by Thomas D. Begley, Jr., CELA
Types of Trusts. Trusts established and funded after August 10, 1993, are governed by OBRA-93. The Medicaid-qualifying trust rules were repealed by OBRA-93, and new rules for revocable and irrevocable trusts created after August 10, 1993, were established. OBRA-93 also created special disability trusts, each of which has rules. These trusts include Self-Settled Special Needs Trusts and Pooled Trusts. OBRA-93 also established a Miller Trust, to be used when a potential Medicaid recipient has income in excess of the income cap. The fourth trust authorized under OBRA-93 is a sole benefit of trust.
The commonly-used trusts in Medicaid Planning include the following:
- Income Only Trust
- Children’s Trust
- Disability Annuity Trust
- Disability Annuity Special Needs Trust
- First-Party Special Needs Trust
- Third-Party Special Needs Trust
What Constitutes a Transfer. The key to understanding the transfer rules pertaining to trusts is to understand when the transfer has taken place. If there is a transfer from an individual then to a trust under conditions by which the trust assets are still available to the individual, for Medicaid purposes there has been no transfer. Therefore, where the trust is revocable, the assets are still available to the individual after the trust is funded so there is no transfer at this point. The transfer is considered to have taken place on the date of payment from the trust to a third party.
If the trust is irrevocable, the transfer is considered to have been made as of the date the trust was established and funded, or upon such later date that payment to the settlor was foreclosed. However, if the settlor can still benefit from the assets with which the trust is funded, those assets are still available so there is no transfer. If and when those assets are paid out to a third party, the transfer occurs. If the settlor places assets in an irrevocable trust and can no longer benefit from any of the trust corpus, there has been a transfer of assets when the trust is funded.[1]
Drafting Considerations for Trusts. There are seven main issues to be considered in drafting any trust involving a potential Medicaid recipient. These considerations are:
- Availability
- Transfer of asset penalty
- Payback provision
- Funding
- Tax considerations, including income, gift and estate
- Estate recovery
- Elective share
[1] 42 U.S.C. § 1396p(c)(1)(B); HCFA Transmittal 64 § 3258.4E.
