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Illinois Judges says the Property in a Trust

Posted by Andrew Byers | Mar 21, 2011 | 0 Comments

Illinois Judges says the Property in a Trust that Prevents Distributions that Interfere with Medicaid Eligibility is an Available Asset

In the case of Vincent v. Department of Human Services, an Illinois appeals court found that a trust that prevented the trustee from making distributions if it would interfere with receiving Medicaid benefits is an available asset for Medicaid eligibility purposes. 

Mabel Vincent created an irrevocable trust with her daughter, Janice Reed, as trustee. The trust gave the trustee discretion to determine when to make payments from the trust, but it provided that the trust must not use trust assets if Ms. Vincent qualified for Medicaid. In Michigan, that type of language in a trust would be called "trigger" language, meaning an event (moving to a nursing home), triggers a provision in the trust (language providing the assets are protected). 

Ms. Vincent eventually entered a nursing home and applied for Medicaid. The state denied her application after finding the trust assets were an available asset, and Ms. Vincent appealed. The trial court found that the trust was not available because pursuant to the terms of the trust, no amount was payable to Ms. Vincent if it would interfere with Medicaid, so the trust's principal and interest were exempt from eligibility determinations. The state appealed.

The Illinois Court of Appeals reversed the trial court, holding that, due to the way the trust was drafted, the assets in the trust are available to be spent before Mrs. Vincent qualifies for Medicaid.  

These types of trusts are called by various names including Income Only Trusts and Medicaid Asset Protection Trusts.  In Michigan, a Medicaid Asset Protection Trust can be drafted to protect assets so they do not have to be spent down to the $2,000 level in order to qualify for Medicaid.  However, it is important to avoid including the triggering language that was included in Mrs. Vincent's trust.  The trust can be drafted so that the owner of the assets receives income from them or that the trustee can distribute the assets to a trusted individual, but the trust cannot have a trigger provision that removes access to the assets based on the event of moving to a nursing home.

When would an individual create a Medicaid Asset Protection Trust?  One instance when this trust would be a good idea is if you have an older person who is single and has some savings they want to protect.  For this example, assume we have an older widow with $60,000 in savings.  If the widow required nursing home care and no crisis long-term care planning were done, she would not qualify for Medicaid benefits until the $60,000 was spent down to $2,000.  However, if the widow had created a properly drafted Medicaid Asset Protection Trust in advance of needing nursing home care, the funds in the trust will be protected from the costs of the nursing home five years after creating the trust and registering the assets in the trust ("funding the trust").  In our example, the widow may have decided to register $20,000 of her $60,000 into the Medicaid Asset Protection Trust.  That way, she would still have $40,000 of funds in her name and direct control, but the other $20,000 would be protected from Medicaid.  If she later required nursing home care, she would not have to worry about spending the $20,000 in the trust before qualifying for Medicaid.  This is a much better result for the widow if she requires long-term care in the nursing home, in that she would qualify for Medicaid and could retain $2,000 in her name plus the $20,000 in her trust.  Upon her death, the assets remaining in the trust could be distributed to children or others as directed by the widow, without probate court involvement.

There are other situations when a properly drafted Medicaid Asset Protection Trust would be recommended in Michigan; the above is just one example.

About the Author

Andrew Byers

Andrew Byers' elder law practice focuses on the legal needs of older clients and their families, and works with a variety of legal tools and techniques to meet the goals and objectives of the older client. Under this holistic approach, I handle estate and longevity planning issues and counsel cli...

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