Special Needs Trust (Continued from page 19)


rogation claim, after deducting appli- cable attorney fees and litigation costs.17


Commonly, the attorney will deposit such funds into a separate es- crow account.


An attorney who disposes of a recov-


ery after written notice of a subrogation claim and without the State’s written ap- proval, is liable to the State for any amount that is not recoverable because of the dis- position.18


The State will aggressively


litigate claims against the attorney who disposes of funds required to satisfy a Medical Assistance lien.19


In negotiating


the Medical Assistance lien, it should be noted, however, that the State may settle or release its subrogation claim if collec- tion of its claim would cause substantial hardship to the Medical Assistance recipi- ent or, in a wrongful death action, to the Medical Assistance recipient’s surviving dependents.20 The investigation begins with deter- mining whether the client is in fact receiving Medical Assistance benefits. The Division of Recoveries and Financial Ser- vices of the Department of Health and Mental Hygiene can advise whether a lien exists. Upon request, the Division of Re- coveries and Financial Services will provide a printout identifying all of the disabled client’s healthcare and medical


17 18 19 20


Md. Health-Gen. Code Ann. § 15-120(c)(1) (Supp. 1998).


Md. Health-Gen. Code Ann. § 15-120(c)(2) (Supp. 1998).


See Roberts v. Total Health Care, Inc., 349 Md. 499, 709 A.2d 142 (1998).


Md. Health-Gen. Code Ann. § 15-120(c)(3) (Supp. 1998).


equipment providers, as well as any amounts paid on the client’s behalf. In addition to assisting with your discovery while the action is pending, this tool is invaluable later on when negotiating the amount of the lien. By referring to both the printout and disabled client’s medical records, counsel may be able to determine which Medical Assistance payments were made as a re- sult of the injuries caused by the alleged negligence. For instance, if a child has sei- zures and developmental delays as a result of asphyxia at birth, payments made for anti-convulsants and physical therapy, among other similar needs, are deemed recoverable. Payments, however, for un- related needs, such as treatment for a sinus infection or basic dental care, arguably are not the result of the claimed negligence and should not be included in the lien. This can be an effective tool in reducing the Medical Assistance lien.


Counsel can also attempt to negotiate


the Medical Assistance lien if it is so large that reimbursement of the entire lien could have a detrimental impact on the disabled plaintiff.


If the Medical Assis-


tance lien would consume a majority of the monetary recovery, an argument can be made that reimbursement of the en- tire lien would defeat the purpose and intent of OBRA ’93. In fact, the Act rep- resents a win-win opportunity for both the State and the disabled client. Prior to OBRA’93, a monetary award would com- pletely destroy a client’s eligibility until the client became impoverished and again would require Medical Assistance. Under this scenario, Maryland would have its initial lien satisfied, but would accrue even greater expenses in the long run with no means of satisfying the lien. With a Spe- cial Needs Trust, however, a client’s assets are preserved and, if invested prudently,


will satisfy the client’s needs while maxi- mizing the State’s recovery upon the client’s death.


Funding Of The Trust: After the final step of obtaining court


approval has been accomplished, the award or settlement proceeds should be paid directly to the professional Trustee, or, if there is none, to the Trust Advisory Committee, in its capacity as Trustee for the disabled client. Funds from an award or settlement should never be made pay- able the client or the client’s family or guardian. The funds should be disbursed directly from the defendant or from the attorney’s escrow account to the Trustee. If payment is improperly made payable the client or the client’s family or guard- ian, do not negotiate the item. Instead, request reissuance of the instrument to the appropriate payee.


Other Consequences:


The attorney should also assess all pos- sible tax consequences impacting the Special Needs Trust and counsel the cli- ent regarding them.


Income, gift, and


estate taxes may apply to an award or settlement or to the income generated by a Special Needs Trust and the services of a tax specialist should be enlisted to re- duce or eliminate exposure to taxes.21


In


turn, this will enhance the benefit of the trust by keeping the taxes from depleting the award or settlement and trust assets.22 As an example, the Trustee must file an annual fiduciary income tax return (Form 1041) on the trust’s behalf. Even in the absence of formal require- ments necessitating some type of continued supervision over funds ob- tained on behalf of a disabled individual, an attorney may need to consider his or her own potential future liability if funds which are given directly to a disabled in- dividual or family member are later misspent or misappropriated because of inadequate supervision or control. This article is intended to provide a general explanation of the desirability of a Spe- cial Needs Trust and the foundation in law which permits its use. If you have any questions during this process, it is rec- ommended that counsel contact an attorney specializing in Special Needs Trusts or the Office of the Attorney Gen- eral.


21 22


See A. Frank Johns, Preserving Assets with Supplemental Needs Trusts, Trial (Nov. 1998).


See A. Frank Johns, Preserving Assets with Supplemental Needs Trusts, Trial (Nov. 1998).


20 Trial Reporter Winter 2000


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48