802 Non-Special Treatment Trusts

 

 

 

Revised 01/25/2023

 

Policy

Trusts that were not created to qualify for special treatment or that do not qualify as a Special Treatment Trust are known as non-special treatment trusts. 

The policy for counting the income and resources of these trusts applies regardless of any of the following:

·        Purpose for which the trust was created;

·        Whether or not the trustee has the ability to make payments to the customer, or the trustee actually makes any payments;

·        Restrictions on when or if payments may be made; and

·        Restrictions on the use of payments from the trust.

NOTE      Trust policy in this section may be waived in cases of undue hardship.  See MA804 for information about undue hardship for trusts.

Trust Ownership:

Non-special treatment trusts may be jointly owned.  When a trust is jointly owned, only the percentage owned by the customer and spouse is used to determine resource eligibility, even when the entire trust corpus could be paid to the customer, the spouse or both. 

Disbursements from a jointly-owned trust must be made to or for the benefit of the customer in at least the same percentage as the customer’s ownership interest.  For example, if the customer owns 50% of the trust assets, 50% of any disbursements must be made to or for the benefit of the customer.  When the customer receives less than his or her ownership percentage, the difference is reviewed as a transfer.

Treatment of Trust Assets:

Excluded assets assigned to a trust remain excluded, except for home property.  When home property is assigned to the trust the equity value is a counted resource (MA705K.1).

Types of Non-special Treatment Trusts:

There are four kinds of non-special treatment trusts:

·        Revocable;

·        Irrevocable;

·        Medicaid Qualifying Trusts (MQT); and

·        Testamentary and Non-Grantor Trusts.

The specific treatment and policy for each of the four types of trusts are discussed in the following sections. 

 

1)    Revocable Trusts

Resources

The person’s entire ownership interest in the trust corpus is considered a resource.

Income and Share of Cost

Income received by the trust or payments from the trust to or for the benefit of the customer, whichever is greater, are counted for the income test and when determining the customer’s Share of Cost (SOC).

NOTE      Trust income does not include dividends and interest earned by the trust corpus and added to the principal.

 

2)    Irrevocable Trusts

Resources

When payment can be made from the trust principal to or for the benefit of the customer, the maximum amount that is available for payment is a counted resource.

Income and Share of Cost

Income received by the trust or payments from the trust to or for the benefit of the customer, whichever is greater, are counted for the income test and when determining the customer’s SOC.

NOTE      Trust income does not include dividends and interest earned by the trust corpus and added to the principal.

 

3)    Medicaid Qualifying Trusts (MQT)

A MQT is a trust created other than by a will that meets all of the following:

·        Created on or before August 10, 1993;

·        Created and funded by the customer, the customer’s spouse or both; and

·        The customer or spouse is listed as beneficiary.

Although called a Medicaid Qualifying Trust (MQT), this type of trust may actually cause a customer to not qualify for ALTCS. 

Resources

The maximum amount allowed by the terms of the trust to be paid to the customer is a counted resource.

The maximum amount considered available includes only amounts that can be distributed from the trust income or principal.  This applies even if the trustee is not actually distributing these amounts.

Income and Share of Cost

Trust income that is counted for the income test and Share of Cost includes:

·        Income assigned to the MQT that would otherwise have been paid to the customer; and

NOTE    Since income assigned to the trust is already counted, it is not counted again when disbursed in the same month.

·        Payments made from trust principal that is NOT being counted in the resource test. 

NOTE    Payment from trust principal that IS counted as a resource is a conversion of a resource (MA701.3).  See MA705 for policy on how to treat specific resource types.

Petition for Release of Funds

To qualify for ALTCS, the beneficiary of an MQT must petition the court for disbursements of trust funds when either of the following applies:

·        The terms of the trust only allow trust funds to be paid to or for the benefit of the beneficiary under a court order; or

·        The terms of the trust allow the beneficiary to petition the court for trust funds to be disbursed when the trustee refuses to disburse them.

 

4)    Testamentary and Non-Grantor Trusts

Testamentary and non-grantor trusts are funded by the assets of someone other than the customer or the customer’s spouse. 

If the customer’s or spouse’s assets have funded any part of the trust, it is not a non-grantor trust.  It is one of the trusts in sections 1) through 3) above.

NOTE      For trusts created by a will, if the grantor is still living, the testamentary trust does not yet exist.

Resources

The treatment of the trust principal depends on whether the customer is the trustee or the beneficiary and the terms of the trust.

If a customer is the...

Then...

Trustee

·        The trust is NOT a resource when the trustee cannot legally access the trust principal for personal use.

·        The trust IS a resource when the terms of the trust allow the trustee to use the income and resources for his or her own benefit.  The maximum amount that can be accessed by the trustee for personal use is counted as a resource.

Beneficiary

The trust is a resource when the beneficiary can terminate the trust to access the trust assets, or can access the trust principal directly or through an order to the trustee.  The maximum amount that can be accessed by the beneficiary is counted as a resource.

NOTE      If the beneficiary cannot terminate the trust, directly access the funds or order the trustee to make payments, the trust principal is not a resource, even if the trust otherwise allows for payments from the principal .

 

Income and Share of Cost

Use the table below to determine how to treat income or disbursements for a testamentary or non-grantor trust.

NOTE      Any trust income or disbursements that are counted as income to the customer are counted for both the income test and for SOC.

If a customer is the...

And...

Then…

Trustee

The trustee may legally access the trust principal for personal use

·        Interest or dividends earned by the trust principal are counted as income in the month earned.

·        Additions to principal from a third party are counted as income.

NOTE      Disbursements from the trust principal are not counted as income.

The trustee may NOT legally access the trust principal for personal use

·        Any disbursements made to the trustee are counted as income.

·        Interest or dividends earned by the trust principal are not counted as income unless the terms of the trust state that they belong to the trustee.

·        Additions to trust principal made directly to the trust are not counted as income.

Beneficiary

The beneficiary may do ANY of the following:

·        Terminate the trust;

·        Order the trustee to make payments from the trust; or

·        Legally access the trust principal

·        Interest or dividends earned by the trust principal are counted as income in the month earned.

·        Additions to principal from a third party are counted as income.

NOTE      Disbursements from the trust principal are not counted as income.

The beneficiary may NOT do ANY of the following:

·        Terminate the trust;

·        Order the trustee to make payments from the trust; or

·        Legally access the trust principal

·        Disbursements made directly to the beneficiary are counted as income.

NOTE  Disbursements that are made on behalf of but not directly to the beneficiary are not counted as income.

·        Interest or dividends earned by the trust are not counted as income unless the terms of the trust state that the beneficiary has a right to the trust earnings.

·        Additions to trust principal made directly to the trust are not counted as income.

 

Definitions

Term

Definition

Beneficiary

A person or entity entitled to receive the principal, income or both from a trust.

Disbursement

A payment or distribution from the trust corpus or trust earnings.

Irrevocable

A trust that is irrevocable cannot be changed or ended by the grantor or the grantor’s representative after it is made.

NOTE    A trust that states it is irrevocable but will end by some action taken by the grantor or the grantor's representative is a revocable trust.

Non-grantor trust

A trust funded with the assets of someone other than the beneficiary.  For example, a grandparent creates a trust funded with her own money for the benefit of her grandchild. Non-grantor trusts are sometimes called "Special Needs Trusts".

Revocable

A trust that may be changed or ended.

NOTE    A trust that says it can be changed or ended by a court is considered a revocable trust.

Testamentary trust

A trust created by a will upon the person’s death.

Trust Corpus

The income and resources that fund the trust.  The resources or income in the trust corpus may be available to the customer but are no longer owned by the customer.

NOTE    The trust corpus may also be called the trust principal.

Trustee

A person or organization that manages the trust resources and income for the benefit of the beneficiaries.

Trust document

The formal document that created the trust.  It 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.

 

Proof

The proof needed for non-special treatment trusts may depend on whose assets funded the trust and whether the customer or spouse has access to the trust funds. 

Proof needed for non-special treatment trusts includes:

If the trust is…

Then the proof needed is…

All Non-Special Treatment Trusts

·        All of the pages of the trust document. This includes all amendments, restatements and schedules from the date the trust was created to the current month;

·        Any court records relating to the trust;

·        Proof of all resources and income transferred into or out of the trust during the application period. Examples include:

o       Title transfer documents;

o       Quit-claim deeds; and

o       Financial account statements;

·        Proof of the source of all income or resources assigned to the trust; and

·        Proof that all income or resources assigned to the trust are legally titled to the trust.

NOTE    Assets that do not have a legal title, such as personal effects, do not require proof.

Irrevocable trust or MQT

·        All of the proof needed for all non-special treatment trusts; and

·        Proof of the maximum amount that may be disbursed from the trust.

NOTE    The trust document may not state the maximum amount that may be disbursed from the trust.  In this case, a statement from the financial institution of entity holding the trust funds is acceptable.

 

Testamentary Trust

·        All of the proof needed for all non-special treatment trusts; and

·        A copy of the will that created the trust.

 

In addition to the proof listed above, the table below lists other proof needed in special circumstances:

If the trust is...

Then the proof needed is...

Funded with the customer’s or spouse’s assets

·        Power of Attorney, legal guardianship or conservatorship documents when someone other than the beneficiary, spouse, or parent of a minor beneficiary created the trust; and

·        Proof of the value of the income or resources used to fund the trust when the trust was established.

A counted resource to the customer (customer has access to the principal)

·        Proof of the value of income and resources currently assigned to the trust; and

·        Proof of all transfers made from the trust to someone other than the customer during the past five years.

No longer funded

Proof that all items assigned to the trust have been transferred out of the trust. Examples include:

·        Title transfer documents;

·        Quit-claim deeds; and

·        Bank statements showing the trust account is closed.

Revoked

A written statement signed and dated by a person with the authority to revoke the trust, such as the trustee or the person who created the trust.  A trust will normally be revoked in the same method that created it:

·        When the trust document was notarized, the written statement revoking the trust must be notarized.

·        When a court initially approved the trust, the revocation must be approved by the court.

 

 

Legal Authority

Program

Legal Authorities

ALTCS

42 USC § 1396p(d)

ARS 36-2934.01

AAC R9-28-407

AAC R9-28-408