Self-settled irrevocable trust may count as a “Medicaid resource”

The Arkansas Supreme Court has just sustained a decision by the state Department of Human Services denying Medicaid eligibility due to excess resources. In this case, the Medicaid applicant had transferred her house and other assets into an irrevocable trust that gave the trustee discretion to expend trust funds for her own benefit. She applied for Medicaid more than 5 years after making the transfer, assuming that the trust would be ignored as an asset. The applicant’s non-excluded, available resources had to be less than $2,000 to qualify for benefits. The agency counted the value of the trust as a resource, and denied eligibility. Arkansas Department of Human Services vs. Bobbie Hogan.

The relevant portion of the Hogan Trust says: “2.2(D).During the term and existence of this Trust, the Trustee shall have the discretion to make distributions of both principal and income of this Trust for the health, support, medical care and welfare of Bobbie A. Hogan, taking into consideration such other income and assets which said primary beneficiary has available to her and further taking into consideration the lifestyle to which she has been accustomed.  However, the Trustee shall have the sole and absolute discretion and shall be liable only in case of bad faith.”

What’s the issue? Under federal law for the long-term care Medicaid program (called MLTSS in New Jersey – long term services and supports), assets that the applicant (or his/her spouse) transferred into a Trust will be counted to the extent that the Trust can be expended on the applicant. The federal statute says, “42 USC 1396p(d)(3)(B) In the case of an irrevocable trust— (i)if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual, the portion of the corpus from which, or the income on the corpus from which, payment to the individual could be made shall be considered resources available to the individual, and payments from that portion of the corpus or income— (I) to or for the benefit of the individual, shall be considered income of the individual,.

This is pretty dense verbiage, but the Arkansas rule is basically the same (as is the New Jersey regulation, for that matter) . The Arkansas provision says: ” Medical Services Policy Manual Section E-304,Consideration of Irrevocable Trusts:

  1. If the trust permits payments, under any circumstances, to or for the benefit of the individual, the portion of the corpus from which payment to the individual could be made (or the income on the corpus from which payment to the individual could be made) shall be considered a resource available to the individual; and payments actually made from that portion of the corpus shall be considered as follows: 1) Payments to or for the benefit of the individual shall be considered income of the individual, and 2) Payments for any other purpose shall be considered a transfer of resources by the individual.”

Readers of this blog have seen posts over the years about the variations among Trusts and how a Trust that accomplishes certain things doesn’t necessarily accomplish other things. There may be many reasons to transfer assets into a trust as part of elder care planning, but it’s vital to understand the impact on a later Medicaid application when doing so.

Call for advice about asset protection planning, Medicaid eligibility, trusts and care planning for seniors …….. 732-382-6070

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