AN INTRODUCTION TO SPECIAL NEEDS TRUSTS
CREATED PURSUANT 42 U.S.C. §
(effective January 2012)
For purposes of qualifying for Supplemental Security Income
(hereinafter "SSI") and Medicaid, or Arizona Health Care Cost
Containment System (hereinafter "AHCCCS") as it is known in
Arizona, benefits, an individual may have no more than $2,000 in
countable resources. The statute and regulations provide
exemptions for certain resources, like a personal residence, a
vehicle, personal and household effects and irrevocable burial
plans, to name a few.
In addition, any assets held in a trust meeting the requirements of
42 U.S.C. §
1396p(d)(4)(A) are exempt for purposes of Medicaid eligibility, and
for those trusts established on or after January 1, 2000, are
exempt for purposes of SSI eligibility. The
requirements are as follows: (1) the beneficiary must be
under the age of 65 when the trust is established; (2) the
beneficiary must be "disabled" according to Social Security
criteria; (3) the trust must be established by the beneficiary's
parent, grandparent, guardian/conservator, or a court; and (4) the
trust must provide that, upon termination of the trust, the state
is reimbursed for all of the Medicaid or AHCCCS benefits it paid
to, or for the benefit of, the beneficiary. Note, the rate at
which AHCCCS is reimbursed is the capitated rate paid by AHCCCS to
the contract provider regardless of the level of services actually
A d(4)(C) trust or PSNT also permits an
individual who is eligible for SSI and/or AHCCCS benefits to
transfer his/her assets into a trust and allowing the beneficiary
to have such funds available to meet his/her supplemental or
special needs and remain eligible for public assistance.
Under federal and state law, the following conditions must be met
for the PSNT to be exempt or excluded for purposes of a
beneficiary's financial eligibility for SSI and/or AHCCCS
- The trust must be established and managed by a non-profit
- A separate account is maintained for each beneficiary of the
trust, but, for purposes of investment and management of the funds,
the trust pools these accounts.
- Accounts in the trust are established solely
for the benefit of a disabled individual by such
individual, or by a parent, grandparent,
guardian/conservator, or court.
- To the extent assets remain in the beneficiary's account upon
its termination, which is typically at death, and are not
retained by the trust, the trust must reimburse
A PSNT is best described as a cross
between a 401(k) and a d(4)(A) trust. Beneficiaries do not
get their own trust agreement, but instead join the existing master
trust arrangement and establish an account for their sole
benefit. The account is then administered like any other
special needs trust.
Three of the major differences between
a d(4)(A) and d(4)(C) trust, both of which are advantages, are the
following: (1) A PSNT has no age limitation; (2) if mentally
capable or competent, the beneficiary can join and participate in
the PSNT without a parent or grandparent's "permission" or court
intervention; and (3) as alluded to above, to the extent assets are
retained by the PSNT on termination of the arrangement, AHCCCS has
no right to reimbursement.
The Arizona Long Term Care System (hereinafter "ALTCS"), one of
several medical assistance programs administered by AHCCCS,
additionally requires the trust to be used for the sole benefit of
the beneficiary. If individuals
other than the beneficiary benefit from the trust or a disbursement
therefrom, it will potentially disqualify the trust from special
treatment. As a result, the trust assets become
In establishing such trusts, it is also important to bear in mind
the respective benefit programs' income limits and rules concerning
trust distributions. For purposes of SSI, an individual's
total combined income may not exceed $698.00 per month and for
purposes of ALTCS, an individual's total combined income, which
amount includes SSI, if applicable, cannot exceed
Both benefit programs count as income any distributions from a
special needs trust for food, shelter, or anything that can be
converted into such, like cash. Such
distributions, although they do not disqualify the trust from
special treatment, may result in a reduction or loss of
benefits. Thus, it is imperative that such trusts be drafted
in such a way so as to make it clear that any and all distributions
are within the sole and absolute discretion of the trustee and that
does not contain language that requires the trustee to make certain
distributions or can be interpreted as providing for mandatory
distributions to or on behalf of the beneficiary. In
addition, language that can be interpreted as providing for the
basic support needs of the beneficiary, such as "basic living
needs," "welfare," or "essential dietary
should be avoided. At the same time, the language should not
be overly restrictive by expressly disallowing distributions for
"food, shelter" or basic support needs.
A.R.S. § 36-2934.01 further specifies what disbursements are
allowable from such trusts for purposes of ALTCS eligibility.
The allowable disbursements are as follows:
Reasonable legal and
professional expenses related to the Trust including:
professional expenses, including trustee, accounting and attorney
fees related to the administration of the trust.
2. The post
eligibility share of cost as computed pursuant to A.R.S. §
For trusts created pursuant to Section 1917(D)(4)(B) of the Social
Security Act, that is, Income Only or "Miller" Trusts, a
disbursement to the beneficiary equal to the personal needs
allowance as computed pursuant to section 36-1932.
Health insurance premiums, medically necessary medical expenses and
special medical needs of the beneficiary including:
Expenses required to make the home accessible to the person.
The purchase and maintenance of a specially equipped vehicle titled
to the trust or to the beneficiary with a lien against the vehicle
held by the trust in an amount equal to the current market value of
Durable medical equipment.
Over-the-counter supplies and medications, including diapers,
lotions and cleansing wipes.
Personal care services that are determined to be medically
necessary by the Program Contractor and that are provided by a
person who is registered by the Administration to provide the
services and who is not a financially responsible relative of the
beneficiary. For the purposes of this subdivision,
"financially responsible relative" means the spouse of the
beneficiary or, if the beneficiary is a child under eighteen years
of age, the parent of the beneficiary.
payments for the spouse or family in accordance with 42 U.S.C. §
1396R-5(D)(1) and (2) and A.R.S. § 36-2932 (L).
6. Guardianship and
conservatorship fees for the trust beneficiary based on the fair
market value of the services provided.
7. The following
expenses for the benefit of the beneficiary excluding gifts to,
payments for or loans to other persons, whether these are in cash
or in kind:
Entertainment, educational or vocational items that are consistent
with the person's ability to use these items.
Other expenses that are individually approved by the
Living expenses for food, clothing, and shelter. If home
property or other real property is purchased by the trust it must
be titled to the trust.
Income taxes owed on income from trust investments or on income of
the beneficiary that is assigned to the trust when an actual tax
liability is established.
Provision for burial expenses that is limited to one of the
Purchase of a prepaid burial plan funded by an irrevocable life
insurance policy, irrevocable burial account, irrevocable trust
account or irrevocable escrow account.
Purchase of life insurance to fund a burial plan for the
beneficiary with a face value that does not exceed one thousand
five hundred dollars after allowing deductions for burial plot
items as defined by the Administration.
Funding a burial fund account in an amount not to exceed one
thousand five hundred dollars.
Travel expenses for a companion, when a companion is required to
enable the beneficiary to travel for non-medical
To what extent A.R.S. § 36-2934.01 is
contrary to federal law insofar as it further limits disbursements
from disability trusts has yet to be determined.
Trustees of such trusts must also be mindful of the reporting
requirements of the SSI and ALTCS programs. Both programs
require that the establishment of such trusts be promptly reported
to the respective programs, with a copy of the trust and
verification of its funding. Both programs will also want
initial and periodic accountings of trust disbursements so as to
determine to what extent, if any, they qualify as income and
potentially impact eligibility or benefits.
ALTCS also requires the trustee of such trusts to complete two
forms. The Acknowledgement of Responsibilities as a Trustee
for a Special Treatment Trust form (DE-522) outlines the Trustee's
responsibilities under state law, and confirms that the trustee
understands and accepts those responsibilities. The trustee
is also required to complete the Special Treatment Trust
Anticipated Disbursements form (DE-312) initially and on an annual
basis. This is a detailed description of how the trust funds
will be administered and disbursed.
Additionally, the trustee is required to report to ALTCS any
modifications to the manner in which the trust is administered,
that is, any changes in either funding or disbursements
withdrawals, not previously listed on the DE-312 form no less then
45 days in advance of the change. If this is not possible due
to extenuating circumstances, then notice must be provided within
30 days from the date of the emergency disbursement, along with
verification of the emergency disbursement. However, notice
after the fact is considered untimely by ALTCS and can result in a
temporary suspension of benefits unless the extenuating
circumstances are established.
See 42 U.S.C. § 1382(b).
See Section 1613 of the Social Security Act, 42 U.S.C. §
1382b(e), signed into law on December 14, 1999.
states vary on whether Medicaid can seek reimbursement upon
termination of the trust during an individual's lifetime versus at
time of death. Unfortunately, Arizona is one of those states
that will seek reimbursement under any circumstance of
 I'm sorry
to say, but not as sorry as I used to be with the enactment of SB
1184, that distributions out of a PSNT are subject to A.R.S. §
36-2934.01 just as a d(4)(A) trust are.
the ALTCS Eligibility Policy and Procedures Manual MS 905.C states
that transfers to a PSNT after age 65 will be treated as an
uncompensated transfer. Federal law is ambiguous on this
point, and states vary as to their treatment of such transfers.
See A.R.S. § 36-2934.01.
See 20 C.F.R. § 416.1100-416.1182; A.R.S. §