Do assets held in a trust count in determining one’s Medicaid eligibility? Although this appears to be a simple question, the analysis in determining the answer to this question is far from simple. Most attorneys and Medicaid caseworkers incorrectly and erroneously oversimplify the analysis. They consider assets held in a revocable trust to be countable resources while assets held in an irrevocable trust not to be countable resources. Relying on the dichotomy of a trust’s revocability can lead to false conclusions and devasting consequences.
The beginning point is to know all items an applicant owns are assets, but not all assets are countable resources. In order for assets to be countable resources, they must meet a very specific definition. Under 20 C.F.R. §416.1201, a countable resource is an asset a person owns and can convert to cash to be used for his or her support and maintenance. Furthermore, the person must have the unilateral authority or power to liquidate the asset, and must be able to do so within a 20-day period. The more specific trust rules incorporate this overall countable resource concept.
Title 42 U.S.C. §1396p(d) addresses the treatment of assets held in trusts for Medicaid purposes. Subsection (d)(1) apply these rules to a trust established by the Medicaid applicant. Most people go awry when they read subsections (d)(3)(A) and (d)(3)(B). Subsection (A) provides the assets of a revocable trust are countable resources of a Medicaid applicant while subsection (B) states the assets of an irrevocable trust are countable resources only to the extent they can be paid to or for the benefit of the applicant. In actuality, the reverse may be true. The assets of a revocable trust may not be countable resources while assets of an irrevocable trust may be countable resources.
When reading these two trust rules, there are two very important distinctions which must not be overlooked. First, these rules are codified within the overall framework 20 C.F.R. §416.1201 which only considers an asset as a countable resource if the person owns it and can convert it to cash within a 20-day period. Second, as stated in subsection (d)(1), these rules presume the Medicaid applicant is the one holding the power to revoke a revocable trust and reclaim the trust’s assets for his or her own use.
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 01120.201(D)(1) and 01120.200(D)(1)(b) require trust assets to be countable resources of the Medicaid applicant if: (a) the applicant has retained the power to revoke the trust, (b) upon revocation the assets revert to the applicant, and (c) the applicant can use the assets for his or her support and maintenance. Similarly, POMS SI 01120.200(D)(2) says if the applicant does not have the legal authority to revoke or terminate the trust or to direct the use of the trust assets for his or her own support and maintenance, the trust assets are not countable resources.
Conversely, POMS SI 01120.201(D)(1) and 01120.200(D)(3) recognize assets of an irrevocable trust can be countable resources if the Medicaid applicant is both the grantor (the person creating the trust) and sole beneficiary of the irrevocable trust. The POMS explain this conclusion by recognizing state law of many states allow an irrevocable trust to be revoked as long as both the grantor and beneficiary agree to do so. The applicant being both the grantor and sole beneficiary would have the power to revoke the trust under state law. If upon revocation the assets revert to the applicant and can be used for his or her support and maintenance, they are countable resources. Consider the following two examples.
Example 1. A person other than the Medicaid applicant creates a revocable trust which only that person can revoke. Upon revocation, the assets are not distributed to the applicant but to the person. Since the trust is revocable, most attorneys and caseworkers would consider the trust assets to be countable resources. However, they are not countable resources. Although the trust is revocable, the applicant does not hold the power to revoke the trust. Furthermore, upon revocation by the person creating the trust, the assets are not distributed to the applicant.
Example 2. The Medicaid applicant creates an irrevocable trust and is sole beneficiary of the trust. State law allows the applicant to revoke the trust; and upon revocation, the assets are distributed to the applicant. Since the trust is irrevocable, most attorneys and caseworkers would consider the trust assets not to be countable resources. However, they are countable resources. Although the trust is irrevocable, the applicant holds the power to revoke the trust and receive the trust assets.
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.
