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WILLS/TRUSTS 15: Are irrevocable trusts countable assets for Medicaid?

The main issue is whether assets making up the principal of an irrevocable SBO trust are countable assets for the purpose of determining an institutionalized spouse’s initial eligibility for Medicaid.

In these consolidated cases, the plaintiffs were elderly women receiving long-term care in nursing homes. In each case, the plaintiff, an institutionalized spouse, began receiving long-term care at a nursing home at her own expense. One to two months later, each plaintiff’s husband, a community spouse, created an irrevocable trust that was solely for his own benefit. The couples then transferred a majority of their individual and marital property to each trust, giving up any claim of title to that property.

A short time after each trust was formed, each institutionalized spouse applied for Medicaid benefits. The Department of Health and Human Services that the entire value of the principal of trust was a countable asset for the purpose of determining each institutionalized spouse’s eligibility for Medicaid benefits. Thus, the Department concluded that each institutionalized spouse did not show the requisite financial need because the value of the trust assets put their countable resources above the monetary threshold, and it denied each application.

The fact that an irrevocable trust, which includes former assets of an institutionalized spouse, can make payments to a community spouse does not automatically render the assets held by the trust countable for the purpose of an institutionalized spouse’s initial eligibility determination.

Plaintiffs here fall within the medically needy category for those over the age of 65. Therefore, to be eligible for Medicaid benefits, they were required to reduce their countable incomes and assets to or below $2,000.

The question is whether the principal of an irrevocable trust, created using assets of both spouses but which may distribute payments only to or for the benefit of the community spouse, is a countable asset for the purpose of the institutionalized spouse’s initial eligibility determination.

Once it is determined that a Medicaid applicant has established a trust, the question becomes whether assets held by the trust are available to the applicant. The trust rules in 42 USC 1396p(d)(3) treat revocable trusts and irrevocable trusts differently. Generally, the principal of a revocable trust is always considered an asset available to the Medicaid applicant who formed the trust. If there are circumstances under which payments from the trust can be made to or for the benefit of the individual, then the portion of the principal of the trust from which such payments would come is deemed available to the individual, and thus countable for determining the individual’s eligibility for Medicaid benefits. If no such circumstances exist, then the portion of the principal derived from the applicant’s assets is not a countable asset for the applicant’s eligibility determination

Each of the trusts at issue instructs the trustee to use up or deplete the entirety of the principal during the community spouse’s lifetime. The trusts at issue all contain language stating that distributions or payments from the trust may only be made to or for the benefit of the respective community spouse and that the trust resources may be used only for the community spouse’s benefit.

The law does not automatically make marital assets placed in an irrevocable trust for the sole benefit of a community spouse countable assets for the purpose of an institutionalized spouse’s initial eligibility determination. Rather, such assets become countable only if circumstances exist under which the trust could make a payment to or for the benefit of the institutionalized spouse.

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