In my last article titled, “Revocable and Irrevocable Trusts, Which Count?” I discussed the concept of countable resources and their interaction with the Medicaid trust rules. I explained assets held in a revocable trust may not be countable resources while assets held in an irrevocable trust may be countable resources for Medicaid purposes. In this article, I focus further on how assets in an irrevocable trust may be countable resources of a Medicaid applicant.
Most people, including attorneys and Medicaid caseworkers, believe assets in an irrevocable trust are not countable resources for Medicaid purposes. They have this belief because they envision the Medicaid applicant giving up all right and control over the assets. As I pointed out in the last article, countable resource are assets a person owns and can convert to cash to be used for his or her support and maintenance. Under 20 C.F.R. §416.1201, if a person does not have actual or legal authority to convert an assets into cash and use that cash for his or her support, then the asset is not a countable resource.
The problem with irrevocable trusts protecting assets occurs when the Medicaid applicant is both the grantor (the person creating the trust) and sole beneficiary of the trust. Medicaid is codified in the Social Security Act. As such, many of the Social Security regulations in the Program Operations Manual System (POMS) apply to Medicaid. POMS SI 01120.200(D)(1)(b)(1) and SI 01120.200(D)(3) are made applicable to trusts created after January 1, 2000 and through SI 01120.201(D)(2)(a). According to SI 01120.200(D)(1)(b)(1), “Even if the grantor does not specifically retain the power to revoke a trust, a trust may be revocable in certain situations.” Further, SI 01120.200(D)(3) states, “Some states follow the general principle of trust law that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language in the trust to the contrary.” However, many of these states recognize the grantor cannot unilaterally revoke the trust if the trust document names a “residual beneficiary” who would receive the trust principal upon the grantor’s death or the occurrence of some other specific event. Absent regional instructions to the contrary, “heirs,” “next of kin” or similar individuals to receive the assets remaining in the trust upon the grantor’s death are considered to be residual beneficiaries.
In the past, the Social Security Administration has operated in 10 regions although it will be consolidating those regions. Arkansas, Louisiana, New Mexico, Oklahoma and Texas have been located in the Dallas Region of the Social Security Administration. Under POMS SI DAL01120.200(A), the trust is revocable in these states regardless of the terms of the trust if the grantor is also the sole beneficiary. Further, under subsection (C), the trust must be specific as to who receives the proceeds of the trust upon the grantor’s death in order for a residual beneficiary to exist. Terms such as “heirs” and “next of kin” are not specific enough to be considered residual beneficiaries while terms such as “children,” “issue” and “descendants” are specific and indicate a residual beneficiary.
Specifically in Oklahoma, an irrevocable trust may be revoked by the grantor with the consent of the beneficiaries of the trust. In the situation where the grantor and the sole beneficiary are the same person, this individual can revoke the trust even though the trust document may state that the trust is irrevocable.
Iowa, Kansas, Missouri and Nebraska have been located in the Kansas City Region of the Social Security Administration. Under POMS SI KC01120.200(B), a trust is revocable in these states even if the trust document says it is irrevocable when the grantor does not name other residual beneficiaries of the trust. Residual beneficiaries are created by naming “heirs,” “heirs-at-law,” “survivors,” “distributees,” “child,” “children,” “issue,” “descendants,” “relatives,” “family,” “next-of-kin” and “persons entitled to inherit.” Extreme care should be used when dealing with irrevocable trusts.
For more information about Medicaid, Medicare, VA benefits, Social Security disability, estate planning and asset planning, visit the website of Senior Resource & Benefits, LLC (“SRB”) at www.srbllc.com call toll-free 1-800-407-9302. All legal services for SRB are provided by the law firm of Riffel, Riffel & Benham, PLLC having a website of www.westoklaw.com and telephone number of 580-234-8447.
