SPECIAL ASSETS

by Thomas D. Begley, Jr., Esquire, CELA

THE VEHICLE

            The special needs beneficiaries and their families need to buy a vehicle, very often a handicap van.  The issue is:  who should own the vehicle?

Trust Purchases Vehicle Titled in Name of the Trust

            The advantage of this arrangement is that it gives the trustee maximum control.  However, there are several disadvantages:

• The van is a wasting asset.  It is not really an appropriate trust investment.
• The trust would be liable for injuries caused by the driver of the van.
• It is often difficult to get insurance under an individual policy and a commercial policy is much more expensive.  Many professional trustees will refuse to take title to a vehicle.

            An issue arises as to whether a State Medicaid Agency can require that a vehicle be titled in the name of the trust.  The reason would be so that the vehicle would be subject to a Medicaid payback.  CMS takes the position that states can make their own rules.

Trust Purchases Vehicle Titled in Name of Parent

            In this situation, the trust purchases the vehicle, titles it in the name of the parent, and takes back a lien for the purchase price.  The advantage is that the vehicle owner is liable for any injuries caused by the driver of the vehicle, and insurance is easier and less expensive to obtain.  The lien prevents the family from selling the vehicle.  Again, there is a violation of trust law, because the lien will never be repaid.  Another disadvantage is that if the trust pays the maintenance and upkeep expenses, it could be argued that the “sole benefit of” rule is violated if the vehicle is used by persons other than the person with a disability.

            Some states, such as New Jersey, closely monitor disbursements from (d)(4)(A) trusts.  The state may require that the vehicle be titled in the name of the trust.  Every effort should be made to allocate the settlement in such a manner that some entity, other than the trust, can purchase the vehicle.

Parent/Spouse/Beneficiary Purchases the Vehicle

            This is the ideal solution.  Before the settlement is finalized, funds can be allocated to the parents, spouse or beneficiary to purchase the vehicle.  One of the advantages is that the Medicaid payback would be avoided with respect to the vehicle.  However, there may be Medicaid estate recovery if the disabled beneficiary owns the vehicle.  Where the parent or spouse owns the vehicle, the parent or spouse should pay the maintenance expenses.

CIRCULAR DEEMING

            If a trust pays a parent for the “extraordinary care” of a disabled minor child, the result may be circular deeming.  SSA has no restriction on the payment from the trust to the parent for the extraordinary care.  However, income to the parent is deemed to the child and may cause the child to lose SSI, and if the child loses SSI, Medicaid may also be lost. The same situation would arise if the trust pays the parent rent for the child with a disability.  In fact, any distribution from the trust to the parent constituting income to the parent will be deemed to the child and may cause a loss of public benefits.

            While income and resources are deemed from parent to child or from spouse to spouse, if a parent transfers assets there is no deeming of the asset transfer penalty from parent to child.  Likewise, the spouse with a disability transfers to a healthy spouse, there is no transfer of asset penalty.