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Example 2: Al is a 65 year old Medicaid applicant. Six years ago, Al sold his farm for $300,000 and put the entire proceeds from the sale into an irrevocable trust, naming himself as the beneficiary. Al’s friend, Scott was appointed as the trustee. Under the terms of the trust, Scott could disburse any amount of trust principal or trust income, at any time, either directly to Al or indirectly to provide some benefit for Al. The trustee had sole discretion as to when and how disbursements would be made as well as the amount that could be disbursed. Therefore $300,000 would be considered an available non-exempt asset for Al’s Medicaid eligibility determination, even if the trustee never makes an actual disbursement.

Example 3: Dave is a 65 year old Medicaid applicant who won a $250,000 lottery several years ago and put the entire amount into an irrevocable trust, naming himself as the beneficiary. Dave appointed his brother Don as the trustee. Under the terms of the trust, none of the trust principal could ever be distributed to Dave during his lifetime. Don could only distribute the income that is produced by the trust to his brother Dave, and Don has sole discretion as to whether or not any income is actually distributed. The trust principal would be an unavailable asset since the terms of the trust prohibit any distribution of trust principal during Dave’s lifetime. Any disbursements of trust income to Dave would be counted as income to Dave in the month of receipt. Because Don has the authority to distribute all of the income, any trust income which is not disbursed by Don, but instead remains in the trust, is considered to be an available asset.

Example 4: In this example, use the same facts as in example 3, except that the trust requires Don to distribute fifty percent of the generated income to Dave and add the remaining fifty percent to the principal where it will accumulate without distribution. The half of the generated income that is paid to Dave would be income in the month of receipt. The other half of the income would be an unavailable asset and tested for divestment

Note If the grantor is an institutionalized person, their spouse, or someone acting on behalf of an institutionalized person, setting up an irrevocable trust may be a divestment (see SECTION 17.2.7.16 IRREVOCABLE TRUSTS ASSIGNED OR CREATED DURING OR AFTER THE LOOK BACK PERIOD and SECTION 17.2.6 ALLOWED DIVESTMENTS). The policies described above regarding irrevocable trusts do not apply to Special Needs and Pooled Trusts (see SECTION 16.6.5 SPECIAL NEEDS TRUST and SECTION 16.6.6 POOLED TRUSTS). The policies described above also do not apply to irrevocable trusts created by a will (also known as testamentary trusts), unless the terms of the trust permit the individual or beneficiary to require that the trustee distribute principal or income to them. 16.6.5 Special Needs Trusts A special needs trust is a trust established for the sole benefit of a person under age 65 who is disabled. Trusts that meet all the following requirements are disregarded. 1. The trust contains the assets of an individual who is under the age of 65 and disabled. 2. The trust was established for the sole benefit of the disabled individual by their parent, grandparent, or legal guardian, by the disabled individual, or by a court.