March 3

Medicaid Applicant’s Irrevocable Trust Is an Available Resource Because Trustee Can Make Distributions

An Alabama appeals court rules that a Medicaid applicant’s special needs trust is an available resource because the trustee had discretion to make payments under the trust. Alabama Medicaid Agency v. Hardy (Ala. Civ. App., No. 2140565, Jan. 29, 2016).

Denise Hardy inherited a one-half interest in a house and placed it in an irrevocable trust. The trust instrument stated that the trustee could distribute income to Ms. Hardy at the trustee’s discretion and that the trust was intended to be a special needs trust. Ms. Hardy entered a nursing home and applied for Medicaid. The state determined that the trust was an available resource.

Ms. Hardy appealed, and an administrative law judge agreed that the trust was an available resource. Ms. Hardy appealed to court, arguing that the trust was not available because it was irrevocable and could not be altered. The trial court reversed the state’s decision and ordered the state to pay Ms. Hardy benefits. The state appealed.

The Alabama Court of Civil Appeals reverses, holding the trust is an available resource. According to the court, a trust is an available resource if there is any circumstance under which payments can be made to the beneficiary, and that in this case, “if the house was sold and half of the proceeds of the sale were placed in the trust, the trustee could then make distributions as required by the terms of  [Ms.] Hardy’s trust.”

February 29

Federal Court Grants Preliminary Injunction Continuing Medicaid Benefits in Decanting Case

A federal district court grants a Medicaid beneficiary’s request for a preliminary injunction preventing the Connecticut Department of Social Services from treating two trusts established for the beneficiary by her deceased mother as countable resources before they were decanted into supplemental needs trusts.  Simonsen v. Bremby (D.Ct., No. 15-cv-1399, Dec. 23, 2015).

Joy A. Miller established two inter vivos trusts for her daughter, Dawn Simonsen, that were funded when Ms. Miller died in 2003.  The trusts, established in Florida, gave the trustee the ability to “pay to [Dawn] or utilize for her benefit so much of the income and principal of her trust as the trustee deems necessary or advisable from time to time for her health, maintenance in reasonable comfort, education and best interest considering all of her resources known to the trustee . . . the trustee is encouraged to be liberal in its use of the funds for her even to the extent of the full expenditure thereof.”  

Ms. Simonsen, a quadriplegic on a ventilator, was admitted to a nursing home in October 11, 2013, and she applied for Medicaid on July 31, 2014.  On August 29, 2014, the trustee of the two trusts successfully petitioned a Florida court for permission to decant the two trusts into two new supplemental needs trusts.  Although the Connecticut Department of Social Services (DSS) initially approved Ms. Simonsen’s Medicaid application, it subsequently determined that the original trusts were countable resources and assessed a seven year transfer of assets penalty for the decanting into the clearly inaccessible supplemental needs trusts.  Ms. Simonsen appealed DSS’s decision and while that appeal was pending filed a request for a preliminary injunction with the federal district court asking it to prohibit the state from terminating her Medicaid benefits and to hold that the previous trusts were not accessible resources, voiding the transfer penalty.

Referring to the Social Security Administration’s Program Operations Manual System (POMS), the U.S. District Court for the District of Connecticut grants the motion for a preliminary injunction, finding that the original trusts are not countable resources because they “do not contain terms providing the beneficiary with any right or authority to direct any payments, and instead empowered the Trustee with the sole discretion to determine when to make a distribution . . . Moreover, the Predecessor Trusts contained a valid spendthrift clause . . . In short, if a trust contains a spendthrift clause, the beneficiary has no legal right or authority to access the trust principal, and, therefore, it is not counted as an available resource for SSI, and consequently Medicaid, eligibility purposes.”

For the full text of this decision, click here

December 21

How to Choose a Trustee

If you create a trust, you will need a separate person or institution, called a “trustee,” to manage the trust either now or in the future, depending on the type of trust.  Choosing the right trustee is crucial to making sure your wishes are carried out. The choice is important because being a trustee can be a difficult job, with a trustee’s duties including making proper investments, paying bills, keeping accounts, and preparing tax returns.

A trust is a legal arrangement through which a trustee holds legal title to property for another person, called a “beneficiary.” The trust document will name the trustee, although there are several different types of trusts. The simplest one is a revocable living trust in which the person who creates the trust maintains control of the trust while he or she is alive. In this situation, the trust document will name a successor trustee to take over after the original trustee dies or becomes incapacitated. Other trusts — such as an irrevocable trust or special needs trust — may have a separate trustee from the start.

The law isn’t very strict about who may serve as your trustee, as long as the person is legally competent, meaning he or she is over 18 years of age and is capable of managing his or her own affairs. The main consideration when selecting a trustee is picking someone who is trustworthy. The trustee has a duty to manage the trust in the beneficiary’s best interest. The trustee does not need legal or financial expertise, but he or she must have good judgment. In the case of a special needs trust, the trustee should have knowledge of federal benefits programs.

Another consideration is that the trustee be able to manage the trust for an extended period of time. Your choice of trustee should be someone who will likely be around for a long time and who has the time to devote to trustee duties. It is important that the trustee be of sound mind and body.

If you don’t know anyone who meets these qualifications, you can look into hiring an independent trustee. This can be an individual or an institution with no beneficial interest in the trust. Some examples include: a bank or trust company, a professional trustee, an investment advisor or manager, an investment banker, an accountant or a lawyer. In addition to being independent, a professional trustee will usually have experience and expertise in managing trusts. If you aren’t comfortable with having a stranger manage the trust, it may be possible to choose a family member and a professional trustee as co-trustees. The downside to hiring an independent trustee is that the trustee will charge a fee, which is usually a percentage of the trust.

Whomever you choose as trustee, it is important to revaluate your choice every few years. The person who is right today may not be right tomorrow. Your attorney can help you determine who is the best trustee for you. 

For more information about trusts, click here.

For information about what to ask before becoming a trustee, click here.  

August 8

Remand to Determine Whether Temporary Misuse of Special Needs Trust Bars Trust From Being Exempt Asset

For a period of time Susan Elias had direct access to her irrevocable first-party special needs trust (SNT) through the use of a debit card. This direct access ended when the trusteeship changed. The Social Security Administration determined Susan’s access rendered the trust a countable resource and discontinued her Supplemental Security Income (SSI) benefits, as well as requested recoupment of $18,137 for incorrectly paid benefits. An administrative law judge (ALJ) upheld the Administration’s decision. Susan appealed, arguing the ALJ erred in holding the trust was not a proper SNT and thus not an exempt asset, and that her benefits should have only been suspended during the period of misuse.

The district court held that if an individual can direct the use of the trust’s corpus, the trust should be considered a countable resource for SSI eligibility purposes. Susan’s use of a debit card freely to make purchases is substantial evidence of misuse of the trust rendering it a countable resource. But it said that held the Program Operations Manual does not fully address, nor did the ALJ adequately discuss on the record, whether the temporary misuse of a properly created SNT forever bars consideration of the trust as an exempt asset once the misuse is rectified. The court remanded for further consideration of the issue.

Elias v. Colvin, 2015 WL 4529877 (M.D. Pa. July 27, 2015)