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

Trustee of Special Needs Trust must be cautious in making reimbursements

A person who is receiving Supplemental Security Income (SSI) from the Social Security Administration must report changes in his income or resources (assets) to SSI, because this can affect his eligibility or the amount of benefits. If countable resources exceed $2,000 on the first of a month, eligibility can be lost. If the issue is detected after the fact, there can be a resulting overpayment than can take months to straighten out. If assets are placed into, or are being held in, a Trust, there might be an impact on eligibility depending on the terms of the Trust, how those assets are distributed by the Trustee, and how much control the SSI recipient has (if any) over the assets in the trust.

A Trust established with assets of the SSI recipient or applicant might be excluded from the $2,000 resource limit if it meets the many requirements  for a Special Needs Trust. Particular problems come up when somebody has been spending money on the beneficiary and needs to be reimbursed by the Trustee. The payments out of the Trust to that third party may be viewed by the Agency as improper disbursements that violate this “sole benefit” requirement if the trustee can’t produce satisfactory proof to justify the reimbursement. If the payments are made out of a first party trust, the entire corpus (principal; value) of the Trust may be treated as an available resource because the payments to the third party are “not for sole benefit” of the Trust beneficiary. If cash is just transferred out of the Trust to the third party’s account to use for the beneficiary, this can create problems as well.  The standards are explained by the Social Security Administration in this section 01120.201.2.b of of the procedure manual called the “POMS,”  where it says, ” …do not consider a trust that provides for the trust corpus or income to be paid to or for a beneficiary other than the SSI applicant/recipient to be established for the sole benefit of the individual.” The POMS continues:

. ” Exceptions to the sole benefit rule for third party payments

“Consider the following disbursements or distributions to be for the sole benefit of the trust beneficiary:

  • Payments to a third party that result in the receipt of goods or services by the trust beneficiary;
  • Payment of third party travel expenses which are necessary in order for the trust beneficiary to obtain medical treatment; and
  • Payment of third party travel expenses to visit a trust beneficiary who resides in an institution, nursing home, or other long-term care facility (e.g., group homes and assisted living facilities) or other supported living arrangement in which a non-family member or entity is being paid to provide or oversee the individual’s living arrangement. The travel must be for the purpose of ensuring the safety and/or medical well-being of the individual.”

These are limited exceptions. If the Trustee is issuing payments to individuals under the guise that it is a reimbursement for expenditures that aren’t within these narrow categories, there will be a presumption that the trust is giving out money to third parties unless the Trustee can prove otherwise. The Trustee of any Trust for benefit of a person on SSI needs to assume that s/he will have to provide accountings and receipts in exquisite detail for scrutiny by the Social Security Administration. Great care should be exercised once a trustee takes on this major responsibility.

For advice on establishing and administering Special Needs Trusts, call ….. 732-382-6070