WARNING: The Affordable Care Act (ACA) created a new category of Medi-Cal eligible beneficiaries. The commonly used term Affordable Care Act (ACA) refers to two bills: In March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA) (Pub L 111-148, 124 Stat 119), and on March 30, 2010, he signed into law the Health Care and Education Reconciliation Act of 2010 (HCERA) (Pub L 111-152, 124 Stat 1029), also referred to as the Reconciliation Bill, which amends PPACA. In representing a client, we evaluate on a case-by-case basis whether the cost of obtaining private health care or optional Medi-Cal coverage (for individuals who do not exceed 138 percent of the federal poverty level) is cheaper yet comprehensive enough to meet the specific needs of an individual with a disability, compared with the cost of establishing, funding, and administering a special needs trust (hereafter SNT) (and thus preserving public benefits other than Medi-Cal). Also, parents may keep a child with disability on their health insurance until the child turns 26, so an SNT may not be necessary.
The principal purpose of an SNT is to preserve public benefits for beneficiaries with disabilities. The benefits at issue are primarily benefits that are “asset sensitive”; that is, benefits that require the recipient to have resources and income below a certain level to qualify.
A properly designed and administered trust can provide funds to supplement the public benefits of a person with disabilities without interfering with those benefits. Although tax law frequently affects the terms of trusts, the terms of an SNT are principally controlled by public benefits law
The field of public benefits is often difficult to navigate for the following reasons:
- The statutes, regulations, and policies are difficult to find, are complex, and contain contradictory directives and guidelines;
- Local program administrators cannot be relied on for authoritative advice;
- The law governing eligibility may change during the term of an SNT; and
- A beneficiary may move during the SNT term and become subject to another state’s statutes and regulations (although the federal law is the same)
Several trust clauses we use in preparing SNTs are designed to preserve benefits even if the law or the beneficiary’s condition changes during the term of the SNT.
In addition, the federal Achieving a Better Life Experience (ABLE) Act of 2014 (Pub L 113-295, 128 Stat 4010) allows individuals with disabilities, with an age of onset up to 26 years old, to create an ABLE Account, and family members and others to contribute funds that will not be counted as a resource for commonly used means-tested public benefit programs, including Medi-Cal and SSI. IRC §529A. The potential advantages and costs of an ABLE Account compared to an SNT must be carefully considered.
There are many other benefits such as Veterans Benefits, Section 8 Housing Assistance, and Regional Center services for persons with developmental disabilities, which are beyond the scope of this newsletter, but the impact of which on the establishment of and distributions from an SNT must also be carefully considered.
About the Author
D. Steven Yahnian has been a member of the California Bar and a practicing Attorney since 1980. He has also been a California CPA since 1984. Mr. Yahnian also holds the CFP® designation.
Mr. Yahnian practices in the following areas of law through YAHNIAN LAW CORPORATION:
- Estate Planning & Administration
- Asset Protection Planning
- Tax Planning, Tax Debt Resolution and Tax Litigation
- Business & Corporate Law and Planning
- Real Property Law & Planning
As a CPA/CFP, Mr. Yahnian also has a separate accounting and tax return preparation practice called DSA ACCOUNTING.
Mr. Yahnian is a California State Bar Certified Specialist in the following
• Taxation Law and
• Estate Planning, Trust & Probate Law.
Mr. Yahnian received a B.S. degree in Accounting from USC, a J.D. from Loyola University of Los Angeles School of Law and an LL.M. in Taxation from New York University Law School. He also has a Certificate in Taxation from UCLA (with distinction).
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