APRIL 22, 1996 VOLUME 3, NUMBER 43
Individuals often seek to shelter their own assets so that they can qualify for medical benefits through the Medicaid program. Parents may also seek to leave money to their disabled children, while at the same time trying to prevent the loss of Medicaid benefits. A spate of recent cases from other states highlights some of the principles governing such trusts, and the ways in which state Medicaid agencies attempt to disqualify recipients.
In Arkansas, Idell Wilson executed an irrevocable trust in 1986 and transferred $20,000 into the trust’s name. The terms of the trust mandated that all income be given to Ms. Wilson, but prevented her from receiving any of the original trust principal.
Seven years later Ms. Wilson entered a nursing home. She applied for Medicaid coverage, arguing that the trust principal was unavailable to her. Medicaid denied her eligibility, citing an Arkansas statute that appeared to prohibit such trusts.
The Arkansas Supreme Court ultimately ordered eligibility for Ms. Wilson. The Court noted that the terms of the Arkansas statute invalidated such trusts only when the access to principal is limited “in the event that the grantor … should apply for medical assistance.” Since Ms. Wilson’s access to trust principal was absolute, and ran from the date of the trust’s establishment, she did not fall within the statute. Arkansas Dept. of Human Services v. Wilson, January 22, 1996. [Note–Ms. Wilson’s case might have turned out differently under Arizona law, and would probably only apply to older trusts in any event.]
Meanwhile, in 1991 North Dakotan Gordon O. Allen established a similar trust, transferring $137,000 to the trust’s name. Mr. Allen’s trust had a special provision permitting the trustees to terminate the trust if it would be in the best interests of Mr. Allen “by reason of … legislation.” Mr. Allen’s trustee made a Medicaid application for him in 1994, after his admission to a nursing home.
The North Dakota Medicaid agency denied Mr. Allen eligibility, arguing that the termination provision permitted his trustee to end the trust, distribute the principal to Mr. Allen, and thereby make it available to Mr. Allen for his medical care. The North Dakota Supreme Court ruled that the best interests of Mr. Allen required termination of the trust because of federal legislation which would otherwise deny him eligibility, and that the trust should be dissolved and funds used for his nursing home bills. Allen v. Wessman, January 30, 1996.
In Kansas in 1977, Bessie Eastman established a trust for her own benefit. Upon her death, a portion of the trust’s assets went into a new trust for the benefit of her disabled daughter Margaret Simpson. The portion of the trust for the benefit of Ms. Simpson totaled $35,000 at the time that she applied for (and was denied) Medicaid eligibility.
Ms. Simpson appealed, arguing that the trustee had absolute discretion about whether to use any of the trust income or principal for her benefit. Consequently, according to Ms. Simpson, she had no control over the trust and it should not be counted as an asset.
The Kansas Court of Appeals agreed with Ms. Simpson and ordered that she be made eligible. Key to the court’s decision was its finding that Ms. Simpson could not force the trustees to make distributions to her, and could not remove them from the trust. Simpson v. Kansas Department of Social and Rehabilitation Services, November 22, 1995.
Although the facts and the results differed in these three cases, some generalizations can be made about the rulings. If trustees are required to make distributions, the trust may be counted as available. And trusts established by others for the benefit of a Medicaid recipient are less likely to be countable assets.