All Trusts Are NOT Created Equal

A New York appeals court rules that a Medicaid applicant’s trust is an available asset because the trustees have discretion to make distributions to her. In the Matter of Frances Flannery v. Zucker (N.Y. Sup. Ct., App. Div., 4th Dept., No. TP 15-01033, Feb. 11, 2016).

Frances Flannery was the beneficiary of a trust that granted her children, as the trustees of the trust, the authority to distribute as much of the principal as they felt in their discretion was necessary to provide for Ms. Flannery’s health and welfare. Ms. Flannery applied for Medicaid, and the state denied her benefits after determining the trust was an available asset.

Ms. Flannery appealed, arguing that the trust is not an available asset because her children refuse to make distributions of the principal to her. After a hearing, the state affirmed the denial of benefits, and Ms. Flannery appealed to court.

The New York Supreme Court, Appellate Division, 4th Department affirmed the denial of Medicaid benefits, according to the court, “because the principal of the trust may, in the discretion of [Ms. Flannery’s] children be paid for [Ms. Flannery’s] benefit,” the principal of the trust is an available asset “despite the fact that her children refuse to exercise their discretion to make such payments of principal.”

 As is usually the case, the devil is in the details.  Here, Ms. Flannery’s trust allowed the invasion of the trust  principal for the purposes of providing for her health, maintenance and support, commonly known as the “HEMS” standard.  The HEMS standard is a holdover from the traditional estate planning schemes focusing on minimization and avoidance of estate tax.

However, estate tax is not a concern of 99% of Americans today.  What is their chief concern?  Exactly what happened to Ms. Flannery, losing their assets to long term care costs.  The best way to avoid this type of event happening to you is to speak with an attorney who devotes substantial time and resources to this type of work, and is mindful of the ever changing landscape of asset protection and elderlaw.  

Call us today at 315-422-6666to find out how you can learn more about how and why this happened.