Personal tools

Issue Alert - Clarification of policy on transfers to exception B trusts

Document Actions
Date:

May 02, 2013

Program Area:

Medicaid/SSI - BEM 401

Issue Summary:

The Department of Human Services (DHS) has clarified some key differences between tranfers to two different types of trusts. The evaluation of Medicaid trust exceptions are based on the type of trust under review. There are two types of Medicaid trusts to consider:

Special Needs Trusts, or exception A and

Pooled Trusts, or exception B.

In addition to other criteria, age of the beneficiary and ownership of the asset must be evaluated.

Persons Affected:

Applicants and recipients of Supplemental Security Income (SSI) and Medicaid (MA)who reside in nursing homes and certain other institutional settings or who receive services through a long term care MA program are subject to divestment rules. Institutional settings include hospitals, nursing homes, intermediate care facilities, community based residential facilities, and skilled nursing facilities.

For More Information:

Michigan Poverty Law Program

611 Church Street Suite 4A

Ann Arbor, MI 48104-3000

(734) 998-6100 Fax: (734) 998-9125

Center for Civil Justice

320 S. Washington, 2nd Floor

Saginaw, MI

48607

(989) 755-3120,(800)724-7441

Fax: (989) 755-3558

E-mail: info@ccj-mi.org


Background

Divestment is giving away one’s resources, such as income, non-exempt assets and property for less than fair market value in order to enroll in or become eligible for Medicaid or Supplemental Security Income (SSI).  Both of these programs have penalties for divestment resulting in ineligibility for benefits for a calculated period of time that depends on the amount of money divested.  This typically becomes an issue when an applicant or recipient receives a lump sum of money such as an inheritance or lawsuit settlement.  If the person is not able to spend the asset in a relatively short amount of time, he/she may need to transfer the asset in order to remain eligible for Medicaid and/or SSI.  One possible solution to this problem is to put the asset into a trust.

There are very strict laws governing transfers of assets into trusts and one must be certain that it is done correctly in order to maintain eligibility.  If the trust is not set up correctly or if the beneficiary does not meet the stated criteria, the money in the trust will be considered a non-exempt asset and countable. The Bridges Eligibility Manual (BEM 401) sets forth the definition of exempt trusts, as does the Social Security Act (42 U.S.C. § 1396p(d)(4)(A) and (C)).  The Department of Human Services (DHS) recently published more definite criteria in setting forth differences between exception A trusts and exception B trusts. Applicants for MA as well as currently eligible MA participants who reside in nursing homes and certain other institutional settings or who receive services through a long term care MA program are subject to divestment rules. Institutional settings include hospitals, nursing homes, intermediate care facilities, community based residential facilities, and skilled nursing facilities.

What's Happening?

For Medicaid, there is a 60-month look-back period when assessing whether or not any transfer of assets were divestment.  For SSI, it is 36 months.  If any disqualifying transfers were made during the look-back period, a divestment penalty period is imposed.  The divestment penalty period is a period of time during which an otherwise eligible Medicaid or SSI applicant/recipient will be ineligible for benefits.  Keep in mind that for Medicaid this only applies to people who reside in nursing homes and certain other institutional settings or who receive services through a long term care MA program.  For Medicaid, there is no limit on the penalty period.  For SSI, there is a 36 month cap.

The DHS added language to the already existing policy describing when transfers to trusts are not counted as divestment.  BEM 401.  There are two types of trusts -  Exception A, Special Needs Trust, and Exception B, Pooled Trust.  These two exceptions share some characteristics, such as:

  • The trust must be unchangeable with regard to the provisions that make it an Exception A, Special Needs Trust. This is necessary to ensure that a trust initially meeting the other conditions still meets those conditions when the person dies; it must be irrevocable.
  • The trust contains the resources of a person who is disabled (not blind) per BEM 260.
  • The trust was established for the beneficiary, meaning that the trust must ensure that none of the principal or income can be used for someone else during the person's lifetime,except for Trustee Fees per BEM 405.
  • The trust imposes on the trustee an automatic duty to repay Medicaid upon the person's death, if there are funds left in the trust.

The differences between the two trusts are as follows:

Exception A:

  • The beneficiary is under age 65;
  • The trust was established by the court, the person's parent, grandparent, or legal guardian/conservator.

Exception B:

  • the trust is established and managed by a nonprofit association;
  • A separate account is maintained for each beneficiary of the trust, but for purposes of investment and management of funds, the trust pools these accounts.
  • The trust was established by the court, the person's parent, grandparent, or legal guardian/conservator, OR by the disabled person.
  • Transfers by a person age 65 or older are subject to a divestment analysis.  The underlying statute, 42 USC 1396p(d)(4)(C), does not state that the beneficiary shall not be age 65 or older.  It remains silent on the issue of age, and therefore the state will evaluate the transfer to determine whether or not it was done in order to become eligible for long-term Medicaid.  If it finds that this was the intent, the transfer will be seen as divestment and a penalty period will be imposed.


What Should Advocates Do?

Be sure to question clients who may be receiving lump sums in the future, perhaps because a relative has died or they have filed a personal injury lawsuit.  Be proactive in determining if a special needs or pooled trust would be appropriate for their situation.  If so, be sure that the attorney responsible for creating the trust is an expert, as these types of trusts must contain very specific language in order to qualify as exceptions for both Medicaid and SSI.  It is most advantageous for the client if the trust can be created before the money is received so that it can be placed directly into the trust.

What Should Clients Do?

Get legal help if you know that you will be receiving a lump and you are currently receiving or applying for benefits.

Finding Help

Most legal aid and legal services offices handle these types of cases, and they do not charge a fee. You can locate various sources of legal and related services, including the free legal aid office that serves your county, at MichiganLegalAid.org. You can also look in the yellow pages under "attorneys" or call the toll-free lawyer referral number, (800) 968-0738.
Donate Now!
Access to Justice Donation button