When folks, such as yourself, reach the end of their working careers, they have to consider that after they stop working they are probably going to be subjected to physical and mental illnesses of one sort or another. In order to preserve whatever it is that they have accumulated, and pass it along to their children, various legal strategies have been employed. The concept of elder law is to arrange one's assets in such a fashion so that, if the time comes that a senior citizen can no longer take care of himself and requires nursing home care, that he will be able to apply for medical assistance under Medicaid without having to spend all of his own assets before becoming eligible.

 

That requires some planning because under current regulations if a senior citizen gives away his  assets and applies to Medicaid  for benefits, he is required to account for any assets given away within the five years prior to the date of his application. Clearly, the easiest thing to do would be for someone to give all of their assets to their children and then hope five years elapse before they get to the point where they need assistance from Medicaid. An unfortunate downside of that is that the children may, in fact, spend the assets, or get a divorce, or have difficulties in business, or even die, in which event, the assets that he gave his children would then be dissipated before the five year period had elapsed, so that the senior citizen would not only not have any assets, but they could not apply for the medical benefits under Medicaid either.

 

One of the strategies that lawyers use is to create an irrevocable trust, which means that the senior citizen puts all of his money into a trust that they can’t reach and provide that the  principal of the trust will go to the benefit of his children, niece or nephew or other persons who he wants to receive his funds after he is gone, but he retains the right to the income. That gives him some measure of control since funds have not been given away and therefore can’t be spent or dissipated by a child or other relative. Even though, theoretically, the funds can’t be used for the senior citizen, because of the irrevocable nature of the trust, the trustees, who are likely to be children or other relatives of the senior citizen, perhaps, could find a way to make that happen.

 

In a recent Court of Appeals case, the applicant for Medicaid had an irrevocable trust with assets of about $630,000 which gave her an annual income of approximately $27,000. She applied for assistance from Medicaid and was turned down on the basis that she should have to look to the income and principal of the trust first before she obtained medical benefits through the state. The court noted that, once again, they were called upon to resolve a conflict between the legislature’s explicit direction that Medicaid benefits be made available only “to people who do not have sufficient income or resources to provide for themselves” and the desire “of persons of some means, perhaps even considerable means, to preserve their assets in the face of large medical expenses faced by elderly persons,” citing prior cases expressing those goals. 

 

Approximately six months after entering the nursing home, the applicant applied for benefits, which only permits an applicant to have $2,000 under applicable regulations. The applicant disagreed with the denial and argued that, because there was an irrevocable trust, she is essentially indigent and should be eligible for public benefits. The court noted that, at first blush, the state’s conclusion seemed a bit odd in denying her benefits in that the provisions of the trust provided that no distribution of the principal of the trust to or on behalf of the applicant could be made. However, the court, looking at the entire trust, said there could be ways in which the trustees could benefit the applicant. The court noted that the applicant’s trust was carefully crafted and an entirely appropriate estate planning device. However, the court found that the applicant’s trust, as structured, allowed the trustees a degree of discretionary authority that would, if sanctioned, permit the applicant to enjoy her assets, preserve those assets for her heirs, and receive public assistance to, in effect, let the applicant “have her cake and eat it too.” 

 

Although the court noted that it felt that there is no doubt that an irrevocable trust may, if structured properly, insulate the trust assets to the extent that those assets would be unavailable to the senior citizen, the court noted that Congress had declared a contrary intent that Medicaid benefits be made available only to those who genuinely lacked sufficient resources to provide for themselves. The court perceived no reason, in this case, to deviate from that mandate. 

 

With an aging population with even greater medical assistance needs, it is likely that the courts will continue to look very hard at all instances where applicants for Medicaid benefits are, in fact, people of substance and will err on the side of the state in construing documents to require the family who will succeed to those assets to be obligated to use them to support their elder, rather than passing that obligation on to the public.

If you have questions about this or any other legal matter, please contact Tom Bennett at (617) 531-6574 or tvb@barronstad.com.