This is the September 24, 2007, issue of Elder Law FAX, a free newsletter published by the Elder Law Practice of Timothy L. Takacs   Payback Provision in Special Needs Trust Approved by State High Court A state high court has reversed a decision of its Medicaid agency denying Medicaid benefits to a 36 year-old developmentally disabled man. The agency had ruled that the man's special needs trust did not qualify for exclusion as a resource from his eligibility determination.   David Lowy is  36 year-old developmentally disabled man who lived with his parents, John and Margaret Lowy. The Lowys were appointed his co-guardians in 1989 (Mrs. Lowy is now deceased).   Although David had private medical insurance, his parents applied for Medicaid on his behalf in April 2004 so that he would be able to receive medical benefits when they were no longer able to assist with his care.   Shortly before applying for Medicaid, David's parents executed the David E. Lowy Irrevocable Trust for their son's benefit, using as principal David's own savings. It was their express intent to create a special needs trust that conforms with a federal statute enacted in 1993 that authorizes their use (42 U.S.C. § 1396p(d)(4)(A)). The trust was approved for this purpose by the Strafford County, New Hampshire, Probate Court, pursuant to its jurisdiction over the guardianship.   The significance of depositing funds into such a trust is that the assets will not be counted as belonging to the beneficiary for purposes of Medicaid resource eligibility. However, a state is required to exclude the trust as a resource in eligibility determinations only if, among other considerations, the state will be repaid from the trust's corpus upon the beneficiary's death for medical assistance provided to the beneficiary during his lifetime.   To this end, the Lowy trust includes a "payback provision," which provides: Distributions after David E. Lowy's Death. Any amounts remaining in the trust estate upon the death of the Beneficiary shall be paid to the State of New Hampshire (or such other state or states which have claims against the Trust) to the extent required by law, up to the amount remaining in the fund or equal to the total amount of medical assistance paid on behalf of the Beneficiary, whichever is lesser.   The Lowy Medicaid application was denied by the New Hampshire Department of Health and Human Services. The agency objected to the phrase "to the extent required by law," stipulating that in the absence of the phrase, the trust qualifies for exclusion under 42 U.S.C. § 1396p(d)(4)(A), but argued that the phrase renders the payback provision potentially unenforceable and thus disqualifies the trust.   The New Hampshire Supreme Court reversed the DHHS decision. "The intention to create a trust qualifying under 42 U.S.C. § 1396p(d)(4)(A) signals an intention to enter into the exchange that is at the heart of this statutory provision; namely, exclusion in exchange for reimbursement," wrote Justice Duggan for the five-judge panel. This intended exchange is made explicit in the Lowy trust's payback provision, which includes the three elements of the payback requirement included in 42 U.S.C. § 1396p(d)(4)(a), by promising that: (a) the state shall receive; (b) upon the beneficiary's death; (c) any amounts remaining in the trust up to the amount of medical assistance paid on the beneficiary's behalf.   "To construe the qualifier 'to the extent required by law' as referencing anything other than a general requirement that the promise contained in the payback provision be construed in accordance with the law would require us to ignore the settlors' clear intent," wrote Justice Duggan. "This we decline to do. Accordingly, we hold that the payback provision is adequate, and that the trust therefore qualifies for exclusion under 42 U.S.C. § 1396p(d)(4)(A)."   Lowy v. New Hampshire Department of Health and Human Services, August 23, 2007