What is the Deficit Reduction Act?
The Deficit Reduction Act of 2005, also known as DRA, is a Federal law that grants states the ability to modify their Medicaid programs. This allows individual states to reform their Medicaid programs to fit with the present health care environment while maintaining federal guidelines. In short, it is a Federal law that is implemented in each state differently.
What were the Significant Provisions of the DRA?
Paying Debt with a Special Needs Trust
A Special Needs Trust (SNT) can pay past debt incurred by beneficiaries. This includes credit card debt or cash loans. This text will address the rules and limitations associated with paying past debt properly. It is important to remember that for a Special Needs Trust to pay a loan, it must be bona fide loan.
To be certain a trust can pay for such items the Trust Document must be reviewed, as it governs the proper administration of the Special Needs Trust Account. The Trust Document can have specific limitations on paying for certain items/services, or limitations on how much past debt can be paid. For example, some Special Needs Trusts are drafted to prohibit the purchase of cigarettes, which would then prohibit the Trustee for paying any past debt that went towards paying for cigarettes.
What is a Bona Fide Loan Agreement and a Bona Fide Informal Loan?
William E. Lindahl, MBA, CLPF