OREGON TRUST HANDBOOK
By Fitzwater Meyer Hollis & Marmion, LLP
GLOSSARY OF TERMS
Trust - A legal entity that is created to hold title to property for one or more persons.
Settlor - Person who creates the trust or contributes property to the trust. Also called a “Trustor” or a “Grantor” in certain circumstances.
Trustee - Person who manages the trust assets. A trustee can be a private person, such as a relative or family friend, or a professional trustee, such as a financial institution. There may be two or more persons acting as co-trustees.
Beneficiary - Person who currently receives assets from the trust or will receive assets from the trust in the future.
Trust Protector - Person who represents the settlor’s interests in overseeing the trust and making specific trust decisions that the settlor will be unable to make due to death or incapacity. A trust protector is designated within the trust document and is generally used to police the trustee, guide the trustee in making distributions or investment decisions, and/or possess the ability to change the trust in order to adapt to future changed circumstances, such as changes in the law, the beneficiaries, or the trust assets. Trusts are not required to have trust protectors.
Beneficiary Protector - Person designated within the trust document to protect the interests of a beneficiary who is a minor or financially incapable, if a fiduciary has not been appointed or if the fiduciary is also the trustee. Trusts are not required to have beneficiary protectors.
Fiduciary - A person who holds a legal and ethical responsibility to another person. This is a very high standard of care in which the fiduciary must act in the best interest of the other person. In a trust, the trustee is a fiduciary who administers the trust according to the trust terms and in the best interest of the beneficiaries. Other fiduciary examples include conservators, guardians, and personal representatives.
UTC - Stands for the Uniform Trust Code, a model law developed by a United States Uniform Law Commission to regulate the creation and administration of trusts. Most states, including Oregon, have adopted all or some form of the UTC. Oregon’s UTC is found in Chapter 130 of the Oregon Revised Statutes.
TYPES OF TRUSTS
Revocable Trust (see page 6) - Also called a “Revocable Living Trust” or “Living Trust.” This trust is generally created to avoid the need for probate, and may also avoid the need for a court-appointed conservator if the settlor becomes financially incapacitated. The trust may be changed or terminated during the settlor’s lifetime. This trust can continue to be administered by the trustee for a period beyond the settlor’s death or incapacity, but often the trust becomes irrevocable (cannot be modified or revoked) at the death of the settlor. Depending on the trust language, it may also become irrevocable if the settlor becomes incapacitated. The settlor, trustee, and a beneficiary may be the same person(s).
Irrevocable Trust - such as Special Needs Trusts, Income Cap Trusts, and Testamentary Trusts. A trust which becomes irrevocable at the time it is created (as opposed to a revocable trust which later becomes irrevocable at the death of the settlor). Once a settlor transfers assets into the trust, he/she effectively loses all ownership rights to the assets and the trust. The trust may not be modified or revoked (with some exceptions). A common example is an Irrevocable Life Insurance Trust, where a settlor creates the trust, the trustee purchases a life insurance policy in the name of the trust whereby the settlor is the insured and the trust is the policy owner and beneficiary. At the settlor’s death, the policy pays to the trust and is ultimately distributed to the trust beneficiaries. This trust is typically used for tax planning purposes so the life insurance policy is not included within the settlor’s estate at his/her death.
Special Needs Trust (see page 10) - This type of trust is typically created to benefit people who receive government benefits. The trust preserves eligibility for those government benefits and establishes a separate fund that can pay for special needs which are over and above basic needs that improve the beneficiary´s quality of life. “Special needs” generally include goods and services that are not food and shelter (with limited exceptions), and are often also referred to as “supplemental needs.” Special Needs Trusts are most commonly created by third parties (parents, grandparents, etc.) in that third party’s will, revocable trust, or irrevocable trust. Special Needs Trusts can also be created with the beneficiary’s own assets, although special rules require that the trust be established by a parent, grandparent, court, or conservator in those cases, and any remaining funds at the beneficiary’s death must be paid back to the State up to the amount of government benefits received. The settlor and the trustee may be the same person, but the trustee cannot be the beneficiary.
Testamentary Trust (see page 9) - A trust created through a will which requires a probate and takes effect after you die. These trusts are used to prevent a beneficiary from receiving all of his/her share of assets outright, often due to age, disability, or a desire to space out the distributions over a period of time. Examples include trusts for minor children and a special needs trusts for a family member with a disability.
Income Cap Trust (see page 13) - An Income Cap Trust is a special type of trust designed to meet the income limit for Medicaid eligibility. If an applicant has more than 300% of the SSI standard in monthly income, he or she does not automatically qualify for Medicaid benefits for long-term care. An applicant with gross monthly income above that amount needs an Income Cap Trust in order to receive Medicaid for long-term care. The Income Cap Trust is managed by a trustee who deposits the Medicaid recipient’s income into a new bank account established in the name of the Income Cap Trust and disburses those funds according to a Medicaid approved budget. At the recipient’s death, the remaining money in the account is paid to the State of Oregon.
Charitable Trust - A trust created to benefit a charitable organization. There are several different types of charitable trusts. The most common is a Charitable Remainder Trust, which is an irrevocable transfer of cash or property into a trust where the trustee is required to distribute a portion of the trust income or principal to a beneficiary. At the end of the beneficiary’s lifetime or an otherwise specified period of time, the remaining trust assets are distributed to one or more charities. The settlor of a charitable trust is called the “donor.”
Who can create a Trust? Any person who is 18 years of age or older or who has been lawfully married or who has been emancipated, and who is of sound mind.
Who can amend or revoke a Trust? Depending on the trust, it may be revoked or amended in certain circumstances. The power to revoke or amend a trust, and the extent of that power, is defined by law and within the trust document itself. Examples include:
- A revocable trust can be amended or revoked by the settlor if that settlor has capacity (the capacity requirement is the same for creating a trust).
- An agent (i.e. Power of Attorney) may be able to amend or revoke a trust document on behalf of a settlor if that authority is granted in the trust document and in the power of attorney document.
- In some situations, a revocable trust can be amended or terminated if all of the parties consent.
- An irrevocable trust generally can also be modified or terminated upon Court approval and if all the parties consent.
- A trustee may be authorized to terminate an uneconomical trust.
When does a Trust terminate? Again, this depends on the type of trust and the trust terms. Often times the trust will terminate upon the death of a settlor, with some administration time for the trustee to pay taxes and final bills before making distributions to the beneficiaries.
How does a Trustee determine distributions? The trustee is governed by the trust terms and the Oregon Uniform Trust Code. The Code sets forth a trustee’s duties, including the duty of loyalty, impartiality, the duty to inform and report, and the duty to be a prudent investor. Depending on the type of trust and the trust terms, the trustee will either be required to make distributions of income and/or principal to the trust beneficiaries or have discretion to make such distributions. Special needs trusts often give the trustee discretion in making distributions, but the trust terms specifically state how the distributions should be used (i.e. to supplement one’s needs, not for food or shelter). Other trusts may be more lenient on the standards. A common standard for non-special needs trusts is referred to as “HEMS,” which stands for health, education, maintenance, and support.
What are the Beneficiary’s rights? There are different levels of beneficiaries depending on when they are entitled to the trust assets. Beneficiaries that are currently entitled to trust distributions, plus some beneficiaries that are entitled to trust distributions upon the death of a current beneficiary, are entitled to be kept reasonably informed about the trust by the trustee. This includes a copy of the trust, an annual accounting of the trust assets, and an accounting when the trust terminates. A beneficiary cannot technically compel a trustee to distribute trust assets to the beneficiary if the trustee has discretion to make distributions. However, a beneficiary can bring a claim against a trustee if the trustee breaches his/her fiduciary duties.
THE DUTIES AND LIABILITIES OF A TRUSTEE
A Trustee has accepted the duty and liability to act in the best interests of the principal. Whether an agent (power of attorney), trustee, conservator or personal representative, all fiduciaries are bound by similar legal obligations. Breach of one or more of these legal duties are actionable, often exposing the Trustee to personal liability for the financial harm done.
A Trustee must:
1. Preserve and protect the assets of the Settlor and the Trust..
2. Keep scrupulous records of all income and expenses. Be prepared to provide a full accounting as required by law.
3. Keep funds 'titled' in the name of the Trust. Keep all funds entirely separate from Trustee´s own personal funds.
4. Use the Trust property and assets for the benefit of the Settlor or beneficiary.
5. No gifts, loans or transfer to a third-party with specific, written authority in the document or by the court.
6. Preserve and protect the 'Estate Plan' of the Settlor or the Trust.
Recommended Guidelines for Trustees
1. Itemize and describe every deposit. Keep records of all expenses. Pay all trust expenses directly to the providers. Keep every transaction receipt, and identify the purpose for every penny you pay from the trust.
2. Keep all trust funds entirely separate from your own personal funds.
3. Don´t make loans with trust funds.
4. Don´t make early distributions of trust assets. You are responsible for paying all of your mother´s debts. If there is not enough to pay administration expenses and creditors´ claims and you have made distributions (i.e., given trust assets to beneficiaries named in the trust or to others) in advance, you could be held personally liable.
5. Don´t make cash withdrawals. Decline and/or revoke any ATM cards or credit cards for the trust accounts.
6. Don´t write checks to yourself. Get legal advise before reimbursing yourself for debts your mother owed to you, or for out-of-pocket expenses that you have already paid, such as funeral expenses.
REVOCABLE LIVING TRUSTS
A Revocable Living Trust is an estate planning document that allows assets to be managed and distributed in the manner desired, both during lifetime and upon death. It is referred to as a 'living' Trust because it is established during lifetime and, in most cases, goes into effect immediately. It is a 'revocable' Trust because it is free to be revoked or amended at any time as circumstances change.
How Does a Revocable Living Trust Work While I Am Able to Manage My Finances? A Revocable Living Trust is created during a person´s lifetime, and the assets are placed in the Trust while he or she is alive. The person making the Trust ('trustor') can name himself or herself as trustee. This means that he or she can manage the income and assets much the same as always, and file individual tax returns like before. The trustor can revoke or amend the Trust at any time, and can entirely determine the terms of the Trust.
If the trustor wants help in managing the estate now, even though he or she still has mental capacity, the Trust document allows the trustor to name a trustee or co-trustee to handle the Trust. Further, he or she has an opportunity to appoint someone to serve as trustee or co-trustee and then see if he or she handles things responsibly and according to the trustor´s wishes. If the trustor is dissatisfied with the way the trustee or co-trustee handles the Trust, the trustor can take over as trustee, name a new trustee, modify the powers given to the trustee, or revoke the Trust altogether.
What Happens If I Become Incapacitated? In the Revocable Living Trust, a person can specify under what circumstances a successor trustee takes over management of the Trust. This is usually when the trustor becomes incapacitated. He or she can spell out in the Trust how incapacity must be established. Typically, a determination of incapacity requires one or two letters from a physician. Once incapacity is established, the successor trustee, who has been named in the Trust, can take over management of the assets.
A Revocable Living Trust avoids the need for a court order establishing a conservatorship if at some time in the future the trustor becomes unable to manage his or her own financial affairs, either temporarily or permanently. While naming an agent in a Power of Attorney for Finances can often accomplish this, Powers of Attorney are not as reliably recognized by financial institutions.
How Do I Know My Trustee Will Pay for My Highest Quality of Life and Support My Values? A Revocable Living Trust is flexible and can be tailored to an individual´s specific needs, desires, and financial resources. Recently, we are seeing an evolution in the drafting of Revocable Living Trusts. The primary purpose of the Trust is no longer simply probate avoidance. Now, more focus is being placed upon the beneficiary´s 'quality of life.' One alternative is to draft, as part of a good living Trust, language that provides direction and assurance that the trustee will use Trust funds to promote the highest quality of life.
Specific instructions about care and comfort are particularly important when the successor trustee is an institution (bank or Trust company), or when a family member is very busy or geographically remote. It is important that the Trust is clear that the needs of the lifetime beneficiary take precedence over any remainder beneficiaries.
Examples of provisions that can be included are the following:
- specifying that a person prefers to be cared for at home (even if the cost of such care would be significantly greater than the cost of nursing or other long-term care);
- authorizing the trustee to provide additional services and care monitoring if a person becomes hospitalized or requires placement in a long-term care facility; and
- the continuance of contributions to a person´s Church or charitable organizations.
Are There Other Provisions That Should Be Included for Flexibility? Often it is critical to include additional provisions to allow for future flexibility, particularly if the Trust is a joint Trust between spouses or partners. Examples are the following:
1. Exercise Reserved Powers. Often the terms of a joint Trust will allow the Trust to be amended only by both trustors. The option of allowing one trustor to exercise reserved powers should be discussed. Further, the trustor should consider whether an agent in a Power of Attorney for Finances should be given the authority to exercise certain powers reserved in the Trust for an incapacitated person.
2. Flexibility for Purposes of Medicaid Planning. The standard Revocable Living Trust specifies that if a trustor becomes incapacitated, the trustee will provide for the trustor´s needs. However, in some instances this traps the trustor into a situation in which Medicaid planning is not allowed. For example, if one spouse is incapacitated, then a Medicaid plan might involve transfer of the couple´s assets to the name of one spouse. A client who anticipates a possible future need for Medicaid should consider not doing a Revocable Living Trust, or, if a Trust is created, to incorporate flexible provisions allowing withdrawal in the event of planning. The Power of Attorney should also be carefully crafted in this situation.
3. Successor Trustee Provisions. The trusteeship is a critical role, but the successor trustee provisions are often not given much thought. The trustors in a joint Trust may want to consider giving authority to one trustor to change the successor trustees, or to give successor trustees the ability to name a new trustee or successor trustee. In some cases it is appropriate to give the beneficiaries the ability to name a new trustee, but the trustee should be cautious about giving unfettered authority.
How Does the Revocable Living Trust Work at My Death? A successor trustee will have the authority to take over management of the Trust and follow the instructions as spelled out in the Trust. Assets that are owned by the Trust will avoid probate entirely, which, in turn, can avoid significant costs and delays at death. People with real property in more than one State can avoid multiple probates with the use of a Trust.
Another advantage of a Trust is that the financial affairs are kept completely private. A Trust eliminates the need for a court proceeding, and other than tax returns, there is no public record.
Does a Revocable Living Trust Save on Taxes? Spouses with large estates can incorporate a tax savings plan to eliminate or minimize estate taxes. A tax savings plan can also be incorporated into Wills, but in most cases this ultimately requires a probate when each spouse dies. Therefore, use of a joint Revocable Living Trust or separate Revocable Living Trusts for each spouse will avoid two probates instead of one.
What Other Documents Will I Need? In addition to the Revocable Living Trust, a person will need a Pourover Will and Powers of Attorney for Finances. Also, typically the attorney who assists the person will prepare deeds to transfer real property to the Trust and provide an Advance Directive for Health Care.
Who Should Be My Successor Trustee? A successor trustee should be someone who is trustworthy, responsible with investments, good with paperwork, and preferably a good communicator. This can be an adult child, other relative, friend, or professional fiduciary.
What Are the Disadvantages of a Revocable Living Trust? A Revocable Living Trust is not necessary in every case. It typically costs $1000 to $1,400 more for a Trust package than a comparable Will package. It may not be necessary to incur this additional cost for people who are younger, healthy, and do not have large estates. However, some people in these circumstances still choose a Trust because they want to make things easier for their families in the event of an untimely death.
TRUSTS FOR MINOR CHILDREN
Parents of minor children have special estate planning considerations. Statistically, it is unlikely that a person will die while their children are minors, but it does happen, even though no one likes to consider the possibility. In a Will or Revocable Living Trust, a person can establish a Trust for minors that answer all of these questions.
How Will a Person Provide Support for Their Children If One or Both Parents Die? A Trust for minors often takes effect after both parents die. The Trust can provide for the support, care, and education of children until they reach a specified age. A Trust will assure that the children benefit from the Trust assets right away but not have control over them until they are mature enough to handle the responsibility.
A Trust provides flexible control of assets for the benefit of minor children. In the Trust document, a person decides how the money will be spent. For example, parents who want to encourage their children to attend college should include provisions for the payment of higher education costs.
Without a Trust for the minor children, the court may have to appoint a conservator to manage assets for minor children. A conservator is restricted by law, must be bonded, and is required to file annual accountings with the probate court. This is an expensive and time-consuming option.
Who Will Be In Charge of Managing the Estate for the Children? A person would select a trustee to manage and control the Trust for the benefit of the children (the beneficiaries). The trustee follows the directions spelled out in the Trust, using the assets for the beneficiaries. The trustee should be someone who is financially responsible and knows the children´s needs. If there is not a Trust for minors and a fiduciary is necessary, the court will have to appoint someone without the parent´s guidance.
Who Will Care for the Minor Children Should Both Parents Die? In a Will or Revocable Living Trust, parents can also nominate a guardian to care for their minor children if both parents die. A guardian has the power and responsibility of a parent and makes decisions about the children´s upbringing such as schooling, religious training, and medical treatment. The nomination of a guardian does not guarantee that this person will be appointed. However, it lets the court know the maker´s wishes, and Oregon law requires the court to carefully consider the maker´s named preferences.
SPECIAL NEEDS TRUSTS
What is a Special Needs Trust? A Special Needs Trust is a planning tool to benefit people who receive government benefits. This type of trust preserves eligibility for government benefits and establishes a separate fund that can pay for things over and above basic needs that improve the beneficiary´s quality of life.
With a Special Needs Trust, assets in excess of the resource limits for government benefit programs can be given to the trustee of the trust, to be used for special needs. In some circumstances, income can be directed to the trustee as well.
What Are Special Needs? Special needs include any goods and services that are not food or shelter. 'Supplemental needs' is another term for special needs. As a result of a rule change in 2005, clothing can now be treated as a special need.
Special needs include, but are not limited to, the following: clothing; transportation, such as car expenses or bus pass; telephone; education; cable television; private rehabilitative services; occupational or physical therapy; private case management; medical services for which there are no other funds available; health insurance premiums; dental care; medication and supplements; psychological support services; companion care; respite care; durable medical equipment; massage; recreation and vacation; entertainment; computer equipment and services; personal care items and services.
Can A Special Needs Trust Pay For Food Or Shelter? The most common way for a Trust to be written is to limit expenditures to items that are not food and shelter. This strict distribution standard has been proven to work for most, if not all, types of public benefits programs that limit the resources a person may own.
In some situations a more flexible standard, often called the hybrid distribution standard, can be included in the Trust. This allows the trustee to pay for food and shelter in certain limited circumstances. If a distribution is made for basic needs there are usually consequences, such as a reduction in government assistance, but in some cases the overall benefit is worth it. The hybrid standard is more flexible than the strict distribution standard but is not always desirable. Be sure to get advice from a knowledgeable attorney before deciding to include this authority in a Special Needs Trust.
How Does A Special Needs Trust Work? Distributions from a Special Needs Trust are paid at the discretion of the trustee. It is important that the trustee directly pay the person or business providing the special need. The beneficiary is ordinarily not given cash with which to make an allowed purchase. This is because the cash could be used to purchase a prohibited item, such as a meal or item of clothing. Receipt of the cash must be reported to the government agency providing assistance, and benefits may be reduced or eliminated for a period of time. To avoid this, the trustee should pay directly for the item requested.
Who Should Be The Trustee? A trustee can be a private person, such as a relative of the beneficiary. Alternatively, a professional trustee can be named, such as a financial institution or small business that offers fiduciary services in the local community. In some cases, both a relative of the beneficiary and a professional fiduciary are named as co-trustees.
Choosing the trustee for a Special Needs Trust is an important decision. The trustee will have an ongoing relationship with the beneficiary, and it is paramount that the trustee be sensitive to the beneficiary´s needs and takes the time to understand the beneficiary´s unique situation. The trustee must also exercise good judgment when making distributions and be knowledgeable about the impact of distributions on the beneficiary´s public benefits. In addition, the trustee must be a prudent investor and good with record keeping and paperwork. Being a trustee is not an easy job!
How Are Special Needs Trusts Created? Special Needs Trusts are often created by third parties wishing to give assets to the beneficiary without jeopardizing public benefits. The most common examples of this are Special Needs Trusts created by parents or grandparents for a child who has a disability. Mechanisms used by third parties to create and fund a Special Needs Trust are described below under Trusts Created by Parents, Grandparents, and Other Third Parties.
In some cases, a recipient of public benefits may have assets of his or her own. Often times it is possible to transfer the beneficiary´s own funds into a Special Needs Trust and keep public benefits. This type of Trust is described below under Trusts Created With the Assets of the Beneficiary.
Trusts Created by Parents, Grandparents, and Other Third Parties. A parent or other third party may set up a Special Needs Trust in several ways. The three most common ways are described below.
a. By Will: A person may create a Trust in his or her Will for the benefit of someone on public benefits. The rules for the Trust are written in the Will, but the Trust does not take effect until the person making the Will dies. The Special Needs Trust can specify who will receive any remaining assets in the Trust at the death of the beneficiary.
b. Through a Revocable Living Trust: It is also possible to establish a Special Needs Trust for someone on public benefits in a Revocable Living Trust, to take effect only when the person making the Revocable Living Trust dies. An exception is that a Special Needs Trust for a spouse should be established in a Will, and not in a Revocable Living Trust.
c. Through an Irrevocable Living Trust: Sometimes it is advantageous to set up an Irrevocable Living Trust with special needs provisions and transfer assets to it while the donor, such as a parent or grandparent, is alive. This way, if one or more people want to donate to a fund for the beneficiary by making lifetime gifts, a Special Needs Trust is in place to receive those gifts. In fact, the existence of an active Special Needs Trust often serves as an inducement to relatives and friends to make lifetime donations.
Also, relatives and friends can name the existing Special Needs Trust as a beneficiary in their own Wills. This encourages bequests that might not otherwise be made because the person making the bequest does not have to be concerned about the effect of the gift on government benefits.
Trusts Created with the Assets of the Beneficiary
A person who receives government benefits may have assets of his or her own that will jeopardize eligibility. For example, the person may sell a house that was an excluded asset and now have countable assets in excess of $2,000. For another example, he or she may receive an inheritance directly because a parent who died did not create a Special Needs Trust in his or her Will. As a third example, the person may have been injured in an accident and be receiving a settlement or award to compensate him or her for an injury.
a. Payback Trust Exception: There are rules that make it disadvantageous for people who are 65 years or older to create Special Needs Trusts in these situations if it will benefit themselves. However, for people who are under 65 years old, there is an exception that allows them to have a Special Needs Trust. This type of Trust is often called a 'Payback Trust' or 'Under 65 Disability Trust.'
b. Requirements for a Payback Trust: There are four requirements for this type of Trust to qualify under the special exception described below:
(1) The Payback Trust must be established by a parent, grandparent, court, or conservator.
(2) The beneficiary must be disabled as defined in the Social Security Act. If the beneficiary is receiving Social Security Disability Income (SSDI) or Supplemental Security Income (SSI), then this requirement is automatically met. If not, then the beneficiary will have to prove the nature and extent of disability.
(3) The beneficiary must be under 65 at the time the assets are being put into the Payback Trust.
(4) At the beneficiary´s death, the remaining Payback Trust balance, if any, must be given to any Medicaid agency that provided assistance to the beneficiary.
c. Steps to Establish a Payback Trust: The steps to set up a Payback Trust will depend on the circumstances, such as whether a parent or grandparent is available to participate in the process, and whether the beneficiary has capacity to make decisions. If the beneficiary does not have the capacity to make decisions, then a court will be involved to approve the Payback Trust. If not, then in some cases a court is not required.
INCOME CAP TRUSTS
What is an Income Cap Trust?
An Income Cap Trust is a special type of trust designed to meet the income limit for Medicaid eligibility. If an applicant has more than 300% of the SSI standard in monthly income, he or she does not automatically qualify for Medicaid benefits for long-term care. The income limit is currently $2,022 per month (2011 figure). An applicant with gross monthly income above that amount needs an Income Cap Trust in order to receive Medicaid for long-term care.
Once an applicant qualifies for Medicaid, thus becoming a Medicaid recipient, all of the recipient´s income is deposited monthly into a new account and disbursed according to a Medicaid approved budget. At the recipient´s death, the remaining money in the account is paid to the State of Oregon.
Do I Need an Income Cap Trust?
An Income Cap Trust is needed if the applicant´s gross monthly income exceeds $2,022 per month. Because certain deductions, such as taxes and health insurance, are withheld from the recipient´s gross monthly income before the income check is written or directly deposited, the recipient may not actually receive $2,022 per month. Keep in mind, therefore, that it is the amount of gross monthly income, the income before deductions, which must be below $2,022 in order to avoid the need for an Income Cap Trust.
What can be paid from the Income Cap Trust?
The trustee may make the following types of payments from the Income Cap Trust:
1. Personal Needs Allowance/Maintenance Standard:
a. For residents in nursing homes, the allowance is $30 per month.
b. For residents in an assisted living facility, foster home, or in their own home, the allowance is $152 per month. In addition, recipients in these types of living situations must pay a minimum room and board amount for their care, which is currently $523.70 per month. This amount is raised each year, in the summer.
2. Administrative Costs: The amount of $50 per month is available to pay for costs associated with administering the Income Cap Trust. These costs can include bank fees, check charges, postage, mileage, etc. The trustee may pay himself or herself the balance of the $50 as a fee for working on the trust. Therefore, a total of $50 per month is available for all of the monthly expenses of the Income Cap Trust, including the trustee fee.
3. Community Spouse Allowance:
a. A special formula is calculated to determine how much of the Medicaid recipient´s income may be paid as a monthly allowance to the spouse who is not on Medicaid (the 'Community Spouse').
b. In some limited circumstances, a court order may be obtained to increase the monthly allowance to the Community Spouse .
4. Health Insurance Premiums:
a. Deductions for health insurance for the Medicaid recipient and his or her spouse may be paid from the Income Cap Trust.
b. These premiums may be deducted from a pension, but they may also be paid by check - each situation is different, but all premiums are payable from the Income Cap Trust.
5. Burial Plan: The cost of a pre-paid burial plan may be paid from the Income Cap Trust, up to a maximum cost of $5,000.
6. Other Incurred Medical Expenses:
a. If the Medicaid recipient has medical bills that were incurred in the three months prior to the approval of the application, the portion of the bill not covered by insurance can be paid from the Income Cap Trust.
b. Also, any medical cost or medical equipment costs that become necessary and recommended by a doctor when the recipient is on Medicaid may be paid from the Income Cap Trust, provided the Medicaid caseworker approves the expense.
7. Other Reserves:
a. There may be other appropriate deductions, depending on the case. A lawyer well trained in Income Cap Trusts will be able to identify those deductions.
8. Patient Liability:
a. The money left after making the payments set forth in items 1 through 7 above is the amount to be paid to the care facility. Any remaining amounts owed to the care facility for charges relating to recipient´s care are paid by Medicaid.
How does an Income Cap Trust Work?
The Income Cap Trust is created and managed by a trustee who deposits the Medicaid recipient´s income into a new bank account established in the name of the Income Cap Trust. The trustee also writes checks on the Income Cap Trust account each month, which checks are written according to a budget prepared by an attorney and approved by the Medicaid caseworker. The budget must meet the requirements listed in the previous section. All distributions from the Income Cap Trust must be verified in writing in order to be allowed. Once the budget is approved, the trustee is given a copy, generally with instructions from the attorney.
What Happens when the Medicaid Recipient Passes Away?
Usually, the trustee will pay the last bills owing from the Income Cap Trust. Soon after the recipient´s death, the State will contact the trustee and request repayment of the balance the Income Cap Trust account, if any. If there is any money left in the Income Cap Trust account at recipient´s death, that money is owed to the State. Once the Income Cap Trust account is empty, the trustee should close the account.