Use of Trusts in Elder Law and Disability Planning

This is a guest post by Marco Chayet and Dawn Hewitt, from the law firm Chayet & Danzo, LLC in Denver, Colorado.

There are several different types of trusts that can be used to enhance the quality of life for a trust beneficiary with special needs.  These trusts generally supplement benefits that the beneficiary receives through public assistance programs, such as Supplemental Security Income (SSI) and Medicaid.  As supplemental needs trusts, or special needs trusts, there are certain items that trust funds cannot be used to pay, such as food and shelter.  The reason for this is that the beneficiary’s public assistance programs are intended to pay for food and shelter.  However, in spite of these narrow exceptions for trust distributions, the trusts can be used for a wide range of purposes.

Some examples of how funds in a properly created special needs trusts can be used are for medical treatment and medication that are not otherwise covered through Medicaid, attendant care for non-medical services, education expenses, vehicle with modifications, travel, and entertainment.  These are just a few examples.  There are literally innumerable ways that funds in the trusts can be used.

Special needs trusts are often distinguished by the manner in which they are created and funded.  Colorado’s Medicaid regulations require that any trust that is created for the benefit of a Medicaid beneficiary be submitted to the state Medicaid agency for review and approval.  The type of trust determines the provisions that it must contain to comply with Medicaid regulations and SSI criteria.  There are five trusts generally used in special needs planning.  They are (1) disability trusts, (2) pooled trusts, (3) third party discretionary trusts, (4) testamentary special needs trust, and (5) income trusts.

The following is a discussion of the aforementioned trusts used in special needs planning in Colorado.

Disability Trust

A disability trust is created for a trust beneficiary under the age of 65 who is disabled under Social Security’s criteria.  The disability trust is funded with the beneficiary’s own assets.  Some common types of assets that are used to fund a disability trust are proceeds from a personal injury settlement and an inheritance.  Assets that are held in a properly created disability trust are exempt and will not affect the beneficiary’s ability to receive Medicaid and SSI.  Federal and state law require the disability trust to be established by the beneficiary’s parent, grandparent, or legal guardian, or by a court.

A disability trust must contain certain provisions for it to be exempt for Medicaid and SSI.  Most notably, it must contain a provision to reimburse the state medical assistance program up to the amount of benefits paid for the beneficiary during the beneficiary’s lifetime.  Repayment must be made under either of the following circumstances: (1) the beneficiary no longer requires medical assistance in the state where he has been receiving benefits (i.e., the beneficiary moves to a different state, or the beneficiary no longer wishes to receive medical benefits), or (2) the beneficiary dies.

If the trust is to be funded with an annuity or other periodic payments, then the state Medicaid agency must be named as the remainder beneficiary under the contract, up to the amount of medical assistance paid on behalf of the beneficiary.

The trust can contain a provision for distributions to remote contingent beneficiaries in the event that there are funds remaining in the trust after repayment is made to the state.

The trust must contain the name and mailing address of the trustee.  It is also generally advisable to name a successor trustee in case the original trustee is unable to act for any reason, such as if the trustee resigns, becomes incapacitated, or dies.  Notice of any change in trustee must be given to the state Medicaid agency within 30 calendar days.

The trustee has sole discretion on the use of trust funds.  Therefore, it is advisable to select a trustee who knows the beneficiary’s situation and needs well and who is willing to work with the beneficiary and/or the beneficiary’s legal representative to use the trust in the beneficiary’s best interests.  Professional trustees can also be named.

The trustee should not make distributions from the trust directly to the beneficiary, such as giving cash to the beneficiary.  Nor should the trustee expend trust monies for food or shelter.  Such distributions can be seen as income to the beneficiary and could affect the beneficiary’s ongoing eligibility for benefits.

Additionally, trust monies should not be used to purchase non-exempt assets, which would also affect ongoing eligibility.

Aside from these limitations, the trust assets can be used in a wide variety of ways.  The trustee will be required to provide regular accountings of the trust to the county and state Medicaid agencies.  Therefore, it is imperative for the beneficiary’s ongoing public benefits eligibility that the trustee properly administer the trust and maintain detailed records.

Pooled Trust

A pooled trust is similar to a disability trust, in that it is funded with the beneficiary’s own assets and that it requires the trust beneficiary to be disabled under Social Security’s criteria.  The pooled trust is most commonly used for Medicaid recipients who are over the age of 65, but it can also be used by younger individuals.  The trust is established by the individual, a parent, grandparent, or legal guardian, or by the court.

The pooled trust differs from the disability trust in that it is established for many disabled individuals, instead of just one individual.  Each beneficiary has a separate account.  The accounts are pooled for investment and management purposes.  Also, the trustee of a pooled trust must be a non-profit organization, approved by the Internal Revenue Service.

Similar to the disability trust, funds remaining in the individual’s account at his death must be used to reimburse the state Medicaid agency up to the amount of medical assistance provided on the individual’s behalf, to the extent that those funds are not retained by the pooled trust.  Additionally, funds in a properly created and administered pooled trust are exempt and do not affect the individual’s ongoing eligibility for Medicaid.  The trustee has the same wide range of discretion to use trust funds for the benefit of the beneficiary.

There are special funding requirements for pooled trust beneficiaries over the age of 65.  Specifically, there must be a written care plan for the use of the funds in the pooled trust that is actuarially sound based on the individual’s life expectancy.  Absent such a care plan, Medicaid will view the transfer of funds into a pooled trust as a transfer without consideration and will impose a penalty period.  During any applicable penalty period, the individual will not be able to receive Medicaid benefits.

Third Party Discretionary Trust

A third party discretionary trust (TPDT) is different from a disability trust and a pooled trust because it is funded with assets that do not belong to the trust beneficiary.  A TPDT is commonly established by a relative of the trust beneficiary, such as a parent or grandparent, for the purpose of gifting money or property that can be used for the benefit of the beneficiary, while allowing the beneficiary to remain eligible for SSI and Medicaid.

Another difference is that a TPDT does not contain a payback provision to reimburse the state Medicaid agency for benefits provided on behalf of the beneficiary.  Also, there is no requirement that the beneficiary be disabled under Social Security’s criteria.  Finally, there are no restrictions on the beneficiary’s age.

One advantage to establishing a TPDT is that it can receive gifts of money and property from many different sources.  For example, a TPDT established by the beneficiary’s parent can receive gifts of money or property, not only from the parent, but also from the beneficiary’s grandparents or other relatives.  The TPDT can even be a beneficiary under a will.  The TPDT can continue to be funded, even after the death of the person who created it.

Another advantage of the TPDT is that it is extremely flexible and diverse in terms of funding, use, and longevity.  Further, establishing a single entity to hold property simplifies administration and allows for greater flexibility in managing property.

Testamentary Special Needs Trust

A testamentary special needs trust (TSNT) is similar to a TPDT in that it can be created by anyone under their will to hold property to be used for the benefit of the trust beneficiary upon the death of the person who created the trust.

The disadvantage to the TSNT is that it is not funded until the person who created it dies, and it can only hold assets belonging to the person who created the trust.

This trust is generally used by parents of a special needs child who want to leave their child property in a manner that will not affect the child’s eligibility for SSI and Medicaid.

A TSNT can also be used by the spouse of a disabled person who receives certain types of Medicaid benefits.  However, in the case of spouses, there are limitations on the amount of the spouse’s assets that can be used to fund the trust.

Income Trust

An income trust is necessary for an individual who requires long-term care and whose income exceeds 300% of the SSI limit.  For 2010, the 300% limit is $2,022.  Each month, the individual’s income is deposited into the income trust.  The location where the individual receives long-term care services, such as at home, in assisted living, or in a skilled nursing facility, determines how his income is used each month.

For example, if the individual receives home and community based services (HCBS) at home, he may be able to keep $2,022 of his income each month to use for his living expenses.  However, if the individual receives HCBS in an assisted living facility, or receives skilled nursing care in a nursing facility, then most of his income will be paid to the facility each month as his patient payment.  He will be allowed to keep a small amount, usually less than $100, each month for his personal needs.

There are also some allowances for the use of all or part of the individual’s income for use by his spouse if the spouse does not require care, as well as for health insurance premiums, deductibles, co-insurance, and special medical services.


There a several different ways of creating a special needs trust to enhance the quality of life for the trust beneficiary without jeopardizing his or her eligibility for public assistance.  The disability trust, pooled trust, third party discretionary trust, testamentary special needs trust, and income trust are the main trusts used for disability and special needs planning.  The goals for funding and use of the trust will determine which type of trust is most appropriate.  You should work closely with an elder law attorney who is experienced with these types of trusts as well as the different public benefits programs to decide which trust works best for your situation.

About the Authors: Marco Chayet is a partner, and Dawn Hewitt is an associate, in the law firm Chayet & Danzo, LLC, (303) 355-8500.  Their practice emphasizes elder law, guardianships, conservatorships, public benefits, probate, estate planning, Medicaid planning, VA planning and long-term care planning.  They can be reached online at or by e-mail at or or via mail 650 S. Cherry St., Suite 710, Denver, CO 80246.

The 12 Benefits of Tai Chi for Seniors

The benefits of Tai Chi for seniors are incredible. If you are looking for a low-impact, relaxing form of exercise that only requires about 20 minutes a day and rewards your efforts, Tai Chi is for you.  Tai Chi is an internal Chinese martial art in the sense that it focuses on mental and spiritual aspects integrated into movement.  This meditative form of exercise consists of a series of 19 movements and one pose. You may have seen groups of people demonstrating its slow-moving circular forms in public parks.

Many seniors and senior care facilities have been enjoying this style of workout and conditioning for more than 20 years.  Here are 12 benefits of Tai Chi for seniors:

  1. Relieves physical affects of stress
  2. Promotes deep breathing
  3. Reduces bone loss in menopausal women
  4. Improves lower body and leg strength
  5. Helps with arthritis pain
  6. Reduces blood pressure
  7. Requires mind and body integration through mental imagery
  8. Accumulates energy by releasing endorphins rather than depleting it
  9. Enhances mental capacity and concentration
  10. Improves balance and stability by strengthening ankles and knees
  11. Promotes faster recovery from strokes and heart attacks
  12. Improves conditions of Alzheimer’s, Multiple Sclerosis, and Parkinson’s

Many senior care facilities and community centers are offering Tai Chi classes (some free of charge) not only because of the extensive health benefits but also because it does not require any equipment or furniture.  Many seniors find it an easy activity and a peaceful environment in which to meet other seniors with common interests.

To learn first hand the benefits of Tai Chi for seniors and find a Tai Chi class in your area, simply input Tai Chi and your city into any search engine.  If you add the word “free” to your search you are likely to find a community center or other informal group that meets in a nearby park.  Your local library may have demonstration DVDs you can use if you cannot find an instructor or class that is convenient for you.

How to Background Check Your Home Care Provider

Whether you are a family member trying to choose the right home care company for your loved one, or you are a provider interviewing potential applicants, background checking is critical.

Eldercare abuse comes in many forms: financial, emotional and physical.  Being proactive about the selecting a home care provider can help you avoid worry, heartache and financial and potential legal action.

Example: Check-Cashing Fraud

Within months of hiring an in-home caregiver for her two aging parents, a woman in San Diego was notified by the Sheriff’s Department that the caregiver had opened 30 credit card accounts in the parent’s name and purchased three vehicles worth $50,000 with those credit cards. In addition, the caregiver had also convinced the elderly couple to provide her with power of attorney and then managed to have them sign over ownership of their house, valued at $650,000.  Further investigation of the individual revealed she had prior convictions for check-cashing fraud 10 years ago.  However, the background check only covered the prior 7 years of criminal history.

Knowing your home care provider does background checks is just the beginning. Not all background checks are the same and not all companies exclude potentially dangerous applicants based on the same criteria.

Questions to Ask Your Home Care Provider

  • How many years back in the person’s history does the check cover?
  • Does the check reflect both criminal and civil records?
  • Does the company check licensing status across state jurisdictions?
  • Are credit reports run?
  • Are Department of Motor Vehicles records obtained?
  • Are gaps in employment history verified?
  • Do they make the phone calls to references or are they outsourced?
  • Is evidence of education provided and confirmed?
  • What criteria does the company use to deny employment?  What offenses are tolerated?

Choose the provider with the most stringent background checking protocol.  If the provider cannot answer these questions, find another provider.

New Federal Database of Dangerous Caregivers

More than two decades ago, Congress demanded that a national database be available for hospitals to check for disciplinary actions taken throughout the country against nurses, pharmacists, psychologists and other licensed health professionals.   The database became available as of March 1st but there is some skepticism regarding the thoroughness and accuracy of the records.  When the information on this federal list was compared to the individual state records, they did not match up.  The reason for this inconsistency is due to the fact that some states filed incomplete records.

Although both the state and federal agencies continue to push for strong regulations of home care providers, you need to take an active role in making sure the right questions are being asked and the screening process is up to your standards.

Photo: ivers

Your Senior Health Care Bill: $260,000!

I have always been a big fan of Howard Gleckman, author of Caring for Our Parents.  In fact, he was the very first person I interviewed for my Leaders in Elder Care series.  If you aren’t familiar with Howard’s blog, you’re really missing out on a complete play-by-play of how the health care debate is impacting the cost of senior care.

This morning, he shared some startling statistics about paying for elder care that I have quoted below.  In this article, Howard has links to some fascinating studies about the out-of-pocket costs for seniors, and it is shocking.  It is mind-boggling to me how financing elder care will be solved as we move forward. He wrote:

A typical couple would have to save nearly $200,000 to pay for their out-of-pocket medical costs from the time they are 65 until they die, according to an important new study by the Center for Retirement Research at Boston College. Add in nursing home costs, and they are likely to need $260,000.

But that’s only part of the story. About 5 percent of 65-year-old couples will face catastrophic medical and long-term care costs exceeding $570,000, according to researchers Anthony Webb and Natalia Zhivan.They estimate those expenses would have exhausted the total financial assets of 85 percent of all retirees even at the peak of the stock market in 2007.

As someone who has first-hand experience with out-of-pocket expenses and my Mother’s care, I was still so stunned by these numbers, that I could not write a conclusion to this article.  What do you say?

Obviously, I encourage you to check out Howard’s writing.  In the meantime, what are your thoughts about these big numbers?

Photo: bubble dumpster

New Social Security Benefits for Alzheimer’s

Early-onset Alzheimer’s disease is one of 38 degenerative conditions included in the Social Security Administration’s new Compassionate Allowances program.  This fast-tracking system is designed to aid younger patients and their families in moving quickly from diagnosis to benefits.  Expediting this process aids in reducing stress associated with waiting for the lengthy approval process, and trying to plan the next stages of life while in a state of limbo.  Many of these younger patients–most in their 30s and 40s–are still working and have more extensive financial responsibilities than the traditional Alzheimer’s patient.  More typical Alzheimer’s patients are in their mid-to-late 60s, retired, and also too young to be receiving Social Security retirement benefits in some cases.

Effective March 1, 2010, the Administration will be able to electronically target and make prompt decisions in the best interest of the disabled patients.  In the past, when a younger patient began experiencing the cognitive limitations, they were not traditionally tested for Alzheimer’s disease. Instead, they were thought to be suffering from job and life-related stress.  This issue added to the lengthy process of identifying the correct diagnosis and than being approved for disability benefits.  With this new program, it is estimated that tens of thousands of younger Alzheimer’s sufferers will now qualify in a matter of days rather than the traditional months or years it often took in the past.

According to the Administration, approximately 200,000 people under the age of 65 currently suffer from the symptoms of early-onset Alzheimer’s disease.  Due to the sheer volume of potential benefit applicants, the Administration will also benefit from this new program as it will reduce the time and effort of the appeals process that in the past would contribute to slowing down the system for every patient.

Photo: benprks

Top Brain Fitness Programs for Sustaining Mental Acuity

In aging seniors, healthy brain function is about more than just memory and coordination; everyday tasks, relationships, hobbies and quality of life are all affected.  It stands to reason that the more aware and capable you are of cognitive reasoning and performing independent living activities the higher your self confidence and emotional health.

The nation’s largest study on brain fitness was performed in 2002 by the Advanced Cognitive Training for Independent and Vital Elderly (ACTIVE) and their results showed that a large percentage of participants over the age of 65 improved memory, reasoning and information-processing speed when they participated in training for five days per week.  In addition, the study showed a 47% lower risk of dementia in participants who worked crossword puzzles four days a week than those who only worked the puzzles once a week.  These results play into the notion of “Use it or Lose it” when it comes to cognitive aging.

Furthermore, an Australian study consisting of 30 peer-reviewed papers in controlled trials found that, as people experienced these lifestyle benefits they were also able to live longer and therefore reduce health care expenses.

Along with these studies, it is widely known that many seniors regularly engage in crossword puzzles, Sudoku and similar brain training games to slow dementia and aging.  Many software companies have tapped into this need by creating games and exercises that aid in sustaining mental acuity.  It has been reported that the brain fitness software market grew from $225 Million in 2007 to $265 Million in 2008.  Here are the top three systems that claim to reduce dementia rates in seniors.

Posit Science

Posit Science claims that their products will help the user “think faster, focus better, and remember more.”  Their software programs are designed for either a PC or a Mac. Each priced at $395.00

  1. Brain Fitness Program: Six programs that allow you to “Remember more & Feel Sharper” by practicing matching items, distinguishing objects, memory recall and story telling.
  2. InSight: Five programs designed for “Better Focus & Learn More” focusing on visual precision.
  3. DriveSharp: Two programs that deal with divided attention and increased processing times so that you will “Drive Carefully & React Faster”

Dakim BrainFitness

Dakim offers two brain training concepts for seniors.

  1. A complete self-contained console that only needs a high-speed internet connection but does not require a keyboard, mouse or software program installation.  It is marketed to both the individual senior and the senior living provider.  After the initial purchase of $2,299 for the touch-screen console, more than 150 games are available for a $19.95 per month subscription.
  2. 2. New brain fitness software to be released this April for $349.99, which includes a one-year subscription.


CogniFit is a web-based system that does not require you to install software or purchase a console.  Instead you access the programs through their website.  Both programs described below are priced based on the following subscription terms: $19.95 per month, $99.50 for 6 months, or $170 annually.

  1. CogniFit Personal Coach:  This program addresses overall cognitive skills and claims to improve memory and focus, and increase processing time.
  2. CogniFit Senior Driver: Similar to other driving programs, this system is designed to improve reaction time, handle multiple driving tasks and focus on potential road threat recognition.

About the Author: Ryan Malone is the founder and managing editor of Inside Elder Care and the author of the By Families, For Families Guide to Assisted Living.  He can be reach on Twitter at @RyanMalone.