June 15, 2009
In the last week or two I have received questions about Medicaid trusts from two different attorneys. Obviously the topic is confusing and could use some clarification.
Effective with all trusts created on or after August 11, 1993, by an applicant for Medicaid (A/R) or someone acting on his or her behalf, the corpus of the trust is either considered a resource or is subject to the transfer penalty. MEDICAID MANUAL § 2337-1.
Revocable trusts always count as resources if the A/R has the right to revoke it. Irrevocable trusts count as resources to the maximum extent that it is possible to make a disbursement to the A/R under its terms. So, for example, a discretionary trust which gives an independent trustee the option of distributing so much of the income and principal to the A/R as the trustee deems necessary or advisable, is all considered an available resource of the A/R.
Any part of an irrevocable trust which is not accessible to the A/R is treated as a transfer. In the example above, if only the income was available for distribution to the A/R, then the value of the principal would be treated as a gift to the remainder beneficiary.
So, trusts are not a magical way to protect assets and qualify for Medicaid anymore. There are some exceptions, however. Special Needs Trusts or Pooled Trusts for disabled people under 65 still work to protect assets. MEDICAID MANUAL § 2337 & 2346. And, Qualified Income Trusts allow an A/R with excess income to get under the Medicaid CAP. MEDICAID MANUAL § 2407.
Trusts created in Wills are not resources provided that the A/R has no power to revoke the trust. Therefore a testamentary trust with an independent trustee who has the complete discretion whether to make distributions is still an effective way to protect assets. However, that trust may be subject to Estate Recovery after the A/R dies. The Estate Recovery regulations indicate that Estate includes real property passing by reason of trust. DCH Regs. § 111-3-8.02(6).
My experience with trusts is that DFCS Caseworkers are intimidated by them and assume that anyone sophisticated enough to have one is probably not needy enough to receive Medicaid.
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