Disability Trusts

Some special exempt trusts are possible for adult disabled clients who must apply to Medicaid. They must be drafted to follow the specific rules for Medicaid and they may require reimbursement to Medicaid upon the death of the recipient. In addition, the age of the recipient and the source of the funds will help to determine the issue of reimbursement and whether the trust can be individually managed or must have a corporate trustee or placed in a pooled fund.

Currently Illinois has adopted two types of trusts allowed Federally that allow a person to transfer their own assets to the disability trust and thus qualify immediately for Medicaid. They are:

OBRA '93 Disability Pay Back Trust

This trust must be irrevocable and contains the assets owned by a person under age 65 who is disabled, as determined by the Social Security Administration. The trust is exempt if it is created for the benefit of the Medicaid recipient by a parent, grandparent, legal guardian or the court. The trust provides that any amount remaining in the trust at the death of the recipient, will be paid to the Department of Healthcare and Family Services (DFS). Under current law, this trust remains exempt after the beneficiary attains age 65, but any additions to the trust after the beneficiary reaches age 65 are treated as transfers of assets and may trigger penalties.

OBRA '93 Pooled Trust

This is also an irrevocable trust that contains the assets owned by a person of any age who is disabled under the same criteria as a disability pay-back trust. This trust is created and managed by a nonprofit organization; a separate account is maintained for each person, but for management purposes of the trust the funds of all recipients are pooled together for investment purposes. An account is set up for the client's benefit by the client (or agent under power of attorney), parent, grandparent, legal guardian or a court. The state is paid back upon the death of the client, and any remainder may go to family.

Both trusts allow for the funds to supplement any state and federal benefits that the client is receiving. No money shall be used for ordinary care, comfort and health, including as a means of illustration, basic food and shelter, so long as there are sufficient monies available for those purposes from federal, state and local governmental programs, or from private agencies, or a combination thereof. Clothing was carved out recently and these trusts can be used to provide clothing for the recipient.

The trustee of these trusts may not distribute assets from the trust to the recipient beneficiary at any time. Neither the client nor the guardian of his person or estate, if any, shall have any right or power to demand distribution from the trust at any time. The trustee is required to exercise vigilance in discerning special needs, comforts or luxuries suitable for the recipient beneficiary which are not provided by local, state or federal government agencies, or from private agencies or any combination thereof. It is, however, the purpose of the trustee to satisfy such special needs, luxuries or comforts as the beneficiary requires and the trustee is to use as much of the income and principal of the trust that, in the trustee’s sole discretion, believes will enhance the quality of life for the recipient beneficiary without disqualifying the client from any state, federal or local benefits or programs which are providing for his needs.