February 2014 | Revised January 2017
Are Irrevocable Living Trusts Useful in Qualifying for ALTCS?
Some irrevocable trusts are allowed to own assets
transferred by an individual, where the individual is also a beneficiary, but
will not subject the individual to a transfer penalty and the assets will not be
counted as available resources.
Frazer Ryan's Long-Term Care Legal Services
Individuals who have resources in excess of the
allowable Arizona Long Term Care System limits have limited options
when it comes to qualifying for ALTCS (see current
eligibility limits and requirements).
Many people are under the
mistaken belief that a transfer of an asset to a revocable or living
trust will help the individual qualify for ALTCS. However, because
the individual still controls the asset in a revocable trust, assets
held in a revocable trust are treated as still being owned by the
individual for purposes of ALTCS eligibility.
ALTCS QUALIFYING TRUSTS
Prior to August 10, 1993, the law did allow
individuals to create what were referred to as “Medicaid Qualifying
Trusts.” These were irrevocable trusts created by the individual and
funded with the individual’s assets, which, in some cases, could be
protected from consideration by ALTCS.
The basic rule for irrevocable trusts created
after August 10, 1993, is that any asset in an irrevocable trust
that can be distributed to the beneficiary at the discretion of the
trustee is treated as a countable resource.
Some irrevocable trusts contain assets of the
individual and a spouse along with resources that belong to other
individuals. In these situations, ALTCS will determine the
individual’s proportionate share. Any distribution that is not made
to others that is not for the benefit of the individual will be
considered to be a transfer of resources, and a penalty period will
To the extent the trust does not allow for any
distribution to the beneficiary, it will be treated as a transfer of
resources subject to a transfer penalty. If it has been more than 60
months since the Trust was created, then no penalty will be applied.
SPECIAL PURPOSE TRUSTS
Some irrevocable trusts are allowed to own
assets transferred by an individual, where the individual is also a
beneficiary, but will not subject the individual to a transfer
penalty and the assets will not be counted as available resources.
These are referred to as “special purpose trusts.” Federal law has
created these special trusts that are allowed to hold assets
transferred by the individual ALTCS beneficiary, distributed
according to specific rules established by statute, yet the value of
those assets will not be considered when determining eligibility for
ALTCS. These three special purpose trusts are:
First-Party Special Needs Trusts, established by an individual under the age of 65
Pooled Trusts, administered by a non-profit organization for the benefit of the individual
Income Trusts, designed to
administer the income of an ALTCS beneficiary who may have more
income than allowed by the State of Arizona
As you can see, ALTCS eligibility is complicated and advice
from an attorney who frequently works in this area of the law is highly
recommended. At Frazer Ryan, we work hard to say up to date on the law and on methods
to ensure that all eligible individuals are properly prepared to qualify for ALTCS. We encourage you to give us a call to discuss your particular situation