VERMONT
BAR
ASSOCIATION
FAMILY LAW DAY
JUNE 12, 2015
Essex Junction, Vermont
Divorce, Disability
&
Special Needs Planning
James A. Caffry, Esq.
CAFFRY LAW, PLLC
55 South Main Street, Suite 1
Waterbury, VT 05676
Telephone (802) 882-8163; Fax (802) 882-8166
www.caffrylaw.com
1
Divorce, Disability
&
Special Needs Planning
I.
Introduction
II.
Can I Get In Trouble For Any of This?
III.
Overview of Disability Benefits
IV.
Overview of Special Needs Trusts
V.
Spousal Issues – Property Division, Alimony, SNTs & Alternatives
VI.
Child Support for Children with Disabilities
VII. Estate Planning for Children with Disabilities
2
I.
Introduction.
Allocating assets and determining maintenance and child support can be complicated if a
spouse is disabled or one of the children in the family has a disability. In advocating for your
client, whether the client is the person with the disability, the healthy spouse, or the custodial or
noncustodial parent of a child with disabilities, it is important to understand what government
benefits, if any, will be available to the person with disabilities. The availability of cash and
medical benefits to a disabled person may affect the amount of assets or maintenance to be
awarded to that person. The ability to shelter assets, maintenance or child support in a Special
Needs Trust (“SNT”) may affect the division of marital assets and the type of assets best
awarded to the disabled spouse.
The first step in analyzing the ideal property settlement for a disabled spouse or child
support for a disabled child is to determine what disability benefits are currently being received,
or may be available in the future. Some disability benefits are not affected by assets or income
awarded to the disabled person, while other benefits can be lost depending upon the division of
assets and income.
The materials below review the main disability benefit programs available to disabled
spouses or children. The materials also cover the options available to preserve government
benefits if the disabled spouse or child is likely to need one of the disability benefits affected by
assets and income.
II.
Question: Can I Get In Trouble For Any of This? Answer: You bet.
A.
What’s Your Duty?
V.R.P.C. 1.1 (Competence) – A family law lawyer at least needs to be aware of whether
any party or child involved in a divorce matter is currently, or may likely be, eligible for public
benefits which could be affected by a divorce settlement.
V.R.P.C. 1.2(d) – A lawyer shall not counsel or assist a client in engaging in criminal or
fraudulent conduct.
V.R.P.C. 1.4 (Communication) – While a lawyer has a general duty to promptly
communicate with a client and to keep the client reasonably informed, the Comments to this
Rule provide an example of when it may be permissible for the lawyer to withhold information:
“In some circumstances, a lawyer may be justified in delaying transmission of information when
the client would be likely to react imprudently to an immediate communication. Thus, a lawyer
might withhold a psychiatric diagnosis of a client when the examining psychiatrist indicates that
the disclosure would harm the client.”
V.R.P.C. 1.14 (Clients with Diminished Capacity) – This one is merits repeating in full:
Rule 1.14. CLIENT WITH DIMINISHED CAPACITY
3
(a) When a client’s capacity to make adequately considered decisions in connection with a
representation is diminished, whether because of minority, mental impairment or for some other
reason, the lawyer shall, as far as reasonably possible, maintain a normal client-lawyer
relationship with the client.
(b) When the lawyer reasonably believes that the client has diminished capacity, is at risk of
substantial physical, financial or other harm unless action is taken and cannot adequately act in
the client’s own interest, the lawyer may take reasonably necessary protective action, including
consulting with individuals or entities that have the ability to take action to protect the client
and, in appropriate cases, seeking the appointment of a guardian ad litem, conservator or
guardian. (emphasis added)
(c) Information relating to the representation of a client with diminished capacity is protected by
Rule 1.6. When taking protective action pursuant to paragraph (b) or (d), the lawyer is
impliedly authorized under Rule 1.6(a) to reveal information about the client, but only to the
extent reasonably necessary to protect the client’s interests. (emphasis added)
(d) In an emergency where the health, safety, or a financial interest of a person with seriously
diminished capacity is threatened with imminent and irreparable harm, a lawyer may take legal
action on behalf of the person even though the person is unable to establish a client-lawyer
relationship or to make or express considered judgments about the matter, provided that the
following conditions exist:
(1) The person or another person acting in good faith in that person’s behalf has
consulted with the lawyer.
(2) The lawyer reasonably believes that the person has no other lawyer, agent or other
representative available.
The lawyer should take legal action on behalf of the person only to the extent reasonably
necessary to maintain the status quo or otherwise avoid imminent and irreparable harm. A lawyer
acting under this paragraph has the same duties under these rules that the lawyer would have with
respect to a client. The lawyer should take steps to regularize the relationship or implement other
protective solutions as soon as possible.—Amended June 17, eff. Sept. 1, 2009.
Comment.
[1] The normal client-lawyer relationship is based on the assumption that the client, when properly advised
and assisted, is capable of making decisions about important matters. When the client is a minor or suffers
from a diminished mental capacity, however, maintaining the ordinary client-lawyer relationship may not
be possible in all respects. In particular, a severely incapacitated person may have no power to make legally
binding decisions. Nevertheless, a client with diminished capacity often has the ability to understand,
deliberate upon, and reach conclusions about matters affecting the client’s own well-being. For example,
children as young as five or six years of age, and certainly those of ten or twelve, are regarded as having
opinions that are entitled to weight in legal proceedings concerning their custody. So also, it is recognized
that some persons of advanced age can be quite capable of handling routine financial matters while needing
special legal protection concerning major transactions.
[2] The fact that a client suffers a disability does not diminish the lawyer’s obligation to treat the client with
attention and respect. Even if the person has a legal representative, the lawyer should as far as possible
accord the represented person the status of client, particularly in maintaining communication.
[3] The client may wish to have family members or other persons participate in discussions with the
lawyer. When necessary to assist in the representation, the presence of such persons generally does not
affect the applicability of the attorney-client evidentiary privilege. Nevertheless, the lawyer must keep the
4
client’s interests foremost and, except for protective action authorized under paragraph (b), must look to the
client, and not family members, to make decisions on the client’s behalf.
[4] If a legal representative has already been appointed for the client, the lawyer should ordinarily look to
the representative for decisions on behalf of the client. In matters involving a minor, whether the lawyer
should look to the parents as natural guardians may depend on the type of proceeding or matter in which
the lawyer is representing the minor. If the lawyer represents the guardian as distinct from the ward, and is
aware that the guardian is acting adversely to the ward’s interest, the lawyer may have an obligation to
prevent or rectify the guardian’s misconduct. See Rule 1.2(d).
Taking Protective Action
[5] If a lawyer reasonably believes that a client is at risk of substantial physical, financial or other harm
unless action is taken, and that a normal client-lawyer relationship cannot be maintained as provided in
paragraph (a) because the client lacks sufficient capacity to communicate or to make adequately considered
decisions in connection with the representation, then paragraph (b) permits the lawyer to take protective
measures deemed necessary. Such measures could include: consulting with family members, using a
reconsideration period to permit clarification or improvement of circumstances, using voluntary surrogate
decisionmaking tools such as durable powers of attorney or consulting with support groups, professional
services, adult-protective agencies or other individuals or entities that have the ability to protect the client.
In taking any protective action, the lawyer should be guided by such factors as the wishes and values of the
client to the extent known, the client’s best interests and the goals of intruding into the client’s
decisionmaking autonomy to the least extent feasible, maximizing client capacities and respecting the
client’s family and social connections.
[6] In determining the extent of the client’s diminished capacity, the lawyer should consider and balance
such factors as: the client’s ability to articulate reasoning leading to a decision, variability of state of mind
and ability to appreciate consequences of a decision; the substantive fairness of a decision; and the
consistency of a decision with the known long-term commitments and values of the client. In appropriate
circumstances, the lawyer may seek guidance from an appropriate diagnostician.
[7] If a legal representative has not been appointed, the lawyer should consider whether appointment of a
guardian ad litem, conservator or guardian is necessary to protect the client’s interests. Thus, if a client with
diminished capacity has substantial property that should be sold for the client’s benefit, effective
completion of the transaction may require appointment of a legal representative. In addition, rules of
procedure in litigation sometimes provide that minors or persons with diminished capacity must be
represented by a guardian or next friend if they do not have a general guardian. In many circumstances,
however, appointment of a legal representative may be more expensive or traumatic for the client than
circumstances in fact require. Evaluation of such circumstances is a matter entrusted to the professional
judgment of the lawyer. In considering alternatives, however, the lawyer should be aware of any law that
requires the lawyer to advocate the least restrictive action on behalf of the client.
Disclosure of the Client’s Condition
[8] Disclosure of the client’s diminished capacity could adversely affect the client’s interests. For example,
raising the question of diminished capacity could, in some circumstances, lead to proceedings for
involuntary commitment. Information relating to the representation is protected by Rule 1.6. Therefore,
unless authorized to do so, the lawyer may not disclose such information. When taking protective action
pursuant to paragraph (b) or (d), the lawyer is impliedly authorized to make the necessary disclosures, even
when the client directs the lawyer to the contrary. Nevertheless, given the risks of disclosure, paragraph (c)
limits what the lawyer may disclose in consulting with other individuals or entities or seeking the
appointment of a legal representative. At the very least, the lawyer should determine whether it is likely
that the person or entity consulted with will act adversely to the client’s interests before discussing matters
related to the client. The lawyer’s position in such cases is an unavoidably difficult one.
Emergency Legal Assistance
[9] A lawyer who acts on behalf of a person with seriously diminished capacity in an emergency pursuant
to paragraph (d) should keep the confidences of the person as if dealing with a client, disclosing them only
5
to the extent necessary to accomplish the intended protective action. The lawyer should disclose to any
tribunal involved and to any other counsel involved the nature of his or her relationship with the person.
Normally, a lawyer would not seek compensation for such emergency actions taken.
An Arizona ethics opinion held that a lawyer may disclose information received from a
client to state authorities when the lawyer learns of information that someone has abused,
neglected or exploited the client under the Arizona elder abuse statute, and the lawyer may
ethically do so over the objection of the client. Arizona Ethics Opinion 01–02 (February 2002).
Under the Vermont statute (Reports of Abuse, Neglect and Exploitation of Vulnerable Adults –
33 V.S.A., Chapter 69), a lawyer is not included in the list of “mandatory reporters”, but a
lawyer would certainly be a permissive reporter under 33 V.S.A. § 6903.
A recent Colorado Bar Association ethics opinion addresses multiple issues related to
representing a client with diminished capacity under Rule 1.14 in significant detail, with
numerous citations to both judicial and ethics opinions from multiple state ethics committees.
Among the issues addressed is the requirement that a lawyer must maintain “a normal clientlawyer relationship with the client so far as reasonably possible”, which means that the lawyer
may not substitute the lawyer’s judgement for the client’s decisions, thereby assuming a de facto
guardian ad litem. Additionally, while a lawyer is permitted under the rule to take protective
action for the client, “[a] client’s poor judgment does not warrant protective action under Rule
1.14(b). Colo Bar Ass’n Ethics Opinion 126 (May 6, 2015), at 4.
If the lawyer believes that the client’s diminished capacity will result in substantial
physical, financial or other harm, the lawyer is permitted to seek the appointment of a guardian
ad litem or guardian “if there is no less drastic alternative”. Id., at 10. Taking that action may
require that the lawyer then request permission to withdraw from the matter. Id., at 10.
However, a Vermont ethics opinion held that in such a case of withdrawal, the lawyer
should still continue the representation (including preparation for merits hearing and conducting
discovery) until a court grants the motion to withdraw appointing alternate counsel or the court
allows the client to continue pro se. Vt. Bar Ass’n Advisory Ethics Op. 2000-03 (2003); see also
Vt. Bar Ass’n Advisory Ethics Op. 2006-01 (2006).
The recent Colorado opinion stated: “The lawyer for the client with diminished capacity
should be familiar with social agencies or support groups that may be able to provide assistance
to the client in making decisions with respect to matters within their areas of service, and should
be prepared to advise the client regarding their services.” Colo Bar Ass’n Ethics Opinion 126
(May 6, 2015), at 10.
B.
Malpractice and Professional Conduct Cases.
There have been a number of malpractice and professional conduct cases against lawyers
specifically related to the lawyers alleged failure to understand Special Needs Trusts and public
benefit issues as those issues related to the lawyers’ primary areas of practice.
6
1.
Grillo Cases – Texas (2001).
In related 2001 cases in Texas, the family of young girl sued both her personal injury
lawyer and her court-appointed guardian ad litem for malpractice for failing to: (i) consult
appropriate experts regarding a structured settlement, and (ii) to preserve the girl’s the Medicaid
and SSI eligibility. The family of the permanently disabled girl alleged that a structured
settlement with a SNT would have protected her personal injury settlement award from
dissipation, provided tax benefits and maintained her eligibility for SSI and Medicaid. The
malpractice claims were reportedly settled for a combined $4.1 million. Grillo v. Petiete et al,
96-145090-92 (96th Dist. Ct., Tarrant Cty., Texas)(2001), and Grillo v. Henry, 96-167943-96
(96th Dist. Ct., Tarrant Cty., Texas)(2001).
2.
Dept. of Social Services v. Saunders – Connecticut (1999).
Although not a malpractice case, the Connecticut Supreme Court upheld the decision of a
probate court to allow the mother of a permanently disabled child establish an SNT for receipt of
a personal injury over the objection of the Connecticut Department of Social Services. The state
agency opposed the creation of the SNT with the settlement money and appealed the probate
court decision allowing the SNT. The trial court reversed the probate court. The Connecticut
Supreme Court reversed the trial court and reinstated the probate court’s decision authorizing the
SNT. Dept. of Social Services v. Saunders, 247 Conn. 686, 724 A.2d 1093 (1999). The
significance of the Saunders decision is the Court’s holding that not only was the creation of the
special needs trust legally authorized, but furthermore:
…it may be fairly stated that by failing [to set up the special needs trust with
personal injury proceeds], the Probate Court and [the mother] could have been
deemed to be in dereliction of their duties to [the disabled child].
Saunders, 247 Conn., at 709, 724 A.2d., at 1105.
3.
Board of Overseers of the Bar v. Brown – Maine (2002).
In a case involving a general practice lawyer in Maine, the lawyer was suspended from
practice by the Maine Supreme Court for five separate violations of the Maine Bar Rules in four
different practice areas, including the failure to prepare an SNT for the sister of a terminally ill
client. The lawyer knew that the client’s sister was in a nursing home and receiving Medicaid,
nonetheless, the lawyer simply drafted a will providing for a direct bequest of the client’s assets
to the sister. As a result, when the client died, the sister received the bequest directly and lost her
Medicaid benefits and had to spend down the inheritance before Medicaid benefits were
reinstated. Board of Overseers of the Bar v. Brown, Supreme Court of Maine, Docket No. Bar01-6 (October 25, 2002).
4.
Rajcan v. Garvey – Illinois (2004).
A legal malpractice claim was made against estate planning lawyers in Illinois for failing
to create an SNT for a testator’s two disabled children whom the lawyers knew were disabled
7
and eligible for public benefits. When the father died and his estate was distributed, the State of
Illinois determined that the disabled children were ineligible for the public benefits. The siblings
serving as trustee for the two disabled adult children sued the lawyers. The lawyers’ motion to
dismiss based on the malpractice statute of limitations was denied by the Illinois Appellate Court
after determining the lawyers had fraudulently concealed their failure to create the SNT and
therefore the statute of limitations was tolled. Rajcan v. Garvey, 347 Ill.App.2d 403, 807 N.E.2d
725, 283 Ill.Dec.120 (2004). After the claims were reinstated, the defendants settled for an
undisclosed amount.
5.
French v. Glorioso – Texas (2002).
In the case of French v. Glorioso a Louisiana personal injury lawyer was able to escape a
former client’s malpractice claim brought in Texas for lack of personal jurisdiction. The plaintiff
alleged the Louisiana lawyer failured to properly advise her regarding the need for an SNT to
hold the settlement proceeds and maintain her Medicaid eligibility. The plaintiff was a Texas
resident who was injured in Louisiana, so she hired a Louisiana personal injury lawyer. When
the case settled, the Louisiana lawyer deposited the settlement proceeds in his firm’s trust
account. Nine months later, the plaintiff was informed by a Texas lawyer that because the
settlement proceeds had been deposited in her personal injury lawyer’s trust account, she would
lose her Medicaid eligibility under the principal of “constructive receipt.” She then sued her
Louisiana personal injury lawyer for malpractice in her home state of Texas. French v. Glorioso,
94 S.W.3d 739 (2002).
The court held that there was no Texas jurisdiction over the Louisiana personal injury
lawyer. One important aspect of the decision was the dueling testimony of the plaintiff and her
lawyer. In his deposition testimony, Glorioso stated that he did verbally discuss the possible
establishment of an SNT to receive the plaintiff’s settlement with her on two occasions including
during the mediation, but that the SNT was not pursued because Karen “did not want to set up an
SNT because she did not want to lose control over her settlement.”
The moral of this story is that if the client decides against a particular recommendation,
then make sure to put it in writing in the event the client later regrets the choice he or she made.
6.
D.F. and Z.C. v. Mount Sinai-NYU Med. Center – E.D.N.Y. (2006).
In D.F. and Z.C. v. Mount Sinai-NYU Med. Center a federal District Court judge denied a
plaintiff’s lawyer’s entire fee for settling an infant’s personal injury claim for $2.4 million.
Under New York law, the personal injury lawyer was presumptively entitled to a fee of
$388,000. The judge’s denial of any fees was based both on ethical violations by the lawyer and
“gross incompetence.” D.F. and Z.C. v. Mount Sinai-NYU Medical Center, 2006 WL 2023136
(E.D.N.Y, July 19, 2006). Among the lawyer’s transgressions was “fundamental ignorance about
either the purpose of the Special Needs Trust or the needs of the infant.”
The judge was not pleased that the lawyer failed to provide the court with “information
relating to the competence of the proposed [SNT] trustee” when the lawyer recommended to the
8
court that the mother should be the sole trustee of the SNT. Eventually, the guardian ad litem
reported to the court that the mother did not speak English, was not a U.S. citizen, and did not
have the knowledge or skills necessary to serve as trustee. The Court determined that the
lawyer’s “incompetence [in recommending the mother as SNT trustee] could have placed at risk
the benefits of the settlement that the infant desperately needed.”
The plaintiff’s lawyer defended the decision to recommend Mom as sole trustee by
arguing that it was “a very difficult thing” for the lawyer to tell the mother who hired him that
she was not qualified to be the trustee, and therefore the lawyer recommended the mother as sole
SNT trustee as a “practical necessity of accommodating [the] mother.”
Both the child’s guardian ad litem and the judge rejected the excuse as “absurd”. The
lawyer’s duty to the child meant that all he had to do was to tell the mother “‘[t]he Court will not
approve the settlement that gives you unfettered control of this money because [the Court] wants
to make sure your child is protected.’”
In the end, the judge denied the payment of any lawyer’s fees because of the lawyer’s
dishonesty and “post-settlement incompetence.” (emphasis added)
C.
Medicaid Fraud.
Lawyers and their clients need to be aware of the following Vermont Medicaid Rules:
Vermont HBEE Rule 4.06 (7/30/2014)
(a)
Fraud – A person commits fraud in Vermont if he or she:
(1) “[K]nowingly fails, by false statement, misrepresentation,
impersonation, or other fraudulent means, to disclose a material
fact used in making a determination as to the qualifications of that
person to receive aid or benefits under a state or federally funded
assistance program, or who knowingly fails to disclose a change in
circumstances in order to obtain or continue to receive under a
program aid or benefits to which he or she is not entitled or in an
amount larger than that to which he or she is entitled, or who
knowingly aids and abets another person in the commission of
any such act . . . ;” (quoting 33 V.S.A. § 141(a))(emphasis added)
(b) Legal Consequences
An individual who commits fraud may be prosecuted under Vermont law. If
convicted, the individual may be fined or imprisoned or both. Action may also be
taken to recover the value of benefits paid in error due to fraud.
Vermont HBEE Rule 4.03 (7/30/2014)
Responsibilities of individuals with respect to application for and receipt of health
benefits through AHS
9
(a) Responsibility to cooperate
An individual must cooperate in providing information necessary to establish and
maintain their eligibility, and must comply with all rules and regulations,
including recovery and obtaining or maintaining available health insurance.
(b) Responsibility to report changes
(1) An individual must report changes that may affect eligibility. Such
changes include, but are not limited to, income, the availability of health
insurance, and third-party liability.
(2) A Medicaid enrollee must report such changes within 10 days of
learning of the change. (emphasis added)
D.
Social Security Fraud.
Likewise, the ramifications of Social Security fraud should not be ignored with fines and
criminal penalties possible in addition to the loss of benefits. See 42 USC § 1011; 42 U.S.C.
1307; 42 U.S.C. 1383a; 20 CFR, Part 404, Subpart F; and 20 CFR, Part 416, Subpart E.
In April 2013, the Social Security Administration reported to Congress that an estimated
$7.9 Billion in Social Security benefits was improperly paid to people in 2012. Among the main
reasons cited by the SSA was beneficiary fraud when beneficiaries do not tell the SSA about
changes in their income, resources or living arrangements, which would change the amount
Social Security pays them.
III.
Overview of Disability Benefits.
A.
Look Before You Leap – Lots of Folks Have A Disability, But Is Your Client
(or Client’s Child) Legally Disabled?
In order to utilize a “1st Party” Special Needs Trust (discussed below) in a divorce
proceeding, the client (or client’s child) must be disabled under either the Social Security or
Medicaid definitions. Under the Social Security Act “an individual shall be considered to be
disabled [] if he is unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than twelve months.”1
A person’s impairments must be “of such severity that he is not only unable to do his
previous work but cannot, considering his age, education, and work experience, engage in any
other kind of substantial gainful work which exists in the national economy, regardless of
whether such work exists in the immediate area in which he lives, or whether a specific job
vacancy exists for him, or whether he would be hired if he applied for work.”2 The definitions of
what it means to have a disability and to be unable to engage in “substantial gainful activity”
under the Vermont Medicaid Rules closely follow the federal definitions.3
10
Be aware that “disabled” for purposes of Social Security and Medicaid is not the same as
being disabled for workers compensation benefits, or for Vocational Rehabilitation (a/k/a
“VocRehab”) or Special Education services.
In 2010 there was an unreported decision from a New Jersey Court that held that New
Jersey Medicaid agency properly rejected an SNT because the individual had not been
determined to be disabled under the Social Security Act or New Jersey Medicaid regulations.
J.C. v. Division of Medical Assistance and Health Services, 2010 N.J. Super. Unpub. LEXIS 269
(February 8, 2010).
B.
What Benefits Are Your Clients On? Now and Possibly In The Future? Ask
Early. Ask Often.
Some public benefits are available to a person regardless of the type of disability. Other
programs and services are specific to a particular disability. Many Vermont programs and
services are administered through ‘guidelines’ and ‘policies’ that have never gone through the
rulemaking process of the Administrative Procedures Act.4
Within the range of possible public benefit programs, the eligibility criteria can vary a
great deal between programs. Certain “entitlement” benefits, such as Social Security Disability
Insurance (“SSDI”) and Medicare, become available once a person has been determined to be
legally disabled and has established that he or she has met the employment minimums for
eligibility. Other public benefits, like Supplemental Security Income (“SSI”) and Medicaid, are
“needs-based” or “means-tested.” In addition to being found disabled, a person must also have
limited income and resources. Finally, the disability specific programs in Vermont have
additional eligibility requirements where the type and amount of services are determined based
on: (a) the severity of a person’s disability and (b) “the limits of available resources.”5
When it comes to SNTs, sources of relevant law come from the Social Security Act, the
applicable provisions of the Code of Federal Regulations, the SSA’s “Program Operations
Manual System” (“POMS”), and the Vermont Medicaid Rules.
In Vermont, the SSA first determines whether an applicant for SSDI or SSI benefits
meets the work and/or financial eligibility requirements.6 The SSA contracts out the medical
determination of disability to the Vermont AHS Office of Disability Determination Services.7
There are a number of different public benefits that could impact the life a Vermont resident with
a disability, including some benefits that do not require that a person be disabled as a condition
of eligibility. Each benefit program is governed by different state and federal statutes, rules
and/or guidance documents.
Most public benefits programs in Vermont are administered by the Agency of Human
Services. AHS is comprised of 6 Departments: (1) Children and Families (“DCF”), (2)
Disabilities, Aging and Independent Living (“DAIL”), (3) Mental Health (“DMH”), (4) Vermont
Health Access (“DVHA”), (5) Health, and (6) Corrections (“DOC”).8 The AHS main offices
were in Waterbury before Tropical Storm Irene visited. The AHS headquarters are scheduled to
return to Waterbury in late 2015. There are 12 AHS district offices throughout the State.9 The
11
three Vermont Social Security Administration offices are in Montpelier, Burlington and
Rutland.10
1.
Entitlement Benefits.
(a)
Social Security Disability Insurance (“SSDI”) – SSDI payments
are one of three possible “insurance” payments made by the SSA, the others being Retirement
Insurance payments and Survivor Insurance payments, collectively “Old-Age, Survivors and
Disability Insurance” (“OASDI”).11 SSDI payments are made based on: (i) a determination of
disability that has been continuous for 5 months, and (ii) the disabled person’s work record.12
The amount of the SSDI benefits are dependent on the wages earned and will continue as long as
the person’s disability continues to be severe enough to prevent her from engaging substantial
gainful activity or until she reaches her full retirement age.13
(b)
Childhood Disability Benefits (“CDB”) – These are payments
based on a parent’s OASDI benefits are available to an adult child “under a disability which
began before he attained the age of 22.”14 The adult child receives 50% of a parent’s disability or
retirement benefit while the parent is alive, and it bumps to 75% of the parent’s benefit when the
parent dies. If both parents are receiving some type of OASDI benefit, then the disabled adult
child is entitled to the benefits based on the parent receiving the higher OASDI benefit, but not
both.15 In some instances a disabled adult child who qualifies for CDB payments can find his
monthly income going from $785.04/month in Supplemental Security Income (“SSI”) to as high
as $1,900 in CDB when a high wage earning parent dies.
(c)
Medicare – A disabled individual under age 65 entitled to SSDI
payments or CDB payments is entitled to Medicare coverage twenty-four calendar months after
becoming eligible for SSDI or CDB benefits. 16 Medicare Part A covers inpatient hospital
services, home health, and hospice benefits. It also pays for a very limited amount of skilled
nursing care, but not custodial care. SSDI and CDB beneficiaries who are eligible for Part A
benefits may enroll for Part B and D benefits but must pay a premium. Part B benefits cover
physicians’ charges, while Part D covers prescription drugs. 17 While entitlement to Medicare is
not means-tested, it is possible to obtain assistance for Medicare Part D prescription drug
payments under the Medicare Part D Low Income Subsidy.18
(d)
Special Education – Educational services are an entitlement to all
school age children with a disability under both federal and state laws, with all qualifying
students having a right to a “free appropriate public education” through the age of 21.19
2.
Means-tested Benefits Regardless of Type of Disability or That Do Not
Require Any Disability as a Condition of Eligibility.
(a)
Supplemental Security Income (“SSI”) – This is a federal
payment by the SSA for people who are over 65, or under 65 and blind or disabled.20 The
maximum SSI payment each year is called the Federal Benefit Rate, which is $733/month in
2015. SSI is a means-tested benefit so eligibility is subject to income and resource maximums.
There are extensive rules regarding how the SSA calculates both earned and unearned income,
12
but a person can only have limited earned and even less unearned income. 21 The resource limited
for SSI eligibility is $2,000 for an individual and $3,000 for a married couple.22 These federal
resource limits have not changed since 1989.23
(b)
SSI State Supplement – Vermont is among the majority of states
that do provide additional cash benefits to go with the basic federal SSI benefit with state
funds.24 Vermont’s Aid to the Aged Blind or Disabled (“AABD”) is determined by the DCF
Economic Services Division (“ESD”), and can vary from an extra $17.66/month to an extra
$223.94/month, depending on the living arrangement of that individual.25 There have been no
increases to any of the Vermont AABD payments since 2000.26
(c)
Medicaid – Unlike Medicare, Medicaid is funded through a
combination of federal and state funds, and is administered by the states.27 The federal matching
rate for Medicaid programs is a minimum of 50% and a maximum of 83%.28 In 2015, the federal
matching rate in Vermont is 53.90%.
Currently, there are essentially three types of Medicaid in Vermont: (1) Medicaid for
Children and Adults (“MCA”), (2) Medicaid for the Aged, Blind and Disabled (“MABD”), and
(3) Long-Term Care Medicaid.
MCA Medicaid is the “expanded Medicaid” program under the federal Affordable Care
Act. Eligibility for MCA Medicaid is based solely on household income, there is no requirement
that a person be legally disabled (or over 65 or blind), and there is no “resource test”. It is a
straight financial test. However, a person who is eligible for Medicare Parts A and B, is
categorically ineligible for MCA Medicaid.29 The The ‘new’ MCA Medicaid also includes the
‘old’ programs of providing Medicaid-funded health care for certain parents, pregnant women
and children under 19 (long known as Dr. Dynasaur), which do not include a resource test (as
was always the case).30
Additionally, for someone who is eligible for Medicare, there are certain MABD
Medicaid programs that provide limited Medicaid coverage for certain expenses not covered by
Medicare. Those Medicaid coverage programs are referred to as the QMB, SLMB and QI-1
categories, and depending on the person’s income level, Medicaid will cover some or all of the
person’s Medicare premiums, deductibles or co-insurance. For this Medicaid “Medicare Cost
Sharing Program” there is also no resource test.31
For people who are over-65, blind or disabled, Medicaid is provided under the
‘traditional’ MABD program.32 Generally speaking, MABD Medicaid has clinical, income and
resource eligibility requirements.
Finally, a person might also be eligible for “Long-Term Care Medicaid”, including
“Waiver Services” generally for seniors and persons under age 65 with disabilities that are
physical, developmental, mental health or due to a traumatic brain injury.33 DVHA has
promulgated an extensive set of rules regarding the delivery and payment for Medicaid covered
services and benefits.34
13
Like SSI, MABD and LTC Medicaid eligibility depends on passing both income and
resource tests. In Vermont, if a person with disabilities receives $1.00 of SSI, then Medicaid is
automatic.35 For those individuals that do not qualify for SSI, Medicaid eligibility might still be
obtained through a number of different eligibility categories.
One category which may be present in the divorce context provides Medicaid coverage
for disabled children under the age of 18 who require an institutional level of care and can
receive appropriate care in the community at for the same or lesser cost than institutional care,
without regard to the parents’ income or resources. This is the so-called “Katie Beckett
Waiver.”36 In situations where Medicaid eligibility is sought without SSI, the Vermont Medicaid
regulations regarding income are set out in HBEE Rule 29.11 and the resource regulations are
contained in the HBEE Rule 29.07.
Like SSI, the resource limit most Medicaid programs for an individual is still $2,000.
However, as noted, there are a number of Medicaid programs that are income-only tested, while
other Medicaid programs have higher resource limits than the $2,000, and finally, there are many
resources that are entirely excluded from the resource limit calculation.37
(d)
HUD Section 8 Housing Vouchers – Housing choice vouchers
are issued by the federal Department of Housing and Urban Development through local housing
agencies. Eligibility does not require a disability determination. There is only an income test, but
no resource test. However, under HUD guidelines interest income is included in the calculation
of income, and income is imputed on “net family assets” over $5,000.38 A 3rd Party SNT will not
be considered as an asset for Section 8 rent calculations. That said, if income from the 3 rd Party
SNT is paid to the Beneficiary “regularly, those payments are counted as income.” 39 The impact
of a 1st Party SNT on the calculation of the tenant’s share of rent will depend on the source of the
funds. If the 1st Party SNT is funded with money inherited by the disabled Beneficiary, then the
housing authority will consider that to be the disposal of assets for less than fair market value.
Therefore that 1st Party SNT will still be counted in imputing income for two years after the 1 st
Party SNT is established and funded.40 However, if the 1st Party SNT is funded with assets
received as through a settlement or judgment that is not treated as a transfer for less than fair
market value.41
(e)
3SquaresVT (f/k/a Food Stamps) – Like the HUD housing rules,
the 3SquaresVT Rules are not in alignment with the SSI and Medicaid Rules regarding income
and resources. The maximum food stamp benefit is $200 per month for an individual, so an
additional $2,400 per year can be a significant benefit to a disabled person with limited income
and resources. If the “gross household income” is less than 185% of the Federal Poverty Level
(“FPL”) ($1,814.54/month for a household of 1, or $2,455.88/month for a household of 2 in
2015), then the household is eligible for food stamps regardless of resources (whether they are
$2,001 or $2,000,001). However, if the gross household income is 186% of the FPL, then the
$2,000 resource limit come back into play.42 This benefit program does not require a disability
determination.43 If an individual is eligible for SSI, then that person is categorically eligible for
3SquaresVT.44 With a 3rd Party SNT, there is no effect on 3SquaresVT eligibility.45 However,
there are a few quirks in the 3SquaresVT Rules regarding 1st Party SNTs. First, in order to be
considered an excluded resource, a self-settled trust can only make payments for “educational or
14
medical expenses” of the Beneficiary of the trust. 46 An SNT should never be limited to those
two “supplemental” expenses. Additionally, there is a one year transfer penalty on any transfer to
a self-settled trust that took place within three months of filing an application for 3SquaresVT.
However, the transfer will not be penalized if the transfer was not made for qualifying or
attempting to qualify food stamps benefits.47 Like Medicaid eligibility, if a person with a
disability is receiving SSI, then he is categorically eligible for 3SquaresVT. There is no
corresponding categorical eligibility for someone receiving Medicaid without SSI. Therefore
someone with a 1st Party SNT who is receiving high unearned income through either SSDI or
CDB benefits, and is therefore over the income limits for SSI, could lose 3SquaresVT eligibility
by transferring resources to the 1st Party SNT without a limitation to payments for educational
and medical expenses.
(f)
Fuel Assistance & Phone Assistance – Vermont provides both
“seasonal” and “crisis” fuel assistance to low income Vermont households. Like the 3SquaresVT
program, there is no disability determination prerequisite and there is an income maximum of
185% of the federal poverty level. However, the fuel assistance statute was amended in April
2010, to eliminate both income deductions and the resource limitations.48 There are also benefits
available for telephone assistance based on limited income. DCF, the Department of Taxes and
the Department of Public Service (“DPS”) coordinate to provide a 50% discount on monthly
basic telephone service charges (called “Lifeline”) and a 50% discount on the cost of telephone
installation (called “Link-Up Vermont”).49 DPS also provides discounted or free
telecommunications services and equipment to people with deafness, blindness, speech
impairments or physical disabilities that limit their ability to use standard telephone equipment. 50
(g)
Children’s Personal Care Services – Medicaid funding is
available for children under the age of 21 with any type of disability who need assistance with
activities of daily living upon the determination by DAIL that the severity of the child’s
disability is such that the child requires a level of care beyond that required for a “typical child of
the same age” and the personal care services are “cost effective.”51 The cost effectiveness is
determined by considering the cost of all Medicaid covered services provided to the child to
allow the child to remain in the community and comparing that cost of placing the child in an
“institution appropriate to his or her needs.”52 DAIL determines the number of hours that will be
funded for Personal Care Attendant services.
(h)
Act 264 Coordinated Service Planning – Any child in Vermont
that is under 22 and eligible for special education services or has a “severe emotional
disturbance” may be eligible for coordinated service planning through a “Local Interagency
Team” (“LIT”) that includes representatives from a district special education office, a district
AHS office, the local mental health/developmental disabilities designated agency and family
members.53 The LIT can identify additional resources and services for those children and
families not currently being provided by the school or any agency serving that child/family. 54 If
necessary, matters can be referred to the “State Interagency Team” (“SIT”) for resolution.55 The
SIT includes representative from the Department of Education, AHS Secretary’s Office, DCF,
DAIL (including both the Division for Disability and Aging Services and the Division of
Vocational Rehabilitation), DMH, DOC and a parent of a child with severe emotional
disturbance.56
15
(i)
Vocational Rehabilitation – Located within DAIL is the Division
of Vocational Rehabilitation, or VocRehab Vermont, which operates under the federal
Rehabilitation Act of 1973, administered by the Office of Rehabilitation Administration Services
within the U.S. Department of Education.57 For purposes of VocRehab eligibility, “disability is
defined as a physical or mental impairment that constitutes or results in a substantial impediment
to employment or that substantially limits one or more major life activities.58 VocRehab services
are available to any applicant that requires vocational rehabilitation services to “prepare for,
secure, retain, or regain employment.”59 For purposes of VocRehab eligibility it “shall be
presumed that a person can benefit from vocational rehabilitation services unless clear and
convincing evidence demonstrates that the person is incapable of benefiting from such services
in terms of an employment outcome.”60 Priority for vocational services is given to those with the
“most significant disabilities.”61
3.
Vermont Disability Specific Benefits.
(a)
Benefits for People with Physical Disabilities – In October 2003,
Vermont filed a Demonstration Waiver Proposal to CMS under §1115(a) of the Social Security
Act in order to give “adults with physical disabilities and the frail elderly real choices” about
receiving long-term care services in either a nursing facility or in a “home-and-community-based
setting.”62 Under that section of the SS Act, CMS can waive a state’s obligation to comply with
certain sections of the Act if doing so will promote the objectives of the Act.63 CMS approved
the Section 1115 Demonstration Waiver – called “Choices For Care” in June 2005.64 The
Choices For Care program is available only for those people with a “functional physical
limitation resulting from a physical condition… or associated with aging.”65 Under the Choices
For Care Waiver, DAIL makes a clinical eligibility determination for applicants under three
categories: Highest Needs Group, High Needs Group, and Moderate Needs Group.66
The services and supports for individuals in the Highest Needs and High Needs Groups
are identical, and include case management, personal care services, respite care, companion care,
adult day services, assistive devices and home modifications, personal emergency response,
enhanced residential care, nursing facility care, and “cash and counseling.” 67 The services
available to persons with physical disabilities in the Moderate Needs Group are limited to case
management, adult day services and homemaker services.68 Financial eligibility standards for the
Highest Needs Group and the High Needs Group are determined by DCF. 69 Financial eligibility
for the Moderate Needs Group is determined by DAIL based on an income limit of 300% of the
SSI Federal Benefit Rate after deducting “recurring monthly medical expenses” and a countable
resource maximum of $10,000.70 If the clinical assessment places a person in the Highest Needs
Group, that person is entitled to long-term care coverage. However, services for people in the
High and Moderate Needs Groups are subject to the availability of funding, and individuals may
be placed on waiting lists for services.71
(b)
Benefits for People Who Are Blind/Visually Impaired or
Deaf/Hard of Hearing – The Division for the Blind and Visually Impaired (“DVBI”) is part of
DAIL, and operates the following programs: Vocational Rehabilitation, Independent Living,
Business Enterprise and Transition Services.72 DVBI estimates that there are 3,450 Vermonters
16
between the ages of 18 and 65 that are blind or severely visually impaired.73 DVBI served 234
individuals in FY2009.74 The independent living program for the blind is limited to persons over
age 55 “whose significant visual impairment makes competitive employment extremely difficult
to obtain but for whom independent living goals are feasible.”75 These services include “any []
appropriate service designed to assist an older individual who is blind in coping with daily living
activities.”76 For individuals who are deaf or hard of hearing, VocRehab has Rehabilitation
Counselors for the Deaf or “RCDs” trained to provide employment services, technical assistance
and adaptive equipment for Vermonters who are deaf or have hearing impairments.77 According
to the non-profit Vermont Center for the Deaf and Hard of Hearing, there are over 23,000
Vermonters living with some hearing loss, and almost 2,000 people who are profoundly deaf.78
(c)
Benefits for People with Developmental Disabilities – Services
and supports for Vermonters with developmental disabilities are provided and administered by
the Developmental Services and Children’s Services Unit, within DAIL’s Division of
Developmental Disabilities (“DDS”), under the authority of the Vermont Developmental
Disabilities Act of 1996 (“DD Act”).79 Under § 8725 of the DD Act, DDS is required to adopt a
System of Care Plan for developmental services (“SOCP”) for “the nature, extent, allocation and
timing of services that will be provided to people with developmental disabilities and their
families” and adopt a new SOCP every three years.80 DDS also adopts rules implementing the
DD Act (“DD Rules”).81 Developmental services are provided throughout the state by 10
“Designated Agencies” or 5 “Specialized Service Agencies” that contract with DDS.82 Eligibility
for developmental services under the DD Rules adopted in 2011 is based on a clinical
determination that an individual has an “intellectual disability” or a “pervasive developmental
disorder” which result in “significant deficits in adaptive behavior that were manifest before age
18.”83
However, in addition to receiving a clinical diagnosis of a developmental disability,
individuals must also be determined to meet one of the six “Funding Priorities” in the System of
Care Plan.84 Fifteen years ago there were 31 funding priorities for people with developmental
disabilities85 - now there are only 6. Home-and-community-based (“HCB”) developmental
services include Service Coordination, Community Supports, Respite/Family Supports, Clinical
Services, Crisis Services, Home Supports, Transition Supports, and Transportation Supports.86
Individuals living with their families that do not meet a Funding Priority for HCB services, may
be eligible for up to $1,000 in “Flexible Family Funding.”87 In FY 2014, DDS provided funding
to 4,283 individuals with a developmental disability, of those only 2,833 received HCB services,
while the majority of the others received Flexible Family Funding. 88 That means there are over
9,000 Vermonters with developmental disabilities that receive no developmental services from
the State.
(d)
Benefits for People with Traumatic Brain Injury – The TBI
program in Vermont began in 1991 with a “pilot project” to offer community-based
rehabilitation to Vermonters who sustained moderate to severe TBIs as an alternative to more
expensive out-of-state TBI care facilities.89 Although the Brain Injury Association estimates that
there are 8,000 Vermonters living with a TBI, The TBI program is only able to serve
approximately 100 people each year.90 Out-of-state placements have dropped to an average of 3
per year.91 Initially designed as a short-term program for individuals 16 and older, a long-term
17
TBI option was established in 2005 for individuals 18 and older.92 Among the considerations for
the Long-Term Program requires evidence that the applicant poses a risk to himself or others,
documentation of risk of institutionalization, and “letter(s) of denial from other applicable home
and community based programs.”93 TBI services include case management, rehabilitation
services, community support, environmental and assistive technology, crisis support, respite
services, psychology and counseling supports, and employment supports.94
(f)
Benefits for People with Mental Illness – Mental health services
funded through DMH are separated into Adult Mental Health Services and Child, Adolescent
and Family Mental Health Services.95 As DDAS does with developmental services, DMH
contracts out the provision of mental health services to non-profit Designated Agencies.96 Adult
services include Community Rehabilitation and Treatment (“CRT”), Adult Outpatient Services,
and Emergency Services.97 The CRT program provides a range of services to those who meet the
clinical determination of having a “severe and persistent mental illness with significant
impairment in role and substantial mental health treatment history.”98 CRT services include:
Inpatient Behavioral Health Services, Private Practitioner Behavioral Health Services, DA
Behavioral Services (e.g. Clinical Assessment; Emergency Care and Crisis Stabilization;
Individual, Group, and Family Therapy; Medication Evaluation, Management and Consultation
with Primary Care; Community Supports; Service Planning and Coordination; and Diagnosisspecific Practices).99 In addition, Designated Agencies may provide alternative services
including: Employment Services, Peer Support, Psychoeducation (including Recovery
Education), Housing and Home Supports, Family Psychoeducation and Support for families and
significant others, and Referrals to Specialty Services.100 Adult Outpatient Services are for adults
“who do not have a severe mental health condition, but are still experiencing mental health
problems that are disrupting their everyday lives.”101 While NAMI-VT estimates there are
33,000 adults in Vermont with serious and persistent mental illness102, DMH statistics show that
in FY 2010, only 7,015 adults received Outpatient Services, and 3,013 adults received CRT
Services.103
For children and families, Designated Agencies provide crisis services, clinic-based
treatment, outreach treatment, family support (including respite), and intensive out-of-home
services.104 In FY 2010, there were 10,541 children in Vermont that received mental health
services.105
D.
Show Me Please, Don’t Tell Me.
Clients are frequently uncertain about what benefits they are receiving. Sometimes clients
think they are certain, but they are incorrect.
SSI vs. SSDI? Medicaid vs. Medicare? If someone is receiving SSI, then Medicaid is
automatic. If someone is receiving SSDI, then 24 months later, Medicare is automatic. Some
people are eligible for all four benefits. Many clients are on just SSDI, Medicare, and Medicaid.
All of which makes it very important to obtain the actual benefit decision notices that
detail exactly what benefits the client is actually receiving. If the client is unable to provide
documentation of his/her benefits in a reasonable time, it may be easier to simply have the client
18
sign a HIPAA release allowing you to access to Vermont AHS records and also sign a separate
Social Security authorization form.
IV.
Overview of Special Needs Trusts.
A.
What Makes These Trusts So “Special”?
What makes a trust a “Special Needs Trust” is the inclusion of terms in the trust
instrument that will maintain the disabled Beneficiary’s eligibility for public benefits. Generally
speaking the SNT Beneficiary has no legal authority to: (a) terminate the Trust, (b) compel the
Trustee to make a distribution of principal or income for the Beneficiary’s basic support and
maintenance, or (c) sell or assign the Beneficiary’s interest in the Trust, i.e., there must be a valid
spendthrift clause.106 Both the Social Security Administration and the Vermont AHS will
scrutinize any trust that is claimed to be a Special Needs Trust to determine whether or not the
trust meets the SSA and Vermont Medicaid rule requirements to qualify as an exempt resource
for SSI and Medicaid eligibility purposes. If the person is receives SSDI, and not SSI, then the
SSA does not review, or care about, the SNT.
There are two different types of SNTs – “3rd Party” trusts and “1st Party” trusts. Special
Needs Trusts are sometime referred to “Supplemental Needs Trusts” – there is no legal
distinction between the two names. Whether the letter “S” in SNT stands for “Special” or
“Supplemental” does not matter, as long as the terms of the trust do not give the Beneficiary the
right to terminate the SNT, compel distributions or to transfer an interest in the SNT.107
1.
3rd Party Special Needs Trusts.
A 3rd Party SNT is funded with the assets of someone other than the disabled
Beneficiary.108 In most instances, a 3rd Party SNT is established and funded by the parents of a
child with a disability, whether the child is 6, 16 or 66 years old. Occasionally grandparents or
other relatives will establish and fund a special needs trust for the person with a disability.
Because the assets used to fund the 3rd Party SNT never belonged to the disabled Beneficiary,
there are far fewer restrictions and limitations on this type of SNT than there are on 1st Party
SNTs.
2.
1st Party Special Needs Trusts.
A 1st Party SNT is funded with assets that belonged to the disabled beneficiary. 1st Party
SNTs are what would be used in divorce and custody matters involving disabled spouses and
children. These SNTs are also used frequently for assets received by disabled persons with
personal injury or workers’ compensation claims, instances where the disability onset occurs
after a person has accumulated their own assets (e.g., a TBI or other disabling injury regardless
of whether there is a claim against any other party), or a poorly planned inheritance.
Under the 1993 amendments to the Social Security Act, Section 1917 of the Act provides
that the assets of an individual can be transferred to an irrevocable trust, thereby being excluded
from consideration as available resources for benefits eligibility and excluded from the resource
19
transfer penalty rules, as long as certain conditions are met. The conditions are set forth in 42
U.S.C. § 1396p(d)(4)(A):
(1) the individual must be under age 65,
(2) the individual meet the definition of “disabled” under 42 U.S.C. §1382c(a)(3),
(3) the trust must be “established for the benefit of such individual by a parent,
grandparent, legal guardian of the individual, or a court,” and
(4) the State will receive all amounts remaining in the trust upon the death of such
individual up to an amount equal to the total medical assistance paid on behalf of the
individual under a State [Medicaid] plan.109
These 1st Party SNTs are also referred to as “Self-Settled”, “d(4)(A)” or “Medicaid
Payback” SNTs. In simplified terms, a disabled person younger than 65 can transfer her own
money into a 1st Party SNT in order to become eligible or maintain eligibility for “means-tested”
public benefits and avoid any transfer penalties,110 so long as someone else establishes the SNT
and the trust includes a Medicaid payback clause.
Additionally, under 42 U.S.C. § 1396p(d)(4)(C) a disabled individual’s own funds can
also be placed into a “Pooled” or “d(4)(C)” SNT if the Pooled SNT is established and maintained
by a non-profit association and each beneficiary’s funds are maintained in a separate account. 111
There are numerous Pooled Trusts throughout the country. Although there are no Pooled SNTs
based in Vermont at this time, there are a number of out-of-state Pooled SNTs with Vermont
beneficiaries. A Pooled SNT may be an appropriate choice when the amount of assets available
for funding an SNT are not large enough to warrant the administrative expenses of an individual
1st Party SNT or if there is not a suitable candidate to serve as the Trustee of an individual 1 st
Party SNT.
A person who is seeking Long-Term Care Medicaid coverage can avoid a Medicaid
resource transfer penalty if the person’s assets are transferred directly to a disabled child or trust
for a child of any age.112 A person can also avoid Medicaid transfer penalties for assets
“transferred to a trust [] established solely for the benefit of an individual under 65 years of age
who is disabled.”113 This means that a person trying to obtain Medicaid long-term care coverage
can transfer assets to anybody with a disability younger than 65 and not be subject to a transfer
penalty.
Because state Medicaid agencies are entitled to the “payback” from any assets remaining
in 1st Party SNTs upon the death of the Beneficiary, subject only to the payment of taxes and
reasonable administrative expenses114, these SNTs are more strictly scrutinized by states. In
addition, 1st Party SNTs are subject to the “Sole Benefit Rule” which is generally means that the
trust assets cannot be used to benefit anyone other than the disabled beneficiary. 115 What “Sole
Benefit Rule” means as a matter of practical trust administration is not always clear.116
B.
Why 1st Party SNTs Can Be a Huge Bummer.
In the right circumstances, a 1st Party SNT is absolutely the right choice to receive
alimony and marital property for a disabled spouse, or child support for a disabled child who is
20
in need of SSI and/or Medicaid-funded services. However, the restrictive nature of a 1st Party
SNT can be very difficult for many disabled-but-mentally-competent clients to live with. The use
of 1st Party SNT for child support for a minor is much less of an issue than it would be for a
disabled spouse.
First, there is the loss of control. Sure, the SNT is established for the Beneficiary’s
benefit, but the Beneficiary cannot have any right to control the trust assets or to compel a
distribution. The Beneficiary must constantly get “permission” from the Trustee for any
purchases from the SNT. The Beneficiary cannot be given cash to go buy things, as the cash is
“countable income.” For example, the Trustee has to write the check directly to Circuit City for
the new flat screen TV.
Second, assets in a 1st Party SNT can be spent only for the “sole benefit” of the
Beneficiary. The whole family is not going to Disney with money from the 1st Party SNT. The 1st
Party SNT cannot be used to buy Christmas presents for other people. Exactly what the “sole
benefit” means is not always clear, but generally speaking, Medicaid agencies are getting stricter
in their “policy interpretations” of the Sole Benefit Rule.
Third, if the client’s condition improves to the point of no longer being disabled, the SNT
cannot be terminated with the funds distributed to the formerly disabled Beneficiary without
triggering the “Medicaid payback clause”. However, the SNT could be defunded by spending the
remaining money on exempt assets.
Clients must be made aware of the restrictions and limitations applicable to 1st Party
SNTs the first time they are discussed. When clients are led to believe that the ‘magic’ trust will
allow them to keep their Medicaid and spend the money however they want, they tend to become
very unhappy with both the family law lawyer and the special needs lawyer.
C.
Consider The Alternatives.
Assuming the client meets the essential eligibility requirements for establishing an SNT,
there should be a careful analysis of the pros and cons to doing so.










Is the client disabled-but-mentally-competent?
What is the client’s family situation?
What is the client’s living situation?
What is the client’s prognosis for recovery?
What are the specific “means-tested” benefits or services that the client receives?
What is the annual dollar value of those “means-tested” benefits?
Are there other programs (public or private) that could replace some of the meanstested benefits?
Is there enough money coming in from the client’s divorce settlement that can make
up the difference?
Are there debts to be repaid?
Are there exempt assets that could be purchased instead of establishing an SNT?
o Home purchase, home repairs, pay off a home mortgage.
21


D.
o A new car.
o Household furnishings and personal effects.
o Pre-paid funeral account up to $10,000.
If the client is receiving SSDI, Medicare and Community Medicaid only, there are no
“transfer penalties” for giving money away to someone else.
Caution: If the client applied for LTC Medicaid within 5 years of the date of the gift,
there would be a transfer penalty imposed by the State.
Put It In Writing.
Whether your clients decides to utilize a 1st Party SNT or not – remember the lesson of
Vincent Glorioso, Esq. – regardless of the decision the client makes, confirm it in writing with a
brief explanation of the consequences of the client’s decision.
V.
Spousal Issues – Property Division, Alimony, SNTs & More.
A.
Introduction.
If a disabled spouse soon could be or already is receiving SSI, and/or certain Medicaidfunded healthcare coverage, or currently needs or in the future will need long-term care and will
need to qualify for LTC Medicaid, there is another layer of complexity for family court judges
and family law lawyers to consider. It is important that the lawyers are aware of, and are ready to
educate judges regarding, public benefits and special needs trust law which may allow the
property division and spousal support to be structured in a way to minimize the impact on benefit
eligibility.
Future needs weigh more heavily than they normally would when one spouse is disabled.
The lawyers must know with certainty whether there is any SSI or Medicaid received, or the
likelihood of applying in the future. Regarding Medicaid benefits, it is crucial to understand
which Medicaid-funded benefits are being received, and what the eligibility requirements are for
that particular Medicaid program. Negotiating the term of support for a disabled person requires
consideration of his future inability to support himself if the disability continues. You may want
to negotiate for indefinite term or longer term spousal support, perhaps in exchange for a lower
monthly payment. If the disability has compromised life expectancy of the disabled spouse, is
there sufficient income for both parties that nearly all the property could be awarded to the
healthy spouse?
B.
Relevant Federal POMS and Vermont Rules – Spousal Support and
Property Settlements
The Social Security Administration Program Operating Manual System is the publicly
available operating instructions used by the SSA for processing all Social Security claims; the
System is referred to as “the POMS”.117 The homepage for the POMS includes a disclaimer
stating that the POMS are only internal SSA guidance that does not create “any rights
enforceable at law by any party in a civil or criminal action.”118 Although that may be what the
SSA disclaimer says, the U.S. Supreme Court has said while the POMS “are not products of
22
formal rulemaking, they nevertheless warrant respect.” Washington State v. Keffeler, 537 U.S.
371, 385 (2003).




C.
Spousal support and alimony are unearned income to the recipient. POMS SI
00830.418; see also Vermont HBEE Rule 29.12(d).
Spousal support is an assignable income stream. POMS SI 01120.201 J.1.c and d –
set out a listing of income sources not assignable by law. Irrevocable assignment of a
legally assignable payment assigned to a special needs trust is not income to the
beneficiary.
The court can order spousal support or a property settlement to be paid into a selfsettled (first party) special needs trust meeting the requirements of 42 U.S.C. §
1396p(d)(4)(A) or (C) for the disabled spouse.
The SNT may receive all or part of the income and assets awarded to the individual.
How fully the SNT is funded depends upon the degree of disability and how likely it
is that the disabled beneficiary will need to protect assets in the near future. The
spouse may want to retain ownership of the home in his or her name, since it is an
exempt asset as long as it is the primary residence. If and when the spouse can no
longer live in the home, it can be sold and the proceeds transferred to the SNT as long
as the spouse is still under the age of 65.
Using Special Needs Trusts in Divorce.
Because equitable division of marital property and spousal support are considered assets
of the spouse awarded them, they should be put into a 1st Party SNT. The court can order the
creation of the 1st Party SNT, drafted to give the trustee discretion to use the principal and
income for the needs of the beneficiary to provide for things that will enhance the person’s
quality of life. The 1st Party SNT must be made irrevocable to preserve SSI and Medicaid
eligibility. The lawyers must make sure that the court makes the relevant finding(s) of fact and
conclusion(s) of law at the time of the final hearing. The court also will make such orders as are
necessary.
If the beneficiary is or can be expected to become an SSI or Medicaid recipient, the
trustee should be provided with legal advice regarding how the 1st Party SNT must be
administered so that distribution of trust assets will not be counted as income. The trustee needs
to understand:


The distribution of cash directly to the beneficiary will count as income and will
reduce the SSI benefit dollar for dollar.
If the trustee pays for anything on behalf of the beneficiary which constitutes food or
shelter (in-kind support and maintenance, or “ISM”), the beneficiary’s SSI benefit
will be reduced, but not by more than 1/3 of the federal SSI benefit level. If the
beneficiary is not an SSI recipient, this restriction is not an issue. Keep in mind that if
the beneficiary is on SSDI, Medicare and Medicaid, then direct payments from the
SNT for food or shelter will not have any impact on benefits.
23




D.
The trustee can pay for things such as transportation, recreation, medical expenses not
covered by the Medicaid program, education, care of pets, etc. All distributions must
be for the beneficiary’s benefit.
It is very easy for an inexperienced trustee to make distribution “mistakes” that cause
the beneficiary to lose SSI eligibility, and which may compromise Medicaid
eligibility as well. Thus, it is imperative that the trustee become well educated on how
to avoid this problem.
It is important to begin managing expectations before the divorce settlement is
finalized. This applies to the disabled party who will be the SNT beneficiary, the
disabled party’s legal representative (when incompetence or some degree of mental
incapacity is present), and perhaps even other family members. If the case is settled
rather than litigated, the disabled party or her legal representative must understand
what she is accepting in lieu of outright ownership of her share of property and
outright access to spousal support payments. The lawyer’s file should be welldocumented with explanatory letters or memoranda to the client, since the client may
later claim lack of understanding and may develop or already have memory problems
or even psychotic issues.
Choice of trustee is important. While a family member trustee might be suitable in
some cases, this choice on occasion enables self-dealing and risks distributions under
pressure that lead to loss of the beneficiary’s public benefits.
Other Planning Options.
1.
Direct Payment of Expenses.
As discussed above, payment of bills or expenses by the ex-spouse for the benefit of the
disabled person will not count as income to the person so long as payment is made to a third
party (not to the spouse or child) and is not for basic food and shelter costs if the person is on
SSI. However, if payment of shelter expenses makes the most sense, keep in mind that, while the
in-kind support and maintenance rules may be seen as having negative consequences in other
contexts, application of this rule can be used to improve the quality of the housing options for the
divorcing spouse with a disability.
For example, Fred and Jenny are divorcing. Jenny still resides in the couple’s home and
receives $733 per month in SSI benefits, plus $52.04 from the State of Vermont in AABD funds
for a total monthly income of $785.04. Because Jenny receives SSI based on her disability, she is
also eligible for Medicaid. Jenny has used a wheelchair since her spinal cord injury and
significant modifications were made to their home to make it wheelchair accessible. She wants to
stay in the home but the mortgage payments, including taxes and insurance, are $1,000 per
month. Fred is willing to pay the mortgage, taxes and insurance as spousal support. If he pays the
mortgage, taxes and insurance, the SSA will presume the maximum value of those payments is
one-third the SSI federal benefit rate plus $20 (i.e., $264.33).
After subtracting the $20 general unearned income exclusion, Jenny’s SSI benefit will
only be reduced by $264.33 even though Fred is paying the $1,000 per month payment. Jenny’s
monthly SSI-AABD income would go down to $520.71/month, but she has an effective net gain
24
of $735.67. If Fred paid the $1,000 directly to Jenny each month, so she could pay the mortgage,
she would lose her entire SSI benefit.
In a slightly different fact pattern, is Jenny is receiving $1,000 per month in SSDI
benefits, plus Medicare and Medicaid, the direct payment of $1,000 per month by Fred for the
mortgage, taxes and insurance on the house will have no effect at all on Jenny’s benefits.
2.
Utilizing Exempt Assets for Property Division.
When negotiating the equitable division of assets, the resources which are exempt for
purposes of benefit eligibility should be kept in mind. For example, consider a divorce settlement
which requires the husband to deed over his interest to the couple’s home to his ex-wife and give
her a lump sum of $50,000. The deed to the home will not affect her SSI or Medicaid eligibility,
as the home will be exempt as long as she continues to live in the house. However, the $50,000
exceeds the $2,000 general resource limit, and that money will make her ineligible for SSI or
Medicaid until that amount, combined with all other non-exempt resources, goes below $2,000.
A viable alternative to the $50,000 cash payment would be to direct the husband to use
that money to pay off, or pay toward reducing the principal on the existing mortgage, make
repairs to the property, or both. Such a payment, though it may seem at first blush to be housing
or shelter-related, would not affect the wife’s SSI eligibility as it is not money available for
routine food or shelter expenses. Instead, the payment only adds equity value to an exempt
resource. Later, if she uses the equity in her home to secure a home equity loan or line of credit,
the loan proceeds will not be treated by the SSI program as income.
Similarly, if the husband paid the $50,000 for a brand new wheel chair accessible van for
the wife, the van is an exempt asset under both the SSI and Medicaid rules.
E.
Income Taxes.
Often the disabled person is in a significantly lower tax bracket than the other spouse.
The attorney(s) negotiating spousal support for the disabled party can take advantage of this fact
even though spousal support is paid to a SNT. Because irrevocable trusts normally have
compressed tax brackets unless they are structured as grantor trusts, the (d)(4)(A) trust should be
structured as a grantor trust taxable to the beneficiary. Taxes may be a less significant issue if
most of the disabled party’s income will be Social Security benefits.
If a disabled individual is not yet receiving Medicaid, the uninsured medical and care
expenses in an assisted living facility should be almost fully tax deductible, offsetting the spousal
support paid.
F.
Division of Retirement Benefits.
Retirement benefits can be less desirable for the disabled person than for a non-disabled
client. It is better to utilize non-qualified assets for property settlement for a disabled spouse
25
whenever possible. Examples may be the house or a car, payment of any debts, either attached
to these assets or otherwise.
For a disabled person receiving SSI, the addition of income, especially pension income
that cannot be liquidated or refused without a possible penalty period, can cause loss of the SSI
and Medicaid benefits. Other assets should be exchanged for defined benefit pension plan
division rights if the person is on SSI. If the individual is receiving SSDI, additional income does
not cause problems – the individual can have any amount of unearned income and still receive
the disability benefit, but it may affect Medicaid.
For a tax-qualified retirement plan, e.g., 401(k) or Keogh plans, the benefits can be
divided by Qualified Domestic Relations Order (QDRO). If the plan is not qualified, e.g., an
IRA, the plan can be divided or transferred by court order. No tax consequences are generated by
the transfer if done properly because it is incident to divorce and not a taxable event under IRC
§1041(a)(2).
If the retirement interest is in a qualified plan and the individual wishes to place the asset
into a 1st Party SNT, it must first be liquidated and the income taxes paid because an irrevocable
trust cannot be a participant in or own an interest in a qualified plan. For reasons that are not
exactly clear, the IRS has issued a Private Letter Ruling (“PLR”) that held that a disabled person
was not permitted to transfer his own IRA to a 1st Party SNT, but the IRS also issued a PLR that
held a disabled person could transfer an inherited IRA to a 1st Party SNT without liquidating the
IRA and paying the taxes.
G.
Is a SNT Available to Pay Child Support or Other Support Payments?
Many discussions of SNTs refer to the trust being established for the “sole benefit” of the
disabled individual. This would suggest that former spouses or registered domestic partners and
children of divorced parents should not benefit from a self-settled or first-party SNT. This
analysis is not necessarily correct.
A disabled spouse or ex-spouse may not have the assets or income to satisfy spousal or
child support obligations he or she may have. If the disabled spouse has created or is otherwise
the beneficiary of a special needs trust, the trust assets may be an attractive source of potential
support for the beneficiary’s dependents. The court then has to decide whether the trust may be
attacked or invaded to satisfy outstanding spousal or child support, or even property division
claims. Also, if the disabled person paid enough into the Social Security system, then the Social
Security children’s benefits for his minor children may be available.
“Sole benefit” includes “payments of any sort from the corpus or income of the trust
[that] are paid to another person or entity so that the individual [SNT beneficiary] derives some
benefit from the payment.” POMS SI 01120.201F2. Arguably, the SNT beneficiary would derive
some benefit if his or her children or former spouse were living as comfortably as possible.
There is also the benefit of not being found in contempt of court for failure to make support
payments if the payments were calculated based on trust income. Several cases have held that
income to the SNT must be considered as the beneficiary’s income for purposes of child support
26
calculations. For example, at least one Ohio case has held that payment of a child support order
is a proper distribution from a Special Needs Trust. Myers v. DeVore, 2006 Ohio 5360, 2006
Ohio App. LEXIS 5333 (Ohio Ct. App., 2006). The court in Myers v. DeVore found that Ms.
Devore’s support obligation should consider all sources of her income, including payments from
her special needs trust, and ordered that she pay child support based on the calculations including
the trust income. Id.; see also. Mazyk v. Cozze, 2012 WL 6115682 (N.J.Super. A.D. 2012) and
Mencer v. Ruch, 928 A.2d 294 (Pa. Super. 2007).
VI.
Child Support for Children With Disabilities.
A.
Introduction.
The general common-law rule is that parents have a duty to support their children only
during minority. This is based on the presumption that a child who has reached the age of
majority is capable of self-support. Like many states, Vermont law allows a court to order child
support until the later of the age of majority or through the end of “secondary education”. 15
V.S.A. § 658(c).
Unlike many states however, the Vermont support statute does not provide for the
payment of child support past the age of majority for a disabled adult child. In January 2013, Bill
H. 127 was introduced in the Vermont Legislature that would have amended 15 V.S.A. § 658(c)
to allow the court to order child support to age 21 for young adult children in college and to
include a new subsection (3), which, as proposed, read: “The court may order support to be
continued past the age of 21 as long as the child has a physical or mental disability that renders
the child incapable of supporting himself or herself, is insolvent, and is unmarried.”
When H. 127 was introduced in 2013, there was some discussion on the Vermont Bar
Association listserve, most of which was opposed to the bill proposing to amend 15 V.S.A. §
658(c). Several VBA posters commented that they were not opposed to the idea of amending the
statute to extend child support through college, but they were generally opposed to the idea of
expanding the obligation of support past the age of majority for a disabled adult child. However,
there is case law that supports that there is a common law duty in Vermont to pay child support
for a disabled adult child. Beaudry v. Beaudry, 132 Vt. 53, 312 A.3d 922 (1973). The Beaudry
case states:
At common law, the duty of a father to support his children existed during their
minority and terminated with it. [citations omitted] Only where a child was an
invalid, of weak mind, or otherwise incapable of self-support did a father’s duty
extend beyond the child’s minority. Rowell v. Vershire, 62 Vt., 19 A. 990 (1890).
Beaudry, 132 Vt., at 54.
The Beaudry decision appears to put Vermont in the majority of states hold that parents
have a common-law duty to support their adult child with a disability who is unable to support
himself. See The Duty to Support Adult Disabled Children, Laura W. Morgan, Esq., March 2000,
available at http://www.childsupportguidelines.com/articles/art200003.html.
27
According to the Morgan article, several states hold that such a duty may be imposed
only by statute, while a few states do not recognize any duty to support. Most states require that
the disability must have occurred while the child was a minor to be eligible for support as an
adult, because the child was never emancipated. In some states, the action for child support for a
disabled child must commence before the child is an adult. Id.
Disability for child-support purposes is generally defined in economic terms, as the
inability of the child to support himself. Some states use the support guidelines for minor
children to determine child support for the adult disabled child, while a number of states award
support based on the unique circumstances of the case. Id.
Recent cases in Florida and California relied on state statutes to affirm awards of
permanent child support for disabled adult children. See Santos v. Flores, 2013 WL 2494709 (Fl.
Dist. Ct. of App., June 12, 2013) (relying on Fl. Stat. § 743.07) and In re Marriage of Carmendy,
unpublished (Cal. Ct. of App., Second Dist., Los Angeles Cty, Mar. 11, 2015)(relying on Cal.
Fam. Code § 3910(a)).
While there may be some question as to how long child support payments can be required
for the support of a disabled child in Vermont, there is no question that it is critical to understand
the effect of support payments for a disabled child on that child’s eligibility for public benefits,
such as SSI and Medicaid. Although SSI is a federal program, it relies on state law to determine
property and support rights in divorce situations. Creative use of trusts to receive child support
can greatly benefit the child, and parents are more likely to pay when they know that the
payment will provide actual benefit to the child, and will not simply reduce benefits from other
sources.
B.
Interplay Between Benefit Rules and Child Support.
1.



SSI Definitions.
Child is an individual who is (1) under 18 or (2) under age 22 and attending
school regularly and who is not married or head-of-household. POMS SI
00501.010; DI 25201.001D.
Adult child is a son or daughter who no longer is a child. POMS SI
00830.420 A.5.
Child support is payment from a parent to or for the child to meet the child’s
needs for food, clothing and shelter. POMS SI 00830.420 A.1. It can be cash
or in-kind, voluntary or court-ordered, and includes child support arrearages
for a “child” but not for an adult child.
28
2.





Child Support as Income/SSI offsets.
SSI disregards one-third of support payments made to or for a “child” by an
absent parent in calculating the child’s SSI benefit amount. 20 C.F.R. §
416.1124 (c)(11) and POMS SI 00830.420 B.1.
Therefore, receipt of child-support by the custodial parent does reduce the
child’s SSI benefit, but not dollar for dollar. This preserves some incentive to
pursue/pay child support, since the child will get the benefit of one of every
three dollars of the first $733 paid in child support.
A policy brief issued by SSA in Feb. 2004 examined the implications of
excluding all child-support (which would increase the differences among
children) or increasing the exclusion amount, using either a flat dollar amount
of at least $300, or a higher percentage than the 33%. The flat dollar amount
would mitigate the differences among children more than the percentage
approach. Per the policy brief, fathers are more willing to pay child support,
and custodial parents more likely to pursue child support payments, when the
payments directly benefit their children.
Once the child is an adult child there is no child support disregard other than
the general $20 disregard for unearned income. POMS SI 00830.420 C.1. The
child support reduces the SSI dollar for dollar.
Expenses, such as legal fees or court costs incurred in obtaining the order for
child support, can be deducted from the child support. POMS SI 00830.100
The following chart illustrates the calculation of the monthly SSI benefit for a minor
child with disabilities when $750 monthly child support is received. Assuming the child was
receiving the full SSI benefit of $733 per month prior to the award of child support, the net
benefit to the child is only $270.
Step One:
Step Two:
Monthly Countable Income
Monthly SSI Benefit
$750 Total gross income of child
$733 SSI Federal benefit rate 2015
- $250 (1/3 of child support payment)
$480 (Countable income of child)
- $ 20 General disregard
$253 Child’s SSI Monthly Benefit
$480 Countable Income of Child
In contrast, the total amount of child support to an adult child with disabilities (less the
$20 disregard) counts as the adult child’s unearned income. An adult child receiving $750 in
monthly support will be eligible for $3 of SSI. With child support of $760, the adult child
becomes ineligible for SSI because his countable unearned income will be more than the current
SSI Federal benefit rate + $20. In this case, although the parent is paying $760, the child comes
out only $27 ahead of simply receiving SSI.
29
3.
Deeming For Child on SSI – Not for “Katie Beckett” Medicaid.
There are some instances where a child may be receiving SSI prior to a divorce, and if
that is the case, then the effect of child support on the SSI is not the only issue which must be
addressed. Because a parent’s resources and income deems to a child, it is important to consider
the effect of property settlements and spousal support paid to the custodial parent on the child’s
SSI. For a disabled child to receive SSI, the SSA will consider household income and assets.
Generally speaking, because of parental deeming, there is less likelihood that disabled
child in the custodial parent’s house will be receiving any SSI payments. However, if the
disabled child is under the age of 18, and has disabilities that are severe enough that the child
“requires the level of care provided in an institution” and such care “is no greater than the
estimated cost of medical care in an appropriate institution”, then that child may be eligible for
Medicaid under the so-called “Katie Beckett” eligibility category under HBEE Rule 8.05(k)(6).
The majority of children with disabilities do not qualify for Katie Beckett Medicaid. For those
that do meet the level of need, the parental income and assets are disregarded, and eligibility is
determined based solely on the income and assets of the disabled minor child.
4.




Possible Solutions.
Court-Ordered Support to Special Needs Trust. If the court orders the
non-custodial parent to pay a monthly amount for the special needs of the
disabled child, and orders that the payments be made payable directly to the
trustee of a special needs trust or pooled trust, the payments will not be
considered income to the child. Parents are more likely to pay when they
know that the payment will provide actual benefit to the child, and will not
simply reduce benefits from other sources.
Assignment of Child Support. According to the POMS, certain benefits are
“non-assignable by law” (e.g. SSDI, SSI, Railroad Retirement, Veterans
Administration, etc. These will constitute income to the beneficiary no matter
what. POMS SI 01120.201 J.1.c. An irrevocable assignment of child support
to the SNT should maximize the impact of any non-assignable benefits for
basic needs.
Direct payment for non-food and shelter items. Payments made by the noncustodial parent for the benefit of the disabled child will not count as income
to the child so long as payment is made to a third party (not to the child) and is
not for basic food and shelter costs for a child receiving SSI. Items such as
payment of the cell phone or regular phone bills, cable TV and internet,
transportation costs, recreational fees, etc. do not result in ISM. However, if
the child is receiving Katie Beckett Medicaid, and not SSI, then direct
payments by the non-custodial parent for food and shelter will not have any
impact on the child’s continued eligibility for the Katie Beckett Medicaid.
Agreement to Fund Discretionary Third-Party Trust. If parents can
consider the use of a discretionary 3rd Party SNT for the benefit of the
disabled child. The non-custodial parent can agree to fund the trust with a
lump sum, or make monthly payments (NOT child support) to the trust. If the
30
argument is made that support payments in Vermont end at the age of
majority and therefore any payments made after age 19 for a child with a
disability are not subject to the child support guidelines, an argument could be
made that any amount awarded is not a legal entitlement and could therefore
be directed to a 3rd Party SNT. The terms of the trust can permit payment for
all sorts of non-shelter/food expenses – including van, therapy, caretakers, etc.
The advantage of this type of trust is that there is no payback to the state upon
the beneficiary’s death. However, this strategy is not without some risk
because if a claim can be made that the payments to the 3rd Party SNT are an
enforceable right, then those payments are really “1st Party money”.
C.
Effect of Existing Special Needs Trust on Child Support Calculations
If a SNT was established prior to divorce proceedings between the parents (for example,
to hold the proceeds of a personal injury settlement for a birth injury), the availability of SNT
funds may become an issue when calculating child support payments during the divorce
proceedings. The parent subject to a support order may try to reduce the obligation by arguing
that funds available for the child’s special needs from the special needs trust should offset some
of or the entire child support award. The custodial parent may seek the full support payment.
Family court judges have the discretion to take into account the existence and amount of funds in
a SNT when issuing a support order. Some may order a lower support amount because the SNT
exists; others may find it in the child’s best interests to disregard the availability of SNT
distributions for the child’s special needs when making a support determination.
The court in Lewis v. Dept. of Social Services, 61 SW3d 248 (Mo.App. W.D. 2001)
refused to lower the child support despite the existence of an SNT. The court held that the SNT
was established to supplement benefits to which the beneficiary would otherwise be entitled, and
thus the income from the trust should not be considered when determining the child support
obligation. See also, Adu-Tutu v. Adu-Tutu,1 CA-CV 11-0262, 2012 WL 1964568 (Ariz.App. 1st
Div. 2012).
VI.
Estate Planning for Children With Disabilities.
A.
Introduction.
Whenever any parents are doing special needs planning for a child with a disability, it is
important to take into consideration the government benefits available to the child now or in the
future and to maintain eligibility for those benefits. Additionally, all parents need to keep in
mind that although some children with moderate disabilities may be able to maintain
employment with enough earned income that they are not eligible for any public benefits based
on being legally disabled, but those adult children would still benefit from lifelong assistance.
Just because an adult child with disabilities can hold down a job paying $10.00 hour does not
mean that it would be a good idea for that adult child to receive an inheritance of $200,000 (or
any figure) with no restrictions.
Furthermore, in some cases, an adult child may be stable and successfully employed in
large part because of the parents’ hard work as unpaid cheerleaders, financial managers and job
31
coaches. Parents need to plan for the possibility that things could ‘go south’ for their adult child
after the parents have died. This is true whether the parents are still married or not. Whenever
possible, divorced parents should try to ensure that their estate plans do not work at odds with
each other.
As noted earlier, when parents are planning for their child with special needs, they should
generally consider directing that child’s inheritance to a 3rd Party SNT. Unlike 1st Party SNTs,
these trusts are not subject to a Medicaid payback clause.
B.
Coordinating Estate Plans of Parents of a Disabled Child After Divorce.
Divorced parents of a disabled child should be encouraged to coordinate their estate plans
for that child if at all possible. In addition to the obvious goal of ensuring that any funds left for
the child’s benefit do not cause disruption in the child’s benefits, is the goal to make the trust
administration as easy as possible for the trustee.
Generally speaking, the biggest impediments to establishing and funding a single 3rd
Party SNT for the disabled child are: (1) the choice of Trustee (and Trust Protectors), and (2) the
naming of remainder beneficiaries to receive any trust assets remaining in the SNT after the
disabled child has died.
If there are other children from the marriage who do not have disabilities, these decisions
are typically easier to make. The adult siblings can be named as the future Trustees, or Trust
Protectors if a professional trustee is named. Those adult siblings (or their descendants) are also
typically named as remainder beneficiaries. Divorced parents may also be able to agree to name
a charitable organization as a remainder beneficiary (e.g. Vermont Special Olympics or NAMIVermont). The 3rd Party SNT can be drafted to allow the divorced parents, as the Grantors, to
retain the lifetime right to change the Trustee and the remainder beneficiaries by their joint
consent.
Sometimes the divorced parents cannot agree on the remainder beneficiaries. This will
arise when one or both parents have additional children with another spouse, or if a parent wants
to include step-children from a second marriage. A satisfactory solution to most parties could be
that the trust property be directed to remainder beneficiaries on each side of the family in
proportion to the amount of contribution made by each parent. For example, if the trust receives
$100,000 upon the mother’s death, and $300,000 from the father’s estate, the assets remaining in
the trust upon the beneficiary’s death will be distributed 25% to mother’s designated
beneficiaries and 75% to father’s designated beneficiaries. This can be an administration
nightmare for the trustee.
If the two parents cannot agree to fund a single 3rd Party SNT for their disabled child,
another option would be for them to consider at least naming the same Trustee to administer both
SNTs as that will eliminate the possibility of having dueling Trustees arguing over which SNT
should make a particular distribution for the disabled child.
32
VII. Conclusions.
Be aware of and address disability related issues from the beginning of the divorce case
and save your clients and yourselves the unnecessary stress and potential consequences of failing
to address disability issues after the case has settled.
Know what the current benefits of a disabled individual are, know if the benefits change
throughout the course of the divorce, and know what other benefits the disabled parent or child
might be eligible for in the future. Know which benefits will, and will not be, affected by the
client’s decisions. Explain the pros, cons and alternatives to Special Needs Trusts. Know the
difference between 1st Party SNTs and 3rd Party SNTs. Document the client’s decisions.
In the end, there will be a better outcome for all involved.
1
42 U.S.C. § 423(d)(1) (2008) (definition under Social Security Disability Insurance (“SSDI”) provisions of the
Social Security Act (“SS Act”)) and 42 U.S.C. § 1382c(a)(3)(A) (definition under Supplemental Security Income
(“SSI”) provisions of the SS Act); see also 20 CFR § 404.1505 (SSDI regulations) (2010) and 20 CFR § 416.905
(SSI regulations) (2010).
2
42 U.S.C. § 423(d)(2) and 42 U.S.C. § 1382c(a)(3)(B); see also 20 CFR §§ 404.1510, 404.1572 and 20 CFR §§
416.910, 416.972.
3
See Vermont HBEE Rule 3 for Vermont definitions of “Disability” and “Substantial Gainful Activity”.
4
3 V.S.A., Chapter 25.
5
See 18 V.S.A. §8723. Under the Developmental Disabilities Act of 1996 (“DD Act”), the Department of
Disabilities, Aging and Independent Living (“DAIL”) is given the responsibility to “plan, coordinate, administer,
monitor, and evaluate state and federally funded services for people with developmental disabilities and their
families within Vermont.” In § 8723 of the DD Act, there is laundry list of DAIL’s 11 duties in carrying out the DD
Act, including meeting the 12 “principles of service” identified in § 8724. DAIL’s duties are prefaced with the
qualification “within the limits of available resources.” When the public resources are not available, the private
resources of a Special Needs Trust are.
6
See http://www.ssa.gov/boston/VT.htm; see also http://www.ssa.gov/applyfordisability.
7
42 U.S.C. § 421 and 20 C.F.R., Subpart J, §§ 416.1001 – 416.1094 (Disability Determinations); see also
http://dcf.vermont.gov/dds/disability_benefits_social_security.
8
3 V.S.A., Chapter 53; see also http://humanservices.vermont.gov/.
9
See http://humanservices.vermont.gov/services/district-contacts/ahs-district-offices.
10
See http://www.ssa.gov/boston/VT.htm.
11
See generally 42 U.S.C., Subchapter II (Federal Old-Age, Retirement and Disability Insurance Benefits); 20
C.F.R., Chapter III, Part 404; POMS RS 002 – RS 030 (Retirement and Survivors Insurance); and POMS DI 001 –
DI 900 (Disability Insurance).
12
42 U.S.C. § 423; 20 C.F.R. §404.315; and POMS DI 001 – DI 900.
13
20 C.F.R. §§ 404.316 and 404.409.
14
42 U.S.C. § 402(d); 20 C.F.R. §§ 404.350 – 404.353.
15
Id.
16
42 U.S.C. § 426(b)(1) – (b)(2)(ii).
17
See generally 42 U.S.C., Subchapter XVIII and 42 CFR, Chapter IV; see also
http://www.cms.gov/home/medicare.asp (CMS Medicare website for providers, CMS partners and health care
professionals) and http://www.medicare.gov/Default.aspx (CMS Medicare website for Medicare recipients, family
members and caregivers)..
18
42 U.S.C. § 1395w-114 (Income-Related Subsidies For Individuals With Income Up To 150 Percent of Poverty
Line); see also CMS’ Medicare & You 2015 Handbook, available at http://www.medicare.gov/Default.aspx (under
the Medicare Part D Low Income Subsidy, a single person can have up to $13,640 in resources).
33
19
See 20 U.S.C., Chapter 33, §§ 1400-1482 (Individuals with Disabilities Education Act) (the stated purpose of the
IDEA is “to ensure that all children with disabilities have available to them a free appropriate public education that
emphasizes special education and related services designed to meet their unique needs and prepare them for further
education, employment, and independent living” (20 U.S.C. § 1400(d)(1)(A)); and 16 V.S.A. §§ 2941-2975 (the
State of Vermont pays 60% of the statewide special education costs, and there is no cost to the parents or guardians
of students receiving special education (16 V.S.A. § 2941 and §2942(2)); see also US Dept. of Ed. Office of Special
Education and Rehabilitative Services website (http://www2.ed.gov/about/offices/list/osers/index.html?src=oc) and
Vermont Dept. of Ed. Special Education website (http://education.vermont.gov/new/html/pgm_sped.html).
20
See 42 U.S.C., Subchapter XVI (Supplemental Security Income for the Aged, Blind and Disabled); 20 C.F.R.,
Chapter III, Part 416; and POMS SI 005 – SI 600.
21
See 20 C.F.R., Part 416, Subpart K, §§ 416.1100 – 416.1182 (Income) and POMS SI 00810.000 – SI 00870.100
22
See 20 C.F.R., Part 416, Subpart L, §§ 416.1201 – 416.1266 (Resources and Exclusions) and POMS SI 01110.000
– SI 01150.210.
23
POMS SI 01110.003.
24
See http://www.ssa.gov/ssi/text-benefits-ussi.htm.
25
33 V.S.A., Chapter 13, Vermont AABD Rules 2700-2786; Vermont AABD Procedure P-2700.A and POMS SI
BOS01415.970 (Vermont Optional State Supplementary Payments).
26
POMS SI BOS01415.970.
27
See generally 42 U.S.C., Subchapter XIX (Grants to States for Medical Assistance Programs), §§ 1396 – 1396w-5
and 33 V.S.A., Chapter 33 (Medical Assistance), Subchapter 1 (Medicaid), §§1901 – 1911.
28
42 U.S.C. §1396d(b).
29
Vermont HBEE Rule 7.03.
30
Vermont HBEE Rule 7.03.
31
Vermont HBEE Rule 8.07.
32
Vermont HBEE Rule 8.00.
33
See Vermont HBEE Rule 3.00.
34
See Vermont Medicaid Covered Services Rules 7100 – 7701.
35
42 U.S.C. § 1383c and Vermont HBEE Rule 8.05(a).
36
Vermont Medicaid HBEE Rule 8.05(k)(6).
37
Vermont Medicaid Procedures Manual P-2420 (there are some higher resource maximums if there is more than
one person in a household, and for individuals receiving home-based long-term care, working people with
disabilities, and for a “community spouse” where one spouse is receiving long-term care); see Vermont HBEE Rule
29.07 – 29.10.
38
See generally 42 U.S.C. § 1437a; 24 C.F.R. § 5.609; and HUD Occupancy Handbook 4350.3 (Occupancy
Requirements of Subsidized Multifamily Housing Programs), Chapter 5 (Determining Income and Calculating Rent)
(available at: http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4350.3/index.cfm) (last visited Feb. 22,
2011).
39
HUD Handbook 4350.3, § 5.7.G.1.c.
40
HUD Handbook 4350.3, § 5.7.G.3.a.
41
HUD Handbook 4350.3, § 5.7.G.7.e.
42
See 3SquaresVT (Food Stamp) Rules 271.1 – 280.1; see also http://dcf.vermont.gov/esd/3SquaresVT.
43
See generally 3SquaresVT Rules 273.8 – 273.9
44
7 U.S.C. §§ 2014(a) and 2014(j)(2008); 7 CFR §§ 273(j)(2)(D) and 273(k) (2010); see also 3SquaresVT Rules
271.2, 273.2(j), and 273.2(k).
45
3SquaresVT Rule 273.8.e.iv.B.
46
3SquaresVT Rule 273.8.e.8.iv.A.
47
3SquaresVT Rules 273.8.i.1 and 273.8.i.2.iv.
48
33 V.S.A., Chapter 26 and Vermont Fuel Rules 2900 – 2989; see also http://dcf.vermont.gov/esd/fuel_assistance.
49
30 V.S.A. § 218(c) and Vermont DPS Annual Report on the Lifeline Telephone Program (2007); see also
http://dcf.vermont.gov/esd/phone_assistance and http://publicservice.vermont.gov/consumer/disabilities.html.
50
30 V.S.A. § 218a; see also http://publicservice.vermont.gov/consumer/disabilities.html.
51
Vermont Medicaid Covered Services Rule 7406; see also http://www.ddas.vermont.gov/ddas-programs/programscpcs-default-page#services.
52
Id.
53
33 V.S.A., Chapter 43; see also http://mentalhealth.vermont.gov/cafu/act264.
34
54
Id.
Id.
56
33 V.S.A. § 4302; see also http://mentalhealth.vermont.gov/cafu/act264.
57
See 29 U.S.C., Chapter 16 (Vocational Rehabilitation and Other Rehabilitation Services) (2008); see also 36
C.F.R., Part 361(State Vocational Rehabilitation Service Program) (2010).
58
29 U.S.C. § 705(9) and VocRehab Policy and Procedures Manual, Chapter 202, § III.A.
59
VocRehab Policy and Procedures Manual, Chapter 202, § III.A; see also 29 U.S.C. § 720(a)(2)(B).
60
VocRehab Policy and Procedures Manual, Chapter 202, § III.B; see also 29 U.S.C. § 722(a)(2).
61
VocRehab Policy and Procedures Manual, Chapter 106, § II; see also 29 U.S.C. § 721(a)(5).
62
Vermont AHS The Vermont Long-Term Care Plan: A Demonstration Waiver Proposal to the Centers for
Medicare and Medicaid Services (Oct. 1, 2003).
63
42 U.S.C. § 1315(a).
64
See June 2005 Letter from CMS to AHS Secretary Michael Smith and CMS Special Terms and Conditions of
Approval 11-W-00191(available at http://www.ddas.vermont.gov/ddas-programs/programs-cfc/programs-cfcdefault-page).
65
Choices For Care Regulations, § IV.A.2 (Feb. 2009).
66
Id., at §§ IV.B.1 – IV.B.3.
67
Id., at §§ VIII.A and VIII.B.
68
Id., at § VIII.C.
69
Id., at § IV.D.1.
70
Choices For Care Regulations, § IV.D.2.
71
Id., at § V.D.
72
See http://www.dbvi.vermont.gov/.
73
DBVI 2011 Annual Estimate of Individuals to Be Served and Cost of Service (available at
http://www.dbvi.vermont.gov/).
74
Id.
75
29 U.S.C. § 796j and 36 C.F.R., Part 367.
76
29 U.S.C. § 796k(e) and 36 C.F.R., Part 367.
77
See http://vocrehab.vermont.gov/programs/rcd (last visited June 8, 2015).
78
See http://www.vcdhh.org/index.php?action=subpage&id=371 (last visited Mar. 3, 2011).
79
18 V.S.A., Chapter 204A, §§ 8721 – 8733.
80
18 V.S.A. § 8725 (Under the DD Act, the adoption of the System of Care Plan is exempt from the rule making
requirements of the Administrative Procedures Act in 3 V.S.A., Chapter 25).
81
18 V.S.A. § 8726 (The original “Regulations Implementing the Developmental Disabilities Act of 1996” (“DD
Rules”) were adopted in July 1998. The DD Rules were amended in 2007 and March 2011).
82
See 18 V.S.A., Chapter 207 (Community Mental Health and Developmental Services); AHS Rules on Agency
Designation (June 2003); and Vermont State System of Care Plan for Developmental Disabilities Services, FY 20152017; see also http://www.ddas.vermont.gov/ddas-programs/programs-dds/programs-dds-default-page.
83
See DD Rules §§ 1.13, 1.18, 1.20, 1.32, 1.38 (adopted March 2011) (In § 8722(2) of the DD Act, the term
“developmental disability” was defined as “mental retardation, autism or pervasive developmental disorder” were
generally referred to as “mental retardation.” The term “mental retardation” has been removed from the DD Rules).
84
See Vermont State System of Care Plan for Developmental Disabilities Services, FY 2015-2017.
85
See Bethany Knight, Helping Albert, Ethan Allen Institute (March 2003).
86
See Vermont State System of Care Plan for Developmental Disabilities Services, FY 2015-17; see also
http://www.ddas.vermont.gov/ddas-programs/programs-dds/programs-dds-default-page.
87
DDAS Flexible Family Funding Guidelines, at 2 – 3. (July 1, 2009).
88
DDAS Vermont Developmental Disabilities Services Annual Report 2010, at 19.
89
DDAS Vermont Traumatic Brain Injury Provider/Procedures Manual, at § 1 (as amended through June 1, 2009)
(available at http://www.ddas.vermont.gov/ddas-programs/ddas-policies/policies-tbi/policies-tbi-documents/tbiprovider-manual-1).
90
Id.
91
Id.
92
Id.
93
Id., at §§ 2 – 3.
94
Id., at § 5.
55
35
95
See http://mentalhealth.vermont.gov/services.
18 V.S.A., Chapter 207; see also http://mentalhealth.vermont.gov/DAlist.
97
See http://mentalhealth.vermont.gov/services.
98
DMH Community Rehabilitation and Treatment (CRT) Program – Designated Agency Provider Manual, § 2.2
(3rd ed. 2004).
99
Id., at § 2.4.
100
Id.
101
See http://mentalhealth.vermont.gov/services.
102
See ftnt. 11, infra.
103
DMH Fiscal Year 2010 – Statistical Report, Table 1-1 (Nov. 2010).
104
See http://mentalhealth.vermont.gov/services.
105
DMH Fiscal Year 2010 – Statistical Report, Table 1-1 (Nov. 2010).
106
SSA Program Operating Manual System (“POMS”) SI 01120.200 and Vermont HBEE Rule 29.08(e).
107
POMS SI 01120.200 B.13 defines “Supplemental Needs Trust” as a “type of trust that limits the trustee’s
discretion [and] typically contains language that distributions should, but not supplant, sources of income including
SSI or other government benefits.” POMS SI 01120.203 B refers to 1 st Party SNTs (or “d(4)(A) SNTs”) as “Special
Needs Trust.” Vermont HBEE Rule 29.08(e)(1)(D) simply refers to “third-party” trusts and HBEE Rule
29.08(e)(1)(F) refers to 1st Party SNTs as “Special Needs Trusts.” Nonetheless, there is no prohibition to referring
to both 1st Party and 3rd Party trusts as “Special Needs Trusts.”
108
POMS SI 01120.200 B 17 and Vermont HBEE Rule 29.08(e)(1)(D).
109
42 U.S.C. § 1396p(d)(4)(A) and Vermont HBEE Rule 29.08(e)(1)(F).
110
42 U.S.C. § 1382b(e)(5).
111
42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203 B.2.a; and Vermont Medicaid HBEE Rule 29.08(e)(1)(G).
112
42 U.S.C. § 1936p(c)(2)(B)(iii).
113
42 U.S.C. § 1936p(c)(2)(B)(iv). Under the CMS State Medicaid Manual, the trust must either be a 1 st Party
Medicaid Payback SNT under § 1936p(d)(4)(A) or if there is no payback clause provide for distributions that are
“actuarially sound based on the life expectancy” of the beneficiary. HCFA Transmittal 64 § 3257.B.6 (Medicaid
State Manual § 3257.B.6).
114
POMS SI 01120.203 B.3.a.
115
POMS SI 01120.201 F.2 and POMS SI 01120.203 B.1.e; CMS State Medicaid Manual §§ 3257.B.6 and 3259.7;
and Vermont HBEE Rule 29.08(e)(1)(F).
116
POMS SI 011220.201 F.2 (“the trust may provide for reasonable compensation for a trustee(s) to manage the
trust, as well as reasonable costs associated with investment, legal or other services rendered on behalf of the
individual with regard to the trust” and “payments to a third party that result in the receipt of goods or services by
the individual are considered for the sole benefit of the individual”); POMS SI 01120.203 B.1.e (“payments to third
parties for goods and services provided to the trust beneficiary are allowed”); and Vermont HBEE Rule
29.08(e)(1)(F)(3) (1st Party SNT must be “established for the sole benefit of the beneficiary, which means that no
individual or entity except the disabled beneficiary can benefit from the trust in any way, until after the death of the
beneficiary and then not before the [AHS Department For Children and Families] receives sums owed under the
payback provision”).
117
See https://secure.ssa.gov/apps10/poms.nsf/Home?readform (last visited June 9, 2015).
118
Id.
96
36