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      - page 9 / 14





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called a “d4A” trust. Because the d4A trust is funded with the beneficiary’s own assets, the statute requires that at the death of the beneficiary or termination of the trust, the remaining

5 assets in the trust must be used initially to reimburse any state government that provided Medicaid to the beneficiary during her lifetime. Therefore, this trust can also be called a “payback trust.” In addition to the payback requirement, the d4A trust must be irrevocable; it can be created only by a parent, grandparent, court or guardian; and the beneficiary who is disabled must be younger than 65. Further funds cannot be put into the trust after age 65. Anyone other than the person with disabilities can be the trustee of the trust. The trust can provide that after the beneficiary’s death, once Medicaid is reimbursed, the remaining balance of the trust fund can be distributed to the intended beneficiaries of the person who is disabled.

The second type of safe harbor for a self-settled trust is found in 42 U.S.C. § l396p (d)(4)(C). In this case, if the person who is disabled transfers her own funds to a non-profit 501(c)(3) organization as trustee, which manages the funds as part of a pooled trust for persons with disabilities, the transfer is exempt from penalty. In this case, the trust must be irrevocable; it can be created by the beneficiary as well as by a parent, grandparent, court or guardian; and the beneficiary maybe any age. At the death of the beneficiary, the non-profit organization may retain a portion of the trust fund. However, Medicaid must be reimbursed from the remaining funds before the trust can be dispersed to other remainder beneficiaries.


The Trustee

Trustees of Special Needs Trusts have the same duties as trustees of other trusts. These duties include the duty of loyalty, the duty of care of a prudent person, the duty to observe the terms of the trust agreement, and the duty not to waste or squander the trust assets. However, trustees of a Special Needs Trust have added responsibilities.

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