A personal injury attorney called me recently for assistance. Melissa had settled a claim for damages resulting from the negligence of a nursing facility in which her client, Mary had been living. Mary’s net settlement after paying her legal fees and the costs of the lawsuit is approximately $100,000.
Melissa told me it was a good result given the difficulties with the case. So why was she calling me? Because Mary was a Medicaid recipient. Her care at the nursing home is being covered by Medicaid and the receipt of the settlement money will cause her to exceed Medicaid’s $2000 asset limit and she will lose her benefits.
Melissa knew this when she took the case. She just figured that Mary would be able to place the settlement monies in a special needs trust #SpecialNeedsTrust and keep her Medicaid benefits. Otherwise, most of the money would have to be spent on Mary’s nursing home care at the private pay rate of approximately $11,000 per month.
After she settled the case, however, Melissa learned that she miscalculated in her plan. That’s because she missed one important limitation in the law that allows for the establishment of a special needs trust.
Federal law says that a disabled individual may transfer assets to a trust for the disabled individual. This is commonly referred to as a d(4)(A) trust, a reference to the statute that carves out this exception. The law further provides that the transfer is not subject to a Medicaid penalty. Ordinarily it would be considered a transfer for less than fair value, resulting in the Medicaid applicant being ineligible for benefits (or in Mary’s case causing her to lose her benefits).
The important limitation that Melissa missed is that this type of a trust may only be set up and funded when the individual is under age 65. Mary is 70 and so Melissa has a problem. What does Mary do with the money? Her family is unhappy because it now doesn’t look like Mary will benefit from the settlement if she has to essentially give it all to the nursing home.
Does Mary have any other options here? Maybe. Next week I’ll share that with you.