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Not All Irrevocable Trusts Help- Review Your Trust

A well designed Medicaid Asset Protection Trust is commonly written to hold the grantor’s property for his or her benefit during his or her life. Upon the grantor’s death the property usually passes to the grantor’s children or family. Because the trust is the owner of the property the property does not count as an available resource of the grantor. However, if the trust is revocable, the assets will be counted against the grantor when determining his eligibility for Medicaid. If the trust is irrevocable the assets will not be counted. However, the terms of the irrevocable trust could make the assets available to the grantor and make him or her ineligible for Medicaid benefits. A periodic review of your estate plan (including the terms of your trust) is recommended.

Example i : Stephen of Smithtown, NY had created a trust and named his son, Scott, and his daughter-in-law, Mary, of Hauppauge, NY, co-trustees. The trust was funded with stocks and mutual funds with a total value of $500,000.00. The terms of the trust granted the co-trustees, “the authority to distribute so much of the principal to Sidney that they, in their sole discretion, deem advisable to provide for Stephen’s health, maintenance and welfare.” The trust was created and funded in 2007.

In 2015, Stephen’s health declined to the point that he needed to be admitted to a skilled nursing facility (nursing home). At the time Stephen’s only asset held in his name was a checking account with $2,500.00 where his Social Security check was deposited electronically each month.

An application for Medicaid was made and the Department of Social Services (“DSS”) determined that Stephen was ineligible for benefits because the assets within the trust counted as assets of Stephen.

On appeal, Scott argued that Stephen’s assets were well below the $14,850.00 asset threshold and the funding of the trust occurred more than five years ago, hence, the “gift” to the trust or to the beneficiaries of the trust was beyond the five year look-back period and could not punish Stephen. The DSS argued that the principal of the trust, of which Stephen was a beneficiary, is an “available resource,” because the principal of the trust may, in the discretion of Stephen’s son and daughter-in-law, be paid for Stephen’s benefit and concluded that the principal of the trust is an available resource for purposes of Stephen’s Medicaid eligibility determination. Scott argued that, despite their discretion, he and his wife refuse to make such payments of principal.

Decision: FOR DSS. Stephen loses and will have to use the assets that he thought were protected many years ago, to pay for the nursing home.

LESSON: REVIEW YOUR TRUST AND MAKE SURE IT WILL ACCOMPLISHES YOUR GOALS.

Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, 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.

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