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Debunking the Myths

By Dr. David Edward Marcinko; MBA, CPHQ™, CMP™

By Thomas A. Muldowney; MSFS, CLU, ChFC, CFP® CMP™

By Hope Rachel Hetico; RN, MHA, CPHQ™, CMP™

Some advisors, doctors, clients, patients and elders may believe that one way of avoiding the consumption of their assets, which they will use for nursing home care, is by transferring their resources into trusts. By putting their assets in trusts, elders and others believe that these assets will not be exposed to unwanted use and will be protected from claims by nursing home providers.

OBRA 1993 and DRA 2005

However, federal and state laws have severely reduced the use of trusts for this purpose; OBRA ’93 provided many of these restrictions. DRA’05 reduced it even more. Under this and earlier legislation, corpus and income of an inter vivos (a living trust) or self-settled trust are deemed to be resources of the grantor (and his or her spouse) even if the terms of the trust give full power of income and principal distribution to the trustee. (If any person creates a trust, even one that is irrevocable, that provides income to the original grantor, the trust is considered a grantor trust and will not work as an asset protection trust against the claims of lawful creditors – such as Nursing homes or medical providers.) 

Eliminated Trusts

Furthermore, certain trusts, including those in which the beneficial interest terminates when the beneficiary becomes institutionalized (conversion trusts) and those that require remaindermen approval for distributions of principal to the lifetime beneficiary (condition precedent trusts), have been eliminated as asset protection trusts.

Approved Trusts

Other trusts have been expressly approved. These include supplemental care trusts for disabled individuals not yet age 65, income assignment trusts for people affected by state income caps, and pooled fund accounts managed by nonprofit corporations.

Ancillary Benefits

The OBRA legislation also appears to have continued to make it possible to create irrevocable trusts in which the grantor retains only the income and the trustee has no discretion to distribute principal. By eliminating a trustee’s discretion to distribute principal, these trusts effectively protect the trust assets from being deemed legally available to the grantor for nursing home costs. Only the mandated income payments could legitimately be considered by state social service agencies.

The Advisor’s Role

Therefore, a financial planner of advisors can recommend “income-only” Medicaid qualifying trusts to those clients who wish to dispose of assets in order to qualify for Medicaid. The client can establish such a trust and receive its income. The income in excess of a personal needs allowance, determined on a state-by-state basis, and must be spent on medical costs. If the income amount is less than the client’s medical needs, the balance of the medical cost will be paid by Medicaid (unless the client lives in an income “cap” state). The trust corpus will not be available, as it has, in effect, been given away. The client’s purpose to protect principal has been carried out.  DRA’05 extends the look-back to sixty months. 

Assessment

So even income only trusts are under scrutiny if they were established as a means by which a grantor expected to qualify for Medicaid. Thus, if an income only trust is established, it must be established long before the application for Medicaid and before the 60 month look-back period.

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com  or Bio: www.stpub.com/pubs/authors/MARCINKO.htm

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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