Special Needs Trust Lacking Payback Provision Countable

In this case, a Medicaid application filed by the beneficiary of a special needs trust was denied by the Medicaid agency and upheld on appeal because the special needs trust, funded with the proceeds from a personal injury lawsuit but lacking a Medicaid payback provision, violated applicable law. D.W. v. Division of Medical Assistance and Health Services (N.J. Super. Ct. App. Div., No. A-2092-13T4, Dec. 2, 2015).

D.W., a twenty-nine- year-old developmentally disabled man who resided in a group home, applied for a Medicaid waiver program. The New Jersey Division of Medical Assistance and Health Services (DMAHS) denied D.W.’s Medicaid application. DMAHS found that D.W. was the beneficiary of a self-settled special needs trust (SNT) which did not contain a Medicaid payback provision. The SNT, created by a New Jersey trial court in 2008, was funded with $278,389.28 recovered in a personal injury lawsuit filed by D.W. Based upon the SNT’s missing payback provision, DMAHS denied Medicaid eligibility, finding the SNT did not “meet the Special Needs Trust Guidelines in accordance with Medicaid regulations.”

D.W. filed an administrative appeal, seeking a fair hearing. The administrative law judge (ALJ) hearing the case found that a self-funded SNT “must meet specific requirements,” chief among them the inclusion of a payback provision insuring “repayment to the State of an amount equal to the total amount of medical assistance, if any, which is paid to D.W. under the State Medicaid Plan.” Because D.W.’s SNT lacked a payback provision, the ALJ found DMAHS was correct in denying D.W.’s Medicaid application.  The Director of DMAHS adopted the ALJ’s decision.

D.W. appealed to the Superior Court of New Jersey, Appellate Division. On appeal, D.W. argued that his SNT did not require a payback provision because the SNT was irrevocable and the beneficiary did not have the right to compel distributions. As a result, according to D.W., DMAHS erred in classifying his SNT as a countable resource for Medicaid eligibility purposes. In response, DMAHS contended that, because D.W.’s SNT was funded with his own assets, it is a first-party, self-settled trust which must contain a payback provision under Medicaid law.

The appellate court affirmed the denial of D.W.’s Medicaid application. The court found that the “critical issue here for ‘Medicaid eligibility purposes is who established the trust.’”… Because there is no question but that D.W.’s own assets recovered from a personal injury lawsuit were used to fund the trust, the law is clear that his is a self-settled trust which must [contain a payback provision] to be considered an excludable resource. Because D.W.’s trust admittedly lacks the payback provision required by those enactments, the Director was correct to conclude it is an available resource rendering him ineligible for Medicaid.

To read the full text of the court’s opinion, go to: D.W. v. Division of Medical Assistance and Health Services

For additional information concerning special needs trusts and disability planning, visit: http://vanarellilaw.com/special-needs-disability-planning/
For additional information concerning Medicaid applications and appeals, visit: http://vanarellilaw.com/medicaid-applications-medicaid-appeals/