What can you pay for with $75 a month? If you’re on Medical Assistance (Medicaid) long-term care benefits, you’ll find out the answer the hard way.
That’s because Medicaid requires recipients to contribute almost all their monthly income to their cost of care. Generally, the $75 monthly “personal needs allowance” is the only portion of the recipient’s income she may keep to pay for personal expenses such as a cell phone, internet and cable, haircuts, clothing, travel and recreation, or home health aides.
In addition to paying the bulk of their income toward their care, Medicaid recipients must also keep their countable resources below $2,500.00. The income and resource eligibility rules greatly restrict Medicaid recipients’ ability to cover personal expenses. However, good planning can help preserve their assets and income to a greater extent than the Medicaid rules would otherwise allow.
One planning tool available to Maryland Medical Assistance recipients is a pooled asset special needs trust, also known as a “(d)(4)(C)” trust. A “trust” arises when one person (the “grantor”) conveys assets to another person (the “trustee”) to hold and manage for the benefit of the “beneficiary” (who can be the grantor or another person). If the Medicaid applicant or her spouse places assets into a trust, Medicaid will generally either view those assets as still being countable or will penalize the establishment of the trust as a transfer for less than fair market value (resulting in a “penalty period” when Medicaid won’t pay for care). The (d)(4)(C) trust is an exception to those penalty rules.
A (d)(4)(C) trust is a specific type of trust that meets requirements set out in federal law. Specifically:
1. It must be established and managed by a non-profit association;
2. It must have a separate account maintained for each beneficiary, but for investment and management purposes, the funds in each beneficiary’s account can be pooled with other trust assets.
3. The beneficiary’s account must be established by the beneficiary, his or her parent, grandparent, legal guardian, or a court for the sole benefit of the beneficiary; and
4. To the extent the funds are not retained by the trust, any funds remaining in the beneficiary’s account upon the beneficiary’s death must be used to pay back the state for the costs of the medical assistance it provided through its Medicaid program.
42 U.S.C. § 1396p(d)(4)(C)(i)-(iv).
An individual must be disabled (per Social Security rules) to place assets in a (d)(4)(C) trust, but there is no age limit. Maryland Medical Assistance does not treat assets in a (d)(4)(C) trust as countable (i.e. they do not count against the $2,500 resource limit) and—unlike some other states—Maryland does not penalize the transfer of assets into a (d)(4)(C) trust for individuals who are 65 or older. Trust assets can be used to pay for things that public benefit programs will not cover. Additionally, some types of income can be assigned to a (d)(4)(C) trust to keep the recipient eligible for Medical Assistance programs with income limits, such as Home and Community Based Medicaid Waiver programs.
The trade-off is that when the beneficiary dies, any funds remaining in the trust may stay in the trust for its non-profit purpose or must be used to reimburse Medicaid for payments made on the beneficiary’s behalf. However, this reimbursement occurs at the rates Medicaid has negotiated with providers, which are generally lower than private pay rates available to the public.
The takeaway: (d)(4)(C) trusts provide a supplemental “pot” of money to pay for things not covered by public benefit programs, and can also provide savings by allowing Medicaid recipients to pay for care at a “discounted” Medicaid rate.