SR 96-02 Dated 01/96

STATE OF NEW HAMPSHIRE

INTER-DEPARTMENT COMMUNICATION

SUMMARY

This SR releases policy mandated by the Omnibus Budget Reconciliation Act of 1993 (OBRA 93) establishing the requirements for treatment of trusts and similar devices for individuals applying for or receiving medical or financial assistance. This policy also covers treatment of trusts benefiting disabled individuals and makes it illegal for an individual or other entity to establish any trust that excludes it from being counted for assistance programs, in accordance with recent State legislation. It includes more stringent penalties for transferring assets in order to become eligible for medical or financial assistance. Also, it amends the treatment of jointly owned resources so that Division policy corresponds with SSI treatment. In a change unrelated to the medical assistance policy changes, this SR also removes personal computers from the list of personal property resources that are considered nonessential to everyday living for the AFDC program.

POLICY

This section provides definitions of terms specific to the policy on trusts, transfers and jointly owned resources which are necessary for understanding the policy.

Definitions

Annuity - any instrument which gives the right to receive fixed, periodic payments, either for life or a term of years.

Assets - all income and resources of a Medicaid applicant/recipient and of the individual’s spouse. The term includes income or resources which the individual or their spouse is entitled to but does not receive because of any action by the individual or their spouse, or a person, including a court or administrative body, with legal authority to act in place of or on behalf of the individual or the individual’s spouse, or any person, including a court or administrative body, acting at the direction or upon the request of the individual or their spouse.

Beneficiary - any individual or individuals, designated in a trust instrument as benefiting in some way from the trust.

Fair Market Value - for all assets other than automobiles and trucks means the price at which a willing seller and a willing buyer will trade. For automobiles and trucks this means the "average wholesale value" in the Red Book, unless information is not available in the Red Book, or unless the client proves the value of the vehicle is different.

Grantor - any individual who creates a trust, such as: the individual; the individual's spouse; a person, including a court or administrative body, with legal authority to act in place of, or on behalf of, the individual or the individual's spouse; or a person, including a court or administrative body, acting at the direction or upon the request of the individual, or the individual's spouse.

Institutionalized Individual - for purposes of asset transfers, means an individual who is an inpatient in a medical institution and with respect to whom payment is based on a level of care provided in a nursing facility, or who is a home and community-based services applicant or recipient.

Irrevocable Trust - means a trust which cannot in any way be revoked by the grantor.

Life Estate - rights to the use of an asset during one’s lifetime even though title to it has been transferred.

Payment from a Trust - any disbursal from the principal of a trust, or from income generated by a trust, which benefits the party receiving it, regardless of whether the benefit is actual cash, or noncash, or property disbursements, such as the right to use and occupy real property.

Penalty Date - the first date upon which a penalty for transfer of assets for less than fair market value can be assessed.

Penalty Period - means the length of time during which payment for nursing facility services or a level of care in any institution equivalent to that of nursing facility services, or home and community-based services (HCBC) is denied.

Reverse Mortgage - money a bank pays to an individual based on the value of their property.

Revocable Trust - a trust which can be revoked by the grantor, including trusts that are called irrevocable but which will terminate if some action is taken by the grantor.

Similar Legal Device - any instrument, device or arrangement which may not be called a trust under state law, but which exhibits the general characteristics of a trust as defined below such as, escrow accounts, investment accounts, pension funds, and other similar instruments managed by an individual or entity with fiduciary responsibilities.

Trust -any arrangement in which a grantor transfers property to a trustee or trustees with the intention that it be held, managed, or administered by the trustee(s) for the benefit of the grantor or certain designated beneficiaries, which is valid under state law and manifested by a valid trust instrument or agreement, and where the trustee(s) hold a fiduciary responsibility to manage the trust's principle and income for the benefit of the beneficiaries.

Trustee - an individual(s) or entity(ies) such as an insurance company or bank who manages a trust or similar device and who has fiduciary responsibilities.

Uncompensated Value - the difference between the fair market value at the time of transfer, less any outstanding loans, mortgages, or other encumbrances on the asset, and the amount received for the asset.

Transfer of Assets

The District Office must evaluate any transfer of assets for individuals who apply for or receive financial assistance or institutionalized medical assistance to determine if the individual received fair market value whenever:

 an individual has transferred, assigned or disposed of assets which would have been counted in determining eligibility for the category of assistance being applied for;

 the transfer has the effect of reducing the individual’s assets to within allowable limits; or

 the transfer results in the individual qualifying for assistance earlier than would otherwise have been possible if the individual had not transferred the assets.

A transfer of assets occurs when:

 action is taken that reduces or eliminates an individual's ownership or control of such assets;

 another person has been given access to the asset through joint ownership and any action is taken, either by the individual or by any other person, that reduces or eliminates such individual's ownership;

 an instrument to transfer title at some future date has been completed by the individual who is applying for or receiving assistance and delivered to the individual who is to receive title;

 an individual who is applying for or receiving financial assistance or institutionalized care has transferred or transfers title or ownership of an otherwise excluded home to another individual or entity, including a home which has become income producing;

 an individual places assets into an irrevocable trust or similar legal device, including an annuity;

 an individual applying for or receiving financial assistance or institutional care obtains a reverse mortgage, a home equity conversion mortgage, or similar loan on an otherwise excluded home or other real property and transfers the proceeds to another individual;

 an individual applying for or receiving financial assistance or institutional care converts a countable asset; or

 an individual is entitled to an asset but does not receive the asset because of action:

 by the individual or the individual's spouse,

 by a person, including a court or administrative body, with legal authority to act in place of or on behalf of the individual or such individual's spouse, or

 by any person, including any court or administrative body, acting at the direction or upon the request of the individual or such individual's spouse.

NOTE: Actions that would cause income or resources not to be received, include but are not limited to, the following:

1. irrevocably waiving any pension income or any other form of income,

2. waiving an inheritance,

3. refusing to accept or access injury settlements, judgments or court awards,

4. diverting of tort settlements by the defendant into a trust or similar device to be held for the benefit of the plaintiff, or

5. refusing to take legal action to obtain a court ordered payment that is not being paid, such as child support or alimony.

Look-back Period for Transfers of Assets

Financial Assistance - The look-back period begins on the date of application. Prior to the effective date of this SR, the look-back period was 30 months. Starting with transfers made after August 10, 1993, the look-back period is 36 months. If an individual’s assets are transferred to an irrevocable trust when the principal is not available to the individual, the look-back period is 60 months, as explained below.

Medical Assistance - The look-back period begins with the earliest date the penalty can be assessed and ends with the date the individual is both institutionalized and an applicant for medical assistance or the date an institutionalized applicant/recipient of MA transfers an asset without receiving fair market value for it. Prior to this SR, the look-back period for transfers was 30 months. Now, except for transfers of assets into trusts, the look-back period is 36 months.

Effective with trusts established or amended August 11, 1993 or later, the look-back period for trusts is 60 months. In addition, when a portion of a trust is transferred from a revocable or irrevocable trust for less than fair market value to someone other than the individual, the look-back period is 60 months.

Transfer of Assets into a Life Estate

When assets are transferred by means of a life estate, the individual retains use of the asset for his/her lifetime but has assigned ownership of the asset to another person or entity.

To determine fair market value when a life estate is established:

 Determine fair market value of the asset at the time the estate was established.

 Take into consideration the individual’s age at the time of the transfer.

 Using Life Estate Tables (copy attached) found in AAM 420,

1. Multiply the market value of the asset by the life estate factor that corresponds to the individual’s age at the time of the transfer.

2. Subtract the value of the life estate from the value of the asset transferred.

3. The difference equals the portion of the asset transferred for less than fair market value.

Example: Charlotte Hornet, age 65, owns a house worth $100,000. She deeds the house to her daughter but retains a life estate in the property. Under the terms of the life estate, Mrs. Hornet is entitled to live in the house the rest of her life. To determine the value of Mrs. Hornet’s life estate, the fair market value of the property is multiplied by a life estate factor corresponding to Mrs. Hornet’s age (.67970). The penalty assessed is the difference between the value of the asset transferred ($100,000) and the value of the life estate ($67,970), or $32,030 which was transferred for less than fair market value.

Transfer of Assets into an Annuity

To determine if an individual has received fair market value for a transfer of assets into an annuity

 determine fair market value of the asset at the time of transfer into the annuity

 determine if the expected return on the annuity corresponds with a reasonable estimate of the individual’s life expectancy in order to determine whether the annuity is actuarially sound using the SSA Life Expectancy Tables (copy attached) found in AAM 420:

 If the average number of years of expected life remaining for the individual coincides or exceeds the life of the annuity, the individual has received fair market value for the annuity; or

 If the average number of years of expected life remaining for the individual is less than the life of the annuity, the individual did not receive fair market value for the annuity.

Example: At age 65, Paul Beara purchases a $10,000 annuity to be paid over the course of 10 years. According to the SSA Tables, his life expectancy is 14.96 years. Thus Paul’s annuity is actuarially sound. However if his brother Yogi purchases the same annuity for $10,000 at age 80, his life expectancy is only 6.98 years. Thus, a payout of the annuity for approximately 3 years is considered a transfer of assets for less than fair market value and that amount is subject to penalty.

UNACCEPTABLE COMPENSATION FOR TRANSFERS

In evaluating compensations for transferred assets, the following limitations apply:

 compensation must be in a tangible or otherwise assessable form with intrinsic value. For example, a transfer "for love and consideration", would not be acceptable as being for fair market value, and

 a transfer of assets to a relative in compensation for care provided in the past is not acceptable as being for fair market value, unless the individual can verify that a compensation arrangement had been agreed to in writing at the time services were provided.

IF FAIR MARKET VALUE IS NOT RECEIVED FOR TRANSFER OF AN ASSET

If the district office determines that the individual did not receive fair market value from the transfer, further evaluate the background information of the asset transfer to determine if assets might have been transferred for purposes of qualifying for financial assistance or medical assistance as an institutionalized individual.

Consider:

 timeframes between the transfer of assets and the date of application,

 the individual’s health at the time of the transfer, and

 the individual’s economic situation at the time of the transfer.

Evaluating a Transfer

If a transfer is considered questionable, request additional information and documentation to demonstrate that assets were not transferred for purposes of qualifying for assistance. The burden of proof is on the individual. Acceptable reasons for transferring assets include but are not limited to

 the asset was transferred to prevent foreclosure or sale of the asset by the lienholder.

 the asset was transferred for self-support because the individual’s income and resources were insufficient to meet basic needs and/or to maintain upkeep of the asset such as taxes and repairs and the individual’s basic needs were provided for in return for the transfer, or the individual lived off the proceeds of the asset.

 the asset was transferred to meet the terms of an oral or written agreement, including debts arising from such an agreement.

NOTE: In the case of failing to cause an asset to be received, acceptable reasons are that the individual is not able to afford to take the necessary action to obtain the asset; or the asset was not worth the cost of taking action to obtain it.

Penalty Period

Financial Assistance: If the individual refuses or fails to prove that assets were not transferred for purposes of qualifying for financial assistance, deny financial assistance for 60 months from the date of transfer of assets to an irrevocable trust when the principal is not available to an individual, and 36 months from the date of all other transfers.

Medical Assistance: If the individual refuses or fails to prove that assets were not transferred for the purposes of qualifying for medical assistance as an institutionalized individual or as a HCBC applicant or recipient, determine the number of penalty months by dividing the amount transferred for less than fair market value by the average monthly statewide nursing facility rate as given in Appendix A of the Medicaid Manual. See Determining and Applying the Penalty Period below. There is no limit on the number of penalty months.

Exceptions: Assets transferred for less than fair market value, are not penalized if:

 it has been proven that transfer was NOT done to qualify for assistance, or

 all assets transferred are returned to the individual.

Note: If assets are partly returned, the individual is assessed a partial penalty on the remaining assets.

Determining and Applying the Penalty Period

The penalty period is determined and applied as follows:

 The penalty period is based solely on the value of the assets transferred.

 The penalty date is the first day of the month in which assets were transferred provided that date does not occur during an existing penalty period.

 When a countable transfer of assets takes place during an existing penalty period, a new penalty period does not begin until the existing penalty period expires.

 The total value of all transfers for one month are used to calculate the penalty when a series of transfers have been made within one month.

 If multiple transfers are made so that penalty periods do not overlap, the individual penalty periods must be calculated and applied separately.

 When a spouse of an individual transfers an asset that results in a penalty for the individual, the penalty period is shared between the spouses if:

 the spouse either is or becomes eligible for Medicaid,

 a penalty could be assessed against the spouse, and

 some portion of the penalty against the individual remains at the time the above conditions are met.

 When the penalty period for an individual is interrupted due to the death of the individual or due to discharge from institutionalized care, the spouse assumes or shares any remaining penalty period applicable to both spouses.

 Any penalty period imposed for a transfer of assets runs continuously from the starting date, regardless whether the individual remains institutionalized.

 For financial assistance applicants/recipients who have transferred assets to an irrevocable trust where the principal is not available to them, the penalty period is 60 months from date of transfer.

 For HCBC or institutionalized medical assistance applicants/recipients who have transferred assets to an irrevocable trust where the principal is not available to them, the penalty period depends on the amount of transfer and is calculated by:

1. Dividing the uncompensated value of the assets transferred by the average statewide monthly nursing facility private rate.

2. Dividing any remainder by the average daily statewide nursing facility private rate (to determine the daily rate, divide the monthly rate by 30.42).

3. Adding the number of ineligible months and days to determine the length of the penalty period.

 when the amount of uncompensated value involved is less than the average monthly nursing facility rate, a partial month penalty applies. See methodology in #2 above.

Undue Hardship

A penalty period will not be applied if denial of eligibility would result in undue hardship. In order to be considered undue hardship, the following conditions must be met.

 the asset was transferred by an agent or authorized representative and it can be demonstrated and documented that the individual lacked the mental capacity to comprehend the disqualifying nature of the act, and

 a written and signed statement by a licensed physician states that the individual was mentally incapacitated at the time of transfer, or

 an order of findings from a probate court concerning the individual’s competency is provided to the District Office.

Trusts and Similar Devices

An individual is considered to have established a trust if the individual’s assets were used to form part or all of the trust and the trust was established other than by will. Trusts can be revocable or irrevocable and are treated according to the discretion that can be exercised by the trustees. When a trust or similar device includes assets of others as well as the individual, this section only applies to the portion derived from the individual’s assets. For financial and institutionalized medical assistance applicants/recipients, any trusts and similar legal devices, including annuities, established after August 10, 1993, or added to or otherwise augmented after August 10, 1993, treatment is outlined below.

Revocable Trusts

Revocable trusts can be revoked by the grantor and include trusts called irrevocable but which will terminate if some action is taken by the grantor.

 The entire amount of the trust is counted as an available resource to the individual, just as a bank account would be considered available to the individual in its entirety.

 Any payments made from the trust to or for the benefit of the individual are counted as unearned income.

 Any payments made from the trust which are not to or for the benefit of the individual are considered a transfer of assets for less than fair market value. Note: The look-back period for such transfers is 60 months.

Example: Aurora Borealis establishes a revocable trust with $100,000 on March 1, 1994. Ms Borealis enters a nursing facility on November 15, 1997 and applies for Medicaid on February 15, 1998. Each month, the trustee disburses $100 as an allowance to Ms Borealis and $500 to a property management firm for the upkeep of Ms. Borealis’s home. On June 15, 1994, the trustee gives $50,000 from the trust to Ms Borealis’s brother Corey.

1. Because the trust is revocable, the entire value of the trust is considered a resource to Ms Borealis.

2. In this example, the $100 personal allowance and the $500 property management cost count as income each month to Ms Borealis. Originally this was $100,000. However, in June 1994, the trustee gave away $50,000. Thus only the remaining $50,000 is countable as a resource to Ms Borealis.

3. The giveaway is treated as a transfer of assets for less than fair market value. The look-back period for such transfers from revocable trusts is 60 months rather than the usual 36.

Assessing the penalty period: When Ms Borealis transferred $50,000 from the revocable trust, a penalty for transfer of assets is imposed beginning June 1, 1994, the first of the month in which the transfer of 6/15/94 took place. Because this money could have been paid to Ms Borealis but was not, it is considered a transfer of assets for less than fair market value. The penalty is based on the amount of the transfer divided by the statewide average monthly nursing facility rate, e.g. $50,000 ÷ $4,215.30 = 11.86 months penalty period, running from June 1, 1994 through May 26, 1995.

CALCULATIONS: Nursing Facility monthly rate = $4,215.30 x 11 months = $46,368.30. To determine the penalty for the partial month, subtracting $46,368.30 from $50,000, or $3,631.70 of uncompensated value remaining. Divide $3,631.70 by the daily rate $138.57 (daily rate = $4215.30 ÷ 30.42) or 26.21 days rounded down to 26 days penalty for the month of May.

However, the penalty period has run out before Ms Borealis applies for medical assistance, so she is not subject to a period of ineligibility for nursing facility payments from this transfer.

In the above example, if the trustee had given Corey $50,000 on October 10, 1997, the penalty period would run from October 1, 1997 to September 26, 1998. Ms Borealis would be ineligible for nursing facility payments from February 15, 1998 through September 26, 1998.

Note: The average monthly nursing facility rate is updated every October 1 and released with the October food stamp mass change SR. Always use the current rate in calculating penalty periods.

Irrevocable Trusts

Irrevocable trusts cannot in any way be revoked by the grantor. However they can be written with differing stipulations and must be evaluated accordingly as outlined below.

Where payment can be made to or on behalf of the individual:

 Payments from the principal or the income from the principal of the trust are treated as unearned income.

 Income from the principal of the trust which could be paid to or for the benefit of the individual but is not, is treated as a resource available to the individual.

 Any portion of the principal of the trust that could be paid to the individual is treated as a resource to the individual.

 Payments of income or principal of the trust which are made, but not to or for the benefit of the individual, are treated as a transfer of assets for less than fair market value effective with the date of transfer.

Example: If Ms Borealis’s trust in the previous example were irrevocable and the trustee had the discretion to disburse the entire amount of the trust and its income to anyone, the $100 and $500 payments are considered income to Ms Borealis. The $50,000 left after the gift to her brother Corey is a countable resource to Ms Borealis since there are circumstances under which this money could have been paid to her. However the $50,000 giveaway is treated as a transfer of assets for less than fair market value and the look-back period for such transfers is 60 months. The same penalty period assessed in the previous example would apply here.

Where some or none of the trust can be paid to or for the benefit of the individual:

 Income and principal that cannot be paid under any circumstances, to or for the benefit of the individual are treated as a transfer of assets for less than fair market value.

 The date of the transfer is either the date the trust was established or if later, the date on which the individual was restricted or eliminated from receiving further benefits from the trust.

 After this date, any funds added to the restricted portion of the trust are considered to be a new transfer of assets effective the date the addition was made.

 The value of the transferred amount shall be no less than its value on the date of establishment or the date that access to the principal of the trust was restricted or eliminated

 If some portion can be paid to the individual, treat that portion as unearned income or resource. (see Where payment can be made...)

Payments are considered made to the individual whenever a disbursal from the trust benefits the individual in some way or is paid to someone acting on the individual’s behalf.

Example: Use the Borealis case as an example but with the added stipulation that the trustee is prevented from paying any of the $100,000 principal of the trust to or for the benefit of Ms Borealis. The $100 and $500 monthly payments which come from income generated by the trust are still considered income to her. Because none of the $100,000 can be paid to Ms Borealis, the entire value at the time the trust was created ($100,000 in March 1994) is treated as a transfer of assets for less than fair market value. The penalty period would begin March 1, 1994 (the first of the month in which the assets were transferred into an irrevocable trust) and run through February 22, 1996. However, because the penalty period ran out before Ms Borealis entered the nursing facility, she is not subject to any period of ineligibility.

CALCULATIONS: In this case, the penalty period is figured by dividing the entire $100,000 by the monthly nursing facility rate. $4,215.30 = 23.72 months. $4,215.30 x 23 months = $96,951.90. The date of February 22 is determined by subtracting $96,951.90 from $100,000. The remainder, $3048.10, is divided by the daily rate of $138.57 = 21.99 days rounded up to 22 days. The penalty period is calculated to be 23 months and 22 days, counted from March 1, 1994.

Exception: Irrevocable Burial Trusts established for future payment of funeral related expense are exempt if the individual has a signed contract with a funeral home and the amount in the trust does not exceed the costs contracted for in the agreement.

New State Legislation Affecting Trusts

Recent state legislation, effective November 1, 1995, has made it illegal to write a trust that contains language excluding the trust from being counted if the individual applies for any state assistance programs. For trusts drawn up or augmented after November 1, 1995, District Offices are instructed to disregard any language that excludes the trust from being counted when determining eligibility for assistance, or limits access to the trust upon admission to an institution.

Trusts for Disabled Individuals

There are two types of trusts established for disabled individuals which are exceptions to the specified treatment of trusts. They are described below.

1. A trust containing the assets of an individual under age 65 who has been determined disabled by the Social Security Administration or the Division is not counted in determining eligibility for medical assistance if it meets all of the following conditions:

 a parent, grandparent, legal guardian of the individual, or a court established the trust for the benefit of the individual, and

 the trust contains a provision that upon the individual’s death, the Division will receive all amounts remaining in the trust, up to an amount equal to the total amount of medical assistance paid on behalf of the individual.

After the individual turns 65, the trust is still not counted as a resource. However, any addition or augmentation of the trust after that date is treated as a transfer of assets for less than fair market value.

2. A trust containing the assets of an individual who has been determined disabled by the Social Security Administration or the Division and which meets all of the following conditions is not counted in determining eligibility for medical assistance:

 the trust is established and managed by a non-profit organization;

 a separate account is maintained for each beneficiary of the trust, even though the trust pools the funds in these accounts;

 accounts in the trust are established by the individual, parent, grandparent, legal guardian of the individual, or by a court solely for the benefit of individuals who are disabled, and

 the trust contains a provision that upon the death of the beneficiary, any remaining funds in the account are paid to the Division up to the amount remaining in the fund or equal to the total amount of medical assistance paid on behalf of the beneficiary.

Consider these two kinds of trusts as an excluded resource and do not enter them on EMS.

Treatment of Specific Types of Income

 Payment of income from a trust or similar legal device and payments from the assets of a trust or similar legal device to the individual or to benefit the individual is considered unearned income to the individual and treated as such.

 Pension or insurance benefits designed for use as payment for hospitalization or medical services are treated as excluded income.

 Income-in-Kind - Payments made from trusts or similar legal devices for the benefit of, or on behalf of, the individual are considered unearned income for all categories of medical assistance.

Treatment of Jointly Owned Resources

For jointly owned resources established on or after November 1, 1995, consider the resources as belonging to the individual who is applying for or receiving financial or medical assistance. If more than one individual, who jointly owns a resource, is applying for or receiving assistance, assume that each individual owns an equal share. For jointly owned resources established prior to November 1, 1995, apply policy in effect at that time which states that jointly owned resources are considered to be shared equally among the owners, unless the individual verifies otherwise.

When An Applicant/Recipient Disputes Assignment of Ownership

To dispute the presumption of ownership by the applicant/recipient, a statement must be submitted to the Division and include the following:

 a corroborating statement of the ownership circumstances from each account holder, unless the only other account holder is incompetent or a minor, in which case a competent adult familiar with the circumstances of the account must submit a corroborating statement;

 account records showing activity for the months during which ownership is at issue;

 if the individual does not own any of the funds, evidence showing that the individual can no longer withdraw funds from the account;

 if the individual owns only a portion of the funds, evidence showing removal from the account of such funds or removal of the funds owned by the other account holders and redesignation of the account.

Any resources that the evidence establishes were owned by the other account holder(s) and that the applicant/recipient can no longer withdraw from the account are not considered to be the individual’s resources. However, if the account holder to whom they belong is someone whose resources would be used in determining the individual’s eligibility, then those resources are considered available to the individual. If any jointly owned resource cannot be unilaterally liquidated due to the terms of ownership, the resource is considered excluded.

The addition of a joint owner to an asset must be evaluated as an asset transfer using the criteria explained previously under Transfer of Assets.

AFDC Program - Resources and Home Computers

Home computers have been removed from the list of personal property resources that are considered nonessential household items for the AFDC financial and medical assistance.

TRAINING

No training is planned. However if it is determined that training is necessary, it should be requested through the regional administrator and will be provided on a regional basis.

POSTING INSTRUCTIONS

DISPOSITION

This SR may be destroyed after its contents have been noted and its posting instructions carried out.

DISTRIBUTION

This SR will be distributed according to the distribution list for the Family Assistance and Adult Assistance Manuals.

OES/mgd

Attachments