A Florida Medicaid trust, is a Medicaid planning legal device that reduces a future applicant’s countable income so that the individual can qualify for Medicaid and use some of his income to enhance his lifestyle.
Basic Florida Trusts
A “trust” is not a legal entity like a corporation or partnership. A trust is a contract between a grantor (or a trustmaker) and a trustee in which the grantor gives money or property to the trustee under terms and conditions expressed in a trust agreement stating how the trustee is to use the money for the benefit of other people named as beneficiaries of the trust agreement.
Trust agreements can be expressly revocable and amendable, or the agreements can be irrevocable so they cannot be altered. Another distinction is whether the trustmaker establishes the trust for his own benefit, called a “self-settled trust,” or whether the trust is established for the benefit of someone other than the trustmaker, called a “third party trust.” The use of trust agreements in Medicaid planning depend upon the type of trust agreement as well as the terms of the trust agreement.
Self-settled revocable trusts are a basic and common estate planning tool. These trusts are commonly referred to as “living trusts.” The trusts are called living trusts because the trustmaker reserves the right to cancel or amend the trust and because the trustmaker is the beneficiary of the trust during his lifetime. Assets titled in the name of the trustee of a living trust are considered assets of the trustmaker for all legal purposes. Living trusts are useful estate planning tools for several reasons, such as probate and guardianship avoidance. They have several advantages over having only a power of attorney. Living trust assets and income are fully attributable to the trustmaker. Living trusts are not Medicaid planning tools because they protect neither income nor assets from Medicaid accountability.
A medicaid trust is an irrevocable trust that can be useful in Medicaid planning. Applicants typically work with an elder law attorney to set up the trust. The usefulness of depends upon who establishes the trust and the beneficial interest of the Medicaid applicant. There are two types of trusts that protect assets of Medicaid applicants:
- Third party irrevocable trust established by someone other than the applicant.
- An irrevocable trust that is established by the applicant for his own benefit.
A third-party trust is a trust that was created by someone other than the trust beneficiary. Often a parent or grandparent will establish a trust for the benefit of a Medicaid applicant. The parent or grandparent in this example would be the third-party trustmaker. A third-party irrevocable trust protects the applicant’s interest in trust assets where the trust agreement includes “special needs” provisions. Briefly, a special needs trust states that the beneficiary cannot receive trust distributions, directly or indirectly, if the distribution would diminish the beneficiary’s eligibility for or amount of government benefits. Parents include special needs provisions in their living trusts because they do not want the child’s inheritance to supplant and be dissipated by paying for the child’s governmental disability benefits or for long-term care that otherwise may be paid though Social Security or Medicaid. In other cases, a healthy spouse may include “special needs” language in their living trust to shelter money for a surviving spouse who may need Medicaid for long-term medical purposes.
Special need restrictions in trusts established by someone other than the applicant protect trust assets from Medicaid eligibility analysis and government claims. Because the applicant typically has not transferred their own assets to the third-party special needs trust, there is no issue of the applicant improperly transferring assets in anticipation of Medicaid. As long as the applicant has no enforceable legal interest or rights to withdraw money from the trust, and the trust agreement has properly drafted special needs provisions, money held for the benefit of the applicant in a “special needs trust” should not impact the applicant’s Medicaid eligibility.
If the Medicaid applicant is the third-party trustmaker of an irrevocable trust for the benefit of someone else then Medicaid analysis is problematic. An example of this type of third party trust is where a medicaid applicant established a trust for his children and then transferred his assets to the trust. If an applicant has created an irrevocable trust for the benefit of family members (spouse or children) and transfers money to fund the trust, the transfer of money to the trust is treated as a gift—it is no different than if the applicant gave the money to the family member directly without the trust. Money held in the applicant’s irrevocable trust for the benefit of third parties is not a countable asset if the applicant reserves no rights or interest for himself. The date the applicant establishes the trust is not relevant. However, the date the applicant transfers assets to the trust is relevant; if the applicant has transferred money or other assets to an irrevocable trust for the benefit of third parties within five years of the application date, the transfer will be within the five-year look back period and Florida will impose benefit penalties.
Florida Medicaid Trust (Miller Trust)
There is a type of irrevocable trust that an applicant may establish for his own benefit that is useful for Medicaid planning because they help applicants deal with income in excess of Florida’s income eligibility cap. These trusts have many interchangeable names, including Medicaid Trusts, Miller Trusts, Qualified Income Trust, and d4B Trusts. Living trusts are established for the benefit of the trustmaker in typical estate planning; the Medicaid Trust is also established for the benefit of the trustmaker applicant, but the Medicaid Trust is not revocable and upon the trustmaker’s death the trustmaker’s heirs do not inherit the remaining assets.
Medicaid Trusts are used primarily to protect an applicant’s excess income during the time the trustmaker is receiving Medicaid longterm care in a nursing facility. A Florida resident in a nursing facility receiving Medicaid health care is limited to approximately $2,200 of monthly income.
Here’s how the Medicaid trust works: the Medicaid patient puts in the Medicaid Trust each month all income more than the monthly income cap. The money is held in trust, may be invested, and may accumulate. If this excess income is put in a qualifying and properly drafted Medicaid Trust the excess income does not disqualify the patient from receiving Medicaid. The trust money can be used to improve the lifestyle of the disabled person while he is in the assisted living facility and receiving Medicaid payments. For instance, the trust money can be used to pay for a private room or for personal care and entertainment.
The government must be named as the alternate, or contingent, beneficiary of the Medicaid Trust. Any assets in the trust when the Medicaid recipient dies (or if he is otherwise no longer receiving benefits) must be paid back to the Florida state government up to the total amounts the state paid on behalf of the individual, less deductions for applicable taxes and trust administration. The applicant’s Medicaid planning lawyer works with the family to ensure that the requirements are met.
Medicaid agencies frequently audit Medicaid Trusts to prevent fraud. The Medicaid Trust must be drafted and administered strictly in compliance with Medicaid rules. For example, the trustmaker must be under age 65 when he establishes the trust. The trust must be irrevocable and not subject to amendment, and it cannot be terminated during the beneficiary’s lifetime. The trust beneficiary must be “disabled” as defined by Social Security Administration for eligibility for Supplemental Security Income (“SSI”) programs for the aged and the disabled. The trustmaker must fund the trust with his income on a monthly basis with all gross income over the state’s income cap. Most important, the Medicaid Trust must be created and administered for the “sole benefit” of the disabled recipient. The trust cannot provide under any circumstances any benefit to any other person or entity during the disabled person’s lifetime (except to the State of Florida).
As a practical matter, the applicant or his agents should not over-fund a Medicaid Trust with extra assets or income. Income placed in trust is best used for the applicant’s benefit during his stay in the SNF because upon his death all remaining trust assets pass to the state.
Pooled Trust and d4c Trust
There is a separate variety of the Medicaid Trust that is called a “Pooled Trust” or a “d4c Trust.” Medicaid Pooled Trusts in Florida are administered by non-profit organizations, and upon the trustmaker’ s death, the remaining money that had been contributed by the trustmaker may stay in the pool and used to help other people. The trustmaker benefits because his trust is professionally administered and the excess income contributed is professionally managed. There are various regulations applicable to drafting Medicaid Pooled Trusts.