Trust II

shutterstock_833194The Arc of Indiana Master Trust – Trust II

The Arc of Indiana Master Trust II allows people with disabilities to fund a special needs trust with their own money and maintain eligibility for government benefits such as Medicaid, SSI and SSDI.

 

People receiving an inheritance, a lump sum back-payment from Social Security or a lawsuit settlement have put their money into a Special Needs Trust rather than spend the money quickly just to stay eligible for government benefits.

The Arc Trust II is ideal for, but not limited to, the following situations:

  • Small to mid-sized Social Security lump-sum, back payments
  • Small to mid-sized personal injury and medical malpractice settlements
  • Avoiding monthly spend-down in order to keep under the $1,500 Medicaid and $2,000 SSI resource requirements
  • Tandem trust arrangements
  • Third-party funded trusts that cannot meet the minimum funding requirement for Trust I
  • Inheritance

Trust II investments are limited to the purchase of EE series United States savings bonds. All other funds are kept in a non-interest bearing checking account, which has a balance of over $13 Million.

Enrolling in The Arc Master Trust II

We work to make enrolling in The Arc Master Trust as understandable and as easy as possible. Our Trust Director, Melissa Justice, can meet with families, individuals, attorneys and financial planners at whatever location is best for you to discuss the trust and assist in preparing the paperwork to establish the trust. Learn more about The Arc Master Trust II enrollment process.

Trust II Fee Structure

What are the fees for Trust II?

The fee structure for The Arc of Indiana Master Trust II has two parts:

1. Enrollment Fee
There is a one-time Enrollment Fee of 12.75% of the amount funded, with a minimum of $100 and a maximum of $1,500. This fee is allocated from the check used to fund the trust.

2. Consulting Fee
The Consulting Fee is an annual fee. We use a sliding scale to assess the Consulting Fee based on the balance of the account. It is assessed each year from each beneficiaries account. It does not represent an out of pocket expense.

 

Account Value  Trust II
Consulting Fees
Less than $5,000 $58
$5,000 – $5,999 $70
$6,000 – $6,999 $82
$7,000 – $7,999 $96
$8,000 – $8,999 $108
$9,000 – $9,999 $127
$10,000 – $10,999 $172
$11,000 – $11,999 $194
$12,000 – $12,999 $215
$13,000 – $13,999 $240
$14,000 – $14,999 $269
$15,000 – $15,999 $299
$16,000 – $16,999 $329
$17,000 – $17,999 $358
$18,000 – $18,999 $390
$19,000 – $19,999 $424
$20,000 – $20,999 $436
$21,000 – $21,999 $497
$22,000 – $22,999 $532
$23,000 – $23,999 $567
$24,000 – $24,999 $605
$25,000 – $34,999 $652
$35,000 – $49,999 $753
$50,000 – $74,999 $814
$75,000 – $100,000 $940

 

Trust II and Medicaid Payback

Public benefits agencies, like those who administer Medicaid and SSI place a cap on a recipient’s income and assets in order for the recipient to become or remain eligible for benefits. Individuals who receive Medicaid cannot have more than $1,500 in assets. A person who receives SSI cannot have more than $2,000 in assets. These types of benefits are referred to as “means-tested” benefits.

When a recipient of means-tested benefits receives a lump sum of money, that money can make him or her ineligible for assistance. Fortunately, The United States Congress passed a law in 1993 allowing persons to fund their own Special Needs Trust. This law is called the Omnibus Budget Reconciliation Act of 1993, (or OBRA ’93 for short).

Today, a trust, such as Trust II, funded by a person with his or her own money is called a Self-Settled Trust, or a Medicaid Payback Trust. This is because when Congress passed OBRA ‘93, it required that when the recipient Beneficiary passes away, any funds left in the trust must go back to the State to reimburse the state’s Medicaid program for the money it spent on the beneficiary during his or her lifetime. Any money remaining after the State has been reimbursed can pass to the recipient beneficiary’s estate or heirs. It is rare for any money to be left after the State has been reimbursed for Medicaid expenses.

However, in the case of trusts like Trust II, the law allows a portion of the trust to go to an organization that assists persons with disabilities prior to the state receiving any remaining funds. Although the law allows trusts like Trust II to retain up to 100% of the remaining balance, The Arc Trust retains only 50% of the remainder. After The Arc Trust has retained 50% of the funds remaining in the trust, only then does the State receive any remaining funds.

Some families are at first surprised to learn that The Arc of Indiana retains 50% of the assets remaining in a Trust II account upon the death of the beneficiary. Without understanding how the federal law works, it is natural to assume that the 50% retained by The Arc otherwise would pass to the beneficiary’s estate. However, in the overwhelming majority of cases, if The Arc did not retain any of the remainder, the State would claim it all anyway.

How do we utilize the 50% we retain? The Arc Trust only uses the remaining money for trust administrative expenses and for existing beneficiaries. One way The Arc of Indiana uses that money is to guarantee to Trust I beneficiaries that disbursements will continue to be made even if they outlive their actuarial life span and deplete their accounts.

In those rare cases where the trust account is large and the beneficiary has been on Medicaid only a short period of time, there is the chance that The Arc of Indiana’s 50% remainder requirement may decrease money that otherwise would pass to the beneficiary’s estate. Again, this is rare. When there is the potential for this situation to arise, The Arc of Indiana may suggest employing a Tandem Trust. We would be happy to provide you with more information on Tandem Trusts. If the beneficiary passes away within a year of funding their trust, The Arc will not keep the full 50% of the assets remaining in the Trust II account.

There is no avoiding Medicaid Payback when a special needs trust is funded with money originally belonging to the beneficiary. It is important to remember, however, that there is no mandatory remainder requirement when an Arc Trust is funded with money originally belonging to someone other than the beneficiary, such as parents or grandparents.

Frequently Asked Questions

What is the basic purpose of Trust II?

The primary purpose of Trust II is to enhance the quality of life of individuals with disabilities without jeopardizing government benefits like Medicaid, SSI, and SSDI.

Is there a minimum or maximum amount that can be put into Trust II?

There is no required minimum, but accounts are usually funded with several thousand dollars. However, an account can be started with as little as the cost of our Enrollment Fee.

Are all Trust II disbursements reported by The Arc Master Trust?

Yes. An important part of our service for both trusts is reporting disbursements and explaining why they do not interfere with eligibility for benefits like Medicaid, SSI and SSDI.

What kind of investments are made through Trust II?

Interest-bearing investments are limited to U.S. savings bonds, series EE.

Must EE bonds be redeemed when a beneficiary wants to use Trust II?

We recommend that enough cash be retained in the checking account to meet anticipated withdrawals. If the checking account is not adequate to make a purchase, bonds are then redeemed.

How long must I wait before I can redeem the bonds?

There is a government required wait of one year from the time the bonds are purchased until they can be redeemed. For example, if the bonds are bought in January, they cannot be redeemed until the following January.

Can the beneficiary designate how much of his or her trust is put into EE bonds and how much is put into the checking account?

Yes. The beneficiary, or his or her legal representative, has full control. He or she decides how much to put into the checking account and how much to put into EE bonds.

What would it cost if I went to a local attorney to have a trust drafted?

For a precise answer, you need to ask the attorney who would draft the trust. However, a trust comparable to ours is likely to cost several times more.

My child is a minor. I have applied for the Medicaid Waiver for him. He would be eligible for the waiver, but he has assets over the allowable limit to meet Medicaid financial eligibility. Can Trust II help?

Yes. You can put his or her money into Trust II. Once the money is in our trust it no longer counts as an asset in determining his or her other financial eligibility for the waiver. However, per federal law, after your child’s death, the state has a claim on a portion of any funds remaining in the trust.

Because my child is a minor, are disbursements from his Trust II account considered differently than if he were an adult?

Parents of minor children have a legal duty to provide basic support for their children, including food, clothing, shelter and basic educational expenses. This duty ceases at age 18. Using the child’s trust fund to pay for what parents are legally obligated to provide would not be in the child’s best interest.

Disbursements from your child’s trust should be reserved for extraordinary expenses, such as expenses unique to parents whose minor children are disabled, or very large medical expenses not covered by insurance or Medicaid and not easily afforded by the parents.

Every situation is somewhat different. However, as a general rule, if the requested disbursement is for something that our laws and cultural norms generally expect parents of a minor to provide for their children, then The Arc Trust will be reluctant to use funds from the child’s Trust II account for such requests.

If my child is a minor or an incapacitated adult, can I, as his parent or guardian, enroll for him?

The law allows the parent, guardian, court or the person with the disability to open the trust. There may be times when a court order is required to open the Trust II account.

By using Trust II, does a beneficiary incur taxes?

Taxes may be due on interest received when any EE bonds are redeemed. If bonds are not redeemed, then no tax is due. Because Trust II funds are held in a non interest-bearing account, Trust II accounts do not generate a taxable event. Only when we redeem EE bonds does a taxable event occur.

Will The Arc prepare the necessary tax forms when bonds are redeemed?

When bonds are cashed in, a 1099 MISC form is generated from the bank. The 1099 is mailed to the Trust II Beneficiary. Beneficiaries then report this information, along with other income, on the tax forms they already use.