Effective: February 1, 2010
19.25.35 - Trusts
A trust is a legal document establishing an agreement whereby an individual transfers liquid or non-liquid property (the trust corpus The assets and undisbursed income held in a trust, also referred to as the trust principal, estate or res (Latin for the subject matter of a trust or will). Assets and undisbursed income held in a trust are owned by (titled to) the trust and are not owned by the client. The trust corpus of a trust, however, may be available to the client.) to another person or entity (the trustee The person or entity who manages a trust corpus. When two or more trustees manage trust funds at the same time, they are referred to as co-trustees.) with the intention that the trust corpus be held, managed or administered by the trustee for the benefit of one or more beneficiaries. For example, a trust may hold assets for minors or adults who have been determined to be incompetent. Trusts may also be used to hold and distribute assets in such a way as to reduce income or estate taxes.
Trusts are evaluated when determining MHCP eligibility to evaluate whether the assets held in the trust are counted or excluded and whether the trust is a current or potential source of income. Trusts are also evaluated when a client requests Medical Assistance (MA) payment for long-term care (LTC) services to determine whether the client and/or the client’s spouse funded a non-excluded trust within the client’s lookback period A specific period for evaluating transfers prior to the date a person requests MA payment of LTC services or the date of application for GAMC..
Trust evaluation is dependent on the type of trust involved. For purposes of determining MA eligibility, a specific set of rules applies to each type of trust. This chapter provides information for evaluating trusts funded by the client (and/or the client’s spouse) and trusts funded by third parties (someone other than the client or client’s spouse).
Income to the Trust Versus Income to the Client.
Income to the Trust.
Income to the Client.
Trust Verification Requirements.
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There are several definitions of ”beneficiary” to be aware of when discussing trusts.
The person who has any present or future interest, vested or contingent, in the trust, including the owner of any interest by assignment or other transfer and any person entitled to enforce the trust. The following terms may be used in a trust to describe the beneficiary’s interest:
l Contingent Beneficiary.
A person or entity named to receive a benefit under the terms of a trust who will only receive that benefit if a certain event occurs or a certain set of circumstances happen that are addressed in the trust. Examples: a beneficiary survives another beneficiary or turning a specific age. Also referred to as a residual beneficiary.
l Lifetime Beneficiary.
Trust beneficiary entitled to the use and enjoyment of distributions from the trust as long as he or she lives according to the rights and limitations stated in the trust instrument. Also referred to as a current beneficiary
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Income to the Trust Versus Income to the Client
It is necessary to distinguish what is considered income to a trust and what is considered income to a client when evaluating a trust. For more specific information on whether income is available, excluded, or counted, refer to the specific trust section.
Income to the Trust
The language in the trust instrument The formal document that creates a trust and contains the powers of the trustees and the rights of the beneficiaries. A trust instrument can be a will or a formal declaration of a trust. Sometimes referred to as the Trust Agreement. will determine whether to count income to the trust as income to the client.
Income to a trust may include:
n Income earned by the trust (dividends earned on shares of stock owned by the trust and paid to the trust).
n Income that has been legally assigned to the trust.
n Income assigned to the trust and directly deposited into the trust.
At the time of assignment, determine if an uncompensated transfer Giving away, selling, conveying ownership or otherwise disposing of income or assets without receiving adequate compensation. has occurred. The amount of the uncompensated transfer is the amount the client would receive in his or her lifetime.
A client assigns her pension payments to a trust. The pension payments are no longer considered income to the client, but rather are income to the trust.
The amount of total pension payments the client would receive in her lifetime, but has assigned to the trust is an uncompensated transfer.
See Transfers to determine when income deposited into a trust is uncompensated.
Income to the Client
The following are examples of income that relate to trusts. See Income on how to treat income to the client.
n Income the client receives and later deposits into a trust. See Transfers.
n Income directly deposited into a trust asset, but which is not assigned to the trust.
Client deposits his wages into a savings account that is owned by a trust.
Count the wages as income to the client in the month received. Review the trust to determine if an improper transfer has taken place.
n Income from the trust distributed to the client, or on behalf of the client, for his or her needs.
Exception: Income paid for expenses from a Supplemental Needs or Special Needs trust is not considered income to the client.
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Trust Verification Requirements
Clients must provide a copy of the trust instrument, including all amendments and attachments at the time of application and at any time a trust is established after approval of health care eligibility.
Do not deny or close MHCP eligibility for failure to provide a copy of a trust instrument when the client does not have an asset limit. However, trust instruments may be required verification if needed to establish availability of income.
Additional verification requirements apply to special needs and pooled trusts. See Special Needs Trusts and Pooled Trusts for more information.
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