Social Security Benefits Deposited Into Special Needs Trust Countable In Determining Medicaid Eligibility

Reversing a trial court, an appeals court ruled that a beneficiary’s Social Security benefits, though deposited each month into a special needs trust, were correctly counted as income by Louisiana’s Medicaid agency. Moore v. Louisiana Dept. of Health and Hospitals (La.App.Ct.1st Cir., No. 2014CA0422, Nov. 7, 2014).

Jess Moore, a disabled resident of Louisiana, lived in a group home for many years and received Medicaid benefits. When he moved out of the group home into a community setting, Mr. Moore’s Medicaid benefits were terminated, and he was told that he was not qualified for community Medicaid because his monthly Social Security benefits exceeded the program’s income limit.

Mr. Moore filed an administrative appeal, arguing that his Social Security benefits should not count as income for the purpose of Medicaid eligibility because they were deposited into a first-party special needs trust. The name of the trust is “The Moore Family Supplemental Needs Trust.” The Moore Trust is an irrevocable trust for the sole benefit of Mr. Moore. Jess Moore’s mother, Beverly Moore, is the grantor and initial trustee of the trust. Further, the Moore Trust provides that, upon Mr. Moore’s death, the State of Louisiana will be reimbursed for the benefits paid on behalf of Mr. Moore during his lifetime. Mr. Moore’s Social Security benefits were deposited into the Moore trust each month. Mr. Moore cannot independently access funds after they are placed into the Moore Trust.

A hearing officer affirmed the agency’s decision, finding that Mr. Moore exceeded the income limitations for Medicaid benefits. Thereafter, Mr. Moore filed a petition for judicial review.  After review of the administrative record, the district court reversed the administrative decision and reinstated Mr. Moore’s Medicaid benefits.

The state Medicaid agency appealed, claiming that income received by a Medicaid beneficiary and deposited into a first-party special needs trust cannot be excluded although resources held in a first-party special needs trust may be exempt,.

The Louisiana First Circuit Court of Appeal reversed, upholding the decision of the state Medicaid agency denying eligibility.  The appeals court found that federal regulations prohibited Social Security benefits from being paid directly into a special needs trust. In that regard, the Social Security Administration’s Program Operations Manual System SI Ol 120.200G.1.b provides as follows:

Certain payments are non-assignable by law and, therefore, are income to the individual entitled to receive the payment under regular income rules. They may not be paid directly into a trust, but individuals may attempt to structure trusts so that it appears that they are so paid. Non-assignable payments include:

(1) Temporary Assistance to Needy Families (TANF)/Aid to Families with Dependent Children (AFDC);
(2) Railroad Retirement Board-administered pensions;
(3) Veterans’ pensions and assistance;
(4) Federal employee retirement payments (CSRS, FERS) administered by the Office of Personnel Management;
(5) Social Security title II and SSI payments; and
(6) Private pensions under the Employee Retirement Income Security Act (ERISA) (29 U.S.C.A., Section 1056(d)). [Emphasis added.]

As a result, Mr. Moore’s Social Security benefits may not be paid directly into the Moore Trust, but must pass through Mr. Moore’s hands first. Therefore, because Mr. Moore’s Social Security benefits are not contained in the Moore Trust, but pass through his hands first, the Court ruled that the state Medicaid agency correctly included those benefits as income in its determination of Mr. Moore’s Medicaid eligibility.

The case is attached here – Moore v. Louisiana Dept. of Health and Hospitals   La.App.Ct.1st Cir., No. 2014CA0422, Nov. 7, 2014).

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