Special Needs Planning: The OBRA’93 or “OOPS” TRUST

By Vivian J. Villers, CFP, AIF, CWS

By now, you know that a person with a disability could be eligible for SSI and Medicaid when they turn 18. Typically, eligibility is predicated on that person having only $2000 in their name and Social Security number. Consider these problematic scenarios:

  1. You opened an UGMA account when your daughter was an infant, and several years later she was diagnosed with a disability.
  2. Your son was injured and received a court award, which was placed in a trust where he was the beneficiary.
  3. While in Las Vegas, your special needs child put money in a slot machine and won a 6-figure jackpot.
  4. Grandma died and your daughter with a disability received a large inheritance.

All these situations could cause ineligibility or termination of government benefits.  

Enter the OBRA’93 trust, sometimes referred to as the “OOPS” trust, as in “Oops, I made a mistake, let’s fix it.” The OBRA’93 Trust was created under the Omnibus Budget and Reconciliation Act of 1993. It allows for assets owned by a person with a disability to be legally transferred into the OBRA’93 trust and then qualify for SSI and Medicaid, without having to first spend down the asset to $2000. The OBRA’93 trust should preferably be drafted by an attorney with special needs expertise.

The OBRA trust is a Payback Trust. When the special needs beneficiary dies, Medicaid will make a claim against the remaining assets for everything that was paid by Medicaid during the deceased’s lifetime. It is a non-recourse claim. For example, if there is $200,000 remaining in the trust and Medicaid paid out $250,000 during the beneficiary’s lifetime, Medicaid will take all remaining assets and consider it done. Conversely, if there is $200,000 remaining in the trust and Medicaid claims $150,000 for benefits paid, it will take the $150,000 and any remaining funds would then be distributed to secondary beneficiaries, usually other family members.

Whereas the Special Needs Trust, or Third-Party Trust, has few restrictions on how the funds can be used, an OBRA’93/payback trust does have strict guidelines on what the money can be used for. One reason for this is because the Special Needs/Third-Party Trust is someone else’s money such as parents, grandparents, etc. The OBRA’93 trust is funded with the disabled person’s OWN money and Medicaid dictates allowable expenses.  

First, money cannot be given directly to the Disabled Adult Child (DAC) from the OBRA Trust. Second, the funds cannot be used for basic food and housing expense because that is what SSI is to be used for. Funds can be used for other living expenses such as clothing, haircuts, computer, internet fees, cell phone, etc.  Payments for such expenses must be paid directly to the vendor. 

In conclusion, OBRA’93 Trusts are extremely useful in legally setting aside assets that are owned by the Disabled Adult Child. They can maintain government benefit eligibility while avoiding spend down and be an additional resource for support.

Vivian J. Villers is a long-time Sigma Financial Corporation representative. For over 20 years, she has provided financial planning advice for families and individuals with special needs. Vivian serves on the Board of Directors of The Arc of Illinois and has two family members with disabilities. She is a Certified Financial Planner, focuses much of her practice on special needs, financial planning, and frequently speaks on the topics of both families and professionals. 

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