When a minor who has disabilities reaches age 18 and is incapacitated, their parent or custodian will typically file for Guardianship. In some cases, the minor has assets under Court control that are held in a guardianship court account through the county Surrogate. These might be assets that were received through a prior personal injury lawsuit award or settlement, or assets that the minor had inherited. Upon reaching age 18, the court has to release those funds and they become available to the individual. The problem is that if the young adult requires Supplemental Security Income (SSI) Medicaid benefits or benefits from the DIvision of Developmental Disabilities (DDD) for health and residential services, s/he can’t have more than $2,000 in “available assets,” and these court account assets are “available” if the Guardian has direct and unfettered control and access for the disabled person’s benefit. That means that the individual who receives benefits while having all those assets is “wrongfully receiving benefits.” This can create a tremendous problem once the overpayment is discovered. Also, if the beneficiary dies, Medicaid is required to pursue estate recovery when there are assets in an estate.
A 2015 decision by the Appellate Division examined the nature of such funds and why they are considered “available.” The case is called IN THE MATTER OF THE ESTATE OF TRACY SOLIVAN, DOCKET NO. A-4828-3T1 .Medicaid lien app div case Estate ofTracy Solivan What happened here is that the funds in the court’s trust account were released to the Guardians when Tracey turned 18. She went on to receive about $5 million of services from Medicaid and DDD. At the time of her death, her Estate had $600,000 or so, and these agencies asserted a lien for reimbursement, thus wiping out the estate. The Court upheld the liens.
This was a preventable situation. Special Needs Trusts are designed to enable disabled people under 65 to transfer their “available assets” into a trust for their sole benefit and preserve eligibility for both Medicaid and DDD. The Trust has to be created by a parent, a grandparent or a court, or a Guardian with court permission. The Trust is restricted so that the funds can only be used to supplement but not replace what Medicaid, DDD and other means-tested programs will provide. While it is true that the State has to be named as the first beneficiary of the special needs trust so it can be repaid after the death of the Medicaid recipient, in some cases the extent of benefits provided is less than the amount remaining in the fund at the death of the beneficiary.
In a case like this, the petition for Guardianship at age 18 would ask the Court to establish the Trust so that the Guardian can fund it. And should it ever happen that assets arise later on, from a settlement, inheritance or what have you, the Guardian can always go back to Court to file this kinds of petition.
Timing is everything. Careful planning can prevent a crisis.
Call us for representation with special needs trusts, Medicaid eligibility and estate planning …. 732-382-6070