As part of the future planning for children with disabilities, certain special needs trusts can be set up to hold financial assets for these children. This may allow them to obtain eligibility for state or federal medical benefits. The OBRA trust protects their 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.
The OBRA (d)(4)(A) trust was created as part of the 1993 Omnibus Budget Reconciliation Act. An OBRA trust may also be 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. A properly established OBRA trust allows a disabled person to become eligible for Medicaid, as long as the trust is established before he reaches age 65. To set up an OBRA trust for an individual, he must be considered disabled according to the government’s Social Security standards.
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In general, a trust allows a person, or trustee, to oversee financial assets for the benefit of someone else. In the case of special needs individuals, this is especially important and useful if they cannot make decisions for themselves. An OBRA trust helps make sure 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 of their financial resources to pay for a nursing home when they get older.
The trust is set up to hold a disabled or special needs 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. If she is not capable, the only other persons allowed to create the trust for her are her parents, her grandparents or a court-appointed guardian.
When the disabled individual dies, any assets remaining in his OBRA trust will go to the government. These funds will act as reimbursement for expenses the government paid for the disabled person during his life. After the government reimbursement, any remaining assets will transfer to whatever organization or person was named as remainder beneficiary.
Cynthia Gaffney has spent over 20 years in finance with experience in valuation, corporate financial planning, mergers & acquisitions consulting and small business ownership. She has worked as a financial writer for online finance publications since 2011, including eHow Money, The Motley Fool, and Sapling.com. She has also edited for several online finance publications, including The Balance, Opposing Views:Money, Synonym:Money, and Zacks.com. A Southern California native, Cynthia received her Bachelor of Science degree in finance and business economics from USC.