A. Chapter
Contents

This chapter covers the following topics:

Topic

801.00     Trust Definitions

802.00     Identifying Types of Trusts

803.00     Non-Special Treatment Trusts

803.01       Revocable

803.02       Irrevocable

803.03       Medicaid Qualifying Trusts (MQT)

803.04       Testamentary and Trusts Established by Another Person

804.00     Special Treatment Trusts

804.01       Characteristics of a Trust for a Disabled Individual Under 65

804.02       Characteristics of Income Only Trusts

804.03       Characteristics of Pooled Trusts

804.04       Process for Establishing a Special Treatment Trust

804.05       Income Eligibility for Special Treatment Trusts

804.06       Income for the Share of Cost

804.07       Treatment of Resources for Special Treatment Trusts

804.08       Transfers to Special Treatment Trusts

804.09       Trustee Reporting Requirements

804.10       Eligibility Penalty for Untimely Report of Trust Disbursements

804.11       Penalty for Untimely Reporting of Increases in Income

804.12       Penalty for Continuing Eligibility During an Eligibility Appeal

804.13       Penalty for Continuing a Lower Share of Cost During a Share of Cost Appeal

804.14       Violations of Special Treatment Requirements That Can Result in a Loss of Special Treatment

805.00     Obtaining Trust Information

805.01       Additional Information Required for Revocable, Irrevocable and Medicaid Qualifying Trusts

805.02       Additional Information Required for Terminated or Revoked Trusts

805.03       Additional Information Required for Special Treatment Trusts

805.04       Additional Information Required for Income Only Trusts

805.05       Additional Information Required for Disabled Under 65 Trusts and Pooled Trusts

806.00     Determining Whether to Refer a Trust to Central Office, Program Support Administration (PSA)

807.00    Local Office Review of Revocable Trusts and Medicaid Qualifying Trusts

808.00    Review of Trusts and Response from Central Office, Program Support Administration (PSA)

809.00    Notice to Recovery Unit

810.00    Review of Trusts at Reapplication

B. Introduction

This chapter describes

• What trusts are;

• How to identify different types of trusts;

• How trusts affect eligibility; and

• Trust verification requirements.

C. Program and Legal Authority

Trust policy applies to the ALTCS program and other programs as identified in the specific manual sections.  The legal authorities for trust policy are:

• 42 U.S.C. § 1396p(d)

• A.R.S. 36-2934.01

• A.A.C. R9-28-407

• A.A.C. R9-28-408

A. General

Trusts have their own set of definitions, which govern treatment of a trust.

B. Trust Definitions

Trust treatment is dependent on the following definitions:

Term

Definition

Beneficiary

The person who has any present or future interest, vested or contingent, in the trust, including the owner of an interest by assignment or other transfer and any person entitled to enforce the trust.

Disbursement

Any payment from a trust, including but not limited to cash and other liquid items, personal property, real property or the right to use and occupy real property

Financially Responsible Relative

A financially responsible relative is the spouse of the customer or, if the customer is a child under eighteen years of age, the parent of the customer. 

Irrevocable

When a trust may not be revoked after its creation, by the grantor or his representative, the trust is irrevocable.  A trust instrument, which states that the trust is irrevocable but which will terminate by some action taken by the grantor (i.e., contains a trigger clause), is considered a revocable trust.

Legal Instrument or Other Similar Device

Any instrument that exhibits the general characteristics of a trust, but which may not be called a trust under State law.  This can include (but is not limited to) escrow accounts, investment accounts, pension funds, and other similar devices managed by an individual or entity with fiduciary obligations.  These are treated in the same manner as a formal trust.

Liquid

Cash or items that are readily convertible to cash, including securities, notes, and accounts

Medicaid Qualifying Trust

A Medicaid Qualifying Trust (MQT) as explained in MS 803.03 is a trust or similar legal device established before August 11, 1993, by the customer, the spouse or legal representative under which the customer is the beneficiary of all or part of the payments from the trust and the amount of the distribution is determined by a trustee who is permitted to exercise any discretion with regard to the amount to be distributed to the customer.  Although referred to as a Medicaid Qualifying Trust, this type of trust may actually cause the customer to be ineligible for Medicaid Benefits. (MS 803.03)

Merger of Interest

A merger of interests is when the sole trustee and the sole beneficiary are the same individual.  This means that the legal title and beneficial interest are merged in one person.  In this instance, the trust is considered as nonexistent and the resources titled to the trust must be counted towards eligibility.  A merger of interests does not apply to Special Treatment Trusts outlined in MS 804.00.

Payments to or for the Benefit of the Customer

Payments made to the customer are any amount from the trust, including an amount from the trust corpus, that is paid directly to the customer or to someone acting on his or her behalf (e.g., a guardian or legal representative).  

Payments made for the benefit of the customer are payments of any sort (including an amount from the trust corpus or income produced by the trust corpus) paid to another entity such that the customer derives some benefit from the payment.  This includes (but is not limited to):

• Purchase of clothing;

• Payment for services the customer receives;

• Payment for care (medical or personal) that the customer receives;

• Payments to maintain a home;

• Payments to compensate a trustee for managing the trust and other costs associated with the trust: taxes, attorney fees, etc.

See MS 804.00.C for the list of allowable disbursements specific to Special Treatment Trusts.

Revocable

When the individual who establishes the trust reserves the right to revoke it, the trust is revocable.  A revocable trust can be nullified by withdrawal, recall, reversal or revocation, and the transfer of all trust assets out of the trust.  A trust, which provides that the trust can be modified or terminated by a court, is considered to be a revocable trust, since the grantor (or his representative) can petition the court to terminate the trust.

Trust

Any arrangement whereby money or property is entrusted to one or more persons with the intention that it be administered for the benefit of one or more others, including perhaps the trustor.

Trust Corpus

The income and resources that form the body of the trust, also referred to as the trust principal.  Resources or income in the trust corpus may be available to the customer but are no longer owned by the customer. 

NOTE:  All exclusions that could be applied if the customer owned the item are still applied when the item is owned by the trust, with the exception of home property.  When home property is made a part of the trust corpus, the home property exclusion (MS 706.24) can no longer be applied.

Trustee

An individual or corporation which holds the legal title to money, property or an estate for the benefit of another person or persons or for certain specified purposes. However, the trustee may also be a beneficiary.  A trustee holds a fiduciary responsibility to manage the trust's resources and income for the benefit of the beneficiaries.

Trust Instrument

The formal document that created the trust and contains the powers of the trustees and rights of the beneficiaries.  It may be a will, a deed in trust or a formal declaration of trust.

Trust Officer

The official or officer in a trust company who has direct charge of funds administered by the trust company in its capacity as trustee.

Trustor

One who creates a trust.  Also called settlor or grantor.

A. Types of Trusts

Trusts are established for a variety of reasons such as to:

• Disregard certain income or resources from the eligibility determination so as to qualify for medical benefits (a Special Treatment Trust);

• Transfer items to heirs to avoid probate; or

• Make a relative or other individual (such as a disabled individual) the beneficiary of a trust to provide for their future needs. 

ALTCS policies vary, depending on the type of trust.  See MS 803.00 and MS 804.00 for a description of each trust type.  Different policies and procedures apply to trusts depending upon when the trust was created, whose income or resources were used to fund the trust, who created the trust, and whether the trust is revocable or irrevocable. 

• NOTE: All trusts are either revocable or irrevocable.  What is really important is when the trust was created.  Therefore, the first step in determining the type of trust you are reviewing is to establish whether the trust was created before or after August 11, 1993.

If the trust was created

Then it will be one of the following types of trusts

Before August 11, 1993

• A Medicaid Qualifying Trust; or

• A trust created by a Will (testamentary trust) or from the resources of another person (MS 803.04).  These are sometimes called non-grantor trusts.

On or after August 11, 1993

• Revocable trust (MS 803.01);

• Irrevocable trust (MS 803.02);

• Trusts created by a Will (testamentary trusts) or from the resources of another person (MS 803.04)

• Special Treatment Income-only Trusts (MS 804.00, MS 804.02);

• Special Treatment Trusts for a Disabled Individual Under Age 65 (MS 804.00, MS 804.01);

• Special Treatment Pooled Trusts (MS 804.00, MS 804.03)

B. Accounts That Are Not Trusts

• Some financial accounts are similar to trusts (and may even include the word "trust" in their title) but are not evaluated under the policy in this chapter.  Conservatorship accounts, patient trust accounts, and financial accounts involving a representative payee and titled "in trust for" are treated according to the policy in MS 705.05 (Ownership Involving an Agent).

C. Special Needs Trusts

Some attorneys refer to trusts created by a will or with another person's resources as a Special Needs Trust.  Other attorneys use this term for Special Treatment Trusts for Disabled Individuals Under Age 65.  The words "special needs trust" may be in either type of trust document.  Therefore, carefully review the entire trust document to determine the type.

D. Identifying Trusts

Use the following general guidelines to identify different type of trusts:

Feature of the Trust:

Then the Type of Trust Is Probably:

• The trust was created prior to August 11, 1993 with the income or resources of the customer and/or spouse.

Medicaid Qualifying

Trusts (MQT)

• The customer or spouse is named as the trustor (or settlor), trustee and as a beneficiary of the trust

• Created on or after August 11, 1993

Revocable (non-Special Treatment Trust) (MS 803.01)

• Does not allow the person who established it to revoke it

• Created on or after August 11, 1993

Irrevocable (non-Special Treatment Trust) (MS 803.02)

• States that the trust is funded from the proceeds of a Will or with the income and/or resources of someone other than the customer or the customer's spouse

• May be referred to as a "special needs trust"

Testamentary (created by a Will) or Non-Grantor (funded by someone other than the customer and not by a Will) (MS 803.04)

• The trust beneficiary's income exceeds the ALTCS income limit

• Described in the trust document as an Income only trust, or a Miller trust, or a stream of income trust

• Created on or after August 11, 1993

• Trust lists the AHCCCS Administration or another State as a beneficiary of the trust

• Makes reference to 42 U.S.C. §1396p(d)(4) or Section 1917(d)(4) of the Social Security Act

• The trust contains a clause that states disbursements shall not be made for purposes other than those described in A.R.S. §36-2934.01

Income Only Special Treatment Trust (Miller Trust) (MS 804.02)

• The customer is under age 65 and the trust was created with funds received from an insurance or lawsuit settlement

• Titled as a Special Treatment Trust.  May also be titled as a special needs trust

• The trust corpus contains only the income or resources (or both) of the customer

• The trust was established on the customer's behalf by the customer's parent, grandparent, legal guardian or court (but not by the customer)

• Created on or after August 11, 1993

• Trust lists the AHCCCS Administration or another State as a beneficiary of the trust

• Makes reference to 42 U.S.C. §1396p(d)(4) or Section 1917(d)(4) of the Social Security Act

• The trust contains a clause that states disbursements shall not be made for purposes other than those described in A.R.S. §36-2934.01

Trust for a Disabled Individual Under 65 (MS 804.01)

• The customer is over 65

• The trust is managed by a non-profit organization

• A separate account within the pooled trust is maintained for the customer

• Created on or after August 11, 1993

• Trust lists the AHCCCS Administration or another State as a beneficiary of the trust

• Makes reference to 42 U.S.C. §1396p(d)(4) or Section 1917(d)(4) of the Social Security Act

• The trust contains a clause that states disbursements shall not be made for purposes other than those described in A.R.S. §36-2934.01

Special Treatment Pooled Trust (MS 804.03)

A. Introduction

There are four types of non-Special Treatment trusts.  These are

• Revocable;

• Irrevocable;

• Medicaid Qualifying Trusts (MQT); and

• Trusts created by a Will (also called Testamentary) or with the income or resources of someone other than the customer or spouse.

These four types of trusts are discussed in this section. 

B. Policies Common to Revocable & Irrevocable Trusts

The following are features common to both revocable and irrevocable trusts:

• The trust must have been created on or after August 11, 1993;

• The corpus (holdings) of the trust must have been funded with the resources and/or income of the customer and/or the spouse.  However, the trust corpus may also contain the income or resources of other individuals; and

• The customer must be the beneficiary (or one of the beneficiaries) of the trust.

C. Exculpatory Clauses for Revocable, Irrevocable, and Medicaid Qualifying Trusts (MQT)

For revocable and irrevocable trusts the policies in MS 803.01 (revocable trusts) and MS 803.02 (irrevocable trusts) apply regardless of any of the following stipulations (exculpatory clauses) contained in the trust document:

• Purpose for which the trust was established;

• Whether the trustee has discretion or discretion is actually exercised;

• Whether there are any restriction on when or whether distributions may be made; and

• Whether there are any restrictions on the use of distributions from the trust.

•

• For Medicaid Qualifying Trusts (MQT), the policies in MS 803.03 apply to all trusts established by the customer, the customer's spouse or the legal representative (other than by a will) regardless of any of the following stipulations (exculpatory clauses) contained in the trust document:

• The trust is revocable or irrevocable;

• The trust is established for purposes other than to qualify for ALTCS; or

• Distribution of trust funds is actually made or the trustee(s) discretion is actually exercised.

D. Determining Extent of Ownership

The Eligibility Specialist must determine the ownership of income and resources used to fund the trust.  Generally, only income and resources of the customer or customer and spouse are used to fund a trust. 

When the trust corpus of a revocable or irrevocable trust contains income and/or resources of the customer or the customer's spouse (or both) and income or resources of other individuals, the customer's ownership portion must be determined, as follows:

• Determine the value of all of the income and/or resources used to form the corpus of the trust on the date the trust was established (if no income or resources have been added since that time)

• Determine who owned the resources and/or income before it was placed in the trust

• Determine the ratio of income and/or resources attributable to the customer by dividing the total value of the trust corpus by the value of the income and/or resources owned by the customer or customer's spouse prior to being placed in the trust.

EXAMPLE:   The customer established a trust on 8/31/93.  The resources used to form the trust corpus are $2,000 that belonged to the customer, $1,000 that belonged to the customer's spouse, and $1,000 that belonged to the customer's brother.  The total value of the trust corpus is $4,000.  The portion of the trust corpus contributed by the customer and spouse is $3,000.

$3,000 divided by $4,000 = .75.  Therefore, 75% of the trust corpus is attributable to the customer.  Once the ownership interest portion is established, it remains the same unless the applicant can show that the ownership interest has changed.  The ratio calculated using the steps above is used to determine the customer and spouse's portion of the trust corpus.

E. Undue Hardship (Revocable, Irrevocable & MQTs)

Trust policy for revocable, irrevocable (non-special treatment trusts only) and Medicaid Qualifying Trusts (MQT) may be waived in cases of undue hardship when the customer is forced to go without life sustaining services altogether because the trust funds could not be made available to pay for the needed service(s). 

Contact Central Office, Program Support Administration for clarification and further instruction.

A. Introduction

There are specific policies that apply to revocable trusts in the eligibility determination process.  These are given in this section.

B. Resources

Resources owned by a revocable trust are treated as below.

Feature

Policy

Trust Corpus

The entire trust corpus (or portion determined in MS 803.00.D) is a countable resource.

Trust Disburse-ments

Disbursements from the trust for the benefit of the customer that are not liquid (real property, vehicles, etc.) are considered a resource according to the applicable policy for the type of resource.

Joint Ownership

• When the trust corpus of a revocable trust contains income and/or resources of the customer or the customer's spouse (or both) and income or resources of other individuals, the customer's portion of the trust is determined in accordance with MS 803.00.D.

• When joint ownership exists, only that portion of the trust corpus attributable to the customer and spouse is used in the resource eligibility determination even if the entire trust corpus could be distributed to the customer and/ or spouse.

C. Income & Share of Cost

The computation of both income and share of cost (SOC) is determined as follows:

Source

Policy

Income to the Trust and/or Disbursements from the Trust

• Consider the income received by the trust (excluding dividends and interest earned by the trust corpus and added to the principal) or disbursements from the trust to or for the benefit of the customer (whichever is greater) for income eligibility and share of cost computation.

• Consider all disbursements to or for the benefit of the customer regardless of the reason for the disbursements or the customer's ownership interest in the trust, if jointly owned.

•

• EXAMPLE:  Mr. R owns a revocable trust to which he has assigned annuity income.  Each month a $1,200 annuity payment is issued to the trust.  The trustee disburses $1,100 to Mr. R.  Since the amount received by the trust (i.e., $1,200) is greater than the amount paid out (i.e., $1,100), the full $1,200 is counted in determining Mr. R' s income eligibility and share of cost.

D. Transfers

• Disbursements from the trust that are not to the customer or for the benefit of the customer are considered a transfer.  (See MS 905.00.D for additional information regarding the look back period that is applicable to a transfer for a revocable trust.) 

• When the trust corpus contains income and/or resources of the customer or the customer's spouse and income or resources of other individuals and payments are made to the other individuals, determine if the payment to the other individual creates a transfer with uncompensated value.  This is determined as follows:

Step

Action

1

Determine the gross amount of all payments being made from the trust during the budget month and to whom these payments are made.

2

Use the ratio calculated in MS 803.00.D, above, to determine if the customer is receiving the appropriate share of the distributions from the trust based on the customer's contribution to the trust corpus.

3

If the customer is not receiving the appropriate share of the trust payments, calculate the UV by subtracting the amount the customer is actually receiving from the amount the customer should be receiving. 

EXAMPLE:  The trust is paying $100 per month to the customer and $100 to his brother.  The ratio of the trust corpus attributable to the customer is 75%.

  $200.00 (total payments from trust) x .75 = $150 (should receive)

- $100.00 (actual income being received by customer)

= $ 50.00 Uncompensated Value of transfer