Trusts and Annuities

All trusts and annuities must be reviewed at application and redetermination. Trusts are classified into 3 distinct categories:

OBRA ‘93 Trusts
Medicaid Qualifying Trusts (MQT)
Other Trusts

Treatment of Trusts

The following terms are used within the context of trusts and annuity documents. These are not complete legal definitions.

They are included in order to assist Eligibility Workers when evaluating trusts and annuities.

Annuitant

An individual who has the right to receive payments from an annuity.

Annuitized

An annuity providing fixed and equal payments to the annuitant is considered annuitized.

To be “properly annuitized”, payments must be issued no less frequent than monthly and for a period equal to or less than the annuitant’s life expectancy as determined by the tables provided by the Department of Health and Human Services.

Note: The final annuity payment may be less than previous annuity payments in order to fully exhaust benefits under the annuity.

Annuity

A contract for unconditional, periodic payments of a fixed or variable sum paid to an annuitant. Annuity payments may continue for:

a fixed period of time (period certain annuity),
as long as an annuitant lives (lifetime annuity), or
a combination of the two (lifetime annuity with period certain).

Assets

Income, property and property rights of an individual or spouse. This includes income or property which the individual or spouse is entitled to, but does not receive because of circumstances brought about by:

The individual or spouse
Any person or entity, including a court or administrative body, with legal authority to act in place of or on behalf of the individual or spouse
Any person or entity, including a court or administrative body, acting at the direction or upon the request of the individual or spouse.

Examples of income entitled to but not received include irrevocably waived pension income, waived inheritance or annuity payments assigned to a third party beneficiary.

Beneficiary

The person who is designated to receive the property and/or income (benefits) from a trust.

Cash Refund

A cash payment paid to a designated individual upon the death of the annuitant if the annuitant dies before receiving payments equal to the purchase price of the annuity.

Cost of Living Increase

A periodic increase in the amount of the annuity payments funded by a portion of the purchase price that was set aside by the annuity company for this purpose.

Death Benefit

A predetermined amount or specified number of payments paid to a beneficiary upon the death of the annuitant which is funded by a portion of the purchase price that was set aside by the annuity company for this purpose.

Established

The date trust documents are actually dated and signed.

Irrevocable

An irrevocable trust is one that cannot be changed without the consent of the beneficiary. Irrevocable trusts may contain language allowing modifications of the trust.

A revocable trust becomes irrevocable whenever the trustor dies or becomes incompetent and the trust documents do not provide that the power to revoke be passed on to the trustee or to another person.

A revocable trust may contain terms that could make the trust irrevocable if a “triggering event” takes place (i.e. Entry into long term care).

Payment

Any distribution from the trust or annuity, including but not limited to:

Liquid or non-liquid disbursements
Payments made to third parties or other entities for the benefit of the individual or spouse
Disbursements to pay bills, purchase items, or pay for services.

Principal/Corpus

Principal/Corpus of the trust refers to the:

Original investment of income, property or property rights (assets which originally funded the trust)
Subsequent addition of income, property or property rights placed in the trust.
Income generated by the assets in a trust (such as interest and dividends) for which there is no provision for distribution.

Property Right

The right of an individual to receive income or property. An individual is said to have a property right when he/she:

Has been designated or named to receive income or property, such as in a will, trust, or insurance policy
Has been awarded income or property, such as in a settlement by the court
Contracts for them (purchase of property, etc.).

Revocable

A revocable trust is one that can be altered or terminated.

The principal of a revocable trust is considered available property to anyone who can revoke the trust and who can use the principal thereafter. It does not matter whether or not he/she actually revokes the trust or uses the principal.

Similar Legal Device (SLD)

Any legal instrument, device or arrangement which may not be called a trust under state law, but is similar to a trust. It involves the transfer of income, property or property rights from an individual or entity (transferor) to another individual (transferee) who is to hold, manage or administer those assets for the benefits of the transferor or another trust beneficiary.

Trust

Any arrangement in which an individual or entity (trustor) transfers income, property or property rights to a trustee(s) with the intent that the income or property be held, managed or administered by the trustee(s) for the benefits of a designated individual(s) (trust beneficiary).

To be a valid trust, the trust must have a designated trust beneficiary, trustor and trustee. These roles may be designated to the same individual, however, at least one other person must be designated as a beneficiary upon the death of the original beneficiary.

Trustee

The individual(s) or entity appointed to manage, hold or administer a trust for the benefit of the trust beneficiary(ies).

The trustee has the duty to carry out the wishes of the trustor as outlined in the Trust, for the benefit of the beneficiary. If the trustee does not fulfill his/her responsibilities, he/she could be held liable by the beneficiaries.

Trustor

The individual who funds the trust with his/her income, property or property rights. This person may also be called the settlor or grantor.

Trust Income

Income generated by the trust, such as interest or dividends and payments of income made directly to and in the name of the trust. Any income paid in the name of the beneficiary and then transferred to the trust is considered income of that beneficiary and not considered trust income.