Irrevocable Trust Assets Found Available Resources for Medicaid in Arkansas

 Assets in a Medicaid applicant’s irrevocable trust are available resources for Medicaid spend down, because the trustee had the discretion to make distributions for the applicant’s health and welfare, according to an Arkansas appellate court. Arkansas Department of Human Services v. Hogan (Ark. Ct. App., No. CV-19-491, Feb. 19, 2020).

Bobbie Hogan created an irrevocable trust, which gave the trustee the discretion to make distributions of principal and income for Ms. Hogan’s health, support, medical care, and welfare. Ms. Hogan transferred her home to the trust, sold the home, and deposited the proceeds in the trust. More than five years later, Ms. Hogan applied for Medicaid. The state determined that the trust assets were available resources and denied her benefits.

Ms. Hogan appealed the denial to court. The trial court ruled that the trust was not an available resource, because the trustee had absolute discretion to make distributions. The state appealed.

The Arkansas Court of Appeal reversed, holding that the trust is an available resource. According to the court, because the trust allowed distributions of principal and income for Ms. Hogan’s health, support, medical care, and welfare, “there are circumstances in which payments can be made to or for the benefit of [Ms. Hogan] from the trust, making the trust an appropriate available resource for [Ms. Hogan].”  

This decision underscores how important the drafting of the trust is to accomplish a particular objective.  Trusts filled with unfettered discretion, and comfort clauses ultimately provide the State opportunities to defeat the objectives of the trust.  The risks of irrevocable trust planning must be carefully considered, understood, and accepted.  While it is discomforting, the best course to plot toward an objective is the simplest, most direct, clear course.  Trusts that expressly prohibit distributions of income and/or principal for health, support, maintenance, comfort and welfare, are, often the best course to an objective that seeks to protect eligibility for Medicaid.