A trust is a legal instrument by which an individual gives control over his/her assets to another (the trustee) to disburse according to the instructions of the individual creating the trust. There are a number of different types of trusts, including Revocable Trusts and Irrevocable Trusts. Often, Revocable Trusts become Irrevocable Trusts upon a certain event, such as the grantor’s death.
It is important to review and understand how your trusts read and function especially in light of your estate planning goals. It is especially important to know what happens if and when there is a need to apply for Medicaid benefits. An example follows:
On August 31, 2015, an application for Medical Assistance (“Medicaid”) was made on behalf of Veronica from Valley Stream, NY, who had been admitted to a Residential Health Care Facility on October 26, 2015.
On January 13, 2017, Medicaid denied the Medicaid application for excess resources. Medicaid determined that Veronica had excess resources of $91,788.31 above the permitted amount of $14,850.00.
Medicaid included in Veronica’s assets a trust with a total value of $865,406.90. The terms of the trust included a paragraph that stated, “Distribution of Net Income states: My Trustee shall distribute to my wife all net income to my wife at least quarter annually during her lifetime.” Another paragraph in the trust stated, “My Trustee shall distribute to my wife as much of the principal of the trust as my Trustee determines is necessary or advisable for her health, education, maintenance or support. It is my wish that my wife minimizes withdrawals and thus maximize the value the corpus of the trust during her lifetime.”
Medicaid calculated Veronica’s resource value by dividing the principal of the trust by her life expectancy, 8.48 years.
Veronica’s attorney stated Medicaid was not correct when it included the trust as a resource. Veronica’s attorney stated the trust was not established by her spouse, but was revocable while her spouse was alive but was irrevocable upon his death. Veronica’s attorney argued: that the trust states there is a requirement to minimize withdrawals and maximize the corpus of the trust, Veronica only has access to the trust funds at the discretion of the Trustee, and stated the trust contains language that states the trustee must maintain the corpus of the trust and minimize principal withdrawals.
DECISION: MEDICAID WINS, VERONICA LOSES
The Judge found that Medicaid correctly denied Veronica’s application and found Veronica’s contention that the trust is not a resource was not persuasive.
The language of the trust the Judge focused on was, “the trustee shall distribute to my wife as much principal of the trust as the trustee determines is necessary or advisable for her health, education, maintenance or support.”
The Judge then stated that nursing home care is necessary for the health, maintenance, and support of Veronica.
LESSON: If you created a trust and want to review the terms and operation of the trust, or want to discuss the creation of a trust for planning purposes call to schedule a free consultation.
Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, NY and Valley Stream, NY and clients throughout Suffolk, Nassau, Queens, Brooklyn, Bronx, Richmond, New York, Westchester and Rockland Counties. He concentrates his practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.