Medicaid Policy
Medicaid Policy
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Use these rules to determine the availability of trust funds. Sometimes you will have to get more information or have a policy specialist review. If a legal opinion is needed, the policy specialist will ask an attorney to review the trust.
Trust Terminology
Definition of a Trust
A trust is a property interest whereby property is held by an individual or entity (such as a bank) called the trustee, subject to a fiduciary duty to use the property for the benefit of another (the beneficiary) in accordance with the terms of the trust.
A trust may include a trust-like arrangement that meets these basic criteria:
a grantor or individual who established the arrangement
who transfers property (or whose property is transferred by another)
to an individual or entity with fiduciary obligations (considered a trustee for purposes of this policy).
The grantor makes the transfer with the intention that it be held, managed or administered by the individual or entity for the benefit of the grantor or others. A legal instrument or device similar to a trust can include (but is not limited to) escrow accounts, investment accounts, conservatorship accounts, pension funds, annuities, certain Uniform Transfers to Minors Act (UTMA) accounts and other similar devices managed by an individual or entity with fiduciary obligations.
A grantor (also called a settlor or trustor) is the individual who provides the trust principal (or corpus.) The grantor must be the owner or have a legal right to the property or be otherwise qualified to transfer it such as someone legally empowered to act on behalf of the individual (e.g., a legal guardian, representative payee for title II/XVI benefits, person acting under a power of attorney, or conservator.) The individual whose assets are used to fund the trust is the grantor, even if the trust agreement shows a person legally empowered to act on the individual's behalf as the grantor.
A trustee is a person or entity who holds legal title to property for the use or benefit of another. In most instances, the trustee has no legal right to revoke the trust or use the property for his/her own benefit.
A trust beneficiary is a person for whose benefit a trust exists. A beneficiary does not hold legal title to trust property but does have an equitable ownership interest in it. The beneficiary has certain rights that will be enforced by a court because the trust exists for his/her benefit. Sometimes the grantor and the beneficiary are the same person and sometimes the grantor, the trustee and the beneficiary are the same person or persons.
A mandatory trust is a trust that requires the trustee to pay trust earnings or principal to or for the benefit of the beneficiary at certain times. The trust may require disbursement of a specified percentage or dollar amount of the trust earnings or may obligate the trustee to spend income and principal, as necessary, to provide a specified standard of care. The trustee has no discretion as to the amount of the payment or to whom it will be distributed.
A discretionary trust is a trust in which the trustee has full discretion as to the time, purpose and amount of all distributions. The trustee may pay to or for the benefit of the beneficiary, all or none of the trust as he/she considers appropriate. The beneficiary has no control over the trust.
A revocable trust is a trust that allows the grantor to amend or terminate the trust and regain possession of the property.
An irrevocable trust is a trust that does not allow the grantor to amend or terminate the trust under any circumstances.
A trust established by a will or a testamentary trust is a trust established under the terms of a will and which is only effective upon the death of the individual who established the will. A trust to which property is transferred during the life of the individual who created the will is not a trust established by a will, even if the will transfers additional property to that trust upon the death of the person who created the will.
A trust established by an individual. An individual is considered to have established a trust if any assets of the individual (or spouse), regardless of how little, were transferred to a trust other than by a will. This includes situations where someone acting on behalf of the individual (or spouse) is named as grantor, but the assets belonged to, or would have been payable to, the individual or spouse.