210 R.I. Code R. 210-RICR-50-00-6.11 - Treatment of Trusts and the Transfer of Assets

A. A trust is an arrangement in which a person, known as the "grantor" transfers property to a trustee with the intention that it be held, managed, or administered by the trustee for the benefit of the grantor or certain designated beneficiaries. The term "trust" also includes any legal instrument or a device similar to a trust. The grantor (or grantor beneficiary) establishes or creates the trust upon signature.

B. The "property" transferred to the trust takes on the form of a fund and may be comprised of any type of a resource including liquid, non-liquid, and real property as well as income producing goods, services and businesses. Trusts and portions of trusts may be treated as available income, available resources, or as a transfer of assets for less than fair market value.

C. For the purposes of this Part, the term "Medicaid LTSS applicant" refers to both a person seeking initial eligibility and current beneficiary so as to distinguish between a trust beneficiary. When a trust includes the assets of multiple persons, only the portion of trust that is attributable to the Medicaid LTSS applicant is considered in the eligibility process.

D. The factors that affect the treatment of a trust in the Medicaid LTSS financial eligibility process are as follows:

1. Legally valid - A trust must be valid under Rhode Island law.

2. Date established - Under Federal law, trusts established prior to August 11, 1993 are treated differently than those established after that date. In addition, income and resources generated from trusts created before implementation of the DRA in 2005 may be treated differently.

3. Types of trusts - Treatment of a trust varies depending on whether it is:

a. Living trust versus testamentary trust.

(1) A living trust or an inter-vivos trust - Set up during a person's lifetime and becomes effective when it is created. The State reviews Medicaid living trusts to determine whether and to what extent the instrument affects a person's LTSS financial eligibility.

(2) Testamentary trust - Generally established within a will and does not become effective until after the death of the "testator" who established the trust. A testamentary trust takes effect after the testator's death. Testamentary trusts are not treated as trusts for Medicaid eligibility purposes and therefore are exempt from the provisions in this section.

b. Revocable versus irrevocable under Rhode Island law.

(1) Revocable trusts - The grantor who established the trust retains ownership and control of the property in the trust and can change the terms, including the trustees and grantor beneficiaries.

(2) Irrevocable trusts - The grantor who created the trust gives ownership and control of the property in the trust to one or more other persons known as "trustees." The grantor is thus unable to enact changes in the trust.

4. Principal versus earnings and interest - In general:

a. Principal. The trust principal is the property placed in trust by the grantor that the trustee holds, subject to the rights of the trust beneficiary, plus any trust earnings paid into the trust and left to accumulate the month following the month of a distribution.

b. Earnings or interest. Trust earnings/interest are amounts of income derived from trust principal, such as interest, dividends, royalties, or rents. These amounts are unearned income to the trust beneficiary if he or she is legally able to use them for personal support and maintenance.

5. Medicaid eligibility category - Available income and resources from a trust are counted only once during the determination of eligibility for Medicaid health coverage. Accordingly, the State does not reconsider available income and/or resources from a trust that was included in the determination of financial eligibility for SSI.

6.11.1 Qualifying Trusts - Established Prior to August 11, 1993

A. A trust, or similar legal device, is called a Medicaid qualifying trust (MQT) when the following conditions have been met:

1. Date - The trust was established prior to August 11, 1993;

2. Grantor - Established by the Medicaid LTSS applicant or someone acting on the applicant's behalf including the applicant's spouse, or a legal guardian or authorized representative;

3. Source - The source of the trust is either funds owned by the grantor or funds the grantor is entitled to use;

4. Type of trust - The trust is a living trust that was not established by a last will and testament;

5. Trust beneficiary - The trust names the Medicaid LTSS applicant to be the trust beneficiary of all or part the trust and the discretionary or required payments or distributions from the trust;

6. Distribution - Trustee discretion. The terms of distribution under the trust give one (1) or more trustees the discretion to distribute payments to the trust beneficiary and set limits on the discretion of the trustee(s) therein;

7. Use limits - There may be requirements in the trust related to the distribution of trust principal and interest/earnings but there are no limits on their "use"; and

8. Exceptions - Any trust or trust decree established prior to April 7, 1986 when solely for the benefit of person with an intellectual/development disability who resides in an intermediate care facility for persons with intellectual/developmental disabilities (CF/I-D).

9. Purpose - The trust was created for a purpose other than to qualify for Medicaid.

B. In the determination of Medicaid LTSS financial eligibility and in the post-eligibility treatment of income, the State determines the maximum amount that could be distributed from an MQT and then the amount of countable income and resources as follows:

1. Maximum distribution amount - The maximum amount of income and principal from an MQT is the total amount trustees are permitted to distribute to the trust beneficiary when exercising full discretion under the terms of the trust.

2. Available countable amount - The terms of the trust that specify the available income (interest/earnings) and resources (principal) determine the amount counted as available, regardless of whether any distributions are being made. For LTSS eligibility:

a. Countable resource. The trust principal (including accumulated income) available to the trust beneficiary is a countable resource.

b. Countable income - If the terms of the trust explicitly limit the amount of trust principal that is available on an annual (or specified less frequent) basis, the principal is countable income beginning the month it becomes available.

c. Countable income or resource. Trust principal and earnings/interest available for daily living expenses (food, clothing or shelter), including items not typically considered to be essential to daily living, are countable and treated according to their source under the terms of the trust. If paid from trust principal, the payment is treated as resource; if paid from trust interest/earnings, the payment is treated as income.

3. Non-countable - Interest/earnings and principal available only to pay providers meeting non-basic needs are considered unavailable to the LTSS applicant when determining eligibility.

4. Health care specific - Trusts established for health care payments are considered to be a third (3^rd) party resource. Principal and interest/earnings are not counted if the terms of the trust specify that they are available only for making health care-related payments.

C. In both the determination of LTSS financial eligibility and the post-eligibility treatment of income a revocable trust established before August 11, 1993 is treated as follows:

1. Countable resources and income - The trust principal and earnings/interest are treated as countable resources and income, respectively.

2. Home and adjoining land - The fair market value of a primary residence or former primary residence of an LTSS applicant or spouse in a revocable trust does not qualify for the exclusions set forth in § 6.3(D)(3) of this Part and is treated as a countable resource.

6.11.2 Non-Qualifying Trusts - Established on or After August 11, 1993

A. The requirements for evaluating non-MQT differ when determining Medicaid LTSS eligibility. A trust other than a MQT is subject to the provisions of this Part when the following conditions are met:

1. Date - The trust was established on or after August 11, 1993;

2. Grantor - Established by the Medicaid LTSS applicant, or a grantor on the applicant's behalf including a spouse, or a legal guardian or authorized representative;

3. Source - The source of the trust is either funds owned by the grantor or funds the grantor is entitled to use;

4. Type of trust - The trust is a living trust that was not established by a last will and testament;

5. Trust beneficiary - The trust names the Medicaid LTSS applicant to be the trust beneficiary and, as such, to receive distributions from the trust;

6. Distribution - The terms of the trust establishing the purposes and/or circumstances for which distributions of principal and earnings/interest may be made dictate treatment rather than the discretion of the trustee(s) therein;

7. Use limits - Restrictions on the timing of distributions or how the funds may be used are not a factor; and

8. Exceptions -- Any trust or trust decree established prior to April 7, 1986 when solely for the benefit of person with an intellectual/development disability who resides in an ICF/I-DD.

9. Purpose - The reason the trust was created is not considered.

B. Whether such a trust is revocable or irrevocable affects how it is treated for Medicaid LTSS financial eligibility. A revocable trust is a trust under Rhode Island law that can be revoked by the grantor. A trust that authorizes a court of appropriate jurisdiction to modify or terminate all or some of its terms is revocable for the purposes of this section because the grantor can petition the court to act. Similarly, a trust referred to as "irrevocable" is treated as revocable if it requires a trustee to terminate or modify distributions when the beneficiary takes a specific action such as leaving a nursing home, marrying or divorcing, or moving out of State.

1. Revocable trusts - The State treats revocable trusts as follows:

a. Countable resource - The principal of the trust is treated as a countable resource. The primary residence or former primary residence of a Medicaid LTSS applicant held in a revocable trust established on or after December 1, 2000 is a countable resource and is therefore exempt from the home exclusion, regardless of the intent to remain, as set forth in §6.5.3(B)(1) of this Part;

b. Countable income - Payment distributions made from the trust to or for the benefit of the trust beneficiary are counted as available income;

c. Transfer of assets - Any other distributions made from the trust within sixty (60) months immediately prior to or any time after the trust beneficiary applied for Medicaid LTSS are considered to be disqualifying transfers and are subject to a penalty as set forth in §6.6.1 of this Part.

2. Irrevocable trusts - Irrevocable trusts are treated as follows:

a. Countable income. Any payment distributions from trust principal or earnings/interest made to or for the benefit of the trust beneficiary are counted as income;

b. Countable resource. Any portions of the principal that could be paid to or for the benefit of trust beneficiary for a circumstance or purpose allowed under the terms of the trust are treated as a countable resource. The primary residence or former primary residence of a trust beneficiary held in an irrevocable trust established on or after December 1, 2000 is not subject to the intent to return exclusion;

c. Distributions from countable resource trusts. The distributions of income or principal under the trust which could have been made to or for the benefit of the trust beneficiary, but are instead made to someone else and not for the benefit of the trust beneficiary, are considered disqualifying transfers as of the date of the distributions and are subject to a penalty pursuant to § 6.6 of this Part if the those distributions were made within the sixty (60) months immediately prior to or at any time after the month the trust beneficiary both is receiving long-term care and has applied for Medicaid LTSS.

d. Disqualifying transfers into non-countable irrevocable trusts - Portions of the trust which cannot under any circumstances be paid to or for the trust beneficiary are treated as disqualifying transfers as of the date the asset was transferred and are subject to a penalty pursuant to § 6.6 of this Part if the asset was transferred into the trust resource within sixty (60) months immediately prior to or any time after the month in which the trust beneficiary was both receiving long-term care and has applied for Medicaid LTSS.

C. Any time there is a disqualifying transfer related to a non-MQT, the date of the transfer is the date the trust was established or, if later, the date payment to the trust beneficiary foreclosed. The uncompensated value of the disqualifying transfer can be no less that its value on the date of transfer.

D. When funds are added to a trust, the additional funds are considered to be a disqualifying transfer, effective on the date the funds were added to that portion of the trust.

6.11.3 Special and Supplemental Needs Trusts

A. Certain trusts established on behalf of a Medicaid applicant or beneficiary are treated differently due to their purpose or manner in which they were established.

B. Special needs and pooled trusts. These trusts are established for persons who meet certain age and disability requirements. Assets placed in the trust are exempt from the provisions related to disqualifying transfers when the conditions specified below have been met.

1. Special needs trust - A special needs trust has the following characteristics:

a. Date. Established on or after August 10, 1993;

b. Grantor. Established by or on the behalf of the Medicaid LTSS applicant by a parent, grandparent, legal guardian or other third party with the legal authority to act with respect to the person's assets, or a court.

c. Source. The source of the trust is the assets owned by an LTSS applicant/beneficiary under age sixty-five (65) who has been determined to have a disability. The trust may also contain assets owned by other persons;

d. Trust beneficiary. The trust beneficiary named is a Medicaid LTSS applicant or beneficiary who meets the disability criteria established by the U.S. Social Security Administration for SSI or Social Security Disability Insurance (SSDI).

e. Distribution. Terms of the trust. Upon death of the beneficiary, any amounts remaining in the trust are paid to the State of Rhode Island up to the amount paid on behalf of the beneficiary by the Medicaid program unless amounts are owed to other States, in which case, payments are made proportionally to each State if there are insufficient funds to pay all States which provided Medicaid in full. The trust remains exempt from the transfer of asset provisions set forth herein once the trust beneficiary turns age sixty-five (65) providing there are no changes in trust prior to the date the trust beneficiary attains this age. The exemption does not apply to assets added to the trust once the beneficiary turns sixty-five (65).

f. Purpose. The reason the trust is created is solely for the benefit of a trust beneficiary with a disability.

2. Pooled trusts - A pooled trust established for a person with a disability under §1917 of the Social Security Act is also exempt from the provisions related to disqualifying transfers. A pooled trust for a particular applicant/beneficiary is a subaccount within a master trust in which the assets of multiple persons are combined - the pooled part - for investment and management purposes only. A pooled trust has the following characteristics:

a. Date. Established on or after August 10, 1993.

b. Grantor. Created and managed by a non-profit organization which maintains a separate account within a master trust that contains the assets and provisions specific to each beneficiary. Accounts in the trust are established for a person with a disability by or on the behalf of an applicant or beneficiary by a parent, grandparent, legal guardian or other third party with the legal authority to act with respect to the person's assets, or a court.

c. Source. The source of the trust is the assets owned by an LTSS applicant/beneficiary who has been determined to have a disability. The trust may also contain assets owned by other persons.

d. Trust beneficiary. The trust beneficiary named is of any age and is a Medicaid LTSS applicant/ or beneficiary who meets the disability criteria established by the U.S. Social Security Administration for SSI or Social Security Disability Insurance (SSDI).

e. Distribution. Terms of the trust. Upon death of the beneficiary, the beneficiary's account may retain some portion of the balance, not to exceed fifteen thousand dollars ($15,000.00), subsequent to making payment to the State of Rhode Island of any funds in the account remaining up to the amount paid on behalf of the beneficiary by the Medicaid program. In instances in which more than one (1) State has provided Medicaid, payments are made proportionally to each State if there are insufficient funds to pay all States which provided Medicaid in full.

f. Purpose. The reason the trust is created is solely for the benefit of a trust beneficiary with a disability.

C. Assets owned by others may be used to establish both testamentary and living trusts. In instances in which the grantor uses assets owned by someone other than the Medicaid LTSS applicant, and the Medicaid LTSS applicant's access to those assets is dictated solely by the terms of the trust, then the trust is evaluated in accordance with this Part.

D. In general, the terms of the trust determine the portions of principal and interest that are treated as income and resources. Terms of a trust related to the discretion of trustees and the extent to which funds must be distributed to meet the trust beneficiary's basic needs - that is, for food, shelter, clothing, health maintenance and the like - determine whether trust income and resources are counted for Medicaid LTSS eligibility purposes:

1. Countable income and resources - Trust principal and earnings/interest are countable resources and income when the terms of the trust require the trustee to pay or to make available the funds necessary to meet the trust beneficiary's basic needs. Both are also countable when the terms of the trust allow the beneficiary to withdraw trust principal and earnings/interest for basic needs. Principal is counted as resource and earnings/interest are treated as a countable income.

2. Countable income only - Trust principal and earnings/interests are countable income, but not a countable resource, when the terms of the trust allow the trustee to use trust principal or earnings/interests to pay for the basic needs of the beneficiary, and the trustee makes either available to cover those needs.

3. Countable income then resource - In the following circumstances, a trust treats income and resources as unavailable. For Medicaid financial eligibility purposes, any distributions made to the trust beneficiary in these circumstances are treated as countable income in the period of intended use, and countable resources thereafter:

a. Prohibited distributions. The terms of the trust prohibit the trustee from making either trust principal or earnings/interest available for the trust beneficiary's basic needs and Medicaid is covering the costs of those needs; or

b. Trustee discretion. The terms of the trust provide the trustee with the discretion to make distributions to cover the trust beneficiary's basic needs, but the trustee does not make either principal or earnings/interest available for those basic needs and they are covered by Medicaid.

Notes

210 R.I. Code R. 210-RICR-50-00-6.11

Adopted effective 1/20/2019
Amended effective 7/21/2021