By Kim Boyer
We attended a seminar in Reno where we learned from the Nevada Medicaid Office how they are currently viewing the special needs trust (“SNT”). A special needs trust is a trust used to hold the assets of a disabled person who is under age 65. If the trust is drafted correctly, the assets in the trust are exempt so the disabled person can maintain eligibility for his or her needs-based benefits. The following are highlights of the Nevada Deputy Attorney General’s presentation.
A SNT cannot be created with a power of attorney. It must be created by a parent, grandparent, court or guardian. If an SNT is created by the court, the court cannot simply authorize its creation, but must specifically create the trust.
The trustee needs to watch how the assets of the trust are used. For example, the trustee of the SNT can buy groceries for the disabled person but cannot give $100.00 directly to the disabled person. If a disabled person can access the funds in the trust, then the funds are not exempt.
If a house or car is purchased using SNT assets, then the house or car must be titled in the name of the SNT. If other family members live in the house, they must pay their fair rental value. Anything that is paid out of the trust that is not for fair market value is a transfer of assets.
The local caseworkers use the Nevada Medical Assistance to Aged, Blind and Disabled (“MAABD”) program manual. The MAABD has reporting requirements with which the trustee must comply. Any expenditure over $5,000.00 must immediately be reported to the caseworker. The trustee is also required to make annual accountings to Medicaid.
The trustee must notify the case manager when the disabled person dies. A self-settled SNT must have a pay-back provision to Medicaid. This means Medicaid gets all the money remaining in the trust up to the amount that Medicaid paid for the disabled person’s benefit, less the permissible deductions. Permissible deductions are state and federal taxes due to the trust and reasonable administrative fees. Note, taxes unrelated to the trust cannot be used as a deduction. A burial policy must be purchased before the disabled person’s death as the trustee cannot pay for the disabled person’s burial after the disabled person dies. Also, a trustee cannot make payment of debts to third parties after the disabled person’s death.
“Empty” or “dry” trusts are not valid in Nevada. A trust which is created but does not have assets transferred into it is an empty or dry trust. The Attorney General stated that it does not matter whose money it is, but something must be put into the trust once it is created. Medicaid must see what assets are in the trust and when the assets were placed into the trust.
If family members put their own funds into the SNT, they will not get the funds back on the disabled person’s death, as the assets go to Medicaid Estate Recovery. Other than to avoid a dry trust, it makes no sense for the family to augment the SNT with their own funds. If a family member wants to supply his or her own funds for the disabled person’s benefit, then a method other than the SNT should be used.
The assets of the SNT must be used for the sole benefit of the disabled person. No gifts are allowed. SNT funds may not be used for a disabled person’s minor children.
If you are a trustee administering an SNT, you should consult competent counsel to make sure you do not make any distributions that would jeopardize benefits.
Disclaimer: Information provided as a service of Kim Boyer, Certified Elder Law Attorney, updated as of 04/01/13. It does not constitute legal advice. For specific questions you should consult a qualified attorney.