The Hughes Law Firm

As a follow up to my first post, I want to elaborate a bit on what I believe is Medicaid’s position with regard to the use of irrevocable income-only trusts by those folks seeking to protect their assets from nursing homes and Medicaid Estate Recovery in the event of a nursing home stay.

Medicaid allows for the use of income-only irrevocable trusts as a way to shelter assets and as an alternative to outright gifts of assets to children. Therefore, many Coloradans have transferred assets to these trusts with the expectation that the assets transferred would not be considered as available resources when they later apply for Medicaid assistance when a nursing home becomes necessary. Over the last couple of years, however, Medicaid has been much tougher in their review of these trusts before Medicaid is granted to an applicant. Medicaid is now saying that any irrevocable trust that confers any kind of a benefit to the Trustmaker will fail with the result that the assets in the trust will be considered available resources. This will result in the denial of Medicaid benefits because they will be considered “over resourced.”

Accordingly, we have filed petitions with the various county district courts seeking to reform irrevocable trusts by taking the language out of those trusts that confer a benefit to the Trustmakers. We have also asked that the courts reform the trusts retroactive to the date that the trusts were created and funded. Medicaid doesn’t like this. They challenged the retroactivity of our request in a Denver probate case in December of 2007, but lost. In fact, the court said that Medicaid doesn’t even have standing to object to that issue since no Medicaid application was pending.

Medicaid has advised me that they would likely ignore the retroactive nature of the reformation and deny any applicant who later files for Medicaid benefits with an irrevocable trust. Stated another way, they will find some way to declare that the assets in the irrevocable trust are available assets, regardless of the modifications that may have been made to the trust through a reformation at an earlier date.

Medicaid is putting all Medicaid practitioners on notice that irrevocable income-only trusts are going to be challenged every step of the way. While this may be puffing, it is at least worthy of consideration by all attorneys using these trusts. There are safer ways to transfer assets to protect them from nursing home costs in the future. The irrevocable income-only trust is no longer advised. They will be challenged at every application and will cause greater hardship and expense for those who attempt to rely them.

One glimmer of hope exists. Medicaid has indicated that they would be willing to discuss the idea of blessing those trusts that are currently in force where Medicaid applications have not been filed. I’ll report back on any progress.

Filed under: Colorado Medicaid, Colorado Trusts by Richard Hughes