3259. TREATMENT OF TRUSTS
3259.1 General.--Under the trust provisions in §1917(d) of the Act, you
must consider whether and to what extent a trust is counted in
determining eligibility for Medicaid. The following instructions explain
the rules under which trusts are considered. These instructions apply to
eligibility determinations for all individuals, including cash
assistance recipients and others who are otherwise automatically
eligible and whose income and resources are not ordinarily measured
against an independent Medicaid eligibility standard. Also, these
instructions apply to post-eligibility determinations as well as
eligibility determinations.
A. Definitions.--The following definitions apply to trusts.
1. Trust.--For purposes of this section, a trust is any
arrangement in which a grantor transfers property to a trustee or
trustees with the intention that it be held, managed, or administered by
the trustee(s) for the benefit of the grantor or certain designated
individuals (beneficiaries). The trust must be valid under State law and
manifested by a valid trust instrument or agreement. A trustee holds a
fiduciary responsibility to hold or manage the trust''s corpus and income
for the benefit of the beneficiaries. The term "trust" also includes any
legal instrument or device that is similar to a trust. It does not cover
trusts established by will. Such trusts must be dealt with using
applicable cash assistance program policies.
2. Legal Instrument or Device Similar to Trust.--This is
any legal instrument, device, or arrangement which may not be called a
trust under State law but which is similar to a trust. That is, it
involves a grantor who transfers property to an individual or entity
with fiduciary obligations (considered a trustee for purposes of this
section). The grantor makes the transfer with the intention that it be
held, managed, or administered by the individual or entity for the
benefit of the grantor or others. This can include (but is not limited
to) escrow accounts, investment accounts, pension funds, and other
similar devices managed by an individual or entity with fiduciary
obligations.
3. Trustee.--A trustee is any individual, individuals, or
entity (such as an insurance company or bank) that manages a trust or
similar device and has fiduciary responsibilities.
4. Grantor.--A grantor is any individual who creates a
trust. For purposes of this section, the term "grantor" includes:
o The individual;
o The individual''s spouse;
o A person, including a court or administrative body,
with legal authority to act in place of or on behalf of the individual
or the individual''s spouse; and
o A person, including a court or administrative body,
acting at the direction or upon the request of the individual, or the
individual''s spouse.
5. Revocable Trust.-- A revocable trust is a trust which can under State law be revoked by the grantor. A trust which provides
that the trust can only be modified or terminated by a court is
considered to be a revocable trust, since the grantor (or his/her
representative) can petition the court to terminate the trust. Also, a
trust which is called irrevocable but which terminates if some action is
taken by the grantor is a revocable trust for purposes of this
instruction. For example, a trust may require a trustee to terminate a
trust and disburse the funds to the grantor if the grantor leaves a
nursing facility and returns home. Such a trust is considered to be
revocable.
6. Irrevocable Trust.--An irrevocable trust is a trust
which cannot, in any way, be revoked by the grantor.
7. Beneficiary.--A beneficiary is any individual or
individuals designated in the trust instrument as benefiting in some way
from the trust, excluding the trustee or any other individual whose
benefit consists only of reasonable fees or payments for managing or
administering the trust. The beneficiary can be the grantor himself,
another individual or individuals, or a combination of any of these
parties.
8. Payment.--For purposes of this section a payment from a
trust is any disbursal from the corpus of the trust or from income
generated by the trust which benefits the party receiving it. A payment
may include actual cash, as well as noncash or property disbursements,
such as the right to use and occupy real property.
9. Annuity.--An annuity is a right to receive fixed,
periodic payments, either for life or a term of years. See §3258.9.B for
a discussion of how to treat annuities.
3259.2 Effective Date.--This section applies to all trusts
established on or after August 11, 1993. However, the provisions in this
instruction are effective December 13, 1994. For the period prior to
this date, you may use any reasonable interpretations of the statute in
dealing with trusts. Trusts established before August 11, 1993, are
treated under the rules in §3215. Also, trusts established before August
11, 1993, but added to or otherwise augmented on or after that date are
treated under the rules in §3215. (However, additions to an established
trust on or after August 11, 1993, may be considered transfers of assets
for less than fair market value under §§3258ff.) While this section
applies to trusts established on or after August 11, 1993, you cannot
deny eligibility for Medicaid or apply the rules under this section
based on an individual creating a trust until October 1, 1993. For a
trust established on or after August 11, 1993, but prior to October 1,
1993, apply pre-OBRA 1993 rules until October 1. On October 1, begin
using the OBRA 1993 rules for treating trusts.
When the Secretary determines that your State requires enabling
legislation (other than legislation to appropriate funds) to implement
the trust provisions in §§3259ff, you may delay complying with the
effective date of the statute (October 1, 1993). The compliance date can
be delayed until after the close of the first regular legislative
session that begins after August 10, 1993. It can be delayed until the
first day of the first calendar quarter beginning after this session
closes. In the case of a 2-year legislative session, each year is
considered a separate regular session.
The statutory effective date of October 1, 1993, remains in effect even if a State is granted a delayed compliance date. However, no compliance
action will be taken against a State which requires legislation to enact
the trust provisions. Once enabling legislation is enacted, a State can
choose whether to enforce the trust provisions retroactively.
To obtain a delayed compliance date, submit a written request to your
HCFA regional office with an opinion from the State''s Attorney General
concerning the necessity of passing enabling legislation.
3259.3 Individuals to Whom Trust Provisions Apply.--This section
applies to any individual who establishes a trust and who is an
applicant for or recipient of Medicaid. An individual is considered to
have established a trust if his or her assets (regardless of how little)
were used to form part or all of the corpus of the trust and if any of
the parties described as a grantor in §3259.1 established the trust,
other than by will. (See also §3257 for a definition of individual as it
is used in this section.)
3259.4 Individual''s Assets Form Only Part of Trust.--When a trust corpus
includes assets of another person or persons as well as assets of the
individual, the rules in §§3259ff apply only to the portion of the trust
attributable to the assets of the individual. Thus, in determining
countable income and resources in the trust for eligibility and
post-eligibility purposes, you must prorate any amounts of income and
resources, based on the proportion of the individual''s assets in the
trust to those of other persons.
3259.5 Application of Trust Provisions.--The rules set forth in this
section apply to trusts without regard to:
o The purpose for which the trust is established;
o Whether the trustee(s), has or exercises any discretion
under the trust;
o Any restrictions on when or whether distributions can be
made from the trust; or
o Any restrictions on the use of distributions from the
trust.
This means that any trust which meets the basic definition of a trust
can be counted in determining eligibility for Medicaid. No clause or
requirement in the trust, no matter how specifically it applies to
Medicaid or other Federal or State programs (i.e., an exculpatory
clause), precludes a trust from being considered under the rules in
§§3259ff.
NOTE: While exculpatory clauses, use clauses, trustee discretion,
and restrictions on distributions, etc., do not affect a
trust''s countability, they do have an impact on how the
various components of specific trusts are treated. (See
§3259.6 for a detailed discussion of how various types of
trusts are treated.)
3259.6 Treatment of Trusts.--How a specific trust is counted for
eligibility purposes depends on the characteristics of the trust. The
following are the rules for counting various kinds of trusts.
A. Revocable Trust.--In the case of a revocable trust:
o The entire corpus of the trust is counted as an available
resource to the individual;
o Any payments from the trust made to or for the benefit of
the individual are counted as income to the individual (see §3257 for
the definition of income);
o Any payments from the trust which are not made to or for
the benefit of the individual are considered assets disposed of for less
than fair market value. (See §§3258ff. for the treatment of transfers of
assets for less than fair market value.)
When a portion of a revocable trust is treated as a transfer of assets
for less than fair market value, the look-back period described in
§3258.4 is extended from the usual 36 months to 60 months. (See §3258.4
for how to determine the look-back period for transfers of assets for
less than fair market value.)
EXAMPLE: Mr. Baker establishes a revocable trust with a corpus of
$100,000 on March 1, 1994, enters a nursing facility on
November 15, 1997, and applies for Medicaid on February 15,
1998. Under the terms of the trust, the trustee has complete
discretion in disbursing funds from the trust. Each month,
the trustee disburses $100 as an allowance to Mr. Baker and
$500 to a property management firm for the upkeep of Mr.
Baker''s home. On June 15, 1994, the trustee gives $50,000
from the corpus to Mr. Baker''s brother.
In this example, the $100 personal allowance and the $500 for upkeep of
the house counts as income each month to Mr. Baker. Because the trust is
revocable, the entire value of the corpus is considered a resource to
Mr. Baker. Originally, this was $100,000. However, in June 1994, the
trustee gave away $50,000. Thus, only the remaining $50,000 is countable
as a resource to Mr. Baker.
However, the giveaway is treated as a transfer of assets for less than
fair market value. When a trust is revocable, the look-back period for
such transfers is 60 months rather than the usual 36 months. The
look-back period in this case starts on February 15, 1993, (60 months
prior to February 15, 1998, the date Mr. Baker was both in an
institution and applied for Medicaid). Because the transfer occurred in
June 1994, it falls within the look-back period. Thus, a penalty under
the transfer of assets provisions is imposed, beginning June 1, 1994,
(the beginning of the month in which the transfer occurred). This
penalty, which is denial of payment for Mr. Baker''s nursing home care,
is based on the amount of the transfer ($50,000), divided by the State''s
average monthly cost of private nursing facility care. (See §3258ff. for
the transfer of assets rules.)
B. Irrevocable Trust - Payment Can Be Made to Individual Under
Terms of Trust.--In the case of an irrevocable trust, where there are
any circumstances under which payment can be made to or for the benefit
of the individual from all or a portion of the trust, the following
rules apply to that portion:
o Payments from income or from the corpus made to or for
the benefit of the individual are treated as income to the individual;
o Income on the corpus of the trust which could be paid to
or for the benefit of the individual is treated as a resource available
to the individual;
o The portion of the corpus that could be paid to or for
the benefit of the individual is treated as a resource available to the
individual; and
o Payments from income or from the corpus that are made but
not to or for the benefit of the individual are treated as a transfer of
assets for less than fair market value. (See §§3258ff. for treatment of
transfers for less than fair market value.)
EXAMPLE: Use the same facts that were used in the previous example,
but treat the trust as an irrevocable trust. The trustee has
discretion to disburse the entire corpus of the trust and
all income from the trust to anyone, including the grantor.
The $100 personal allowance and $500 for home upkeep are
income to Mr. Baker. The $50,000 left after the gift to Mr.
Baker''s brother is a countable resource to Mr. Baker, since
there are circumstances under which payment of this amount
could be made to Mr. Baker. The $50,000 gift to Mr. Baker''s
brother is treated as a transfer of assets for less than
fair market value. However, the look-back period for this
type of trust is only 36 months. (See §3258.4 for transfer
look-back periods as they apply to trusts.) The transfer
occurred outside of the look-back period. Thus, no penalty
for transferring an asset for less than fair market value
can be imposed.
C. Irrevocable Trust - Payments From All or Portion of Trust
Cannot, Under Any Circumstances, Be Made to or for the Benefit of the
Individual.--When all or a portion of the corpus or income on the corpus
of a trust cannot be paid to the individual, treat all or any such
portion or income as a transfer of assets for less than fair market
value, per instructions in §§3258ff.
In treating these portions as a transfer of assets, the date of the
transfer is considered to be:
o The date the trust was established; or,
o If later, the date on which payment to the individual was
foreclosed.
In determining for transfer of assets purposes the value of the portion
of the trust which cannot be paid to the individual, do not subtract
from the value of the trust any payments made, for whatever purpose,
after the date the trust was established or, if later, the date payment
to the individual was foreclosed. If the trustee or the grantor adds
funds to that portion of the trust after these dates, the addition of
those funds is considered to be a new transfer of assets, effective on
the date the funds are added to that portion of the trust.
Thus, in treating portions of a trust which cannot be paid to an
individual, the value of the transferred amount is no less than its
value on the date the trust is established or payment is foreclosed.
When additional funds are added to this portion of the trust, those
funds are treated as a new transfer of assets for less than fair market
value.
When that portion of a trust which cannot be paid to an individual is
treated as a transfer of assets for less than fair market value, the
usual 36 month look-back period is extended to 60 months. (See §3258.4
for the look-back period for transfers of assets for less than fair
market value.)
EXAMPLE: Use the same facts that are used in the examples in
subsections A and B, except that the trustee is
precluded by the trust from disbursing any of the corpus of
the trust to or for the benefit of Mr. Baker. Again, the
$100 and $500 (which come from income to the trust) count as
income to Mr. Baker. Because none of the corpus can be
disbursed to Mr. Baker, the entire value of the corpus at
the time the trust was created ($100,000 in March 1994) is
treated as a transfer of assets for less than fair market
value.
As with the revocable trust discussed in subsection A, the date of
transfer is within the 60 month look-back period that applies to
portions of trusts that cannot be disbursed to or for the individual.
Thus, a transfer of assets is considered to have occurred as of March 1,
1994. The fact that $50,000 was actually transferred out of the trust to
Mr. Baker''s brother does not alter the amount of the transfer upon which
the penalty is based. That amount remains $100,000, even after the gift
to Mr. Baker''s brother.
If, at some point after establishing the trust, Mr. Baker places an
additional $50,000 in the trust, none of which can be disbursed to him,
that $50,000 is treated as an additional transfer of assets. The penalty
period that applies to that $50,000 starts when those funds are placed
in the trust, provided no penalty period from the previous transfer of
$100,000 is still running. If a previous penalty period is still in
effect, the new penalty period cannot begin until the previous penalty
period has expired. (See §§3258ff. for transfers of assets for less than
fair market value.)
Amounts are considered transferred as of the time the trust is first
established or, if later, payment to the individual is foreclosed. Each
time the individual places a new amount into the trust, payment to the
individual from this new portion is foreclosed. It is this later date
that determines when a transfer has occurred.
D. Payments Made From Revocable Or Irrevocable Trusts to or on
Behalf of Individual.--Payments are considered to be made to the
individual when any amount from the trust, including an amount from the
corpus or income produced by the corpus, is paid directly to the
individual or to someone acting on his/her behalf, e.g., a guardian or
legal representative.
Payments made for the benefit of the individual are payments of any
sort, including an amount from the corpus or income produced by the
corpus, paid to another person or entity such that the individual
derives some benefit from the payment. For example, such payments could
include purchase of clothing or other items, such as a radio or
television, for the individual. Also, such payments could include
payment for services the individual may require, or care, whether
medical or personal, that the individual may need. Payments to maintain
a home are also payments for the benefit of the individual.
NOTE: A payment to or for the benefit of the individual is counted
under this provision only if such a payment is ordinarily
counted as income under the SSI program. For example,
payments made on behalf of an individual for medical care
are not counted in determining income eligibility under the
SSI program. Thus, such payments are not counted as income
under the trust provision.
E. Circumstances Under Which Payments Can or Cannot Be Made.--In
determining whether payments can or cannot be made from a trust to or for an individual, take into account any restrictions on payments, such
as use restrictions, exculpatory clauses, or limits on trustee
discretion that may be included in the trust.
For example, if an irrevocable trust provides that the trustee can
disburse only $1,000 to or for the individual out of a $20,000 trust,
only the $1,000 is treated as a payment that could be made under the
rules in subsection B. The remaining $19,000 is treated as an amount
which cannot, under any circumstances, be paid to or for the benefit of
the individual. On the other hand, if a trust contains $50,000 that the
trustee can pay to the grantor only in the event that the grantor needs,
for example, a heart transplant, this full amount is considered as
payment that could be made under some circumstances, even though the
likelihood of payment is remote. Similarly, if a payment cannot be made
until some point in the distant future, it is still payment that can be
made under some circumstances.
F. Placement of Excluded Assets in Trust.--Section 1917(e) of
the Act provides that, for trust and transfer purposes, assets include
both income and resources. Section 1917(e) of the Act further provides
that income has the meaning given the term in §1612 of the Act and
resources has the meaning given that term in §1613 of the Act. The only
exception is that for institutionalized individuals, the home is not an
excluded resource.
Thus, transferring an excluded asset (either income or a resource, with
the exception of the home of an institutionalized individual) for less
than fair market value does not result in a penalty under the transfer
provisions because the excluded asset is not an asset for transfer
purposes. Similarly, placement of an excluded asset in a trust does not
change the excluded nature of that asset; it remains excluded. As noted
in the previous paragraph, the only exception is the home of an
institutionalized individual. Because §1917(e) of the Act provides that
the home is not an excluded resource for institutionalized individuals,
placement of the home of an institutionalized individual in a trust
results in the home becoming a countable resource.
G. Use of Trust vs. Transfer Rules for Assets Placed in
Trust.--When a nonexcluded asset is placed in a trust, a transfer of
assets for less than fair market value generally takes place. An
individual placing an asset in a trust generally gives up ownership of
the asset to the trust. If the individual does not receive fair
compensation in return, you can impose a penalty under the transfer of
assets provisions.
However, the trust provisions contain specific requirements for
treatment of assets placed in trusts. As discussed in subsections A
through C, these requirements deal with counting assets placed in trusts
as available income, available resources, and/or a transfer of assets
for less than fair market value, depending on the circumstances of the
particular trust. Application of the trust provisions, along with
imposition of a penalty for the transfer of the assets into the trust,
could result in the individual being penalized twice for actions
involving the same asset.
To avoid such a double penalty, application of one provision must take
precedence over application of the other provision. Because the trust
provisions are more specific and detailed in their requirements for
dealing with funds placed in a trust, the trust provisions are given
precedence in dealing with assets placed in trusts. Deal with assets placed in trusts exclusively under the trust provisions (which, in some
instances, require that trust assets be treated as a transfer of assets
for less than fair market value).
3259.7 Exceptions to Treatment of Trusts Under Trust Provisions.--The
rules concerning treatment of trusts set forth in §3259.6 do not apply
to any of the following trusts, i.e., the trusts discussed below are
treated differently in determining eligibility for Medicaid. Funds
entering and leaving these trusts are generally treated according to the
rules of the cash assistance programs, the State''s more restrictive
rules under §1902(f) of the Act, or more liberal rules under §1902(r)(2)
of the Act, as appropriate.
As is noted in each exception below, one common feature of all of the
excepted trusts is a requirement that the trust provide that upon the
death of the individual, any funds remaining in the trust go to the
State agency, up to the amount paid in Medicaid benefits on the
individual''s behalf. When an individual has resided in more than one
State, the trust must provide that the funds remaining in the trust are
distributed to each State in which the individual received Medicaid,
based on the State''s proportionate share of the total amount of Medicaid
benefits paid by all of the States on the individual''s behalf. For
example, if an individual received $20,000 in Medicaid benefits in one
State and $10,000 in benefits in another State, the first State receives
two-thirds of the amount remaining in the trust, and the second State
receives one-third, up to the amount each State actually paid in
Medicaid benefits.
A. Special Needs Trusts.--A trust containing the assets of an
individual under age 65 who is disabled (as defined by the SSI program
in §1614(a)(3) of the Act) and which is established for the sole benefit
of the individual by a parent, grandparent, legal guardian of the
individual, or a court is often referred to as a special needs trust. To
qualify for an exception to the rules in this section, the trust must
contain a provision stating that, upon the death of the individual, the
State receives all amounts remaining in the trust, up to an amount equal
to the total amount of medical assistance paid on behalf of the
individual under your State Medicaid plan. In addition to the assets of
the individual, the trust may also contain the assets of individuals
other than the disabled individual.
When a trust is established for a disabled individual under age 65, the
exception for the trust discussed above continues even after the
individual becomes age 65. However, such a trust cannot be added to or
otherwise augmented after the individual reaches age 65. Any such
addition or augmentation after age 65 involves assets that were not the
assets of an individual under age 65. Thus, those assets are not be
subject to the exemption discussed in this section.
To qualify for this exception, the trust must be established for a
disabled individual, as defined in §1614(a)(3) of the Act. When the
individual in question is receiving either title II or SSI benefits as a
disabled individual, accept the disability determination made for those
programs. If the individual is not receiving those benefits, you must
make a determination concerning the individual''s disability. In making
this determination, follow the normal procedures used in your State to
make disability determinations for Medicaid purposes. If you are a
209(b) State, you must use the disability criteria of the SSI program,
rather than any more restrictive criteria you may use under your State
plan. The only exception to this requirement is if you had a more restrictive trust policy in general in 1972 than the policy described in
§§3259ff. If so, you may use any more restrictive definition of
disability which applied to that 1972 policy. If not, you must use the
disability criteria of the SSI program.
NOTE: Establishment of a trust as described above does not
constitute a transfer of assets for less than fair market
value if the transfer is made into a trust established
solely for the benefit of a disabled individual under age
65. However, if the trust is not solely for the benefit of
the disabled person or if the disabled person is over age 65
transfer penalties may apply. (See §3258.10 for the
exceptions to imposing penalties for certain transfers of
assets.)
B. Pooled Trusts.--A pooled trust is a trust containing the
assets of a disabled individual as defined by the SSI program in
§1614(a)(3) of the Act, that meets the following conditions:
o The trust is established and managed by a non-profit
association;
o A separate account is maintained for each beneficiary of
the trust but for purposes of investment and management of funds the
trust pools the funds in these accounts;
o Accounts in the trust are established solely for the
benefit of disabled individuals by the individual, by the parent,
grandparent, legal guardian of the individual, or by a court (see §3257
for a definition of the term "solely for the benefit of"); and
o To the extent that any amounts remaining in the
beneficiary''s account upon the death of the beneficiary are not retained
by the trust, the trust pays to the State the amount remaining in the
account up to an amount equal to the total amount of medical assistance
paid on behalf of the beneficiary under your State Medicaid plan. To
meet this requirement, the trust must include a provision specifically
providing for such payment.
To qualify as an excepted trust, the trust account must be established
for a disabled individual, as defined in §1614(a)(3) of the Act. When
the individual in question is receiving either title II or SSI benefits
as a disabled individual, accept the disability determination made for
those programs. If the individual is not receiving those benefits, you
must make a determination concerning the individual''s disability. In
making this determination, follow the normal procedures used in your
State to make disability determinations for Medicaid purposes. If you
are a 209(b) State, you must use the disability criteria of the SSI
program. The only exception to this requirement is if you had a more
restrictive trust policy in general in 1972 than the policy described in
this instruction. If so, you may use any more restrictive definition of
disability which applied to that 1972 policy. If not, you must use the
disability criteria of the SSI program.
NOTE: Establishing an account in the kind of trust described above
may or may not constitute a transfer of assets for less than
fair market value. For example, the transfer provisions
exempt from a penalty trusts established solely for disabled
individuals who are under age 65 or for an individual''s
disabled child. As a result, a special needs trust
established for a disabled individual who is age 66 could be
subject to a transfer penalty. (See §3258.10 for the
exceptions to imposing penalties for certain transfers of
assets.)
While trusts for the disabled (as well as Miller trusts described in
subsection C) are exempt from treatment under the trust rules described
in §3259.6, funds entering and leaving them are not necessarily exempt
from treatment under the rules of the appropriate cash assistance
program. The following are rules applicable to funds entering and
leaving both kinds of exempt trusts for the disabled.
1. Trusts Established with Income.--While most trusts
for the disabled are created using the individual''s resources, some may
be created using the individual''s income, either solely or in
conjunction with resources. When an exempt trust for a disabled
individual is established using the individu
