Knowing how to protect Nazi restitution funds can be an important part of an elder law practice, even if relatively few of our clients were victims. In 2011, it was estimated that there were still approximately 125,000 Holocaust survivors living in the U.S. (Findings of H.R. 2786: Holocaust Survivors Assistance Act of 2011) Given the ages of those affected, this population is declining markedly each year. Nonetheless, there are significant legal protections for funds received by victims of Nazi persecution, so for those who receive such restitution payments, it is critical to be aware of these protections when such cases do arise.
As early as 1952, West Germany passed an indemnification law to provide compensation to Holocaust survivors. Since then, Germany and other countries have passed new laws and created additional funds for various populations of victims, which are too numerous to list here. (A good summary and set of internet links can be found at www.claimscon.org). Compensation can be either in the form of regular pensions or lump sum payments. Eligible victims may have been in Germany, or other countries throughout central and eastern Europe.
III. Effect on Public Benefits Eligibility
All forms of Nazi restitution payments are non-countable for Medicaid, SSI and federally subsidized housing programs. In 1994, Congress passed the Victims of Nazi Persecution Act of 1994, which states that:
"Payments made to individuals because of their status as victims of Nazi persecution shall be disregarded in determining eligibility for and the amount of benefits or services to be provided under any Federal or federally assisted program which provides benefits or services based, in whole or in part, on need." Victims of Nazi Persecution Act of 1994, Public Law 103-286 (108 Stat. 1450)
Even before this bill was passed, there was federal case law to support the position that payments made under the German Restitution Act could not be counted in Medicaid eligibility determinations. See Grunfeder v. Heckler, 748 F.2d 503 (1984). The federal law is now codified at 42 USC §1437a, and can also be found at 20 CFR 416.1236(a)(18) and POMS SI01130.610.
Non-countable as income and non-countable as an asset
Not only are the restitution payments non-countable as income in eligibility determinations, but the accumulated restitution funds are non-countable assets for all federally funded public benefits as well. SI01130.610, SI 00830.500(d). (Practice note about reference to POMS – The POMS include more instructive guidelines for situations concerning restitution payments than can be found in federal Medicaid rules and the Medicaid regulations in many states. Reference to the POMS should still be instructive in many Medicaid cases, however, because most states cannot have Medicaid rules that are more restrictive than the SSI rules. And for the states that don’t follow that rule, reference to the POMS may still be helpful as guidance even if its not directly binding.) Recipients of these funds are not required to spend them down to maintain eligibility. Further, the accumulated restitution payments remaining at the death of the recipient should be exempt from estate recovery. See CMS State Medicaid Manual §3810.
Segregation of funds preferred but not required if "identifiable"
Certainly, a client who has always segregated Nazi restitution funds from other funds will have a much easier application for Medicaid or SSI, and will have a greater certainty of protecting such funds. But how many recipients have, or could have been expected, to have done this? Some starting receiving payments before Medicaid or SSI was even enacted. And the rest were likely decades away from thinking about the convoluted eligibility rules for such programs or future effect of the 1994 Victims of Nazi Persecution Act.
Fortunately, the law permits commingling of excluded and non-excluded funds as long as the excluded funds are "identifiable." See POMS SI01130.700. "Identifiability does not require that excluded funds be kept physically apart from other funds (e.g., in a separate bank account)." POMS SI01130.700(B)(1). Excluded funds may be identified by presenting documentation of both the nature of the (Nazi restitution) payments and the deposit history into one or more accounts. Because it would be impossible to unscramble the egg of commingled funds once withdrawals begin, the presumption is in favor of the applicant – where withdrawals are made
from an account with commingled funds, there is an assumption that the non-excluded funds are withdrawn first. POMS SI01130.700(B)(2). So if you can just prove the amount of Nazi restitution payments going into an account, that amount (or the full balance if there’s less remaining) is excluded from countable assets.
But can you just calculate the total amount of restitution payments received during life and then simply exclude that amount of funds wherever and however they are held – without evidence that restitution funds were deposited into that specific account or asset? Some would argue yes, and can cite individual cases where Medicaid accepted such an argument. For example, in a Massachusetts Medicaid Administrative Appeal, the agency accepted the position that approximately $315,000 held in a restitution trust should be excluded from the asset limit calculation after documentation was submitted that verified that the Medicaid applicant and his spouse had received approximately $385,000 in restitution payments to date. (MassHealth BOH Appeal No. 0402166, 8/14/04) There was no requirement to provide documentation that the $315,000 itself came from restitution funds. There is some logic to this position because it can be impossible to trace where payments going back to 1952 were deposited, and the clear presumption is that non-excluded funds were spent before excluded funds. SI 01130.700 (B)(2). Therefore, showing that a remaining amount of assets (which is less than the total amount of payments) that was subsequently earmarked by the applicant as restitution funds could be enough to exclude them.
Some favorable administrative decisions where "identifiability" was challenged
Little case law exists to help define what constitutes "identifiable" excluded restitution payments when there is not good documentation of where the funds went after receipt. However, the two following Medicaid Administrative Appeal decisions are good examples of reasonable interpretations (and a favorable outcomes) in cases where "identifiability" cannot be well documented. In a New York decision, the applicant had documented a total of approximately $290,000 in restitution payments received. Less than a year before seeking coverage, he transferred two brokerage accounts totaling approximately $185,000 into an account held in the name of a restitution trust, and began depositing subsequent monthly restitution payments into the account. (NY Fair Hearing No. 4433606Z, 1/18/07) The hearing officer held that this was sufficient evidence that all of the newly created account constituted excluded restitution funds. The hearing officer was persuaded after citing two salient points regarding "identifiability" in the POMS – (1) the operating assumption is that non-excluded funds are spent before excluded funds, and (2) the agency should "accept the individual’s allegation as to the date and amount of a deposit of excluded funds if it agrees with the evidence in file on receipt of the funds." SI 01130.700 (C)(2). Given that applicant had identified the restitution funds by placing them in a separate trust account and the amount in the restitution trust was less than the total amount of payments received, the hearing officer accepted the restitution trust account as excluded assets.
In an Ohio decision, the applicant documented that the she had received a total of $190,000 in restitution funds and had placed approximately $160,000 from various accounts into a restitution trust a month before seeking Medicaid eligibility. (Ohio State Hearing No. 1298841, 1/10/07) Although Ohio has an administrative code section which states that "identifiability" may be established by a written statement from the recipient which declares the resource as the accumulated funds from a restitution payment, the Ohio agency took the position that the applicant did not have the mental competency to submit a statement at the time of the hearing so no evidence of "identifiability" existed. The hearing officer dismissed this position by noting that the creation of the restitution trust itself served as evidence that the applicant "viewed all her assets as emanating from the reparation payments, regardless of whether they had been distributed into various bank or other financial accounts." (Ohio State Hearing No. 1298841, 1/10/07, Page 5). The hearing officer went on to note that the applicant’s legal representative could provide a written statement that declares what portion are the accumulated funds from restitution payments.
The consistent theme of the above decisions is that when the total amount of restitution payments received is more than the amount claimed as excludable, these agencies must be cognizant of the near impossibility of proper documentation and the legal presumption in favor of excluding the funds.
IV. Practice tips
1. Calculate past restitution payments in advance of need for benefits
Any client who has received restitution payments and is concerned about future eligibility for public benefits should calculate the amount of past payments received to date. Usually, one can work with the appropriate consulate or foreign governmental agency administering the fund(s). This can take considerable time and cannot always be accomplished in the normal time limits of an application for public benefits, so putting in the effort well before the need for an application is usually the best option. Further, doing a year-by-year, if not month-by-month conversion of the foreign currency to U.S. dollars will result in the most accurate total and presumably yield more credible results.
Where documentation is lacking, other evidence of payments, including an affidavit of the recipient or his or her representative can be helpful, as shown in the Ohio case discussed above.
2. Segregate and spend non-excluded funds first
Although segregation of the funds is not a absolute requirement, as a practical matter, it will make for a much simpler application for public benefits and a greater likelihood of success in protecting the funds.
3. Use a trust
Using a trust for the purpose of segregating excluded restitution funds can be helpful. First, as shown in the New York case discussed above, the mere fact that the recipient placed the funds in a trust designated as a restitution trust can serve as evidence that the funds have been "identified" as restitution funds. Second, segregating the funds in a restitution trust will increase the likelihood that the client (or his or her representative) will keep the funds segregated and preserved as the funds are transferred to different investments or institutions from time to time.
Because the funds in the trust will be protected simply by virtue of the fact that the funds are "identifiable" as restitution funds, the trust form itself need not be in a specific form for this purpose. The trustee may have full discretion to use the funds for the grantor and the grantor may be trustee for himself or herself. Usually, the trust will include a reference to restitution funds in both the title and the trust purpose to reflect the nature of the funds held in it, but the structure of the document will be dictated by other estate planning considerations and the client’s specific situation.
Nazi restitution payments are granted considerable protection under federal law. To ensure recipients of such funds fully realize this protection, they should calculate the amount of payments they’ve received to date, and segregate those funds in a separate trust.