Frequently Asked Questions

Alabama Family Trust is a pooled trust company (see “What is a d(4)(C) trust?” below for more information on pooled trusts).  We administer two types of supplemental needs trust:

• First-party supplemental needs trust: A trust established by the person with a disability (the “Beneficiary”), guardian, conservator or court with the Beneficiary’s own funds.  All first-party supplemental needs trusts must be irrevocable and contain a Medicaid payback provision.
• Third-party supplemental needs trust: A trust established by a third party, usually a parent, grandparent, other relative, or friend for the benefit of a loved one with a disability.  Third-party supplemental needs trusts can be either revocable or irrevocable and do not require a Medicaid payback provision.

We administer both types of supplemental needs trust in Alabama in the same manner.

No.  Alabama Family Trust does not provide legal advice, and we strongly recommend that you work with a qualified attorney.  You are not required to have an attorney to establish a trust with us, but you are responsible if the trust you set up is inappropriate or set up incorrectly.  Our staff is happy to assist you in properly completing our trust documents, but our staff cannot tell you what type of trust you need or what you should do to qualify for Supplemental Security Income (SSI) or Medicaid benefits.

A separate account is established for each Beneficiary of the trust; however, for the purposes of investment and management of funds, these accounts are “pooled”.

Pooling of funds allows access to a wider range of investment options and helps to keep administrative costs low.  A financial record is maintained for each sub-account, and Beneficiaries receive a proportionate share of the entire fund’s earnings.

Monthly statements are mailed to the Representative and can also be accessed online. Waverly Advisors, LLC serves as the investment advisor for Alabama Family Trust.

A pooled trust, found in the US Code under 1396p(d)(4)(C), is also known as a “d(4)(C)” trust. It is established and managed by a charity or non-profit organization and is funded by the disabled person or a third party, for the disabled person’s sole benefit. The fundamental idea is that each individual’s trust is a subaccount within a master trust. The managing entity oversees the collective individual trusts within the pool as a whole. The arrangement minimizes expenses for the individual trusts.  The trustee has the discretion to pay out the trust income and principal for the sole benefit of the disabled person to meet needs not otherwise provided by public benefits.

As required by federal law, if the trust was created using the disabled person’s funds, then upon their death, any remaining trust assets less AFT closing expenses are payable to Medicaid to the extent of medical assistance paid on behalf of the disabled person.  If funds remain after reimbursing Medicaid, those funds are distributed to the person(s) specified at the time the trust was established.

If someone other than the disabled person (parents, grandparents, siblings, etc.) uses their funds to create the trust then, upon the disabled person’s death, any remaining trust assets less AFT closing expenses are payable to the person(s) specified at the time the trust was established.

Disbursements are distributions made from the trust account.  Trust funds can only be used (disbursed) to purchase items not already provided for by government benefits or a private health plan. Disbursements must be for the sole benefit of the disabled person and enhance their life, health, and/or welfare.  Examples of disbursement requests include:

• Pre-need burial (read this blog post to know why it’s listed first)
• Dental, medical, and pharmaceutical expenses not covered by Medicaid or other insurance
• Therapy or rehabilitation services
• Wheelchairs and other special equipment not covered by Medicaid or other insurance
• Psychological or counseling services

It’s important to understand what a Beneficiary can use trust funds for when setting up a trust.

Here are several examples of the most common uses:

• Pre-need burial (read this blog post to know why it’s listed first)
• Clothing
• Phone, cable, and Internet services
• Mileage
• Tuition, books, and tutoring
• Travel and entertainment
• Household furnishings and furniture
• Durable medical equipment
• Care management
• Therapy and medications not covered by insurance

 

Click here for more information about a Supplemental Needs Trust and caregiver expenses.

Funds placed in a supplemental needs trusts are excluded when looking at financial eligibility for means-tested government benefits such as SSI and Medicaid.

Setting up a trust through Alabama Family Trust can be established in a matter of days, as long as the account meets our criteria.

Alabama Family Trust prepares a tax return for each trust. Beneficiaries are responsible for filing their personal income tax return, if applicable.

For each trust, AFT prepares a Federal and State return under the trust’s IRS assigned Tax ID (EIN number). AFT will send the Beneficiary a Schedule K-1 or Grantor Letter they can use in filing their personal income tax return. AFT does not provide tax advice. Please see your tax professional if you need help with your personal income tax return.

As a nonprofit organization, the Alabama Family Trust works hard to keep fees reasonable.  The current minimum initial contribution required to establish a trust is $1,500, which includes a one-time $750 set up fee.

Trusts in existence for six months or more are charged a trustee fee of $450 once per year.  However, accounts with market values less than $3,000 are exempt from the annual fee.

Additional fees are collected for investment administration and tax preparation.  For more information, please refer to the schedule of trust fees and costs published on our website.

Assets exceeding government-set limits can prevent individuals from receiving Supplemental Security Income (SSI), a monthly federal income benefit for individuals with disabilities, and Medicaid, the source of health insurance for individuals receiving SSI or residing in a nursing home facility for long-term care. A supplemental needs trust seeks to keep these two key benefits intact for a Beneficiary.

Some individuals receive forms of Medicaid called:

• Qualified Medicare Beneficiary (QMB)
• Specific Low-Income Medicare Beneficiary (SLMB)
• Qualified Individual (QI) Medicaid benefits.

In the State of Alabama, Medicaid only considers the Beneficiary’s income to determine eligibility for these programs and does not consider other assets. Additionally, Alabama Medicaid should not pursue estate recovery to recoup the QMB, SLMB, or QI benefits at the Beneficiary’s death. However, Alabama Medicaid will seek to recover any benefits that have been paid for the Beneficiary from a special needs trust account at the time of death. In some cases, the benefits of using a supplemental needs trust may outweigh the possibility that Medicaid can collect for past QMB, SLMB, or QI benefits. As we cannot provide legal advice, we recommend that you speak with your attorney to determine if a supplemental needs trust will benefit you if you receive QMB, SLMB, or QI benefits.

A minimum of $1,500 is required to open a trust account with Alabama Family Trust.

Alabama Family Trust may accept trusts with a minimum below the required $1,500 if sufficient proof, such as a court order, is provided showing a steady stream of income or principal will be deposited into the trust meeting the required minimum. This policy has been adopted to assist beneficiaries that may receive payments from a structured settlement, alimony payments, child support payments, or other sources of consistent funds that are insufficient to open a trust account.

Funds Held in Escrow

In the instances where these trusts are accepted, the trust corpus will be held in escrow while the trust balance is below the minimum requirement. During such time as the corpus is held in escrow, no distributions shall be made for the benefit of the Beneficiary and the Beneficiary will not be eligible for distributions from the charitable trust.

Funds held in escrow will be subject to tax preparation fees in accordance with the published schedule of fees. The tax preparation fees will reduce the amount held in escrow when said fees are due and payable to Alabama Family Trust. Upon reaching the required minimum of $1,500, the trust will be subject to all fees in accordance with the published schedule of fees.

Alabama Family Trust helps many of its Beneficiaries purchase vehicles for their use. In other circumstances, the trusts are able to pay mileage to individuals who are using their own cars to do things for the Beneficiary.

Cars for a Beneficiary

A Beneficiary who is receiving Supplemental Security Income and Medicaid is allowed to have a vehicle. When a Beneficiary does not have transportation, the Beneficiary’s trust account may be used to purchase a vehicle for the Beneficiary.  Trust funds may pay for car maintenance, repairs, gasoline, and insurance in lieu of mileage payments.

Mileage to Handle Business for Beneficiary

When an individual uses his or her own car to transport the Beneficiary or to travel to conduct business for the Beneficiary, the trust can pay mileage to the individual at the rate approved by the IRS. In this instance, Alabama Family Trust must be able to verify that the mileage was truly for the Beneficiary and was for a purpose that will be accepted by Social Security as being for the sole benefit of the Beneficiary. For example, Social Security will not allow mileage to be paid to an individual simply to visit the Beneficiary.

Liens on Purchased Cars

When a Beneficiary is subject to a Medicaid pay-back at death, any assets held by the trust must be used to reimburse Medicaid for any expenses that Medicaid paid for the Beneficiary. If the trust with Alabama Family Trust buys a vehicle for a Beneficiary that is subject to a Medicaid pay-back, the vehicle must have a lien on it.

When the vehicle is ultimately sold, the funds will be returned to the Alabama Family Trust account where the funds can be used to purchase other items for the Beneficiary or applied toward reimbursement to Medicaid at the Beneficiary’s death.

• Trusts with a minimum threshold balance of $395 will be closed and tax return preparation fees withheld for the current year.
• Upon death of a Beneficiary, a trust will be closed after receipt by Alabama Family Trust of a death certificate and an affidavit from the Alabama Medicaid Agency as to any balance owed.

Trust closings are subject to a closing fee of $350. Applicable amounts due related to quarterly investment administrative fees, tax return preparation costs, the Alabama Family Charitable Trust, and the Alabama Medicaid Agency will be withheld.