A recent decision by the Third Circuit held that pooled trusts are available to those over the age of 65, and that Congress intended the charity to retain 100 percent of the trust residual on the death of the special needs beneficiary.
The case involved a possible clash between state and federal law, as it affected the Medicaid system, which is a state/federal partnership. To avoid abuse of the Medicaid system by using trusts to hide assets to manufacture Medicaid eligibility, Congress instituted stringent rules that trusts were to be regarded as assets in many circumstances. However, they exempted certain trusts that were designed to provide disabled/special needs individuals with comforts and other necessities, not covered by Medicaid.
Plaintiffs brought a class action under Section 9 of Pennsylvania Act 42 of 2005, codified at 62 Pa. Stat. Ann. § 1414 (Section 1414). This section was intended to regulate special needs trusts. The suit challenged Section 1414, saying it is preempted by the federal statute governing Medicaid eligibility. They sought declaratory and injunctive relief, granted by the District Court, which held that all but one of the provisions in question in Section 1414 was preempted
The court also ruled the plaintiff’s case was capable of being decided by a court, that they had a private right of action under Section 1983 and the Supremacy Clause, and that Section 1414 was severable. An appeal followed. The court’s finding on the appeal was that Section 1414’s 50-percent repayment rule, special needs provision, expenditure provision, and age restriction are preempted by federal law.
To view the complete appellate decision, you may find it here: http://www.ca3.uscourts.gov/opinarch/113439p.pdf
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
- The Magic of Grantor Trusts - September 19, 2023
- IRS Confirms Grantor Trust Status Alone Does Not Cause a Step-Up in Basis - August 15, 2023
- Double Your Gifting with Spousal Gift-Splitting - January 11, 2022