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SPECIAL NEEDS TRUSTS AND MEDICARE SET-ASIDE ARRANGEMENTS

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

Generally, Medicare Set-Aside Arrangement (MSA) funds are deposited in a custodial account with a professional trustee or given to the client to self-administer. For cases less than $100,000, giving the funds to the client to self-administer makes sense. CMS has issued a letter of instructions to be delivered to the client who would be administering his or her own custodial account. Even if a client misuses the money, the personal injury attorney should be off the hook with respect to a subsequent malpractice claim.

If the MSA funds are self-administered by the client or administered by a professional custodian and held in a custodian account, they will be considered countable assets that will disqualify the client from asset-tested public benefits such as SSI and Medicaid. The solution to that problem is to deposit the funds in a Special Needs Trust. MSAs are generally administered by custodians such as Medivest. However, money in a custodial account is considered a countable asset for someone receiving asset-tested public benefits. In those situations, a Special Needs Trust (“SNT”) is required and the trust is designed so that the MSA funds are placed in a separate sub-trust within the SNT. Generally, a professional trustee will hire a professional custodian to administer the MSA sub-account. By wrapping the MSA sub-account in the SNT, the assets in that sub-account are no longer countable to the trust beneficiary.

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