A Review of Special Needs Trusts and the Alternatives. Gregory L. Kenyon Bradshaw, Fowler, Proctor & Fairgrave, P.C. Des Moines, IA 50309. Polk County Bar Association Summer CLE June 15, 2012. Methods of Payment for Long-Term Care. Private financial resources and income
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Gregory L. Kenyon
Bradshaw, Fowler, Proctor & Fairgrave, P.C.
Des Moines, IA 50309
Polk County Bar Association
June 15, 2012
Three ways to pay for long-term care:
Eligibility for Medicaid is based on:
It is acceptable to use countable resources such as cash to acquire noncountable resources.
Revocable Trust - no value for eligibility but may be of value for management of assets and other traditional trust purposes
Non-Revocable Trust - if established prior to the lookback period, only actual distributions from a trust will be counted
Only actual distributions count but in some settings, if discretion is given to the trustee, trust assets may count. See the recent case of Strojek v. Hardin County.
The legislature enacted 633A.4702 in 2004 in an effort to clarify the law following the decision in Strojek. This statute has yet to be interpreted by the appellate courts.
633A.4702 Discretionary language prevails over other standard.
In the absence of clear and convincing evidence to the contrary, language in a governing instrument granting a trustee discretion to make or withhold a distribution shall prevail over any language in the governing instrument indicating that the beneficiary may have a legally enforceable right to distributions or indicating a standard for payments or distributions.
A “self-settled trust” must meet OBRA 1993 requirements in order for an individual to be eligible. On the death of the individual, any remaining portion of the trust must be paid to the payor’s state to reimburse it.
A Special Needs Trust may be established to cover those needs that would not exist except as a direct result of the beneficiary’s disability. It may not pay for ordinary needs, such as ordinary support and maintenance, education, and entertainment that would exist regardless of disability.
Use of Funds:
To qualify to establish a Special Needs Trust:
Iowa law provides an upper limit for which a Miller Trust may be used. If a beneficiary of a Miller Trust has income which is equal to or greater than the statewide average for a nursing facility, the income is once again considered available for purposes of determining eligibility. Iowa Code Section 633C.3(2). The upper limit is $4,594 through June 30, 2012.
Average statewide charge for a private pay resident of a nursing facility (per month)
Eligible for a Miller Trust
Income limit for Medicaid eligibility (per month)
2012 Dollar AmountsIncome Assignment Trusts (Miller Trusts)
A Miller Trust is used to bring a Medicaid applicant’s income within the limit for Medicaid eligibility. During 2012, the monthly income must be between $2,094 and $4,594 per month.
Principal nursing facility (per month)
Death of Primary
EntityCharitable Foundation Trusts
A Charitable Foundation Trust operates like a Special Needs Trust. However, after death of the primary beneficiary, a foundation trust may allow distribution of principal, or income, or both, to the charitable entity.
A transfer for less than fair market value will render the transferor ineligible for benefits for a period of time determined by dividing the fair market value of the resources transferred divided by the average statewide private pay rate for nursing facility services at the time of the application.
Transfers include not only the obvious sort of transfers, i.e. sales and gifts, but also such things as disclaimers, or failure of a surviving spouse to seek the elective share in an estate, or otherwise failing to seek an asset to which one is entitled. Iowa Code Section 249F.1(2), IAC 75.23(8)
In addition to the eligibility issues above, Iowa has a “responsibility” rule which establishes a presumption that any transfer made for less than fair market value within sixty (60) months of seeking benefits, or becoming institutionalized, is made for purposes of obtaining benefits. The DHS is authorized to seek reimbursement from the recipient for any such transfers, for the full amount of the transfers. Iowa Code Section 249F(2)(a).
There are exceptions to the transfers of assets rules. The exceptions include transfers to:Transfers of Resources (cont’d)
Sample Worksheet exceptions include transfers to:
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Annuity (Medicaid Qualified)
Special Needs Trusts