Treatment of MQT Trusts

Once a trust has been categorized as an MQT, review the terms of the trust to determine if it is revocable or irrevocable.

Revocable MQT

The entire amount of trust principle in a revocable MQT is considered available property and the entire amount of trust income is considered income.

ExampleExample

On 9/20/92, Ann and Bob Jones placed all of their property into a living trust. Ann and Bob are both trustors and trustees. The trust is set up as a revocable trust and contains $100,000 in personal property as well as their home, the principal residence. Bob enters a LTC facility on 11/15/96 and Ann applies for MC for her husband at that time.

A living trust established prior to 8/11/93 is considered an MQT as long as the trustee has any discretion in distributing funds and as long as the trustor is also the beneficiary of at least some of the payments from the trust. Since this trust is revocable and the applicant has the right to the proceeds, the entire amount of principal in the trust is considered available property. The trust income is considered available income. The principal residence remains exempt property.

Irrevocable MQT

The maximum amount of trust principal and income that the trustee may distribute, if he/she were to exercise full discretion under the terms of the MQT, is considered available. It does not matter whether or not the trustee actually releases the funds, or if the trust places any limitations on the use of the funds, such as in a Special Needs Trust. As long as the trustee has discretion in distributing the funds for any purpose, the funds are considered available.

Trust Principal

The rules below apply to the treatment of trust principal in an irrevocable MQT:

Trust Principal Rules

Irrevocable MQT Trust Principal	Treatment
Principal actually distributed	Available property
Principal that could be distributed but isn’t	Available property
Principal that the trustee has no discretion to release	Transfer of Property as of: The date the trust was established, or The date that any disbursement is discontinued.

Trust Income

The rules below apply to the treatment of trust income in an irrevocable MQT:

Irrevocable MQT Trust Income

Income Actually Distributed

Treatment

Available Income

Income that could be distributed but isn’t

Review the terms of the trust to determine what happens to the trust income which isn’t distributed. If trust income:

Remains trust income, treat as vailable income in the first month distribution is possible, and available property thereafter. A payment made at a later time is considered a conversion of property.
Becomes trust principal, treat as available income in the first month distribution is possible, and trust property thereafter.
Distribution is not discussed in the terms of the trust, then treat as trust principal. Trust income immediately becomes principal in this situation.

Income that the trustee has no discretion to release

Review the terms of the trust to determine what happens to the trust income which cannot be distributed. If provisions for distribution:

Never existed, then treat as trust principal. If trust principal cannot be distributed then treat as a Transferred Asset (transfer of property) as of the date the trust was established.
Stopped, and trust income becomes trust principal, then treat as Transferred Asset (transfer of property) as of the date distribution stopped.
Stopped, and trust income remains trust income, then treat as Transferred Asset (transfer of income) only if distribution stopped after August 11, 1993.

ExampleExample

On 9/20/92, Ann and Bob Jones placed all of their property into a living trust. Ann and Bob are both trustors and trustees and have full discretion in the distribution of trust funds. The trust is set up as an irrevocable trust and contains $100,000 in personal property as well as the principal residence. Bob enters a LTC facility on 11/15/96 and Ann applies for Medi-Cal for her husband at that time.

A living trust established prior to 8/11/93 is considered an MQT as long as the trustee has any discretion in distributing funds and as long as the trustor is also the beneficiary of at least some of the payments from the trust. Since this trust is irrevocable and the applicant has discretion over the full amount of trust principal and trust income, the entire amount in the trust is considered available property and available income. The principal residence remains exempt property.

Undue Hardship

There is no undue hardship provision for MQTs.