Control Disqualifies Trust From Medicaid Protection

Last month, a New Hampshire Court set an irrevocable trust and declared the assets therein available resources which should have been spent on long term care prior to Medicaid eligibility by the individual who established the trust. Specifically, in the Petition of Estate of Thea Braiterman No. 2015-0395 (N.H. July 12, 2016), the New Hampshire Supreme Court ruled that a Medicaid applicant’s irrevocable trust is an available asset even though the applicant was not a beneficiary of the trust because the applicant retained a degree of discretionary authority over the trust assets.

In 1994, Thea Braiterman established an irrevocable trust. The beneficiaries were her three children. Although she was not named as a beneficiary, she retained control over the trust as a Co-Trustee. Although she resigned as Trustee in 2008, she retained the right to appoint additional trustees and successor trustees including herself. The terms of the trust also gave her the ability to appoint any part of the income of the trust to any of the beneficiaries and did not limit her ability to impose conditions on the appointment of principal to the beneficiaries.

Thea entered into long term care at a nursing home in January 2014 and stayed there until her death in March 2014. In February 2014, an application for Medicaid benefits was made on her behalf. The application was denied as the Medicaid agency saw the trust as an available resource. In upholding the denial, the New Hampshire court held that an irrevocable trust is a countable asset even when the applicant is not a beneficiary if there are any circumstances in which payment can be made to the applicant. In doing so, the court ruled that there was nothing in the trust “to preclude [Ms. Braiterman] from requiring her children, as a condition of their receipt of the Trust principal, to use those funds for her benefit.”

The importance of this case cannot be overemphasized as it follows two earlier cases from other state courts this year which busted two Medicaid trusts (specifically special needs trusts). In those cases, the courts set aside such trusts due to improper expenditures. This case set aside the trust on the issue of control by the individual who established it. In light of the foregoing, it is clear that state Medicaid agencies are evaluating irrevocable trusts with increasing scrutiny. Thus, it is imperative that any trust created to establish or maintain Medicaid benefits must be conservatively drafted to insure the protection of the individual who sets them up and the beneficiaries to whom the use of the trust assets are directed.

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