A first-party special needs trust, reviewed by the SSA, was found to be invalid. Therefore, the trust assets are countable to the beneficiary/SSI recipient, who becomes ineligible for SSI. If the Trust assets exceed $ 2,000.00, which is the asset limit, he or she becomes ineligible for SSI. This series of posts will look at the Draper case, and consider the question of how can a parent establish a special needs trust for their child with a disability, that is to be funded with assets belonging to their child and not be found invalid, with the consequence of making the child ineligible for SSI and categorically-linked Medicaid.
In the Draper case, the special needs trust was reviewed by the Social Security Administration (the “SSA”) and found to be invalid. The trust was intended to hold money belonging to Stephany Draper. As will be explained later, it was Stephany’s parents who established the trust and then intended to move their daughter’s assets into the trust. The process did not turn out as planned, and Stephany lost her Supplemental Security Income (“SSI”) benefits. As can be seen, such a finding by the SSA, that a trust is invalid, has serious consequences.
Consequence of an Invalid First-Party Special Needs Trust.
If a first-party special needs trust found to be defective, contains assets exceeding what is known as the “resource limit,” i.e., the maximum amount of countable assets a recipient can own (currently, $ 2,000.00), the results are rather harsh. The SSI recipient will not only be found to be ineligible for a monthly cash payment because he or she has resources exceeding the resource limit, but the SSA will typically attempt to recover all the monthly checks paid to the recipient during the time the trust was (1) in existence, and (2) had assets (when combined with other assets owned by the recipient) exceeding $2,000.00. Since Medicaid (Medi-Cal in California) is linked to SSI by way of what is known as a “categorical-linkage,” the SSI recipient’s Medicaid benefits could also be in danger of termination.
The Cases Comprising Draper v. Colvin.
Initially, the parents received a letter from the SSA, advising them that the special needs trust was invalid. The first step was to follow the administrative appeal process. After exhausting their administrative options, the family turned to the federal courts.
There are actually two cases titled Draper v. Colvin, first, the trial court case: Draper v. Colvin, (2013, South Dakota) 2013 WL 3477272 (CIV. 12–4091–KES). The parents were unsuccessful, and appealed the decision to the Court of Appeals, resulting in the second case, Draper v. Colvin, (2015) 779 F.3d 556.
The Controlling Law.
The controlling law provides the definition of what has become known as a First-Party Special Needs Trust. The definition is found at 42 U.S.C. § 1396p(d)(4)(A):
“A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1382c(a)(3) of this title) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this subchapter.” (emphasis added.)
In Part 2 there will be an overview of the facts, which are taken primarily from the District Court decision, Case № CIV. 12–4091–KES, (July 10, 2013) and secondarily from the appellate decision. Then there will be some discussion in follow-up sections about some of the important elements of this case.Tags: First-Party SNT, Special Needs Trusts, SSI