Certified Medicaid Planner Course - Strategic Marketing Partners, LLC SESSION 10 TRUSTS

Transcription

1 Certified Medicaid Planner Course - Strategic Marketing Partners, LLC SESSION 10 TRUSTS 1

2 Trust History Trusts historically for the very wealthy. Expensive to create and maintain. Personal computer age made trusts easier to produce and use. The Revocable Living Trust ERA heralded in a modern estate-planning tool used by millions. Trusts are more than just the revocable estateplanning kind. 2

3 Trust Basics Trust a right of property created by someone through agreement for his or her own benefit or the benefit of someone else; Trust Instrument the document which spells out the terms of the trust agreement; Grantor/Settlor the creator or maker of a trust who also provides the asset or assets that form a trust s corpus and makes agreement with the trustee; Revocability Can the creator change it or not? YES: Revocable. NO: Irrevocable. 3

4 Trust Basics (continued) Corpus the principal of the trust in the form of assets real or personal property and/or income which are conveyed to the trust; Beneficiary the person for whose benefit the trust was created; this can be the grantor or someone else referred to as the third party; and Trustee the person or entity that holds legal title to corpus and income of the trust and has a legal duty to manage those for the benefit of the beneficiary per the terms of the agreement made with a grantor. 4

5 Revocable Trusts Can be known as an inter-vivos trust, revocable living trust, loving trust, etc. Broadly used. Primary probate-avoidance estate-planning tool. Can double the amount to pass estate tax free for a married couple. Creator also serves as Trustee. Trust becomes irrevocable upon death or disability. 5

6 Revocable Trusts (continued) Trust is an empty vessel until funded. To fund a trust is to give it assets by changing title to the trust. Bank and brokerage accounts are re-titled. Houses are deeded to the trust. Beneficiary designations are changed for life insurance and even some qualified assets. 6

7 Revocable Trust (continued) Medicaid rules treat the corpus of any revocable trust as fully available. Example: Access Florida Policy Manual Sec If the trust is revocable: Consider the entire principal as an available asset to the individual. Entire means entire, regardless of what it is. This is how a homestead loses its exemption when deeded to an RLT. 7

8 Revocable Trusts (continued) Use it in pre-planning (1/2 deduction states): If no trust exists, establish a trust and deed the house to trust to boost the value of countable assets. If a trust exists, time the removal of the house from the trust to maximize the CSRA. House must be owned by the trust prior to the snapshot date. House must be removed from the trust prior to establishing Medicaid eligiblity. 8

9 Revocable Trusts (continued) Example: Couple has $100,000 house and $100,000 in countable assets. Without trust: Total countable is $100,000. Total spend down is $50,000 (need to address). With trust: Total countable is $200,000. Total spend down is $100,000. Removing the house from the trust spends the $100,000. No need to tie up $50,000 of liquid assets. 9

10 Revocable Trusts (continued) Defund or Replace/Amend Assets in a joint trust don t work well when you are protecting CSRA. Need to avoid assets being available to patient spouse if community spouse dies first. May need to defund a trust, amend a trust or replace a trust to match new situation. 10

11 Non-Divestment Irrevocable Trusts Solely-for-the-Benefit-of-Spouse Trust [42 U.S.C. 1382c(a)(1)] Often referred to as the spousal annuity trust. Some states require beneficiary designations similar to Medicaid SPIA. Advantage over SPIA is the ability to transfer nonliquid assets to create the trust. May provide more flexibility in payout since SPIA s usually require monthly payments. 11

12 Non-Divestment Irrevocable Trusts Solely-for-the-Benefit-of a Blind or Disabled Child [42 U.S.C. 1382c(a)(2)] Similar to outright distribution to protected class. Any irrevocable trust set up for a child of the patient or the patient s spouse who is blind or permanently and totally disabled [includes (d)(4)(a) and pooled trusts]. Set up under this provision and distributions must be made on actuarially sound basis like FBO spousal trust. 12

13 Non-Divestment Irrevocable Trusts Trust for Sole Benefit of Disabled Person Under 65 [42 U.S.C. 1382c(a)(3)] Beneficiary meets two requirements: 1) be disabled under SSI qualifications, and 2) be under 65 years old at the time the trust is created. 42 U.S.C. 1396p(c)(2)(B)(iv). Need not be a child of the grantor. Must comply with all other rules, including actuarial soundness. 13

14 Non-Divestment Irrevocable Trusts (d)(4)(a) Supplemental Needs Trust [42 U.S.C. 1396p(d)(4)(A)] Exclusion from divestment penalty and exemption from asset or income inclusion rules, a trust can be established under (d)(4)(a)for a beneficiary who is disabled and under the age of 65. Scope of discretionary distributions must be limited to supplemental needs. Medicaid is paid back before any assets can be distributed elsewhere. [SI ] 14

15 Non-Divestment Irrevocable Trusts (d)(4)(c) Pooled Trusts [42 U.S.C. 1396p(d)(4)(C)] Similar to (d)(4)(a) in scope (i.e., under 65); handful of states allow for transfers by disabled persons over age 65. Run by non-profit which has central trustee. Trustee makes discretionary distributions during person s lifetime. Residue goes part to Medicaid and part to nonprofit. 15

16 Non-Divestment Irrevocable Trusts Qualified Income Trust (QIT) (a/k/a Miller Trust) [42 U.S.C. 1396p(d)(4)(B)] Used in income-cap states. If income exceeds 300% federal poverty limit set by SSI ($2,094 in 2012), then income must be assigned to trust. Some states will allow you to assign just income over the cap. Some states require income from all one source. Allowances paid, then remainder to nursing home. 16

17 Non-Divestment Irrevocable Trusts Third-Party Trusts A trust created by someone other than a patient or a patient s spouse. In most states, if principal distribution is discretionary the patient cannot force distribution then it is unavailable or it is only countable as to what is made available. In some states, if any portion of principal is available then all principal is considered counted. Often created by sub-trusts in living trust. 17

18 Non-Divestment Irrevocable Trusts Testamentary Trust Created by will. A special exclusion is provided for assets left to a beneficiary through a testamentary trust, even if the trust was created by the death of the patient s spouse. 42 U.S.C. 1396p(d)(2)(A). Some states require elective share to be distributed before testamentary trust creation. Even if elective share distributed, testamentary trust may be necessary for additional assets. 18

19 Irrevocable Divestment Trusts (continued) Self-Settled No-Access Trust Give it all away: To a trust instead of a person. Retain no income rights. Corpus may or may not stay in trust till death of grantors. Divestment made when trust funded. After 5-year look back all trust assets excluded as countable assets. Income is never available for income-eligibility. 19

20 Irrevocable Divestment Trusts (continued) Self-Settled Limited-Access Trust Give it all away: To a trust instead of a person. Retain limited income rights. Corpus stays in trust till death of grantors. Income is available and counted as available for income-eligibility. Divestment made when trust funded. After 5-year look back all trust assets excluded as countable assets. 20

21 Irrevocable Divestment Trusts (continued) Third-Party Limited Access Trust Post-Divestment Trust. Commonly referred to as a Family Trust. In a hurry to divest to start the 5-year look back. Recipient of gift (donee) creates an irrevocable trust for the benefit of the donor with income-only limits. Residue of the trust goes to donor s heirs instead of donee s. Donee or someone else manages trust. 21

22 Practical Trust Issues Trust Creation. Trust should be written instrument. Who creates? Most generally drafted by attorneys; Sme people use Legalzoom or some kind of document preparation service; Some states provide sample fill-in-the-blank Miller Trusts. Usually requires witness and/or notary. 22

23 Practical Trust Issues Trust Funding. To fund a trust means to re-title an asset. Most individually owned accounts can change ownership to trust with no problem. Qualified accounts cannot be owned by a trust, but trust can name them as beneficiaries. Special rules apply if trust to pass through for stretch to children. Beneficiary designations can be changed to leave assets to trust upon death. 23

24 Practical Trust Issues Trust Management. Naming trustees can be difficult. Need to have someone who can do the job and be a part of the process. Corporate trustees are usually most difficult to deal with. 24

25 Practical Trust Issues Trust taxation. Grantor trusts can pass through income to grantor s income tax return even if grantor has no right to income. Very confusing to Medicaid. If access to income, income is countable. If access to any part of principal all principal is countable. Non-grantor trusts pay taxes at the highest rate. 25

26 Practical Trust Issues Trust Termination Revoke a trust. Renounce the trust and cause it no longer to no longer exist. Defund a trust. Leave trust in place, but make sure no assets are owned by it or directed to it. Trust busting. Terminate a trust by agreement of everyone involved. 26

27 Questions Questions???? 27