When a client needs Medicaid benefits to pay for their long term care needs, their elder law attorney likely has several strategies in their quiver to help get them qualified. One such strategy is using a sole benefit trust. What is this trust and when can it be used?
Medicaid has strict income and asset rules for those seeking long term care benefits. When a client has excess assets that they need to spend down to qualify for Medicaid, they can put those assets in a sole benefit trust. The benefit of doing so is that transfers to a sole benefit trust are not penalized. However, there are rules about who can be the beneficiary of the sole benefit trust.
Sole benefit trusts are authorized by 42 U.S. Code § 1396p(c)(2)(B):
“An individual shall not be ineligible for medical assistance…to the extent that the assets—
- were transferred to the individual’s spouse or to another for the sole benefit of the individual’s spouse,
- were transferred from the individual’s spouse to another for the sole benefit of the individual’s spouse,
- were transferred to, or to a trust (including a trust described in subsection (d)(4)) established solely for the benefit of, the individual’s child described in subparagraph (A)(ii)(II), or
- were transferred to a trust (including a trust described in subsection (d)(4)) established solely for the benefit of an individual under 65 years of age who is disabled (as defined in section 1382c(a)(3) of this title)…”
So, the beneficiary of the sole benefit trust must be the client’s spouse, the client’s disabled child, or a disabled person under the age of sixty-five.
Under HCFA Transmittal No. 64, the sole benefit trust must be actuarily sound. This means the trust must provide for the spending of the trust funds over the beneficiary’s life expectancy. However, some jurisdictions have permitted the use of sole benefit trusts in two additional circumstances: when the funds remaining in the trust at the beneficiary’s death are made payable to the estate of the beneficiary, or a payback provision is included in the trust. So, the sole benefit trust must be actuarily sound, payable to the estate, or include a payback provision. Which option is acceptable is a jurisdictional issue.
The sole benefit trust is just one strategy out of many that an elder law attorney could use to get their client qualified for nursing home Medicaid benefits. Of course, an elder law attorney would do a full case analysis to determine if the sole benefit trust is the best option for their client’s case and how that sole benefit trust needs to be designed to pass Medicaid scrutiny in their jurisdiction.
Attorneys are responsible for advising clients at key junctures in the life of a trust. Often, the success or failure of a trust is determined at the death of the original grantor of an individual trust or at the first and second grantor’s passing of a joint trust.