By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Medicaid Appeal Attorney
A recent case from Massachusetts clarifies the requirements needed in order for property in an irrevocable trust to be excluded as a resource. In this case, the decedent transferred her house to an irrevocable trust yet retained a life estate in the residence. She also transferred additional assets into the trust which were invested into an annuity. The trust was an income only trust whereby the income of the trust was distributed quarterly to the Medicaid applicant, but allowed the trustee to distribute all or a portion of the entire trust principal to anyone but the grantor/Medicaid applicant. Despite this language, the hearing officer and lower courts concluded that the applicant still could gain access to the principal in three separate circumstances, making the trust a countable asset. This position was rejected by the Appeals Court.
The administrative hearing officer claimed the trust property could be sold, with the proceeds going into the annuity and the annuity generating income payable to the Medicaid applicant, so because the property could generate income, it was available to the applicant. Annuities are intended to provide a return on investment by generating income. The principal is not accessible to the applicant. Only the investment income is available, and so the argument that the trust property was available because it could be invested in the annuity was rejected.
The court also rejected the hearing officer’s finding that the trust assets could be available to the grantor because the language in the trust allowed the trust property to be transferred into the name of the grantor’s children. The officer argued that by being able to distribute property to the children, the children could theoretically turn around and give it to the grantor. This argument was rejected, also as the court found that the distributions to beneficiaries had to be according to the terms of the trust document, and did not direct the trust corpus back to the grantor.
Finally, the hearing officer argued that the applicant/grantor’s power to transfer her house back into her name in exchange for assets of equal value made the house a countable asset. The court held that this power is nothing more than the ability to sell trust assets, with the trust retaining the proceeds of the sale as principal, making the principal not available to the grantor if exchanged.
The court did make a distinction that if the trust was written in such a way that the trustee had the power “in its sole discretion…to pay over and distribute the entire principal of trust fund to the Medicaid applicant, then the trust principal would be a countable asset in determining the eligibility of the Medicaid applicant. But the court held this trust, with the power to place property in an annuity, sell the house back to the grantor in exchange for her assets, and give assets to the children, is an irrevocable income only trust whose principal is not available to the Medicaid applicant.
To discuss your NJ Denial of Medicaid Eligibility Appeal matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing consultations if you are unable to come to our office.