Trusts can undermine Medicaid eligibility even if they accomplish other goals

A “Trust” is an estate-planning structure that has many different uses and purposes. Fundamentally, to be valid, there needs to be (a) a Trustee — the manager, who is not the owner of the assets; (b) a Beneficiary – the party that the trustee can spend assets on, who is not the owner of the assets, (c) terms and conditions – usually contained in a legal document which could be a Will or could be another document that creates the Trust. Until a Trust receives assets, it is an unfunded trust and may be referred to as a “dry trust.” Some trusts are irrevocable, others are revocable. Sometimes the Trust is assigned its own taxpayer EIN# which is obtained from the IRS. Sometimes the Trustee is also the Beneficiary; other times the assets are placed in Trust as a gift, for benefit of other family members. . Certain trusts are designed to provide “creditor protection” by shielding the assets from those who might be coming after the beneficiary’s creditors. Certain Trusts are designed to preserve the Beneficiary’s eligibility for means-tested disability-related services. Certain trusts give total discretion to the trustee, whereas others place obligations on the Trustee (such as “pay all the income to the beneficiary for 5 years” or “give the beneficiary 1% of the principal every year in January”). How it is written depends on what the purpose is.

The Medicaid program has strict, low financial restrictions for eligibility. As readers of this blog know, a resource is defined as something that the applicant (or his spouse) owns and which can be converted to cash to be used for the applicant’s support and maintenance. Other than a properly-structured  first-party Special Needs Trust, a residence, one car, an irrevocable funeral trust, a burial place and a life insurance policy whose face value is less than $1,500, pretty much anything else that meets this criteria is treated as a  countable “resource.”  There are special regulations concerning when the assets in a Trust are counted as a resource of the individual.

Section 4.11 of the State Medicaid Manual describes the treatment of Trusts. It applies to trusts that were created by an applicant, his or her spouse, or another party who has legal authority to act on their behalf (Guardian, Agent under Power of Attorney, or Court). It does not apply to trusts created by a spouse of the applicant in their Will (but keep in mind, e.g., the requirements of the DeMartino case and the elective share statute). If assets of the individual or their spouse form any part of the Trust and the individual or their spouse are beneficiaries,  100% of the Trust is a countable resource if the Trust is revocable (such as a “Revocable Living Trust” that some people use to “avoid probate”), and if it is an irrevocable trust, the portion of income or principal that could be paid to or for benefit of the individual (or spouse) continues to be counted as income or as a resource. Either way, any of this could adversely affect eligiblity.  A person might be treated as a Beneficiary without even realizing it.

We see many different Trusts in our practice, and we write Trusts when they are useful. I am frequently asked by new elder care clients, “do I need a trust?”  (and even more often, “I heard that I need a Trust so the nursing home doesn’t take it all”). The response of course is, “what do you want to accomplish, who do you want to protect, how’s your health, and what do we have to work with?”

The problems caused when a Trust is deemed to be a “countable resource” can create substantial financial jeopardy for an applicant, particularly because after the Medicaid application is filed, it may be many months before that bad news is received from the agency.  When discussing a trust strategy later in life, it is a good idea to talk with the attorney about the impact of the Trust on Medicaid eligibility as well as its efficacy for whatever other issues are being addressed. Forewarned is forearmed.

Call us for advice on trusts and Medicaid eligibility and for individualized estate planning strategies …. 732-382-6070

Burden to provide all verifications sits with Medicaid applicant

The Medicaid application process for MLTSS services in nursing homes, assisted living facilities or in the community requires a tremendous amount of documentation. Numerous documents pertaining to personal status, income, and finances must be produced. Filing an incomplete application increases the risk of a denial. Failing to produce the required documentation frequently leads to denials, as the courts in New Jersey have held again and again that the responsibility to produce proof of eligibility rests with the applicant and not with the agency which is processing the application. Of course, the notice of what’s missing actually needs to be delivered to the person who is filing the application, but upon receipt, one must “jump” since the time given to reply is typically really short.

Two recent cases illustrate the problems that can be encountered from failure to present required verifications for a Medicaid application These are not “published” decisions, so they are not considered to be binding precedent on any other court. But they do illustrate the problems that can arise. In both cases, there was a failure to produce certain documentation, and the court concluded that the individual had the authority to obtain the records had they wanted to do so. One case is RP vs DMAHS  2018    and the other is G.C. vs DMAHS (birth certificate case).

There may be circumstances in which the person filing the application has no authority to get documents. There may be a need to apply for guardianship or to get a court order directing the release of certain records. These are situations in which the person should quickly consult with an elder law attorney to take necessary protective action. The important thing is that the person filing the applicant needs to act — to seek whatever legal remedies might be necessary rather than just throwing up his hands and doing nothing. The pace of denials for “failure to provide verification” seems to be escalating and there may be numerous legal issues in any given application that need an attorney’s attention.

Don’t despair! Call us for help & legal advice with the preparation and filing of your MLTSS Medicaid application ……… 732-382-6070