OBRA 1993 Trusts
(42 USC 1396p(d)(4)(A))
A financial planning device for persons with disabilities

I.    Summary of program criteria

Some government disability program have financial eligibility criteria.  SSI / Medicaid/ medical coupons and "CAP housing" have limits of $2,000 in assets and limits on income.  401-Ks, IRAs and other retirement funds do count toward the $2,000 limit, to the extent that they can be withdrawn by the disabled person.  (this is true even if a penalty must be paid; however, many programs will not penalize a withdrawal on account of disability.)

II.    The prior problem

If, through wages, inheritance, back Social security, or other assets accumulated in excess of expenditures, a person is at or over the $2,000 limit, the excess funds must be spent, even if in an unwise fashion, or the person will be dropped from benefits.  In addition, under the prior statue, a person with disabilities could not accumulate funds for a down-payment on a house, an emergency, a vacation, etc.

III.    OBRA 1993

A section in the federal statute governing Medicaid (42 USC 1396 p (d)(4)(A)) provides that a person can maintain eligibility if he or she places excess funds in an eligible trust.  See WAC 388-505-0595(12).

    Trust requirements

    1.  person is disabled by SSA standards

    2.  person is under 65

    3.  trust is established by guardian, parent, grandparent, or court

    4.  trust is established for the benefit of that person

    5.  repay State at death

Funds can be added to the trust at any time before the person's 65th birthday.  The trustee can spend trust principal or interest on anything for the person.  Ordinarily, it will be a special needs trust and may forbid payments for basic food, shelter, and clothing.  This language will assist the trustee in retaining SSI.  The remainder can go to any person or organization, if the disabled person can make a will.

IV.    What is a trust

Like a corporation, a trust is a fictitious legal person and taxpayer.  It must register with the IRS and pay taxes on earnings.  Rates are higher than personal rates.  The trust gets a deduction for payments made for on behalf of the beneficiary, but the beneficiary pays taxes on those funds.

V.    Result

Persons with disabilities can accumulate funds for a trust which can assist them in emergencies, vacations, home purchases, retirement, etc., while preserving eligibility for benefits and the ability of the trustee to make day-to-day purchases.

Source:  Law Office of Larry A. Jones

206-405-3240                                        

Date:                                                       

Send mail to Webmaster with questions or comments about this web site.
Last modified: 06/06/08