Third Circuit Court Decision Affirms Medicaid Recipients of Any Age Are Allowed Use of Pooled Special Needs Trusts

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NAELA files amicus brief along with other groups. States cannot prohibit people age 65 or older from establishing accounts in pooled special needs trusts.

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Pooled special needs trusts let people with disabilities who have modest savings — as little as $5,000 — hold onto them without losing their Medicaid benefits.

The National Academy of Elder Law Attorneys (NAELA), along with the Special Needs Alliance and the Pennsylvania Association of Elder Law Attorneys (PAELA), filed a brief of amicus curiae in support of appellees, Zackery D. Lewis, et al., against the Pennsylvania Department of Public Welfare in Lewis v. Alexander, involving pooled special needs trusts (Case no. 2:06-cv-03963-JD, U.S. Court of Appeals for the Third Circuit).

“Pooled special needs trusts let people with disabilities who have modest savings — as little as $5,000 — hold onto them without losing their Medicaid benefits,” said NAELA board member Ron M. Landsman, CAP, the principal author of the NAELA amicus curiae.

A person with disabilities receiving Medicaid benefits can use funds from a special needs trust to purchase items not covered by Medicaid, such as:

  • Going to the movies or theater;
  • Clothing;
  • Personal care items, such as haircuts, shampoo, and sunscreen;
  • Computers and other electronics; and
  • Vacations and travel expenses.

In 2005 legislation, Pennsylvania tried to limit the use of pooled special needs trusts (62 Pa. Stat. Ann., § 1414). It would have prohibited anyone age 65 or older from having a pooled special needs trust account, as well as limited pooled special needs trusts to retaining 50 percent of the balance of any deceased beneficiary’s account. This legislation also would have limited expenditures from trust accounts for treatment of the person’s disabling condition, and nothing else.

The Third Circuit Court held that all of the limitations that were more restrictive than Congress’ rules for pooled special needs trusts were improper. The federal statute enacted by Congress permits pooled special needs trusts to retain any amount, does not limit how money is spent so long as it is for the welfare of the beneficiary, and allows people over age 65 to have such accounts.

Medicaid eligibility rules require that a recipient exhaust all but a modest amount of his or her personal resources before turning to the public for assistance. Congress established a general rule that a person’s own trust assets would be counted as assets for the purpose of determining Medicaid eligibility, but excepted special needs trusts from that rule.

In general, a special needs trust may only be used for the benefit of the person whose funds went into the trust or trust account, and on their death, the Medicaid program must be repaid in full before any money is distributed to the person’s family, heirs, or others he or she might name in a will. For “pooled” special needs trusts, the rules are roughly the same, except that after the person dies, the trust might keep money from the account for the benefit of other disabled beneficiaries, instead of paying it to Medicaid.

About NAELA
Members of the National Academy of Elder Law Attorneys (NAELA) are attorneys who are experienced and trained in working with the legal problems of aging Americans and individuals of all ages with disabilities. Established in 1987, NAELA is a non-profit association that assists lawyers, bar organizations and others. The mission of NAELA is to establish NAELA members as the premier providers of legal advocacy, guidance and services to enhance the lives of people with special needs and people as they age. NAELA currently has members across the United States, Canada, Australia and the United Kingdom. For more information, visit NAELA.org.

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Abby Matienzo, Communications Specialist
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