Irrevocable Trusts and Medicaid – Part 2

     In last week’s blog post I was talking about a call I received about Mary, who is now in a nursing home.  She has spent her assets towards her care and the only source of payment left is money that was left in an irrevocable trust for Mary’s benefit by her uncle when he died.

     I explained to Mary and her sister Betty, who is the trustee, that I would need to examine the trust document to determine whether the funds in that trust must be spent down before applying for Medicaid to cover her care.  Betty gave me a copy and here is what I told her.

     The trust is irrevocable but as I explained last week, that fact alone does not answer the question.  The trust provides that the income and principal can be used to meet Mary’s health, support and maintenance needs, including nursing or other long term care.  The trustee has the discretion to decide how much to use as opposed to it being mandatory.  So what does that mean when it comes time to apply for Medicaid?

     The trustee could say that since she has the discretion of whether to use the trust funds for nursing home care and then chooses not to, the funds should not be countable as Mary’s because Mary has no right to access the money.  She cannot require the trustee to do so.  But will this work?

     I told Mary and Betty that New Jersey takes a very long and hard look at irrevocable trusts and just may be inclined to deny the application even though I think that is the wrong outcome.  That would then lead to what is likely to be a drawn out appeal process.  Maybe we would be successful, but it could take a year or more.

     Mary and Betty were understandably nervous about going that route.  Betty then asked me if there is any alternative.  “As a matter of fact”, I said, “there is an option I can suggest that will give you the certainty you are looking for.”  Next week I’ll go over the details of what I told Betty and Mary.