Trusts and Medicaid

By July 18, 2008Uncategorized

Many people today create Revocable Living Trusts as part of their Estate Planning.  While Revocable Living Trusts may not be the best tool for everybody, they do have their place.  For example, a Revocable Living Trust can ease the tensions of a complicated estate, involving real property located in a variety of states or blended families resulting from multiple marriages.  For those with estates values as less than one million dollars, the reasons for creating such trusts certainly diminish.  Nevertheless, it would be fair to say that most senior couples eventually find themselves with some kind of trust in their estate plans.

One problem with any trust (the most common of which is the Revocable Living Trust) occurs when a couple is confronted with long-term care concerns.  When a spouse gets sick and is in need of long-term care, the healthy spouse (i.e. community spouse) often explores the requirements for ALTCS, which is Arizona’s version of Medicaid.  They learn that after certain requirements are met, ALTCS will assist in paying for the ill spouse’s long-term care.  More specifically, they learn that they have to “spend-down” some of their assets and that if they have too much income, they need to create a special trust, known as a Miller Trust.

For example, assume a couple who made a total of $1,600 each month between them and had $30,000.00 in countable assets along with $20,000 of debt when the ill spouse needed to be placed into a Skilled Nursing Facility (SNF) on 8/1/08.  ALTCS would require the couple to spend down about $10,000.  In short, if the couple paid off $10,000 of debt by 8/30/08, pursuant to ALTCS policy, the “spend-down” requirements would be met.  But, if the money that paid off the debt came from an account titled in a Revocable Living Trust, the couple could not qualify for ALTCS.  Why?

There is an odd federal statute dealing with the Medicaid program that ALTCS is required to follow.  Simply stated, it says that any funds that are deposited in or removed from a trust—if such funds exceed the amount of income that is deposited in or removed from the same trust—is considered income.  As stated above, along with “spend-down” rules, ALTCS also has certain “income” rules that have to be met before it will pay for the ill spouse’s care.  Thus, when the couple used $10,000 from a Revocable Living Trust to pay off their debt, ALTCS deems such a transaction as increasing the couple’s income for that month by $10,000.  Thus, ALTCS denies the couple benefits for the month of August.

What this post is to demonstrate is that the ALTCS rules and regulations are complicated.  With careful planning and consideration, pitfalls such as this one can be softened and often avoided.  Of course, the sooner that one contacts JacksonWhite regarding the care needs of their loved one, the sooner such planning and consideration can occur.