Posts Tagged ‘income trusts’

The “Vanishing” Income Cap

DECEMBER 27, 1993 VOLUME 1, NUMBER 6

Nursing home patients with more than $1302 in monthly income ($1338 in 1994) are simply ineligible for ALTCS, Arizona’s version of Medicaid for long-term care. Or are they?

The “Utah gap” patient–one who has income in excess of the $1338 cap but less than the $2500-3000 cost of nursing home care–has become a notorious problem in financing the long-term care system. With the adoption of the federal budget in August of this year, Congress and the Clinton Administration provided some relief for “Utah gap” patients and the institutions that care for them.

Income Trusts

The concept of income trusts is straightforward enough. The income of the patient is assigned to a Trustee of a special type of Trust. By federal law, the income is deemed not available to the patient and, if other eligibility criteria are met, the patient becomes eligible for ALTCS.

There are several explicit requirements in the new federal law for execution of Income Trusts. Those requirements include:

The Trust must be “established for the benefit of” the applicant. It is not necessary to have the Court establish the Trust, though it may be advisable. It may be necessary to secure Court approval of the transfer of income.

Amounts remaining at the time of the patient’s death must be paid to the State (to the extent of the ALTCS subsidy received). If additional amounts remain, they may be distributed to family or other heirs.

Only income can be assigned to the Trust. It may not contain any other assets of the applicant, though unspent income may be accumulated.

Federal law is silent about a number of issues, including payment of administrative expenses from the Trust, whether any or all of the income received by the Trust must be used to pay the applicant’s “share of cost,” and whether excess income can be utilized for supplemental therapy and other needs. Based on early readings from ALTCS’ legal counsel, these issues may require litigation.

What Does it Cost?

Establishment of an Income Trust is not an inexpensive proposition. In most cases, Court proceedings are required to secure authority to establish the Trust, and the costs of drafting must be added to those Court costs. Transfer of different types of pension income may involve multiple applications, each with different rules and expectations. Finally, it is reasonable to anticipate that ALTCS will deny eligibility to initial applicants under the new rules, and the cost of an administrative appeal (with ultimate recourse to the Courts) must be considered.

After all costs and fees are added, the total price for establishment and funding of an Income Trust, plus representation during an ALTCS application and appeal process, should be in the range of $2,000 to $4,000. While this is a significant amount of money, two things should be kept in mind:

1. The cost of establishment of an Income Trust can be paid from the patient’s available resources, and

2. Making the patient eligible for ALTCS will repay the cost of establishing the Trust, in most cases, within a few months.

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