August 28, 2001
The Honorable Vincent P. Meconi, Secretary
Department of Health and Social Services
1901 N. DuPont Highway
New Castle, DE 19720
Re: Delaware CarePlan
Dear Secretary Meconi:
By letter of May 25, 2001, you requested an Attorney General's Opinion on several issues related to trusts proposed to be administered under a pooling arrangement by the Delaware CarePlan Trust. Two forms of trust instruments have been developed, one for an irrevocable self-settled trust and one for an irrevocable trust funded with assets not owned by the beneficiary. In each instance, the trust is intended to provide funds to supplement and augment services provided by government agencies to a disabled person without compromising such disabled person's eligibility for Medicaid benefits, in accordance with the Delaware CarePlan Trust Act, 12 Del. C. Chapter 40. You have asked the following:
1. Whether, for purposes of determining eligibility for Medicaid, an irrevocable supplemental needs trust established by a person not listed in 42 U.S.C. §1396p(d)(2)(A) with assets not owned by the disabled beneficiary is a resource of the disabled beneficiary and whether the treatment is different depending on whether the beneficiary is under age 65. For the reasons discussed below, we conclude that such a trust is not a resource of the beneficiary regardless of age.
2. Whether a trust such as that described in the first question must include a provision for repaying Medicaid benefits upon the death of the beneficiary. For the reasons discussed below, we conclude that such a trust need not include such a provision.
3. Whether the Department of Health and Social Services can require, by regulation, a minimum repayment from the corpus of a trust established in accordance with 42 U.S.C. §1396p(d)(4)(C) upon the death of the beneficiary. For the reasons discussed below, we conclude that it may not.
4. Whether the Department of Health and Social Services can require, by regulation, an annual audit or review of all accounts of the Delaware CarePlan Trust established for the benefit of persons with disabilities. For the reasons discussed below, we conclude that the Department may not have the authority to require that the Trust submit directly to audits by the Department. However, the Department can require all pertinent information to be provided by the Medicaid benefits recipient.
A full response to your inquiry requires a review of the Medicaid statutes, rules and regulations relating to trusts. The Medicaid system is a program established by Title XIX of the Social Security Act, 42 U.S.C. §§1396-1396v ("the Act"), intended to help pay for the provision of medical services to needy persons. It is jointly funded by the federal government and participating states. A state's Medicaid program must comply with the requirements of the Act, and with regulations promulgated by the Secretary of Health and Human Services, who administers the program through the Health Care Financing Administration (HCFA).
Medicaid is available only to those who meet applicable eligibility standards including specific income and resource limitations. A state plan must include a provision for evaluating the income and resources of an applicant that takes into account "only such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant or recipient . . . ." 42 U.S.C. §1396a (a)(17)(B). The Act further requires that a state plan "comply with the provisions of section 1396p of this title with respect to liens, adjustments and recoveries of medical assistance correctly paid, transfers of assets, and treatment of certain trusts." 42 U.S.C. §1396a (a)(18).
Section 1396p, at subsection (d), deals with trusts which are established by the Medicaid applicant using the applicant's own assets: Paragraph (2)(A) provides that a trust is considered to have been established by an individual to the extent that the trust is established (other than by will) by, or at the direction or request of, the individual or the individual's spouse, or an entity with legal authority to act on behalf of one of them, using assets of the individual(1) to form all or part of the corpus of the trust. Paragraphs (1) and (3) establish the general rule that, for purposes of determining an applicant's eligibility for Medicaid benefits, a trust established by the applicant is to be considered an asset of the applicant, the specific treatment of which depends on the terms of the trust. Finally, paragraph (4) provides three exceptions to this general rule, i.e., three circumstances when a trust considered to have been established by the applicant is, nevertheless, not considered a resource of the applicant for purposes of determining the applicant's eligibility for Medicaid benefits. Two of those exceptions are relevant to the instant inquiry:
(A) A trust containing
the assets of an individual under age 65 who is disabled (as defined in
section 1382c(a)(3) of this title) and which is established for the benefit
of such individual by a parent, grandparent, legal guardian of the individual,
or a court if the State will receive all amounts remaining in the trust
upon the death of such individual up to an amount equal to the total medical
assistance paid on behalf of the individual under a State plan under this
* * *
(C) A trust containing
the assets of an individual who is disabled (as defined in section 1382c(a)(3)
of this title) that meets the following conditions:
(i) The trust is established
and managed by a nonprofit association.
(ii) A separate account
is maintained for each beneficiary of the trust, but, for purposes of investment
and management of funds, the trust pools these accounts.
(iii) Accounts in
the trust are established solely for the benefit of individuals who are
disabled (as defined in section 1382c(a)(3) of this title) by the parent,
grandparent, or legal guardian of such individuals, by such individuals,
or by a court.
(iv) To the extent
that amounts remaining in the beneficiary's account upon the death of the
beneficiary are not retained by the trust, the trust pays to the State
from such remaining amounts in the account an amount equal to the total
amount of medical assistance paid on behalf of the beneficiary under the
State plan under this subchapter.
42 U.S.C. §§1396p(d)(4)(A), (C).
Neither Section 1396p nor any other section of Title XIX specifically addresses the treatment of a trust which is not considered to be established by the applicant, including one which is not so considered because it is not established with the applicant's own assets. Thus, we must look elsewhere to determine what "standards prescribed by the Secretary" are applicable to evaluating such trusts under the state plan. The general Medicaid financial eligibility standard is set forth at 42 C.F.R. §435.601, which mandates the application of the financial methodologies and requirements of the AFDC, SSI or state supplement program which in Delaware, unless otherwise provided for in the Division of Social Services Medical Assistance Program (Medicaid) Manual (DSSM), are found in the Social Security Administration's Program Operations Manual Systems manual (POMS manual). Milne v. Delaware Department of Health and Social Services, Division of Social Services, Del. Super., 679 A. 2d 1010, 1015-16 (1995). With respect to trusts, the POMS manual provides, at § 01120.200 D.1.a. and D.2.:
1. Trusts Which Are Resources
If an individual (claimant,
recipient, or deemor) has legal authority to revoke the trust and then
use the funds to meet his food, clothing or shelter needs, or if the individual
can direct the use of the trust principal for his/her support and maintenance
under the terms of the trust, the trust principal is a resource for SSI
Additionally, if the trust
provides for mandatory disbursements to the beneficiary and the beneficiary
is not prohibited from anticipating, assigning or selling the right to
future payments, the current value of these payments may be a resource
to the beneficiary. . . .
* * *
2. Trusts Which Are Not Resources
If an individual does not
have the legal authority to revoke the trust or direct the use of the trust
assets for his/her own support and maintenance, the trust principal is
not the individual's resource for SSI purposes.
The revocability of a trust and the ability to direct the use of the trust principal depends on the terms of the trust agreement and/or on State law. If a trust is irrevocable by its terms and under State law and cannot be used by an individual for support and maintenance, it is not a resource.
Your specific questions can be answered using the foregoing principles.
1. Where a person not listed in 42 U.S.C. §1396p(d)(2)(A) establishes an irrevocable supplemental needs trust for the benefit of a person with disabilities and funds the trust with assets not owned by the person with disabilities, are the trust funds a resource of the person with disabilities that are subject to the spend down requirement? Does the answer to this question depend, in part, on whether the [person with disabilities] is under age 65?
Response: If the assets used to fund the trust are not the assets of the disabled beneficiary according to the definition found in §1396p(e), then the trust is evaluated according to the provisions of the POMS manual quoted above, i.e., it is not a resource of the beneficiary unless the beneficiary has the legal authority to revoke the trust and use the funds for food, clothing or shelter, or the beneficiary can direct the use of the trust principal for his/her support and maintenance or the trust provides for mandatory disbursements to the beneficiary. The form of trust instrument developed by the Delaware CarePlan Trust ("Irrevocable Supplemental Needs Trust") is not revocable and grants absolute discretion to the Trustee as to the use of the trust property. Under §1396a(a) (17)(B), the state plan could not provide for consideration of such a trust as a resource of the disabled beneficiary. This evaluation does not depend on the age of the disabled beneficiary.
2. Where a person not listed in 42 U.S.C. §1396p(d)(2)(A) establishes an irrevocable supplemental needs trust for the benefit of a person with disabilities and funds the trust with assets not owned by the person with disabilities, is there a payback requirement upon the death of the person with disabilities?
Response: The "payback requirement" is found in §1396p(d)(4)(A) and (4)(C) which are applicable to trusts which are established using the beneficiary's own assets, as defined by §1396p(e). If, considering such definition, the assets used to fund the trust are not assets of the disabled beneficiary, then these sections are not applicable and the trust is evaluated as above.
3. Where the Delaware CarePlan establishes and manages the self-settled trust of a person with disabilities established to meet the criteria of §1396p(d)(4)(C), may the Department of Health and Social Services promulgate a regulation that would set a minimum repayment amount from amounts that would otherwise remain in the Delaware CarePlan trust?
Response: 42 U.S.C. §1396a(a)(18) requires a state plan to comply with the provisions of §1396p with respect to treatment of certain trusts. Subsection 1396p(d)(1) requires that subsection 1396(d)(3) (providing for consideration of trust corpus and payments as an asset of the applicant) be applied to a self-settled trust subject to the exceptions found in paragraph (4). Your question, in effect, is whether the Department can apply subsection 1396(d)(3) to a self-settled trust which fits within an exception found in paragraph (4) but which does not meet an additional requirement the Department establishes by regulation, namely, that some portion of the trust assets be paid to the Department upon the death of the beneficiary. The imposition of this additional requirement is prohibited by §1396a(a)(18).
4. May the Department of Health and Social Services authorize by regulation an annual review or audit of all Delaware CarePlan trusts established for the benefit of persons with disabilities? Does the answer to this question depend on the ownership of the assets used to fund the trust?
Response: Federal regulations require the state plan to reevaluate Medicaid eligibility on an annual basis. 42 C.F.R. §435.916. The source of any additions to a trust in which the Medicaid beneficiary has an interest, and the nature of any disbursements from such a trust are among the facts that would be relevant to such a reevaluation regardless of the source of the funds. Therefore, to the extent that the participants in the Delaware CarePlan Trust are Medicaid beneficiaries, they can be required to report such information. While there is no general authority in the Delaware CarePlan Trust Act for the DHSS to regulate or oversee the trust or individual accounts in it, §4006 requires the Delaware CarePlan Trust to prepare an annual report which shall be public and an annual statement and accounting for each plan participant. Nothing in the statute would prohibit the Trust's providing such statements to the Department if such disclosure is otherwise authorized, such as if such statements would satisfy the beneficiary's obligation to provide the information to the Department.
Should you have any further questions on this matter, please feel free to contact our office.
Very truly yours,
Phebe S. Young
Deputy Attorney General
Calvin L. Scott, Jr.
Deputy Attorney General
Malcolm S. Cobin
cc: The Honorable M. Jane Brady, Attorney General
Philip Johnson, Opinion Coordinator
(e) defines an individual's assets:
(1) The term "assets",
with respect to an individual, includes all income and resources of the
individual and of the individual's spouse, including any income or resources
which the individual or such individual's spouse is entitled to but does
not receive because of action--
(A) by the individual
or such individual's spouse,
(B) 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.
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