Are Irrevocable Living Trusts Useful in Qualifying for ALTCS?

Some irrevocable trusts are allowed to own assets transferred by an individual, where the individual is also a beneficiary, but will not subject the individual to a transfer penalty and the assets will not be counted as available resources.

Individuals who have resources in excess of the allowable Arizona Long Term Care System limits have limited options when it comes to qualifying for ALTCS (see current eligibility limits and requirements).

Many people are under the mistaken belief that a transfer of an asset to a revocable or living trust will help the individual qualify for ALTCS. However, because the individual still controls the asset in a revocable trust, assets held in a revocable trust are treated as still being owned by the individual for purposes of ALTCS eligibility.

ALTCS QUALIFYING TRUSTS

Prior to August 10, 1993, the law did allow individuals to create what were referred to as “Medicaid Qualifying Trusts.” These were irrevocable trusts created by the individual and funded with the individual’s assets, which, in some cases, could be protected from consideration by ALTCS.

The basic rule for irrevocable trusts created after August 10, 1993, is that any asset in an irrevocable trust that can be distributed to the beneficiary at the discretion of the trustee is treated as a countable resource.

Some irrevocable trusts contain assets of the individual and a spouse along with resources that belong to other individuals. In these situations, ALTCS will determine the individual’s proportionate share. Any distribution that is not made to others that is not for the benefit of the individual will be considered to be a transfer of resources, and a penalty period will be imposed.

To the extent the trust does not allow for any distribution to the beneficiary, it will be treated as a transfer of resources subject to a transfer penalty. If it has been more than 60 months since the Trust was created, then no penalty will be applied.

SPECIAL PURPOSE TRUSTS

Some irrevocable trusts are allowed to own assets transferred by an individual, where the individual is also a beneficiary, but will not subject the individual to a transfer penalty and the assets will not be counted as available resources. These are referred to as “special purpose trusts.” Federal law has created these special trusts that are allowed to hold assets transferred by the individual ALTCS beneficiary, distributed according to specific rules established by statute, yet the value of those assets will not be considered when determining eligibility for ALTCS. These three special-purpose trusts are:

• “First-Party Special Needs Trusts,” established by an individual under the age of 65;
  

• “Pooled Trusts,” administered by a non-profit organization for the benefit of the individual; and
  

• “Income Trusts,” designed to administer the income of an ALTCS beneficiary who may have more income than allowed by the State of Arizona.
  

Legal Guidance

As you can see, ALTCS eligibility is complicated and advice from an attorney who frequently works in this area of the law is highly recommended. At Frazer Ryan, we work hard to say up to date on the law and on methods to ensure that all eligible individuals are properly prepared to qualify for ALTCS. We encourage you to give us a call to discuss your particular situation with us.