refugee status” (D)
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Benefits
7 Years, (then
ineligible if
not citizen)
Benefits
5 Years, (then
ineligible if
not citizen)
IV. “Qualified” (A), entered U.S. on or after
8/22/96, with either “SS status” (B) or “veteran
status” (C)
V. “Qualified” (A), entered U.S. on or after
8/22/96, with “refugee status” (D)
VI. “Qualified” (A), entered U.S. on or after
8/22/96, no special status
Yes
Yes
TAN
Be
5 Years,
state o
O
(Y
T
Be
5
state o
Inel
5
Yes
Yes
No
No
state o
VII. Not “Qualified” (A)
Yes
No
No
No
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23rd Annual Advanced Estate Planning and Probate Course
Definitions Pertaining to Classifications of Aliens
A. “Qualified Alien”: any alien who is lawfully admitted for permanent
residence is a “qualified alien.” The term also applies to the following classes
of aliens lawfully present in the U.S.: asylees, refuges, those paroled into the
U.S. for at least one year, certain aliens whose deportation is being withheld,
and certain aliens granted conditional entry. 8 U.S.C. §431. The term is
somewhat misleading, because “qualified aliens” are disqualified for many
benefits unless additional requirements are met.
B. “SS Status”: lawfully admitted for permanent residence; and has
worked 40 qualifying quarters of coverage as defined by the Social Security Act
or can be credited with such coverage; and, with respect to any qualifying
quarter for any period after December 31, 1996, did not receive any federal
means-tested benefit. 8 U.S.C. §1612(a)(2)(B).
Definitions Pertain
1. “Emergency Benefits”: (a)
medical condition other than organ tr
otherwise met, other than the requirem
non-cash, in-kind emergency disaster r
immunizations for communicable dis
symptoms of such diseases; (d) comm
services that are necessary for the prote
the Attorney General; (e) certain HUD
receiving such benefits on 8/22/96; (f) T
lawfully present in the U.S., if the al
international agreement, or under Title I
August, 1996; (g) Medicare Part A bene
in the U.S., who was authorized to be
which benefits are based; and (h) railroa
lawfully present in the U.S. or residing o
C. “Veteran Status”: (a) an honorably discharged veteran who is an alien
and who fulfills the active service requirements of 38 U.S.C. §5303A(d); (b) an
alien on active duty in the U.S. armed forces; or (c) the spouse, unremarried
2. “Resident-Alien-Only Benefi
surviving spouse, or unmarried dependent child of an alien in category (a) or benefits; (b) Child Nutrition Act of 196
(b).
assistance, if the foster or adoptive pare
programs of student assistance under
D. “Refugee Status”: certain aliens admitted as refugees, asylees, whose Head Start benefits; (f) Job Training
deportation is withheld, Cuban and Haitian entrants, and Amerasian immigrants. §1612(b)(3)(B).
8 U.S.C. §1612 (a)(2)(A), §1612(b)(2)(A), §1613(b)(1).
3. “Soc. Svc. Block Grants”: the
social services under Title XX of
§1112(b)(3)(B).
This chart is offered as an educational overview only and is not intended as legal advice to any
person. Advice regarding eligibility of particular individuals for benefits should be given only after
consulting all applicable laws, including without limitation 8 U.S.C. §1611 et seq.
Disability Benefits in the Estate Plan
Y-181
APPENDIX 22: Comparison of 142 Trusts, 867 Trusts and Guardianships
This chart was prepared by Glenn M. Karisch and is used with his permission. Minor changes
have been made by the author, who is solely responsible for its content.
142 Trust
867 Trust
Guardianship/
Estate
Can be created if lawsuit is pending
Yes
Yes
Yes
Can be created if lawsuit is not pending
No
Yes
Yes
No (except possibly
for incapacitated
persons)
Yes
Yes
Can be funded with litigation proceeds
Yes
Yes
Yes
Can be funded with property other than
litigation proceeds
No
Yes
Yes
Can be requested by guardian ad litem or next
friend
Yes
No
Yes
Can be requested by guardian
No
Yes
Yes
Can be requested by attorney ad litem
No
Yes
Yes
Can be requested by any interested person or
created on court’s own initiative
No
No
Yes
Yes, if it was created
when guardianship
did not exist
Yes
n/a
Can exist while guardianship of the estate is
not in existence
Yes
Yes, but guardian
of the person may
be required
No
Tex. Prop. Code § 142.007 definition of
“incapacitated person” applies
Yes
No
No
Tex. Prob. Code Ann. § 601(13) definition of
“incapacitated person” applies
No
Yes
Yes
Physician’s certificate regarding incapacity
required
No
Yes
Yes
Incapacity must be proven by clear and
convincing evidence at a hearing where an
attorney ad litem represents the proposed
ward/beneficiary
No
Yes
Yes
Yes*
Yes*
No
Health, education, maintenance and support
distribution standard mandatory
Yes, except for
(d)(4)(A) trusts
Yes, except for
(d)(4)(A) trusts
No
Trustee/guardian can be ordered not to make
support distributions to minors if minor’s
parents have the ability to support minor
Probably no
Probably yes
Yes
Can be created if a guardianship is pending
Can exist while guardianship is in existence
Corporate trustee/guardian required
23rd Annual Advanced Estate Planning and Probate Course
Y-182
Principal distributions for health, education,
maintenance and support authorized without
further court order
Yes
Yes
No (see Tex. Prob.
Code Ann. § 776)
Distributions permitted to person whom the
ward/beneficiary is legally obligated to
support
Probably not
Yes
Yes
Spendthrift provision may protect the estate
or trust from the creditors of the
ward/beneficiary
Maybe
Maybe
No, but ward may
not have the
power to contract
etc.)
Yes
Yes
No
Investments limited to Tex. Prob. Code Ann.
§855-approved investments (U. S. bonds,
FDIC-insured accounts, etc.) without prior
court approval
No
No
Yes
Trustee/guardian may make tax-motivated
gifts
No
Yes, with the help
of a guardian and
with court
approval
Yes, with court
approval
Must terminate when minor ward/beneficiary
attains age 18 (if minority is his or her only
incapacity)
No
No
Yes
Terminates when minor ward/beneficiary
attains age 18 unless extended by court order
(not to exceed age 25)
No
Yes
No
Terminates when minor ward/beneficiary
attains age 25 unless shortened by the terms of
the trust
Yes
No
No
Terminating distributions may be made to
someone other than the ward/beneficiary or
the ward/beneficiary’s estate
No, except for
(d)(4)(A) trusts
Yes
No
Trustee compensation based on Tex. Prob.
Code Ann. § 665 (5% of income plus 5% of
disbursements)
No
Yes
Yes
Annual application and approval of trustee
compensation required
No
Yes
Yes
Filing and approval of annual account
required
No
Yes
Yes
Filing and approval of final account required
No
Yes
Yes
Guardianship-style accountings required
No
Yes
Yes
Bank-trust-department-style
permitted
Yes
No
No
Probably
Yes
No
Trust-type investments (securities,
permitted without prior court approval
accountings
Trustee/guardian has powers of trustee under
the Texas Trust Code
Texas Trust Code applies (to the extent not in
Disability Benefits in the Estate Plan
conflict)
Y-183
Maybe
Yes
No
Court creating trust/guardianship may modify
or terminate trust/guardianship
Yes
Yes
Yes
Court creating trust/guardianship may hold
trustee/guardian liable for breach of fiduciary
duty
District court and
statutory probate
court: Yes; county
court: Maybe
Yes
Yes
Court creating trust/guardianship may hear
trustee/guardian’s motion for instructions
District court and
statutory probate
court: Yes; county
court: Maybe
Yes
Yes
Can be used as a (d)(4)(A) Medicaid
“supplemental needs” trust
Yes
Yes
No
Can be used as a (d)(4)(B) “Miller Trust”
No
Yes
No
Can use a (d)(4)(C) nonprofit pooled trust
Probably No
Probably Yes
N/A
*At this writing (May 5, 1999), legislation has been introduced to remove the requirement of a corporate
fiduciary. It is not expected to pass as to a trustee appointed under §142, but H.B. 3632, which would
remove this requirement under §867 (in guardianships), has a reasonable chance of passage.
Y-184
23rd Annual Advanced Estate Planning and Probate Course
APPENDIX 23: Selected Bibliography
The author has found the following resources particularly helpful for finding information on public
benefits. Numerous other secondary resources are available, as are many other ways of finding the
applicable statutes and regulations. Although the treatises focus on Elder Law, virtually all the same
benefits are available to the non-elderly disabled.
Treatises
CLIFTON B. KRUSE, JR., THIRD-PARTY AND SELF-CREATED TRUSTS, 2d ed., p. 68 (American Bar
Association 1998
MEZZULO & WOOLPERT, ADVISING THE ELDERLY CLIENT (Clark, Boardman Callahan, Looseleaf)
REGAN, MORGAN & ENGLISH, TAX, ESTATE & FINANCIAL PLANNING FOR THE ELDERLY (Matthew
Bender, Looseleaf).
REGAN & GILFIX, TAX, ESTATE & FINANCIAL PLANNING FOR THE ELDERLY: FORMS & PRACTICE
(Matthew Bender, Looseleaf).
RENÉE C. LOVELACE (PROJECT DIRECTOR), THE TEXAS ATTORNEY'S PLANNING GUIDE FOR
REPRESENTING FAMILIES WITH DISABLED FAMILY MEMBERS: STARTING POINTS IN HELPING
CAREGIVERS BUILD NETWORKS OF CARE (to be published in mid-1999). Order one of two ways: (1) by
sending a request along with the attorney's bar number and a self-addressed, stamped post card to 203
Lake Ridge Village, Box 412, Dallas, Texas 75238 or (2) by e-mail to TexAttyGd@aol.com. There are
2800 free copies available while they last, after which they will be sold at cost. Attorneys will be notified
as to whether free copies are available and, if not, the cost to order (expected to be about $10). Parties
involved: Planned Living Assistance Network of North Texas, Inc., with funding by Texas Bar
Foundation, Hogg Foundation for Mental Health, and Dallas Bar Foundation.
WEST GROUP, ESTATE & ELDER LAW ADVISOR (CD product with most state and federal statutes and
rules, optionally including on the disk ADVISING THE ELDERLY CLIENT)
Articles
Clifton B. Kruse, Jr., Medicaid Trusts: Estate Planning Using Non-Medicaid Disqualifying SelfSettled and Third Party Trusts, State Bar of Texas, Advanced Estate Planning and Probate Course, 1995
Deborah A. Green, Special Trusts: §§867, 142, 1396 Supplemental Needs Trusts When and How to
Use Them, State Bar of Texas Advanced Estate Planning and Probate Law Course, 1998 (available for
downloading at http://www.texasprobate.com/articles/)
Glenn M. Karisch, Court-Created Trusts, State Bar of Texas Advanced Drafting: Estate Planning
and Probate Course, 1995 (available for downloading at http://www.texasprobate.com/articles/)
Kathleen A. Miller, Third Party Recovery: The Right to Recover and Defending the Recovery Action,
State Bar of Texas Elder Law Institute, 1996
Kathleen Ford Bay, Court Created Section 867 Trusts, Texas Bankers Association Personal Trust
Seminar, 1998 (available for downloading at http://www.texasprobate.com/articles/)
Mary T. Schmitt Smith, After the Wedding: Administration of Special Needs Trusts, Tuning Up the
Trustee, National Academy of Elder Law Attorneys: NAELA Advanced Elder Law Institute November,
1997.
Disability Benefits in the Estate Plan
Y-185
Roger M. Bernstein, Susan G. Haines & Mary Smith, Special Needs Trusts: Drafting and
Administration, National Academy of Elder Law Attorneys: NAELA Advanced Elder Law Institute
November, 1997
State Bar of Texas, Planning Strategies for Persons With Disabilities (CLE materials, 1998).
Internet Resources
AIDS publications and resources: http://www.cdc.gov/
Elder Law as a profession: http://www.naela.com
Federal Medicaid and Medicare information: http://www.hcfa.gov/
Federal rules: http://www.access.gpo.gov/nara/cfr/
Federal statutes (including recent and proposed legislation): http://thomas.loc.gov/
Health-related information: http://www.healthfinder.gov
Social Security information: http://www.ssa.gov/
Texas administrative code: http://lamb.sos.state.tx.us/tac/
Texas and federal statutes and regulations (links to): http:/www.ccwf.cc.utexas.edu/~suefaw/
Texas Department of Human Services program information: http://www.dhs.state.tx.us/
Texas Medicaid rules: http://lamb.sos.state.tx.us/tac/40/
Texas Probate website: http://www.texasprobate.com
Texas statutes: http://www.capitol.state.tx.us/statutes/statutes.html
Bibliography
Best recent annotated bibliography on elder and disability law in Texas is Susan Whitman’s
bibliography in the course materials for the University of Texas Elder Law Institute (2nd ed., 1998).