DISABILITY BENEFITS IN THE ESTATE PLAN: PASSING THE MEANS TEST
H. Clyde Farrell
Attorney At Law
5511 Parkcrest Drive Suite 210
Austin, Texas 78731
512/323-2977
23rd Annual Advanced Estate Planning
and Probate Course
June 2-4, 1999
San Antonio, Texas
Y
Copyright 1999 by H. Clyde Farrell
H. Clyde Farrell
Attorney at Law
5511 Parkcrest Drive Suite 210
Austin, Texas 78731
512/323-2977 (Telephone)
512/453-4253 (Fax)
BIOGRAPHICAL INFORMATION
EDUCATION
J.D. Degree, The University of Texas School of Law, 1975
M.A. Degree (Political Science), The University of Wisconsin, 1971
B.A. Degree (Government), The University of Texas, 1970
Certified Financial Planner, College for Financial Planning, 1987
PROFESSIONAL ACTIVITIES
Solo Practitioner in Austin, Texas
Formerly Chief of Texas Attorney General’s Consumer Protection Division and Elder Law Section
Immediate Past President, Texas Chapter, National Academy of Elder Law Attorneys
President's Council, Family Eldercare, Inc. (Austin)
Member of the Bars of United States Supreme Court, U.S. Court of Appeals for the Fifth Circuit, U.S. District Court for the Western District of Texas, U.S. District Court for the Southern District of Texas, U.S. District Court for the Northern District of Texas, State Bar of Texas
LAW-RELATED PUBLICATIONS, ACADEMIC APPOINTMENTS AND HONORS
Co-Author (with Joe C. Fiore), Texas Consumer Law (1993), 3rd Ed.
Author/Speaker on Elder Law for Professional Education Systems, Inc. & National Academy of Elder Law Attorneys, 1995 & 1996
Author/Speaker, South Texas College of Law Wills & Probate
Institute, 1992; and State Bar of Texas Annual Meeting, 1992
Editor, Caveat Vendor (quarterly journal of the Consumer Law Section of the State Bar of Texas) (1982-84)
Author, Proof of Court-Awarded Attorney Fees in Texas Courts, 45 Tex. Bar J. 857 (July 1982); Consent to Medical Care for Minors: Who Has Authority in Texas? 42 Tex. Bar J. 25 (January 1979)
Disability Benefits in the Estate PlanY-1
TABLE OF CONTENTS
I. INTRODUCTION......
II. supplemental security income (ssi)......
A.Eligibility......
1.“Categorical” Requirements: Disability, Age 65 or over, or Blindness......
2.Citizenship/Immigration/Residency Status......
3.Income......
4.Resources......
B.Benefits......
1.Cash Benefits......
2.Medicaid Eligibility......
C.Trust Rules......
1.Third-Party-Settled Trusts......
2.Self-Settled Trusts......
D.Transfer Rules......
E.Application......
III. social security disability (ssd)......
A.Eligibility......
1.Work History......
2.Disability......
B.Benefits......
1.Cash Benefits......
2.Medicare Benefits......
C.Application......
IV. medicare......
A.Eligibility......
1.Eligibility at Age 65......
2.Eligibility in Connection With Social Security and Railroad Retirement Disability Benefits......
3.Medicare Premiums......
B.Benefits......
1.Hospital Services......
2.Nursing Facility Services......
3.Home Health Services......
4.Hospice Services......
5.Physician Services and Other “Part B” Benefits......
C.Application......
V...... qualified medicaid BENEFICIARIES/specified low-income beneficiaries
A.Eligibility and Benefits......
1.Qualified Medicare Beneficiaries (QMB)......
2.Specified Low-Income Medicare Beneficiaries (SLMB)......
3.Qualifying Individuals-1......
4.Qualifying Individuals-2......
B.Trust and Transfer Rules......
C.Application......
VI. “community MEDICAID”......
A.Eligibility......
1.Medicaid Linked to SSI and TANF......
2.Medicaid for Children & Pregnant Women......
3.“Medically Needy” Medicaid......
B.Benefits......
C.Application......
VII. "LONG TERM CARE" MEDICAID......
A.Medicaid Long Term Care Programs in Texas......
1.Program Administration And Sources Of Law......
2.Possibility Of Major Changes......
3.Focus On Long Term Care......
4.Notes On Program Terminology......
5.Major Medicaid Long Term Care Programs in Texas......
B.Why Become Eligible for Medicaid?......
1.Unavoidable Impoverishment......
2.Protection of the “Community Spouse”......
C.Why Plan to Avoid Medicaid......
1.The “Medical Necessity” Requirement......
2.Possibility of Better Care......
3.Choice of Facilities......
4.The Client’s Values......
D.Ethical Issues In Medicaid Representation......
1.Identifying the Client......
2.Avoiding Fraud......
3.Diligent Representation......
4.Competent Representation......
5.Client Capacity and Gifting......
E.Summary Of Medicaid Eligibility Requirements......
1.Nationality and Residence......
2.Age, Blindness or Disability......
3.Medical Necessity for Nursing Facility Care......
4.Income......
5.Resources (Assets)......
6.Medicaid Facility, Medicaid Bed......
F.Income Requirements......
1.Income Definitions and Exclusions......
2.Rules Affecting Rental Income......
3."Spousal Impoverishment" Rules Protecting Income of the Community Spouse......
4.Reducing Income Through a "Miller Trust" (“Qualified Income Trust”)......
5.Rules Pertaining to Annuities......
G.Rules Pertaining to Notes and Similar Instruments......
1.Transferable, Secured Instrument......
2.Transferable, Non-Secured Instrument......
3.Non-Transferable, Non-Secured Instrument......
H.Resource Requirements......
1.General Definition of "Resources"......
2.When Counted......
3.Requirement of "Accessibility”......
4.Co-Owned Resources Generally......
5.Joint Bank Accounts......
6.Trusts......
7.Discovery of Unknown Assets......
8.“Conversions of Resources” and “Lump Sums”......
9.Proceeds of Insurance on Excluded Resources......
10. Life Estates and Remainder Interests......
11. Excluded Resources......
I."Spousal Impoverishment" Rules......
1.Purpose of "Spousal Impoverishment" Rules......
2.Eligibility for Spousal Impoverishment Rules......
3.Limitations on Income......
4.Limitations on Resources......
J.Transfer ("Gifting") Rules......
1.Nature and Purpose......
2.Attempted "Criminalization" of Some Medicaid-Motivated Transfers......
3.Medicaid Programs Subject to the Transfer Penalty......
4.Only Transfers Within the "Lookback Period" Are Subject to Penalty......
5.Certain Transfers Excepted From Penalty......
6.Legal Capacity Requirement for Gifting......
7.Rules for Calculating the Penalty Period......
K.What Happens To Client Income After Eligibility......
1.The Process Of “Determining Applied Income”......
2.Calculation of Net Income......
3.Unmarried Clients......
4.Couples With Both Spouses Eligible......
5.Spousal Impoverishment Cases......
L.Trusts Affecting Medicaid Eligibility......
1.General Rules on Trusts "Established By" The Client......
2.Exceptions to General Rules Governing Trusts "Established By" The Client......
3.Rules Affecting Trusts Not "Established By" the Client......
M. Possible Recovery Of Medicaid Benefits From Estates Of Medicaid Recipients......
1.Purpose and Scope of the Federal Requirement......
2.Status in Texas......
N.Procedural Matters In Medicaid Practice......
1.Rulemaking by the Texas Department of Human Services......
2.Fair Hearings......
3.Administrative Review......
4.Judicial Review......
VIII. food stamps......
A.Eligibility......
1.Resources......
2.Trust Rules......
3.Transfer Rules......
4.Income......
5.Citizenship/Immigration Status......
6.Work Requirements......
B.Benefits......
C.Application......
IX...... Temporary assistance for needy families (TANF, formerly afdc)
A.Eligibility......
1.Resources......
2.Trust Rules......
3.Transfer Rules......
4.Income......
5.Citizenship/Immigration Status......
6.Deprivation of Parental Assistance......
7.Time Limitation on Eligibility......
B.Benefits......
C.Application......
X. mhmr programs......
A.Eligibility......
1.Medicaid-Funded Services......
2.Non-Medicaid-Funded Services......
B.Benefits......
1.Mental Health Facilities......
2.Mental Retardation Services......
3.Community Services......
4.Support Services......
C.Trust Rules......
D.Transfer Rules......
XI. veterans’ benefits......
A.Disability Compensation......
1.Eligibility......
2.Benefits......
B.VA Pensions......
1.Eligibility......
2.Benefits......
C.Vocational Rehabilitation......
1.Eligibility......
2.Benefits......
D.Health-Care Benefits......
1.Hospital and Outpatient Care......
2.Nursing Home & Assisted Living Care......
3.Miscellaneous Medical Services......
E.Application......
XII. OTHER PUBLIC BENEFITS......
A.Subsidized Housing......
B.Local Medical Assistance Programs......
C.Emergency Room Assistance......
D.Indigent-Care Responsibilities of Hospitals......
E.Local Nonprofit Agencies......
F.Unlisted Agencies & Benefits......
appendices......
APPENDIX 1: Miller Trust (Qualified Income Trust)--Trust Instrument......
APPENDIX 2: Miller Trust (Qualified Income Trust)--Sample Letter of Instruction to Trustee......
APPENDIX 3: Testamentary Contingent Trust With Short-Form Supplemental Needs Provision......
APPENDIX 4: Long-Form Testamentary Supplemental Needs Trust......
APPENDIX 5: Inter Vivos Supplemental Needs Trust Created by Third Party......
APPENDIX 6: Application to Create 142 Trust
APPENDIX 7: Order Creating 142 Trust......
APPENDIX 8: Trust Instrument for 142 Trust......
APPENDIX 9: Application for Guardianship and/or Creation of Guardianship Management Trust (867 Trust)
APPENDIX 10: Application for Creation of Guardianship Management Trust (867 Trust) With Supplemental Needs Provisions
APPENDIX 11: Order Creating Guardianship Management Trust (867 Trust) With Supplemental Needs Provisions
APPENDIX 12: Application for Creation of 867 Trust in Existing Guardianship......
APPENDIX 13: Order Creating 867 Trust in Existing Guardianship......
APPENDIX 14: Trust Instrument for Guardianship (867) Trust......
APPENDIX 15: Under-65 Supplemental Needs Trust Created by Parent or Grandparent......
APPENDIX 16: Third-Party-Funded Supplemental Needs Trusts--A Multiple-Trust Approach......
APPENDIX 17: Summary of Public Benefits Financial Eligibility Requirements in Texas......
APPENDIX 18: Calculation of "In-Kind Support" Income by SSI (& Other Planning Issues)......
APPENDIX 19: Calculation of Increased Protected Resource Amount......
APPENDIX 20: Texas Department of Mental Health and Mental Retardation Fee Guidelines......
APPENDIX 21: Limits On Eligibility Of Aliens For Public Benefits......
APPENDIX 22: Comparison of 142 Trusts, 867 Trusts and Guardianships
APPENDIX 23: Selected Bibliography......
Nothing contained in this publication is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This publication is intended for educational and informational purposes only.
Disability Benefits in the Estate PlanY-1
DISABILITY BENEFITS IN THE ESTATE PLAN: PASSING THE MEANS TEST
I.INTRODUCTION
This is an overview of the most significant public benefits for persons with disabilities. It is intended to assist attorneys and other benefits counselors to identify the major benefits to which disabled clients may be entitled. Particular attention is paid to rules relating to trusts and transfers of assets, to assist attorneys with estate planning for family members and with planning for dispositions of personal injury awards, inheritances and other assets of disabled persons.
II.supplemental security income (ssi)
A.Eligibility
1.“Categorical” Requirements: Disability, Age 65 or over, or Blindness
a)Disability
For an adult, the disability requirement is the same as for Social Security Disability (discussed at II. below): the client must be unable to engage in any substantial gainful activity because of a medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of at least 12 months. 42 U.S.C.A. §1382c(a)(3)(A); 20 C.F.R. §416.905.
This is a very tough standard, compared to the standards of most disability insurance policies and compared to many clients’ expectations. For example, it rules out benefits in the following cases:
The client is partially but not totally disabled.
Although unable to do his or her previous job (e.g., teaching or driving a truck), the client is able to do a much lower-paying job (e.g., assembly-line work)
Although no work is available to the client in the area where he or she lives, it is available somewhere else in the United States.
Effective August 22, 1996, a child under age 18 is considered disabled if she or he has a medically determinable physical or mental impairment that meets the adult definition above and that, in addition, results in “marked and severe functional limitations.” 42 U.S.C.A. §1382c(a)(3)(H). The regulations define a “marked limitation” to mean, “...when several activities or functions are impaired, or even when only one is impaired, as long as the degree of limitation is such as to interfere seriously with the ability to function (based upon age-appropriate expectations) independently, appropriately, effectively, and on a sustained basis.” 20 C.F.R. Part 404 Subpart P, Appendix 1, Part B §112.00C.
b)Blindness
Total blindness is not required. The requirement is for central vision acuity of 20/200 or less in the better eye with the use of correcting lenses. 42 U.S.C.A. §1382c(a)(1)(A); 20 C.F.R. §§416.801 through 416.806.
c)Age
A person age 65 or over who meets the other eligibility requirements is eligible for SSI.
Practice Note: It is quite common for persons age 65 and over to meet the SSI requirements and not know it. In addition to an income subsidy, SSI eligibility carries with it Medicaid benefits, which are vastly superior to Medicare benefits as discussed below.
2.Citizenship/Immigration/Residency Status
a)Residency
The client must be a resident of one of the 50 states of the United States, the District of Columbia, or the Northern Mariana Islands. Puerto Rico residents do not qualify. 20 C.F.R. §416.1603(b)(c). Absence from the United States for 30 consecutive days disqualifies, and the client cannot regain qualification until he or she has again resided in the United States for at least 30 days. 42 U.S.C.A. §1382(f); 20 C.F.R. §416.215.
b)Citizen or Entitled Alien
A U.S. citizen, either by birth in the United States or by naturalization, always meets this requirement.
An illegal immigrant never meets this requirement. 8 U.S.C. §§1611(a), 1641.
A person who is a permanent resident alien, an asylee, a refugee, a person paroled into the U. S. for at least a year, a person whose deportation is withheld for certain reasons, or a person granted conditional entry is a “qualified” alien potentially eligible for SSI, if he or she meets any of the following requirements:
Entered the United States before August 22, 1996. (An alien entering the U. S. on or after that date is ineligible unless he or she falls into one of the categories below.)
An asylee, refugee or person whose deportation is withheld, for the first 7 years after being granted that status; or for the first 7 years, a Cuban, a Haitian, an Amerasian, certain Native Americans from Canada, and the noncitizen children of a battered parent
Active duty troops, their spouses, their unremarried surviving spouses, unmarried dependent children, and honorably discharged veterans meeting the minimum service requirement (generally, 24 months active duty)
Persons who have earned 40 qualifying quarters of Social Security coverage, or who can be credited with such quarters due to the work of a parent or spouse under certain specified rules. 8 U.S.C. §1612.
The general prohibition on benefits for aliens is also subject to the following important exceptions:
Legal immigrants who were receiving SSI as of August 22, 1996 continue to be eligible
Immigrants who were legally in the United States on August 22, 1996 retain their potential SSI eligibility (i.e., they are not subject to the “qualified alien” rules summarized above, which in effect apply only to persons who were not legally in the United States on August 22, 1996.).
8 U.S.C. §1612(a)(2)(E),(F).
Aliens receiving SSI only because of the August 22, 1996 exceptions are not eligible for food stamps. 8 U.S.C. §1612(a)(1), §1612(a)(2)(E),(F). However, all aliens receiving SSI are eligible for Medicaid. 8 U.S.C. §(b)(2)(F).
See Appendix 21 for a chart summarizing the new limits on eligibility of aliens for numerous types of public benefits.
Practice Note: When reading summaries of the complex new alien-exclusion rules regarding SSI eligibility, it helps to bear in mind that as of this writing, the exceptions for legal residents of the U.S. on August 22, 1996 make unnecessary the application of the harsh and potentially difficult “qualified alien” rules. However, the latter rules will become increasingly important in the future, as more potential applicants enter (or re-enter) the U. S. after August 22, 1996. It is also important to remember that none of these rules apply to aliens who become naturalized citizens, which most can do after 3 years of U.S. residency (if married to a U.S. citizen) or 5 years (otherwise). See 8 U.S. C. §1423 et seq. Note especially that the requirements for speaking English and knowledge of U.S. history and government do not apply to “any person who is unable because of physical or developmental disability or mental impairment to comply therewith.” 8 U.S. C. §1423(b)(1).
3.Income
a)General Rule
An unmarried person must have less than $500 per month of countable income in 1999. A married couple can both be eligible if their countable income totals less than $750. Because the first $20 of income is not counted, these numbers are sometimes expressed as $520 and $770, respectively. These numbers change with inflation on January 1 of each year.
“Income” is defined generally as cash (or property readily convertible to cash), food, clothing or shelter. Unlike the income tax rules, the SSI rules count even gifts as “income.” This general rule is subject to a long list of exclusions that can be important in some cases. 20 C.F.R. §416.1103.
Additional important exclusions applying to “earned” income and “unearned” income, respectively, are discussed next below.
b)Rules applying to earned income
Earned income is defined as gross wages of an employee (without deductions for taxes, insurance, etc.), and net earnings from self-employment (after deduction of business expenses but also without deductions for taxes, insurance, etc.).
The following are excluded from countable earned income:
The first $65 plus one-half of remaining earned income each month
Certain federal assistance payments (including food stamps)
$10 per month of infrequent income
Certain additional exclusions for blind and disabled persons (including, for example, work expenses due to disabilities)
The general $20 per month exclusion, to the extent it has not been taken against unearned income
42 U.S.C.A. §1382a(a); 20 C.F.R. §§416.1102, 416.1110, 416.1112
c)Rules applying to unearned income
“Unearned” income is all income that is not earned, including without limitation annuities, pensions, alimony, support, dividends, life insurance proceeds, prizes, gifts and inheritances. 42 U.S.C.A. §1382a(a)(2); 20 C.F.R. §416.1120.
Important exclusions from unearned income include most federal payments (for example, food stamps), up to $20 per month of irregular or infrequent income, one-third of child support payments, and certain special VA payments (though VA pensions count as income). Because the list of exclusions is quite lengthy, it should always be consulted. 42 U.S.C.A. §1382a(b); 20 C.F.R. §416.1124.
d) “In-kind support and maintenance”
This term refers to food, clothing and shelter furnished or paid for by someone other than the SSI applicant. In general, because it is counted as unearned income, it reduces benefits dollar-for-dollar. However, a much better result for the client can be obtained by applying some important rules applicable only to this kind of “income”:
One-Third Reduction Rule: If the client is living in the household of another person who is providing both food and shelter, the client’s SSI benefit will be reduced by 1/3 of the monthly federal benefit rate (maximum payment). In 1999, that amount is 1/3 X $500 = $166.67. (Another way of viewing it is that $166.67 will be counted as income, in addition to any other countable income the client may have.) 20 C.F.R. §416.1131.
Presumed Value Rule: If the One-Third Reduction Rule does not apply, and the client is furnished any food, clothing or shelter by someone else, the agency presumes that the value of whatever is furnished is 1/3 of the federal benefit rate plus $20--that is, in 1999, $166.67+ $20.00 = $186.67. This presumption is rebuttable--that is, by showing that the actual value of what is furnished is less than $186.67, the client can have his or her income reduced by the actual value rather than the full $186.67.
Exception: If the SSI beneficiary lives in the household of someone part of whose income is "deemed" to the beneficiary, then any support provided is not treated as income. 20 C.F.R. §416.1148. For example, some income of a parent of a child under age 18 is deemed to the child, so the parent's provision of food, clothing and shelter does not result in a reduction of the child's SSI payment. 20 C.F.R. §416.1160 et seq.