Original Notice.

     Preproposal statement of inquiry was filed as WSR 02-07-109.

     Title of Rule: Amending WAC 388-513-1365 Evaluating the transfer of an asset made on or after March 1, 1997, and before April 1, 2003, for long-term care (LTC) services; and WAC 388-561-0100 Trusts.

     Purpose: (1) To add a closing date to WAC 388-513-1365 now that new WAC 388-513-1364 became effective April 1, 2003.

     (2) To amend WAC 388-561-0100 Trusts, to make the following changes and clarifications:

•     Federal law allows transferring assets into a sole benefit trust for a spouse, blind or disabled child, or disabled individual without applying a penalty period. Although there is no penalty applied for transferring an asset to a spouse, sole benefit trusts established for a spouse not applying for long-term care benefits will be treated as resources available to the institutionalized spouse in determining Medicaid eligibility.

•     Amending WAC for special needs and pooled trusts to require the state to be repaid if the trust is terminated for any reason before the client dies.

•     Clarifying that pooled trusts must be irrevocable, and established solely for the benefit of the disabled individual by:

•     The individual,

•     The individual's spouse, where the spouse is acting in the place of or on behalf of the individual,

•     The individual's parent, grandparent, legal guardian,

•     A person, including a court or administrative body, with legal authority to act in place of or on behalf of the individual or the individual's spouse, or

•     A person, including a court or administrative body, acting at the direction or upon the request of the individual or the individual's spouse.

•     Clarifying that special needs trusts established before the individual turns sixty-five continue to be considered an unavailable resource even after the individual turns sixty-five, but additional transfers made to the trust after the individual reaches age sixty-five would be considered available resources and would be subject to a transfer penalty.

•     Clarifying that the department can apply a transfer penalty period to pooled trusts if the trust is established for a disabled individual age sixty-five or older.

•     Clarifying that payments made from trusts to the client will be considered unearned income.

     Other Identifying Information: Proposed WAC 388-561-0100 was previously proposed as WSR 03-02-055. The department withdrew that proposed rule and after further revision is reproposing it with this notice.

     Statutory Authority for Adoption: RCW 74.04.050, 74.04.057, 74.08.090, and 74.09.575.

     Statute Being Implemented: RCW 74.04.050, 74.04.057, and 74.09.575.

     Summary: These proposed rules add an end date for transfers that use this rule for the evaluation of the transfer for long-term care programs.

     Reasons Supporting Proposal: These revisions are related to the recently adopted new WAC 388-513-1364 Evaluating transfers occurring on or after March 1, 2003, for long-term care programs.

     Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Mary Lou Percival, ADSA/Home and Community, P.O. Box 45600, Olympia, WA 98504-5600, (360) 725-2318.

     Name of Proponent: Department of Social and Health Services, governmental.

     Rule is not necessitated by federal law, federal or state court decision.

     Explanation of Rule, its Purpose, and Anticipated Effects: See Purpose above.

     Proposal Changes the Following Existing Rules: See Purpose above.

     No small business economic impact statement has been prepared under chapter 19.85 RCW. This rule does not impact small businesses. It only affects client eligibility for medical assistance.

     RCW 34.05.328 does not apply to this rule adoption. This rule is exempt under RCW 34.05.328 (5)(b)(vii), which states that rules of the Department of Social and Health Services relating only to client eligibility for medical or financial assistance are exempt from this provision. The rule only affects client eligibility for medical assistance.

     Hearing Location: Blake Office Park (behind Goodyear Courtesy Tire), 4500 10th Avenue S.E., Rose Room, Lacey, WA 98503, on May 27, 2003, at 10:00 a.m.

     Assistance for Persons with Disabilities: Contact Andy Fernando, DSHS Rules Coordinator, by May 23, 2003, phone (360) 664-6094, TTY (360) 664-6178, e-mail fernaax@dshs.wa.gov.

     Submit Written Comments to: Identify WAC Number, Rules Coordinator, DSHS Rules and Policies Assistance Unit, P.O. Box 45850, Olympia, WA 98504-5850, fax (360) 664-6185, e-mail fernaax@dshs.wa.gov, by 5:00 p.m., May 27, 2003.

     Date of Intended Adoption: Not sooner than May 28, 2003.

April 18, 2003

Brian H. Lindgren, Manager

Rules and Policies Assistance Unit

     (1) The department disregards the following transfers by the client, if they meet the conditions described:

     (a) Gifts or donations totaling one thousand dollars or less in any month;

     (b) The transfer of an excluded resource described in WAC 388-513-1360 with the exception of the client's home, unless the transfer meets the conditions described in subsection (1)(d);

     (c) The transfer of an asset for less than fair market value (FMV), if the client can provide evidence to the department that satisfies one of the following:

     (i) An intent to transfer the asset at FMV or other adequate compensation;

     (ii) The transfer is not made to qualify for LTC services;

     (iii) The client is given back ownership of the asset;

     (iv) The denial of eligibility would result in an undue hardship.

     (d) The transfer of ownership of the client's home, if it is transferred to the client's:

     (i) Spouse; or

     (ii) Child, who:

     (A) Meets the disability criteria described in WAC 388-511-1105 (1)(b) or (c); or

     (B) Is less than twenty-one years old; or

     (iii) A son or daughter, who:

     (A) Lived in the home for at least two years immediately before the client's current period of institutional status; and

     (B) Provided care that enabled the client to remain in the home; or

     (iv) A brother or sister, who has:

     (A) Equity in the home, and

     (B) Lived in the home for at least one year immediately before the client's current period of institutional status.

     (e) The transfer of an asset other than the home, if the transfer meets the conditions described in subsection (4), and the asset is transferred:

     (i) To the client's spouse or to another person for the sole benefit of the spouse;

     (ii) From the client's spouse to another person for the sole benefit of the spouse;

     (iii) To the client's child who meets the disability criteria described in WAC 388-511-1105 (1)(b) or (c) or to a trust established for the sole benefit of this child; or

     (iv) To a trust established for the sole benefit of a person who is sixty-fours years old or younger and meets the disability criteria described in WAC 388-511-1105 (1)(b) or (c).

     (f) The transfer of an asset to a member of the client's family in exchange for care the family member provided the client before the current period of institutional status, if a written agreement that describes the terms of the exchange:

     (i) Was established at the time the care began;

     (ii) Defines a reasonable FMV for the care provided that reflects a time frame based on the actuarial life expectancy of the client who transfers the asset; and

     (iii) States that the transferred asset is considered payment for the care provided.

     (2) When the fair market value of the care described in subsection (1)(f) is less than the value of the transferred asset, the department considers the difference the transfer of an asset without adequate consideration.

     (3) The department considers the transfer of an asset in exchange for care given by a family member without a written agreement as described under subsection (1)(f) as the transfer of an asset without adequate consideration.

     (4) The transfer of an asset or the establishment of a trust is considered to be for the sole benefit of a person described in subsection (1)(e), if the transfer or trust:

     (a) Is established by a legal document that makes the transfer irrevocable; and

     (b) Provides for spending all funds involved for the benefit of the person for whom the transfer is made within a time frame based on the actuarial life expectancy of that person.

     (5) When evaluating the effect of the transfer of an asset on a client's eligibility for LTC services received on or after October 1, 1993, the department counts the number of months before the month of application to establish what is referred to as the "look-back" period. The following number of months apply as described:

     (a) Thirty-six months, if all or part of the assets were transferred on or after August 11, 1993; and

     (b) Sixty months, if all or part of the assets were transferred into a trust as described in WAC ((388-505-0595)) 388-561-0100.

     (6) If a client or the client's spouse transfers an asset within the look-back period without receiving adequate compensation, the result is a penalty period in which the client is not eligible for LTC services. If a client or the client's spouse transfers an asset on or after March 1, 1997 and before April 1, 2003, the department must establish a penalty period as follows:

     (a) If a single or multiple transfers are made within a single month, then the penalty period:

     (i) Begins on the first day of the month in which the transfer is made; and

     (ii) Ends on the last day of the number of whole months found by dividing the total uncompensated value of the assets by the statewide average monthly private cost for nursing facilities at the time of application.

     (b) If multiple transfers are made during multiple months, then the transfers are treated as separate events and multiple penalty periods are established that:

     (i) Begin on the latter of:

     (A) The first day of the month in which the transfer is made; or

     (B) The first day after any previous penalty period has ended; and

     (ii) End on the last day of the whole number of months as described in subsection (6)(a)(ii).

     (7) If an asset is sold, transferred, or exchanged, the portion of the proceeds:

     (a) That is used within the same month to acquire an excluded resource described in WAC 388-513-1360 does not affect the client's eligibility;

     (b) That remains after an acquisition described in subsection (7)(a) becomes an available resource as of the first day of the following month.

     (8) If the transfer of an asset to the client's spouse includes the right to receive a stream of income not generated by a transferred resource, the department must apply rules described in WAC 388-513-1330 (6) through (8).

     (9) If the transfer of an asset for which adequate compensation is not received is made to a person other than the client's spouse and includes the right to receive a stream not generated by a transferred resource, the length of the penalty period is determined and applied in the following way:

     (a) The total amount of income that reflects a time frame based on the actuarial life expectancy of the client who transfers the income is added together;

     (b) The amount described in (9)(a) is divided by the statewide average monthly private cost for nursing facilities at the time of application; and

     (c) A penalty period equal to the number of whole months found by following subsections (9)(a) and (b) is applied that begins on the latter of:

     (i) The first day of the month in which the client transfers the income; or

     (ii) The first day of the month after any previous penalty period has ended.

     (10) A penalty period for the transfer of an asset that is applied to one spouse is not applied to the other spouse, unless:

     (a) Both spouses are receiving LTC services; and

     (b) A division of the penalty period between the spouses is requested.

     (11) If a client or the client's spouse disagrees with the determination or application of a penalty period, that person may request a hearing as described in chapter 388-02 WAC.

[Statutory Authority: RCW 74.08.090. 01-02-076, § 388-513-1365, filed 12/29/00, effective 1/29/01. Statutory Authority: RCW 11.92.180, 43.20B.460, 48.85.020, 74.04.050, 74.04.057, 74.08.090, 74.09.500, 74.09.530, 74.[09.]575, 74.09.585; 20 C.F.R. 416.1110-1112, 1123 and 1160; 42 C.F.R. 435.403 (j)(2) and 1005; and Sections 17, 1915(c), and 1924 (42 U.S.C. 1396) of the Social Security Act. 00-01-051, § 388-513-1365, filed 12/8/99, effective 1/8/00. Statutory Authority: RCW 74.08.090 and 74.09.500. 99-06-045, § 388-513-1365, filed 2/26/99, effective 3/29/99. Statutory Authority: RCW 74.08.090, 74.04.050, 74.04.057, 74.09.585 and § 17 of the Social Security Act. 97-05-040, § 388-513-1365, filed 2/14/97, effective 3/17/97. Statutory Authority: RCW 74.08.090. 95-02-027 (Order 3818), § 388-513-1365, filed 12/28/94, effective 1/28/95; 94-10-065 (Order 3732), § 388-513-1365, filed 5/3/94, effective 6/3/94. Formerly WAC 388-95-395.]

     (2) The department disregards trusts established, on or before April 6, 1986, for the sole benefit of a client who lives in an intermediate care facility for the mentally retarded (ICMR).

     (3) For trusts established on or before August 10, 1993 the department counts the following:

     (a) If the trust was established by the client, client's spouse, or the legal guardian, the maximum amount of money (payments) allowed to be distributed under the terms of the trust is considered available income to the client if all of the following conditions apply:

     (i) The client could be the beneficiary of all or part of the payments from the trust;

     (ii) The distribution of payments is determined by one or more of the trustees; and

     (iii) The trustees are allowed discretion in distributing payments to the client.

     (b) If an irrevocable trust doesn't meet the conditions under subsection (3)(a) then it is considered either:

     (i) An unavailable resource, if the client established the trust for a beneficiary other than the client or the client's spouse; or

     (ii) An available resource in the amount of the trust's assets that:

     (A) The client could access; or

     (B) The trustee distributes as actual payments to the client and the department applies the transfer of assets rules of WAC 388-513-1364 or 388-513-1365.

     (c) If a revocable trust doesn't meet the description under subsection (3)(a):

     (i) The full amount of the trust is an available resource of the client if the trust was established by:

     (A) The client;

     (B) The client's spouse, and the client lived with the spouse; or

     (C) A person other than the client or the client's spouse only to the extent the client had access to the assets of the trust.

     (ii) Only the amount of money actually paid to the client from the trust is an available resource when the trust was established by:

     (A) The client's spouse, and the client did not live with the spouse; or

     (B) A person other than the client or the client's spouse; and

     (C) Payments were distributed by a trustee of the trust.

     (iii) The department considers the funds a resource, not income.

     (4) For trusts established on or after August 11, 1993:

     (a) The department considers a trust as if it were established by the client when:

     (i) The assets of the trust, as defined under WAC 388-470-0005, are at least partially from the client;

     (ii) The trust is not established by will; and

     (iii) The trust was established by:

     (A) The client or the client's spouse;

     (B) A person, including a court or administrative body, with legal authority to act in place of, or on behalf of, the client or the client's spouse; or

     (C) A person, including a court or administrative body, acting at the direction of or upon the request of the client or the client's spouse.

     (b) Only the assets contributed to the trust by the client are available to the client when part of the trust assets were contributed by any other person.

     (c) The department does not consider:

     (i) The purpose for establishing a trust;

     (ii) Whether the trustees have, or exercise, any discretion under the terms of the trust;

     (iii) Restrictions on when or whether distributions may be made from the trust; or

     (iv) Restrictions on the use of distributions from the trust.

     (d) For a revocable trust established as described under subsection (4)(a) of this section:

     (i) The full amount of the trust is an available resource of the client;

     (ii) Payments from the trust to or for the benefit of the client are income of the client; and

     (iii) Any payments from the trust, other than payments described under subsection (4)(d)(ii), are considered a transfer of client assets.

     (e) For an irrevocable trust established as described under subsection (4)(a) of this section:

     (i) Any part of the trust from which payment can be made to or for the benefit of the client is an available resource. When payment is made from such irrevocable trusts, we will consider the payments as:

     (A) Income to the client when payment is to or for the client's benefit; or

     (B) The transfer of an asset when payment is made to any person for any purpose other than the client's benefit;

     (ii) A trust from which a payment cannot be made to or for the client's benefit is a transfer of assets. For such a trust, the transfer of assets is effective the date:

     (A) The trust is established; or

     (B) The client is prevented from receiving benefit, if this is after the trust is established.

     (iii) The value of the trust includes any payments made from the trust after the effective date of the transfer.

     (5) For trusts established on or after July 1, 2003:

     (a) The department considers a trust as if it were established by the client when:

     (i) The assets of the trust, as defined under WAC 388-470-0005, are at least partially from the client;

     (ii) The trust is not established by will; and

     (iii) The trust was established by:

     (A) The client or the client's spouse;

     (B) A person, including a court or administrative body, with legal authority to act in place of, or on behalf of, the client or the client's spouse; or

     (C) A person, including a court or administrative body, acting at the direction of or upon the request of the client or the client's spouse.

     (b) Only the assets contributed other than by will to the trust by either the client or the client's spouse are available to the client or the client's spouse when part of the trust assets were contributed by persons other than the client or the client's spouse.

     (c) The department does not consider:

     (i) The purpose for establishing a trust;

     (ii) Whether the trustees have, or exercise, any discretion under the terms of the trust;

     (iii) Restrictions on when or whether distributions may be made from the trust; or

     (iv) Restrictions on the use of the distributions from the trust.

     (d) For a revocable trust established as described under subsection (5)(a) of this section:

     (i) The full amount of the trust is an available resource of the client;

     (ii) Payments from the trust to or for the benefit of the client are income of the client; and

     (iii) Any payments from the trust, other than payments described under subsection (5)(d)(ii), are considered a transfer of client assets.

     (e) For an irrevocable trust established as described under subsection (5)(a) of this section:

     (i) Any part of the trust from which payment can be made to or for the benefit of the client or the client's spouse is an available resource. When payment is made from such irrevocable trusts, the department will consider the payment as:

     (A) Income to the client or the client's spouse when payment is to or for the benefit of either the client or the client's spouse; or

     (B) The transfer of an asset when payment is made to any person for any purpose other than the benefit of the client or the client's spouse;

     (ii) A trust from which a payment cannot be made to or for the benefit of the client or client's spouse is a transfer of assets. For such a trust, the transfer of assets is effective the date:

     (A) The trust is established; or

     (B) The client or client's spouse is prevented from receiving benefit, if this is after the trust is established.

     (iii) The value of the trust includes any payments made from the trust after the effective date of the transfer.

     (6) Trusts established on or after August 11, 1993 are not considered available resources if they contain the assets of either:

     (a) A person sixty-four years of age or younger who is disabled as defined by SSI criteria (as described in WAC 388-503-0510) and the trust:

     (i) Is established for the sole benefit of this person by their parent, grandparent, legal guardian, or a court; and

     (ii) Stipulates that the state will receive all amounts remaining in the trust upon the death of the client, up to the amount of Medicaid spent on the client's behalf; or

     (b) A person regardless of age, who is disabled as defined by SSI criteria (as described in WAC 388-503-0510), and the trust ((is managed by a nonprofit association which)) meets the following criteria:

     (i) ((Maintains separate accounts for each trust beneficiary; and

     (ii) May pool such separate accounts only for investment and fund management purposes; and

     (iii) Stipulates that either:)) It is irrevocable;

     (ii) It is established and managed by a nonprofit association;

     (iii) A separate account is maintained for each beneficiary of the trust but for purposes of investment and management of funds the trust pools the funds in these accounts;

     (iv) Accounts in the trust are established solely for the benefit of the disabled individual as defined by the SSI program;

     (v) Accounts in the trust are established by:

     (A) The individual;

     (B) The individual's spouse, where the spouse is acting in the place of or on behalf of the individual;

     (C) The individual's parent, grandparent, legal guardian;

     (D) A person, including a court or administrative body, with legal authority to act in place of or on behalf of the individual or the individual's spouse; or

     (E) A person, including a court or administrative body, acting at the direction or upon the request of the individual or the individual's spouse.

     (vi) It stipulates that either:

     (A) The state will receive all amounts remaining in the client's separate account upon the death of the client, up to the amount of Medicaid spent on the client's behalf; or

     (B) The funds will remain in the trust to benefit other disabled beneficiaries of the trust.

     (((6) The department considers payments made from trusts in subsection (5) to be unearned income.))

     (7) Trusts established on or after July 1, 2003 are not considered available resources if they contain the assets of either:

     (a) A person sixty-four years of age or younger who is disabled as defined by SSI criteria (as described in WAC 388-503-0510) and the trust:

     (i) Is irrevocable;

     (ii) Is established for the sole benefit of this person by their parent, grandparent, legal guardian, or a court; and

     (iii) Stipulates that the state will receive all amounts remaining in the trust upon the death of the client, the end of the disability, or the termination of the trust, whichever comes first, up to the amount of Medicaid spent on the client's behalf; or

     (b) A person regardless of age, who is disabled as defined by SSI criteria (as described in WAC 388-503-0510), and the trust meets the following criteria:

     (i) It is irrevocable;

     (ii) It is established and managed by a nonprofit association;

     (iii) A separate account is maintained for each beneficiary of the trust but for purposes of investment and management of funds the trust pools the funds in these accounts;

     (iv) Accounts in the trust are established solely for the benefit of the disabled individual as defined by the SSI program;

     (v) Accounts in the trust are established by:

     (A) The individual;

     (B) The individual's spouse, where the spouse is acting in the place of or on behalf of the individual;

     (C) The individual's parent, grandparent, legal guardian;

     (D) A person, including a court or administrative body, with legal authority to act in place of or on behalf of the individual or the individual's spouse; or

     (E) A person, including a court or administrative body, acting at the direction or upon the request of the individual or the individual's spouse.

     (vi) It stipulates that either:

     (A) The state will receive all amounts remaining in the client's separate account upon the death of the client, the end of the disability, or the termination of the trust, whichever comes first, up to the amount of Medicaid spent on the client's behalf; or

     (B) The funds will remain in the trust to benefit other disabled beneficiaries of the trust.

     (8) Trusts described in subsection (6)(a) and (7)(a) continue to be considered an unavailable resource even after the individual becomes age sixty-five. However, additional transfers made to the trust after the individual reaches age sixty-five would be considered an available resource and would be subject to a transfer penalty.

     (9) The department does not apply a penalty period to transfers into a trust described in subsections (6)(b) and (7)(b) if the trust is established for the benefit of a disabled individual under age sixty-five as described in WAC 388-513-1364 and the transfer is made to the trust before the individual reaches age sixty-five.

     (10) The department considers any payment from a trust to the client to be unearned income. The department considers any payment to or for the benefit of either the client or client's spouse as described in subsections (4)(e) and (5)(e) to be unearned income.

     (11) The department will only count income received by the client from trusts and not the principal, if:

     (a) The beneficiary has no control over the trust; and

     (b) It was established with funds of someone other than the client, spouse or legally responsible person.

     (((8))) (12) This section does not apply when a client establishes that undue hardship exists.

     (((9))) (13) WAC 388-5113-1364, 388-513-1365 ((applies)), and 388-513-1366 apply under this section when the department determines that a trust or a portion of a trust is a transfer of assets.

[Statutory Authority: RCW 74.04.050, 74.08.090, and 74.09.500. 01-06-043, § 388-561-0100, filed 3/5/01, effective 5/1/01.]

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