Third Party Trusts and Medicaid

Third Party Trusts and Medicaid


A trust is an efficient tool to use in providing for a person who is unable to manage his or her own funds due to incompetency, disability or minority. Instead of making an outright gift to the person under disability, the Grantor would transfer the assets to a Trustee. The Trustee would then invest and manage the funds for the benefit of the person under disability (the Beneficiary). The terms of the trust dictate how the money is to be used according to the wishes of the Grantor.

If the Beneficiary of the trust is or may become a Medicaid recipient, or a candidate for other needs based programs, the assets of the trust may affect his or her eligibility. The wording of the trust itself will govern whether the funds in the trust are 'exempt assets' or 'available assets.'

In order to qualify for Medicaid, an individual must have less than $1,500.00 in 'countable assets'. In other words, if a person has access to funds to pay for his care, he must use those funds before the state will pay for his care. If the trust funds are not 'available' to pay for care and the Beneficiary cannot force the Trustee to turn over the funds to him, then the funds are not countable for Medicaid Eligibility.

SUPPORT TRUSTS

Many trusts are established to provide for the beneficiary's 'health, maintenance, care, comfort or general well being'. Such a trust would allow the Trustee to manage the money for the Beneficiary to assure it is well invested and not squandered. The assets in such a trust, however would be considered 'countable assets' if the beneficiary needed to apply for Medicaid.





DISCRETIONARY TRUSTS

If the trustee is given 'discretion' in expending trust funds (when, how much and for whom the money is spent), then the trust fund is not 'available' to the beneficiary. Since the Beneficiary cannot force the trustee to pay, neither can he be required to demand access to the funds to pay for his care. Thus the funds in the trust are 'unavailable.'

Even trusts that do not allow the trustee total discretion can hold 'unavailable' assets if they contain a 'clear statement' limiting the trustee's power to distribute to the disabled individual. In these cases, part or all of the trust fund may be unavailable.

Examples

'¢ If the trustee is required to preserve a portion of the trust for another person.
'¢ If the trustee is required to use a portion of the trust for a purpose other than medical care, care, comfort, maintenance, welfare or general well being.
'¢ If the trustee is limited to making fixed payments (in this case distributions would be counted as 'income')
'¢ If the trustee is required to terminate the trust if it is counted as an available asset.

SUPPLEMENTAL SERVICE TRUST

Ohio Revised Code Section 1339.51 allows for the establishment of a trust for disabled individuals who are eligible to receive services through:

'¢ The Department of Mental Retardation and Developmental Disabilities
'¢ A county board of Mental Retardation and Developmental Disabilites
'¢ The Department of Mental Health
'¢ A board of alcohol, drug addiction and mental health services

So long as the trust meets the requirements of the statute, the trust fund is not considered an available asset. The statute requires that:

1. The beneficiary prove that he was eligible to receive services from an appropriate agency even if he was not actually receiving services at the time, the trust was established.

2. The trust principal cannot be more than the maximum allowed in the statute ($218,000 in 2004 and $2000 more each year there after).

3. The trust must be used for 'supplemental services'.

4. Purchases must be made directly by the trustee with no cash ever given to the fiduciary.

5. At least 50 percent of whatever remains in the trust at the time of the beneficiary's death must be paid to the State of Ohio. This money is deposited to a State Treasury Fund to be used for the benefit of others who do not have such trust arrangements.

Trusts can be valuable tools in providing for individuals who cannot manage their own funds. Choosing the right type of trust will assure the best use of funds for the beneficiary's situation.

Prepared By:
Marta J. Williger
Attorney at Law
323-C South Main Street
P.O. Box 368
Munroe Falls, Ohio 44262
(330) 633-7373