Release 08-03

17.13 Trusts

17.13.1 Trusts Introduction

17.13.2 Revocable Trusts

17.13.3 Irrevocable Trusts

17.13.4 Exceptions

17.13.1 Trusts Introduction

"Trust" is any arrangement in which a person (the "grantor") transfers property to another person with the intention that person (the "trustee") hold, manage, or administer the property for the benefit of the grantor or of someone designated by the grantor (the "beneficiary").  The term “trust” includes any legal instrument or device that is similar to a trust.

 

"Legal instrument or device similar to a trust" means any legal instrument, device, or arrangement  which, even though not called a trust under state law, has the same attributes as a trust.  That is, the grantor transfers property to the trustee and the grantor's intention is that the trustee hold, manage, or administer the property for the benefit of the grantor or of the beneficiary.  For purposes of this section, an individual shall be considered to have established a trust if assets of the individual are used to form all or part of the corpus (principal) of the trust.

 

"Grantor" may be:

  1. The Medicaid member .

  2. His/her spouse .

  3. A person, including a court or an administrative body, with legal authority to act in place of or on behalf of the member or his/her spouse.  This includes a power of attorney or a guardian.

  4. A person, including a court or an administrative body, acting at the direction or upon the request of the member or his/her spouse.  This includes relatives, friends, volunteers or authorized representatives.

17.13.2 Revocable Trusts

A revocable trust is a trust that can be revoked, canceled or modified by the grantor or by a court.  A trust which is called irrevocable, but which will terminate if some action is taken by the grantor, is considered a revocable trust.

  1. The trust principal of a revocable trust is an available asset.  “Trust principal” is the amount placed in trust by the grantor plus any trust earnings paid into the trust and left to accumulate.

  2. All payments from the trust to or for the benefit of the institutionalized person are income.

  3. All payments from the trust that are not to or for the benefit of the institutionalized person are divestment.

17.13.3 Irrevocable Trusts

An irrevocable trust is a trust that cannot, in any way, be revoked by the grantor.  

 

The following actions are divestment if they took place during the lookback period (17.3 Look Back Period) or any time after:

  1. An irrevocable trust was created.  The divested amount is the total amount of the created trust.  

 

Sometimes revocable trusts contain a clause that causes them to become irrevocable at a later date in the life of the trust.  Divestment occurs on the date the trust changed from revocable to irrevocable.

 

Example 1:  In 1998 Benny created a revocable trust fund of $100,000 for his daughter.  There was a clause in the trust stating the trust would become irrevocable if Benny became incompetent.  He was determined incompetent on February 2, 2007, and the trust changed from revocable to irrevocable. Benny entered an institution and applied for Medicaid in July, 2008.  He divested the total amount of the trust on February 2, 2007.

 

  1. Funds were added to the irrevocable trust.  The divested amount is the amount of the added funds.

 

If either of these actions took place before the lookback period, apply the following rules:

  1. Payments to the institutionalized person from trust income or from the body of the trust are income.

  2. Payments that could be disbursed to the institutionalized person from trust income or from any portion of the body of the trust but that are not disbursed are available assets.

  3. Payments from the trust to anyone other than the institutionalized person are divestment.

17.13.4 Exceptions

The policies described in this trusts section do not apply to any of the following trusts.

  1. Annuities (17.11 Annuities).

  2. Irrevocable burial trusts (16.5.1 Burial Trusts).

  3. Trusts established by a will.

  4. Special Needs Trusts - A trust containing assets of an individual under age 65 who is totally and permanently disabled (under SSI program rules) Disregard the trust if it meets these conditions.

  1. The trust must be established for the sole benefit of  the disabled person by his/her parent, grandparent, legal guardian or a court, and

  2. Contain a provision that, upon the death of the beneficiary, the Wisconsin Medicaid program will receive all amounts remaining in the trust not in excess of the total amount of Medicaid paid on behalf of the beneficiary.

 

The exception continues after the person turns 65, provided s/he continues to be disabled.  However, a grantor cannot add to the trust after the beneficiary turns 65.  Anything added to the trust after the beneficiary turns 65 is a divestment.  Money added before the beneficiary turns 65 is not a divestment.

 

  1. Pooled trusts.  

    1. Pooled Trusts Not Subject to Divestment

These are trusts for disabled persons as determined by SSI rules.  Disregard them if they meet the following conditions:

    1. Are established and managed by a non-profit association.  The pooled trust can contain funds that hold accounts funded by third parties for the benefit of the disabled person's own assets or income, and

    2. Have separate accounts, within each fund, which are maintained for each beneficiary or the trust, but for purposes of investment and management of funds, the trust pools these accounts.  There may be a separate fund with accounts that include or benefit persons who do not have a disability , and

    3. Contain accounts with the funds of disabled individuals (based upon SSI and Medicaid rules) that are established solely for their benefit by a parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.  If the account includes a residential dwelling, the individual must reside in that dwelling, but a spouse, caregiver or housemate can also live there with the Medicaid applicant /recipient, and

    4. Repay Medicaid to the extent that amounts remaining upon death are not retained by the trust.

    1. This requirement can be satisfied when the individual trust account contains liquid assets and has a balance by returning that amount to the Medicaid program after subtracting a reasonable amount for administrative costs.

    2. This requirement can also be satisfied when the pooled trust account includes real property , and the real property is retained by the pooled trust so long as the property continues to be used by another Medicaid recipient who is disabled (as established under SSI rules) or elderly (age 65 years or older).  In addition, if the account contains liquid assets that had been used to help maintain the real property, the account funds may be retained to continue to maintain the housing that will be used by another Medicaid recipient, and

    1. The trust was established for a disabled individual who was under age 65 at the time the trust was created, or the trust was established prior to September 1, 2008 for a disabled individuals age 65 or over.

 

  1. Pooled Trusts Subject to Divestment

A pooled trust established on or after September 1, 2008 for a disabled individual, age 65 or over will not be exempt from the divestment penalty provisions.  Similarly, contributions/additions to a pooled trust made after the disabled beneficiary turns 65 will also be subject to divestment penalty provisions.

 

  1. Pooled Trusts For Individuals Not Yet Declared Disabled

Pooled trusts for individuals applying for disabilty status are not subject to divestment if:

  1. they have placed their assets in a potential pooled trust, and

  2. they meet all of the conditions in 5 I above, and

  3. they initiated the disability determination process prior to 09/01/08, and

  4. they are over age 65.

 

 “Initiating the disability determination process” means that the individual must have asked either the county agency, the Social Security Administration, or DDB for a disability determination.  

 

  1. Trusts for Disabled Individuals. A trust for disabled individuals is a trust established with an individual's funds solely for the benefit of his/her disabled child (regardless of the child's age), or solely for the benefit of any other disabled individual who is under 65 years of age.  The disability status is the same as that which is determined under SSI rules.  The exception continues after the person turns age 65, provided s/he continues to be disabled.  However, a grantor cannot add to the trust after the beneficiary turns age 65, unless the beneficiary is his/her disabled child.  Anything added to the trust after the beneficiary turns age 65 ( except for a beneficiary who is the grantor's disabled child) is a divestment.  Money added before the beneficiary turns age 65 is not a divestment.
 

Note: Unlike Special Needs and Pooled Trusts, trusts for disabled individuals are not required to have any type  of Medicaid "payback provision" which becomes effective upon the death of the beneficiary.

 

 

This page last updated in Release Number: 08-03

Release Date: 08/13/08

Effective Date: 09/01/08