Director of Medicaid Affirms ALJ's Decision Awarding Medicaid to Beneficiary of Trust Reformed by the Court to Comply with Special Needs Trust Rules

On February 14, 2009, I blogged about the decision of the administrative law judge in the E.C. vs. Division of Medical Assistance and Health Services case. In the E.C. case, the ALJ reversed a decision denying Medicaid benefits to a developmentally-disabled woman in a nursing home whose parents had established testamentary trusts in their wills for the Medicaid applicant and her two brothers. The trusts gave discretion to the trustees to distribute the trust assets as the “trustee believes desirable from time to time for the health, support, in reasonable comfort, best interests, and welfare” of the beneficiaries “considering all circumstances and factors deemed pertinent by [the] trustee.” After the trusts had been reformed by the Court to make them consistent with the testators’ probable intent, three subtrusts were created, one for each of the beneficiaries, with the distribution standards in E.C.’s subtrust changed to permit the trustee to make distributions to E.C. as the trustee “in the Trustee’s sole and nonreviewable discretion shall deem to be in the best interests of E.C.” Further, in the reformed trust the trustee was also permitted to take E.C.’s eligibility for Medicaid and other government aid into consideration in making distributions to E.C. The ALJ ruled that both the original trust and the reformed trust were inaccessible to E.C., and therefore exempt, and should not have been considered in determining E.C.’s eligible for benefits. My prior post can be found here.

The State filed exceptions to the ALJ’s decision, and the Director of Medicaid recently issued an opinion affirming the ALJ’s decision. The Director held that the intent of the testators, or parents, controlled the interpretation of the trusts, and that since the parents apparently intended to give sole discretion to the trustees to make distributions, that the assets in the trust did not affect the eligibility of the Medicaid applicant except to the extent that the assets were distributed:

[T]he availability of the trust corpus to pay for Petitioner’s care was subject to the terms of her parents’ will and their testamentary intent. … [T]he income and corpus of the trust only affected Petitioner’s eligibility when the trustee exercised discretion and made payments either to Petitioner or on Petitioner’s behalf. To that extent, Petitioner’s eligibility shall be determined by taking into account payments made by the trust.

Thus, this opinion again confirms that assets left by a deceased parent or relative in trust to a disabled child who is a recipient of public benefits will not affect the recipient’s eligibility for benefits as long as the trust is properly established to reflect the parent’s intention to exclude the trust assets from consideration by the public benefit providers.

The Director’s decision in the E.C. case can here found here – directors-decision-ec-vs-dmahs