What Is an OBRA Trust?

Many people live with disabilities around the world, but children are especially vulnerable. There are ​240 million​ children living with disabilities worldwide, according to UNICEF. And ​3 million​ of those kids live in the USA, based on the United States Census Bureau data. It’s important to be aware of the issues that children with disabilities across the country face and how to plan for their futures.

One way to take care of a child with a disability is by setting up a trust that will take care of their interests as minor children. But children with disabilities may benefit more from certain special needs trusts, especially when they reach adulthood. These trusts can hold financial assets for people with disabilities while allowing them to remain eligible for state or federal medical benefits, according to HG.org Legal Resources.

The OBRA trust is a good example of a special needs trust. The OBRA 93 special needs trust protects the beneficiary’s financial resources from being taken by a state Medicaid agency as a public treasury reimbursement for benefits that have already been paid out to them.

OBRA is an acronym for Omnibus Budget Reconciliation Act. The OBRA (d)(4)(A) trust was created as part of the 1993 Omnibus Budget Reconciliation Act. An OBRA trust is also sometimes known as a Supplemental Special Needs Payback Trust, a Self-Settled Special Needs Trust or a First Party Special Needs Trust.

Ordinarily, an individual who has a significant amount of non-exempt financial assets does not meet the eligibility requirements for Medicaid assistance. But that could change with an OBRA trust. A properly established OBRA trust allows a disabled person to become eligible for Medicaid as long as the trust is established before they reach age 65. The individual must be considered disabled.

The Social Security Administration (SSA) outlines the eligibility criteria that people must meet to be considered disabled for benefits purposes. You must have a condition that limits your ability to perform basic work-related actions, such as sitting or walking. You won't qualify as being disabled if you're blind and earn more than $1,350 or $2,260 per month.

A trust allows a trustee to oversee financial assets for the benefit of someone else. This is especially important and useful in the case of special needs individuals if they can't make decisions for themselves.

An OBRA trust helps make sure that disabled individuals maintain Medicaid eligibility, regardless of owning an amount of financial assets that would normally disqualify them. For many individuals, this means personal funds can continue to be used for daily living expenses, rather than using all their financial resources to pay for a nursing home when they get older.

The trust is set up to hold a disabled individual’s assets, which may consist of an inheritance, savings or proceeds from a lawsuit brought about because of the circumstances that led to the person’s disability.

The disabled person may set up the trust, which is why it's also known as a self-settled trust. The only other persons allowed to create the trust on behalf of the disabled individual include parents, grandparents or a court-appointed guardian.

Any assets remaining in the OBRA trust will go to the government when the disabled individual dies. These funds will act as reimbursement for expenses the government paid for the disabled person during their lifetime. Any remaining assets after government reimbursement will transfer to whatever organization or person was named as the remainder beneficiary.