Misinformation is a concern voiced by clients when discussing their estate planning and potential long term medical care goals. I have clients comment that “the state will take everything if I go into a nursing home”, “I cannot give away any of my assets”, and “I need to put my house into a trust because my neighbor did”. Recently, the most prevalent piece of misinformation I have heard is that individuals need to spend all of their assets to below $2,000 in value in order to qualify for MassHealth coverage. Although that is true, it is not the whole truth. Most individuals do not know about a transfer strategy that can comfort them while they reside in a skilled nursing facility and may also save some assets for their family or other beneficiaries following death.
The vehicle used for this strategy is called a pooled disability trust which is designed to protect an individual’s assets so that the individual can qualify for public benefits, including MassHealth. The assets held by this trust are used for the individual’s wellbeing over and above the small amounts allowed by government benefit programs. Transfers to a pooled trust qualify for an exception under 42 U.S.C. sec. 1396p(d)(4)(C) to the usual rule that an applicant for MassHealth cannot shelter assets for his or her own benefit. Additionally, pooled trusts are exempt from the “look-back period” for transfers, which is currently five years. In order to qualify, a pooled trust, also called a “(d)(4)(C)” trust, must provide that:
- The trust must be “established and managed by a non-profit association”;
- The individual beneficiary for whom the trust is created is disabled, as defined under the Social Security Administration standards;
- The trust is managed with separate accounts, but pooled for the purpose of investment and management;
- Each account is managed solely for the benefit of the disabled beneficiary and is established by a parent, grandparent, legal guardian, or court order; and
- To the extent that any funds remain in the beneficiary’s account upon the death of the beneficiary, those funds are either retained by the trust or paid to MassHealth as reimbursement for medical assistance paid on behalf of the beneficiary.
To illustrate a typical case, let’s assume that John, an unmarried individual, moves into a skilled nursing facility which costs $10,000 a month. If John has $100,000 in savings, he is not eligible for MassHealth as his savings is over the $2,000 asset limit. John will need to reduce his assets by $98,000 to be below the asset limit. If we assume that John has $2,000 in income per month which will be applied to the monthly nursing home cost, then John will deplete his savings by $8,000 a month to pay for his care. John will run out of money in about 13 months, at which point he will need to apply and qualify for MassHealth. In the alternative, if John transferred his savings of $100,000 into a (d)(4)(C) trust, John would be immediately eligible for MassHealth. John’s monthly income would still be spent on his care, but MassHealth would pay the difference.
Additionally, most people do not realize that there are two separate rates nursing homes charge residents. While a resident paying privately may be charged $10,000 per month on average, the MassHealth rate is less. As noted above, the (d)(4)(C) trust requires that any funds remaining in the trust at the death of the beneficiary are first retained by the trust and then used to reimburse MassHealth. If the individual immediately qualifies for MassHealth after a transfer of funds to a (d)(4)(C) trust, then any remaining funds in the trust would be subject to reimbursement at the lower MassHealth rate. Therefore, funds may be available to be distributed to the family or other beneficiaries depending on the length of stay in the skilled nursing facility.
The (d)(4)(C) trust should not be confused with other special needs trusts, including the “(d)(4)(A)”exempt under 42 U.S.C. sec. 1396p(d)(4)(A). The (d)(4)(A) trust is different from the (d)(4)(C) trust in that the (d)(4)(A) trust is not created and managed by a non-profit entity, but rather is created and managed by an individual, typically the beneficiary’s parent, grandparent, or guardian. Additionally, among other requirements, the beneficiary must be under age 65.
Pooled disability trusts can be an attractive option with long-term care planning as they provide a much needed supplemental resource beyond the governmental benefit for the beneficiary and can assist in immediate qualification for government benefits. In addition, any remaining funds may be left to family members after the death of the beneficiary.