We asked the MSA guru of guru’s about using a Medicare Set Aside Trust with a reversionary clause after last week’s KC&A Update article. The idea of a reverter clause is to get the insurer’s or self-insured employer’s money back following the passing of the injured worker who is being protected by the Trust.
In a second inquiry, we also asked about the repeated question we receive about whether claimant attorneys in Illinois or any state can take an attorney fee on an MSA value.
Editor’s comment: We don’t like to name names in the Update but if you ever have a wildly complex question, she is the best of the best of the best on this topic. She gave us permission to print the following thoughts for your consideration. If you want her name and contact information, send us your contact information and we will forward it along.
Her thinking on these two topics is:
A. If you want a reversionary clause, you’ll need to hire a custodian because the $$ goes directly to the claimant in self-administered MSA’s. Have fun getting it back from the estate.
Custodial fees are $500 to $2000 a year, so a custodial account (trust) is usually reserved for large (+$150,000) MSA’s. The next problem is a large MSA is usually funded with an annuity. The most cost effective annuities pay for life only. That means that if the claimant dies, the annuity stops paying into the trust and all that’s left is usually about 1-2 years worth of funds.
If you want the reversionary clause, you would want to spend the extra money and purchase an annuity with a minimum guarantee period. There are tax implications for the funder (the insurer or self-insured employer) if annual annuity payments revert to them.
Most carriers only allow reversionary clauses when you pay in a lump sum or use a “life only” annuity.
B. As to attorney’s fees on MSA values, none of the states she does business in allow the attorneys to take a fee on the MSA (we are unaware of any state that does). Medicare demands all money go to the claimant’s future medical bills. They don’t care about the role of the attorney in reaching the settlement.
Medicare won’t even allow you to include the custodial fees in the calculation of the “total settlement”. They are expense dollars, not medical payments. That’s a technical issue that only matters to the payer and Medicare. The “total settlement” value determines whether the case meets the CMS review threshold.
Please send us your thoughts and comments on these topics in managing and creating MSA trusts.
