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State of Wisconsin |
Release 24-03 |
A trust is any arrangement in which a person (the "grantor") transfers property to another person with the intention that the person (the "trustee") hold, manage, or administer the property for the benefit of the grantor or of someone designated by the grantor (the "beneficiary").
The term "trust” includes any legal instrument or device or arrangement, which, even though not called a trust under state law, has the same attributes as a trust. That is, the grantor transfers property to the trustee and the grantor's intention is that the trustee hold, manage, or administer the property for the benefit of the grantor or of the beneficiary.
The grantor can be:
If the principal of a trust includes assets of the applicant/member or spouse, and the assets of any other person or persons, apply the policies in Section 16.6.3 Revocable Trusts and Section 16.6.4 Irrevocable Trusts to the portion of the trust attributable to the assets of the applicant/member or spouse.
The trust principal is the amount placed in trust by the grantor plus any trust earnings paid into the trust and left to accumulate.
A Revocable Trust is a trust which can be revoked, canceled or modified by the grantor or by a court. A trust which is called irrevocable, but which will terminate if some action is taken by the grantor, is considered a revocable trust.
The trust principal of a revocable trust is an available asset.
An irrevocable trust is a trust that cannot, in any way, be revoked by the grantor.
If the resources of someone other than the individual or their spouse (i.e., a third party),were used to form the principal of an irrevocable trust, the trust principal is not an available asset unless the terms of the trust permit the individual to require that the trustee distribute principal or income to him or her.
If the resources of the individual or the individual’s spouse were used to form all or part of the principal of the trust, some or all of the trust principal and income may be considered a non-exempt asset, available to the individual. If there are any circumstances under which payment from the trust could be made to or for the benefit of the individual at any time no matter how distant, the portion of the principal from which, or the income on the principal from which, payment to the individual could be made shall be considered non-exempt assets, available to the individual.
This treatment applies regardless of:
| Example 1: | Doug is a 65 year old Medicaid applicant. Several years ago, Doug transferred his life savings of $60,000 to an irrevocable trust, naming himself as the beneficiary. Doug’s brother, Jim was appointed as the trustee. Under the terms of the trust, Jim could disburse up to $10,000 annually, from either trust principal or trust income, either directly to Doug or indirectly to provide some benefit for Doug. The trustee had sole discretion as to when and how these trust disbursements would be made, but under no circumstance could they exceed $10,000 in a 12 month period. Because the entire corpus (principal of the fund) could eventually be distributed, $60,000 would be considered an available non-exempt asset for Doug’s Medicaid eligibility determination, even if the trustee decides not to make any actual disbursements. |
| 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.
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.
| Note | Special needs trusts established prior to December 13, 2016, may not be established by the disabled individual. They may only be established by the disabled individual’s parent, grandparent, or legal guardian, or by a court. |
| Note | In the case of a legally competent, disabled adult, a parent or grandparent may establish a seed trust using a nominal amount of their own money (for example, $10) or an empty or dry trust. After the trust is established, the disabled adult’s assets can be transferred into the trust. |
A trust that meets the above criteria is treated as a special needs trust for Medicaid purposes even if the trust agreement does not specifically call it a special needs trust.
A trust that does not meet the above criteria is not treated as a special needs trust for Medicaid purposes, even if it is called a special needs trust in the trust agreement. For trusts that do not meet the above criteria, availability must be determined according to the criteria in SECTION 16.6.3 REVOCABLE TRUSTS or SECTION 16.6.4 IRREVOCABLE TRUSTS.
Additions to the trust principal made directly to the special needs trust before the beneficiary reaches age 65 are disregarded. Distributions from the trust are also disregarded. These disregards continue after the beneficiary turns 65, provided they continue to be disabled.
Additions to the trust after age 65
In general, additions to the trust after the beneficiary turns 65 are not disregarded. The value of any non-excluded assets added to the trust after the beneficiary reaches age 65 is considered available to the beneficiary.
However, if the beneficiary’s right to receive support payments, U.S. Military Survivor Benefit Plan payments, or payments from an annuity has been irrevocably assigned to the trust before the trust beneficiary turned 65, the payments are treated the same as payments made before the individual turned 65 and continue to qualify for the special needs trust exemption.
Interest, dividends, or other earnings of the trust after the beneficiary reaches age 65 remain excluded.
A pooled trust contains the assets of many different individuals, each held in separate trust accounts and established for separate beneficiaries.
Pooled trusts that contain the assets of a disabled individual are disregarded for Medicaid purposes if they meet the following conditions:
The funds deposited in, contributions to, and distributions from the pooled trust are disregarded. The disregard continues after the person turns 65, provided they continue to be disabled.
| Note | Assets that have been placed in a potential pooled trust account pending a disability determination are unavailable assets until the disability determination has been made. If the individual has been determined disabled by DDB, the pooled trust is an exempt asset as of the disability onset date. If the individual is not determined disabled, the assets are counted. |
Disregarded pooled trusts in Wisconsin include, but are not limited to:
The Ho-Chunk Tribe, under its tribal ordinances and in conjunction with the Indian Gaming Regulatory Act, establishes irrevocable trusts for tribal members who are minors or determined to be legally incompetent. These irrevocable trusts are funded primarily with per capita distribution payments derived from gaming revenue. DHS has determined that funds placed in these trusts, for the benefit of minors and individuals who are legally incompetent, are considered to be owned by the Ho-Chunk Tribe and not the trust beneficiary. Therefore, the irrevocable Ho-Chunk Tribal Trusts established for minors or legally incompetent tribal members are considered to be unavailable assets for the tribal member’s Medicaid eligibility determination.
This page last updated in Release Number: 23-02
Release Date: 04/17/2023
Effective Date: 04/17/2023
The information concerning the Medicaid program provided in this handbook release is published in accordance with: Titles XI and XIX of the Social Security Act; Parts 430 through 481 of Title 42 of the Code of Federal Regulations; Chapters 46 and 49 of the Wisconsin Statutes; and Chapters HA 3, DHS 2, 10 and 101 through 109 of the Wisconsin Administrative Code.
Notice: The content within this manual is the sole responsibility of the State of Wisconsin's Department of Health Services (DHS). This site will link to sites outside of DHS where appropriate. DHS is in no way responsible for the content of sites outside of DHS.
Publication Number: P-10030