Some clients are already eligible for public benefits such as Medi-Cal, or SSI, or may be eligible for these public benefits as a result of their work comp injury. To best protect these clients, the applicant attorney should understand what steps are needed to protect the client’s public benefits. Good planning is essential because the receipt of settlement funds may jeopardize public benefits eligibility.
For example, a client that is eligible for Supplemental Security Income (SSI) or Medi-Cal and receives a WC recovery will lose his or her SSI and Medi-Cal until the litigation recovery is spent below $2,000 for an individual or $3,000 for a couple (i.e., the resource limits for SSI and Medi-Cal).[1] The most common solution to this dilemma is placing the litigation settlement into a qualifying first party special needs trust, either an individual SNT or a pooled SNT.[2] 

This article will describe in some detail the differences between Individual and Pooled SNT’s. Provide indicators to determine which first party SNT to utilize to preserve the clients Medi-Cal, or SSI to preserve both public benefits at the same time.

Medi-Cal Protection: Utilizing the Special Needs Trust

If the client is receiving SSI or Medi-Cal these public benefit programs only allow the recipients to have $2,000 in resources. The primary way to preserve public benefits for a litigation recovery is to transfer the settlement or judgment into a qualifying first- party SNT. This way the settlement or litigation proceeds are not counted against the resource limitation for the public benefit programs.

The requirements for the two types of SNT’s in use in California are: 

  • A trust that contains the assets of an individual with a disability under age 65, established for his or her benefit by a parent, a grandparent, a legal guardian, or the court, if Medi-Cal will receive all amounts remaining in the trust on the beneficiary’s death up to the amount of Medi-Cal benefits paid.[3] This trust is commonly called a (d)(4)(A) SNT, a litigation SNT, or a payback trust. 
  • A trust that contains the assets of an individual with a disability if (a) the trust is established and managed by a nonprofit association and maintains separate accounts of pooled assets; (b) the accounts are established by a parent, a grandparent, a legal guardian, the individual beneficiary, or the court; and (c) the state will, on the beneficiary’s death, receive all amounts remaining in the beneficiary’s account (not retained by the trust) up to the amount of Medi-Cal benefits paid.[4] These trusts are commonly known as Pooled SNTs or (d)(4)(C) SNT’s.

Notice that the litigation SNT may only be used if the client is under age sixty-five. If the Client is age 65 or over, the litigation proceeds must be placed in a Pooled SNT to preserve eligibility for Medi-Cal. Unlike the litigation SNT, the Client may join a Pooled SNT directly. California adds some requirements to SNT’s if the client lacks capacity. Primarily, the SNT must be under continuing court jurisdiction which means an individual trustee is bonded and there are ongoing court accountings. 

Protecting Client Receiving Both Medicare and Medi-Cal
If a client is receiving both Medicare and Medi-Cal, the existence of an MSA account can jeopardize the client’s continued eligibility for SSI and Medi-Cal. MSA’s are not subject to any special treatment under Medi-Cal resource rules.[5] Because MSA’s are all funded with property belonging to the client, each will be subject to SSI and Medi-Cal $2,000 resource restrictions. As a result, funds held in an MSA will generally be considered an available resource for purposes of determining Medi-Cal or SSI eligibility and disqualify the client from those benefits. The other issue will be when the MSA is initially funded. SSI and Medi-Cal will treat the funding of the MSA as a transfer without fair consideration resulting in the imposition of a period of ineligibility for SSI and Medi-Cal that could last up to three years.[6]

The solution to this dilemma is having the client’s SNT own the MSA. This way, the MSA is treated as an exempt asset for SSI and Medi-Cal purposes. The MSA is then administered inside the SNT just as if it was owned directly by the client. This way the client continues to receive SSI, Medi-Cal and Medicare.

If the client wishes to use a Pooled SNT to preserve eligibility for SSI and Medi-Cal, the authors are only aware of one California Pooled SNT that can hold and manage an MSA inside the Pooled SNT; the California Charities Pooled Trust (see for more information).

One additional issue can arise when the client dies. The litigation SNT must pay back to Medi-Cal all payments it made on behalf of client. If there is an MSA, the assets inside that cannot be released until all medical claims have been paid.[7] This may involve holding the MSA open for a period ranging from 15 to 27 months after the date of service to make sure all claims have been paid. However, the Medi-Cal agency may require payments for its claims immediately and force a trustee to make an impossible choice between complying with Medi-Cal agency request or holding assets and complying with Medicare’s agency request.   

A solution to this issue would be placing funds into the Pooled SNT. The Charities Pooled Trust are allowed to retain funds in the trust and thus legally satisfy Medi-Cal’s payback requirement and also satisfy Medicare’s requirement to pay all remaining health care costs.

Using the SNT and MSA are important tools to protect your Client’s ongoing government benefit eligibility. It is recommended that these trust should be established and administered by professionals to prevent accidental lose of public benefits.

[1] 20 C.F.R. §416.1205(c) (SSI), 22 Cal Code Regs §§50419-50420 (Medi-Cal)[2] See 42 U.S.C. §1396p(d)(4)(A) & (C) allowing SNTs[3] 42 U.S.C., §1396p(d)(4)(A)[4] 42 U.S.C. §1396p(d)(4)(C)[5] CMS Memorandum (July 1, 2005) Q13[6] 42 USC §1382b(c)[7] CMS Memorandum (Apr. 21, 2003)