Bench & Bar

MAY 2013

The Bench & Bar magazine is published to provide members of the KBA with information that will increase their knowledge of the law, improve the practice of law, and assist in improving the quality of legal services for the citizenry.

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FEATURE: KENTUCKY'S ELDER LAW NEW KENTUCKY SPECIAL NEEDS TRUST STATUTE BRINGS RELIEF TO THE DISABLED by Brian Borellis Effective July 12, 2012, Kentucky has a new statute providing a clear path for practitioners to create a Special Needs Trust and thus obtain Medicaid benefits for disabled clients in cases where, prior to the new legislation, there was uncertainty about how and where to proceed to establish the trust. Although the federal statute, 42 U.S.C. § 1396p(d)(4)(A), (C) (2013), enacted in August 1993, established the substantive basis for the creation of Special Needs Trusts, that statute has been inexplicably constrictive in certain respects. On the one hand, the federal law endorses a policy of inviting disabled individuals to protect assets via a trust. At the same time, however, it imposes – despite the munificent legislative purpose – counterintuitive limitations on who may create the trust.1 This article will examine the framework of the Kentucky statute and how it enables counsel to establish a trust on behalf of clients. The new law also provides greater certainty on certain vexing issues that may arise in this esoteric area of practice. 14 A practical situation that arises from time to time illustrates the impact of the new Kentucky statute. A client has sustained a serious injury and will need long-term health care as a result. Alternatively, the client has been receiving longterm care benefits under Medicaid and is about to receive an inheritance. In each case the client is "categorically eligible" for Medicaid benefits based on disability2 and in each case the client also needs long-term care. AlB&B; • 05.13 though the definition of "disability" for purposes of determining eligibility for longterm care benefits is essentially the same as for Social Security Disability Income ("SSDI"), when long-term care benefits are at stake, eligibility is also based on the client's income and resources (together, the client's "assets"). In other words, eligibility for some disability benefits depends on disability alone, without inquiry into the person's financial situation, whereas eligibility for other disability benefits depends on the extent of an individual's assets as well as disability – this latter group is known as "means tested" benefits. For instance, 45year-old John, who is no longer able to work because of a back injury, can qualify for SSDI even if he has $1 million in assets. If, however, John is not only disabled, but also needs long-term care such as nursing home or home health care, his assets would prevent him from qualifying for longterm care benefits payable by Medicaid. The solution to the problem is to place the assets that would otherwise disqualify the client from eligibility for long-term care benefits into a Special Needs Trust, or "SNT." In doing so, the funds are available to provide for John's supplemental support, which means, in essence, anything Medicaid does not cover. So long as the client is under age 65, he or she is a candidate for a SNT.3 The problem under the federal statute, as alluded to earlier, is that the federal legislation has narrowly defined the "needle" through which the legal camels could pass on their way to obtaining benefits for the disabled individual. The SNT could only be created by the disabled individual's parent, grandparent, legal guardian or the court. Thus, where there is no living parent, grandparent or legal guardian, the only recourse has been through the judicial process. In cases where the disabled individual is already before the court, for example, a personal injury action is pending, counsel routinely moves the court for an order placing the recovery in a SNT. But what about situations where there is no open case? How does counsel get in front of a judge? Who has standing to petition the court? What if family members want to create a trust, but do not want to initiate guardianship for a brother who needs long-term care assistance, and he is not mentally incompetent? The new Kentucky statute provides a reassuring resolution to this quandary: it greatly broadens the opening of the needle and thus – within the scope of the federal law – allows many more camels to pass through to bring relief to the disabled individual. Now, under Ky. Rev. Stat. § 387.865, a disabled person's spouse, sibling, attorney-infact, other individuals closely associated with the individual's care – even the disabled individual — may petition the court.4 REQUIREMENTS OF THE PETITION Who can file a petition Ultimately, the purpose of the Kentucky statute is to create standing: to broaden the base of individuals who have a relationship to the disabled individual to initiate a petition. The statute, Ky. Rev. Stat. § 387.865(1) grants authority to bring the petition to individuals who generally have a fiduciary relationship with the disabled individual, whereas subsections (2) and (3) focus on those with a familial relationship, including siblings, nieces and nephews, as well as the disabled individual him- or herself and the individual's spouse. Subsection (4) specifically authorizes an attorney-in-fact acting under a power of attorney ("POA") to bring the petition, since in many cases the POA is serving more as an agent than a fiduciary. Finally, section 387.865(5) is essentially a catch-all that allows those who have an ongoing care-focused or professional relationship with the disabled individual to petition the court.

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