WE DESIGNED Innovative TRUST FOR FATHER to Set Aside Funds For Disabled Son

A client's daughter initially came to see us with the sole goal of protecting the funds her father had transferred into trust for her disabled brother. Although disabled, her brother still works. Shortly thereafter the father had to move to a nursing home.

Most transfers to trusts for disabled individuals are fine under the MassHealth rules. But to qualify as "disabled" the beneficiary of the trust must not be able to work. Since our client's son could work, the transfer caused a long period of ineligibility for MassHealth benefits.

Prior to the passage of the Deficit Reduction Act of 2005 (the "DRA"), this would not have been a problem because the father kept enough funds to pay for his care during the MassHealth penalty period. But under the DRA, his penalty period will not begin until he depletes all of his savings, after which he will have no funds left and will still be ineligible for MassHealth benefits.

We devised a plan to have the penalty period begin immediately, as it would have prior to passage of the DRA. It involved the client loaning his remaining funds to his healthy daughter under a MassHealth-qualified promissory note. This eliminated his remaining funds and permitted the penalty period for the transfer into the trust to begin. The client is using the funds his daughter pays him back each month to pay the nursing home during the penalty period.

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