What is an irrevocable trust?

An irrevocable trust is created during the life of the settlor (creator), who thereafter may not change or amend the trust.  Any property placed into the trust may only be distributed by the trustee as provided for in the trust instrument.  For instance, the settlor can provide that he or she will receive income earned on the trust property. 

A disadvantage of this type of trust is the grantor’s
irrevocable loss of power over the assets in the trust. A transfer of assets to
an irrevocable trust is subject to the five year Medicaid lookback period.

What do the current
MassHealth regulations state regarding Medicaid applicant’s that place assets
into an irrevocable trust?

The transfer of assets into an irrevocable trust are subject to a five year lookback period. After five years, as long as the terms of the trust provide
that there are no circumstances under which the trustee can make distributions
of trust principal to or for the benefit of the settlor, the trust assets are
noncountable for purposes of determining Medicaid eligibility.

If payment may only be made from the income of the trust,
then MassHealth may only count the amount of income distributed as income to
the applicant.

How is MassHealth
treating irrevocable trusts when a settlor applies for Medicaid benefits?

Even if it has been more than 5 years since you transferred
assets into an irrevocable trust, there is a section on the Medicaid
application which asks various questions about your trust and you will have to
submit it as part of your application.

Unfortunately, even though a properly drafted irrevocable
trust is supposed to protect your assets after the 5 year lookback period, this
section gives MassHealth the opportunity to make various arguments which have
no legal basis in order to deny your Medicaid application.

Some of their faulty arguments are:

1.     If you have a
power to appoint through your Will to a charity, you could appoint the property
to a nonprofit nursing home and the nursing home could then use those funds for
your care.

2.     The trustee
could use the following trustee powers to make the trust assets available to
the Medicaid applicant:

  • Power to allocate receipts and expenses between
    income and principal;
  • Power to pay estate taxes from trust assets;
  • Power to invest the trust assets in various
    kinds of investments (including annuities)

3.     The following
powers retained by the settlor of the trust allows the settlor to retain
control over the trust assets:

  • Power to occupy the residence owned by the
  • Power to exercise a special power of appointment
    during lifetime or by will in favor of children or grandchildren;
  • Power to reaquire trust assets by substituting
    assets of equal value.

What should I know if
I have an irrevocable trust or am thinking about funding one?

  • MassHealth likes to deny any applications that have an irrevocable trust attached to them, even if they are properly drafted.
  • Even if you make it past the 5 year lookback period without needing to apply for Medicaid benefits, your irrevocable trust will still be considered as part of your Medicaid application.
  • If your application is denied, you will need to file for an appeal.  If MassHealth denies that appeal, you will need to file a lawsuit that could drag on for years before getting a favorable decision.
  • Since filing appeals and lawsuits takes a lot of time, a sizable amount of funds will most likely need to be expended to fight any denial by MassHealth.