Special Needs Trust Options in Ohio

Decorative - Money

Depending upon the circumstances, there are several trust options for those who are disabled and receiving Medicaid and SSI benefits. These all come under the general definition of “Special Needs Trust” and have various benefits and can be used in very different circumstances.

For those who have received an inheritance or an award from a settlement or large gift, the first-party trusts, which are the STABLE account, the Pooled Trust and the Payback Trust, are the best options. For parents who are planning for a child with monies likely to be received by the child at their deaths, the Discretionary Trust referenced below is the best option.

Here are the definitions and menu of the various Special Needs Trusts:

Medicaid Payback Trust: This trust is created pursuant to both federal and state statutory law and allows for a trust to be created for a disabled beneficiary with monies that the beneficiary has already earned or received. Thus, if a beneficiary receives an inheritance of $100,000 from a grandparent directly, those funds, when deposited, will result in ineligibility for Medicaid and SSI purposes. If the $100,000 is placed in a Medicaid Payback Trust, these funds do not disqualify the recipient for these government programs. Trust funds cannot be used for food or rent. By creating this type of trust for an individual under the age of 65, monies must remain in this trust and both SSI and Medicaid benefits will continue. At the death of the beneficiary, the State of Ohio and any other state that provided Medicaid benefits will make a claim against the trust. In many circumstances, a claim for benefits paid exceeds the balance of the trust.

STABLE Accounts: STABLE accounts are essentially a simplified Medicaid Payback Trust. The beneficiaries or their representatives can create these trusts through the Ohio Treasurer’s office. These accounts are limited to a contribution of $15,000 per year with a limit of $120,000 in total. This type of account is helpful should a person receive a social security disability award or a small inheritance. The STABLE account avoids some costs in establishing and maintaining a trust and is managed by the Ohio Treasurer’s Office.

Pooled Trust: This trust is permitted pursuant to Ohio and federal law and is particularly helpful in circumstances where there are no family members or friends who can act as trustee. In general, these funds can be utilized liberally, but not for food and rent and will not impact Medicaid eligibility. Again, these can be established with a small inheritance that is received or a social security disability award. There are several such trusts in Ohio which are available and which will serve the beneficiary well. Upon the death of the beneficiary, the monies will either be turned over to the state or turned over to the charity.

Discretionary Special Needs Trust: This is a type of trust that a parent or grandparent sets up to retain the inheritance for a disabled child. The inheritance is never actually transferred to the disabled person but rather goes directly to this trust. Because of that functional approach, the trust, if well drafted, does not affect Medicaid eligibility or SSI eligibility. Trust funds cannot be used for food or rent. Further, upon the death of the disabled person, the remaining trust monies can pass to other family members or charities. These trusts have been successful pursuant to two Ohio Supreme Court decisions.

Ohio Medicaid agencies have been very aggressive in attacking Discretionary Trusts since 1968. The two seminal cases in this area, Young v. Ohio Department of Human Services, 76 Ohio St.3d 547 (1996), and Pack v. Osborn, 117 Ohio St.3d 14, (2008), are cases litigated by William J. Browning of Isaac Wiles. The Young decision was a 4-3 decision and represented the first trust which withstood the state’s attack. The Pack case was a unanimous decision which allows for these trusts to be implemented.

Written by Isaac Wiles Partner William Browning.