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Medicaid Planning

Medicaid Planning

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Medicaid Planning


Arizona is unusual for having its own modified version of Medicaid that allows for carefully structured trusts. Arizona’s Medicaid program is managed by the Arizona Health Care Cost Containment System or AHCCCS for short. The ALTCS or Arizona Long Term Care System is a subsection of the AHCCS.

The ALTCS is a need-based program that can help individuals pay for the cost of adult care facilities and nursing home care. The program has strict medical and financial criteria. There are different rules for individuals and couples. However, this program can allow certain individuals to have a trust that pays for some of their expenses and little luxuries while letting them remain eligible for Medicaid.

Consult with an Arizona attorney, because timing is everything if you want to take advantage of this program. For example, some of the planning procedures are no longer possible if the person has applied for the ALTCS program. Other trust options are no longer available once the person has been in a care home for the mentally disabled or a nursing home for an extended period of time.

The Role of Medicaid Trusts

ALTCS is not a free ride. You cannot legally put Mom on Medicaid, a welfare program, and then inherit her entire estate. In fact, ALTCS requires you to spend down estate assets to a significant degree before the ALTCS provides any financial assistance.

Where do trusts come into this? You can set up a Medicaid trust. This allows the grantor to retain the income from the assets. The principle of the assets may be protected from Arizona state and federal Medicaid spend down statutes. However, this is only possible if the trust is properly set up. A Medicaid trust is a good way to protect a surviving spouse from having to sell the house to pay for nursing home care. If things are set up correctly, the assets in the trust could pass automatically to your family members.

Miller Trusts

A Miller trust is the name of income-only trusts recognized in the state of Arizona. It is also called an income assignment trust or income cap trust. The type of trust can be to give someone enough income to be comfortable while keeping their income below the threshold used to qualify for Medicaid. You can even assign income to the trust, so that any additional pension income, Social Security payments and other income go into the trust. This allows you to qualify for Medicaid benefits when you otherwise earn too much to qualify but earn too little to pay for nursing home care. Some people choose to direct all income to the trust. Then the trustee can set the monthly personal needs allowance based on what the individual needs and whatever current tax law allows. For example, the trustee could pay the portion of medical expenses that remain the patient’s responsibility. And the trustee can pay for things like dentures and hearing aids that typically aren’t covered by Medicaid. If a patient has home or community based services (HCBS), they may not have to pay a share of the cost. The idea is that it is cheaper to rely on home health aides than living in a nursing home, so that is incentivized under the program.

Anyone eligible for Medicaid, assuming they’re of sound mind, can create an income trust account. If the applicant becomes disabled (either physically or mentally) and has a financial power of attorney or POA in place, their designated agent can set up a Miller trust on their behalf. If the applicant is married, a competent spouse could set it up on their behalf. The trust itself can only be used when the person is living in long-term care.

Know that you may not need to set up a Miller trust to qualify for Medicaid. There are many types of income that are excluded from Medicaid eligibility rules. This includes VA reduced pension benefits, VA Aid, and certain kinds of annuity payments. On the other hand, only the customer’s income or resources can be put in the trust account. For example, other family members can’t pay into the trust.

You may be able to take a larger share of income out of the trust if you are married. A spouse can be paid a minimum monthly maintenance needs allowance from the trust. They may be able to receive more money if they’re providing in-home care; this can even be supplemented by home healthcare aides. For example, they could use the Miller Trust to help pay for adult day care for a spouse with dementia.

What happens to the assets in the Miller Trust? When the person stops receiving services, typically upon their death, the state of Arizona has the first claim on the assets in the trust. This is so that the state can recoup the costs paid on behalf of the beneficiary. In fact, the AHCCCS must be named as the remainder beneficiary of the trust, while the person who needs ALTCS benefits is named the primary beneficiary.

Medicaid & Special Needs Trusts

Arizona has a category of trusts called “disabled individual under age 65 trusts”. These trusts are for people whose resources are over the ALTCS limit.

The trust can be set up by the individual, their parents, their legal guardians or the court. The trust must be funded before the customer (the beneficiary of the trust) turns 65. AHCCCS must be the remainder beneficiary of the trust. Assets put in the trust do not count when the state of Arizona determines ALTCS eligibility. Income deposited into the trust doesn’t affect their eligibility for ALTCS, but the income is counted when determining their “share of cost”.

Pooled trusts can be set up and administered by nonprofits on behalf of multiple disabled individuals. However, that’s a complex subject that can only be addressed by an attorney. If you want to set up a special needs trust for a given individual, talk to an Arizona attorney about creating a first-party special needs trust.

Medicaid Rules and Revocable Trusts

A revocable trust will be treated as assets owned by the person when the state of Arizona determines your eligibility for ALTCS or Medicaid. The only qualifying trusts are irrevocable trusts.

Know that you cannot simply put assets in a revocable trust and rely on Medicaid to pay for your care while your family inherits the trust assets, just as you can’t sign over the house to your children and sign up for Medicaid. Medicaid has a claw-back period used to prevent fraud. Any transfer of resources within 60 months of applying for Medicaid can be subject to a transfer penalty. And if you set up an irrevocable trust within 60 months of applying for Medicaid in Arizona, a similar penalty could be applied.

Keystone Law Firm
2701 W. Queen Creek Rd. #3
Chandler, AZ 85248
(480) 418-8448

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