Original Notice.

Preproposal statement of inquiry was filed as WSR 00-12-078.

Title of Rule: Repealing WAC 388-505-0595 Trusts; and new chapter 388-561 WAC, Trusts, annuities, and life estates -- Effect on medical programs, WAC 388-561-0001 Definitions, 388-561-0100 Trusts, 388-561-0200 Annuities, and 388-561-0300 Life estates.

Purpose: The rule on trusts is being rewritten to make it clearer and easier to understand as required by Governor's Executive Order 97-02. The rules on annuities and life estates are being added to better explain how they affect a client's eligibility for medical assistance.

Statutory Authority for Adoption: RCW 74.04.050, 74.08.090.

Statute Being Implemented: RCW 74.04.050, 74.08.090.

Summary: WAC 388-505-0595 Trusts, is being repealed. The rule on trusts is being moved into new chapter 388-561 WAC, Trusts, annuities, and life estates -- Effect on medical programs. New rule sections have been added for annuities and life estates. A section defining many of the terms associated with trusts, annuities, and life estates has also been added.

Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Mary Beth Ingram, 925 Plum Street, P.O. Box 45534, Olympia, WA 98504-5534, (360) 725-1327.

Name of Proponent: Department of Social and Health Services, Medical Assistance Administration, 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 does not change existing rules.

No small business economic impact statement has been prepared under chapter 19.85 RCW. This proposed rule does not impact small businesses.

RCW 34.05.328 does not apply to this rule adoption. RCW 34.05.328 (5)(b)(vii) exempts DSHS rules that apply to client medical or financial eligibility.

Hearing Location: Blake Office Building East, 4500 10th Avenue S.E., Rose Room, Lacey, WA 98503, on October 3, 2000, at 10:00 a.m.

Assistance for Persons with Disabilities: Contact Kelly Cooper, Rules Coordinator, by September 26, 2000, phone (360) 664-6094, TTY (360) 664-6178, e-mail coopeKD@dshs.wa.gov.

Submit Written Comments to: Identify WAC Numbers, Kelly Cooper, Rules Coordinator, Rules and Policies Assistance Unit, P.O. Box 45850, Olympia, WA 98504-5850, fax (360) 664-6185, by October 3, 2000.

Date of Intended Adoption: Not before October 4, 2000.

August 15, 2000

Marie Myerchin-Redifer, Manager

Rules and Policies Assistance Unit

"Annuitant" means a person or entity that receives the income from an annuity.

     "Annuity" means a policy, certificate or contract that is an agreement between one or more parties and an insurer or similar body, licensed and approved to do business in the jurisdiction in which the annuity is established. It buys the right to receive income in a specific amount for a specific time period. The annuity may be purchased at one time or over a set period of time and may be bought individually or with a group. It may be revocable or irrevocable.

     "Beneficiary" means an individual(s) designated in the trust who benefits from the trust. The beneficiary can also be called the grantee. The beneficiary and the grantor may be the same person.

     "Designated for medical expenses" means that the trustee may use the trust to pay the medical expenses of the beneficiary. The amount of the trust that is designated for medical expenses is considered an available resource to the beneficiary. Payments are a third party resource.

     "Disbursement/distribution" means any payment from the principal or proceeds to the beneficiary or to someone on their behalf.

     "Discretion of the trustee" means that the trustee may decide what portion (up to the entire amount) of the principal of the trust will be made available to the beneficiary.

     "Entity" means, in this section, a trust, annuity, or life estate.

     "Exculpatory clause" means that there is some language in the trust that legally limits the authority of the trustee to distribute funds from a trust if the distribution would jeopardize eligibility for government programs including Medicaid.

     "Grantor" means an individual who uses his assets or funds to create a trust. The grantor may also be the beneficiary.

     "Income beneficiary" means that the person receiving the payments may only get the proceeds of the trust. The principal is not available for disbursements. If this term is used, the principal of the trust is an unavailable resource.

     "Irrevocable" means that the entity cannot be changed or cancelled in any way by anyone.

     "Life estate" means an ownership interest in a property only during the lifetime of the person(s) owning the life estate. In some cases, the ownership interest lasts only until the occurrence of some specific event, such as remarriage of the life estate owner. A life estate owner does not have the legal title or deed to the property, but may have rights to possession, use, income and/or selling their life estate interest in the property.

     "Principal" means the assets that make up the entity. The principal includes income earned on the principal that has not been distributed. The principal is also called the corpus.

     "Proceeds" means the income earned on the principal. It is usually interest, dividends, or rent. When the proceeds are not distributed, they become part of the principal.

     "Pooled trust" means a trust that meets all of the following:

     (1) It was created on or after April 1, 1994;

     (2) It contains funds of more than one disabled individual, combined for investment and management purposes;

     (3) It is for the sole benefit of disabled individuals (as determined by SSA criteria) under sixty-five years old;

     (4) It was created by the disabled individuals, their parents, grandparents, legal guardians, or by a court;

     (5) It is managed by a nonprofit association with a separate account maintained for each beneficiary; and

     (6) It contains a provision that upon the death of the beneficiary, the state will receive all amounts remaining in the individual's separate account up to the total amount of Medicaid paid on behalf of that individual.

     "Revocable" means the entity can be changed or cancelled by the grantor, or by petitioning the court. An entity that is called irrevocable, but that can be terminated if some action is taken, is revocable for the purposes of this section.

     "Special needs trust" means a trust that meets all of the following:

     (1) It was created on or after April 1, 1994;

     (2) It is for the sole benefit of a disabled individual (as determined by SSA criteria) under sixty-five years old;

     (3) It was created by the individual's parent, grandparent, legal guardian, or by a court; and

     (4) It contains a provision that upon the death of the individual, the state will be the first beneficiary of all amounts remaining in the trust up to the total amount of Medicaid paid on behalf of the individual.

     "Testamentary trust" means a trust created by a will from the estate of a deceased person. The beneficiary has no control over establishment of the trust and the trust fund is not given to the beneficiary, but is paid out according to the will. The department does not consider the trust as a resource (see WAC 388-470-0005) or asset to the beneficiary, but payments from the trust are considered income.

     "Trust" means legal title to property (such as a home, cash, stocks, or other assets) is given to one party for the benefit of another party. The department includes in this definition any other legal instrument similar to a trust. For annuities, refer to WAC 388-561-0200.

     "Trustee" means an individual or entity (like a bank or insurance company) that manages and administers the trust for the beneficiary.

     "Ultimate beneficiary" means the entire principal of the trust will be available at a specific point in time.

     "Undue hardship" means the client is in a situation such as when:

     (1) The client must go without life sustaining services because funds from the trust are not made available to pay for those services; or

     (2) The trustee(s) refuse to disburse funds from the trust to the client and the client has actively pursued litigation to make the funds available.

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A trust owned by a client, a client's spouse, or a client's legal dependent affects a client's eligibility for medical programs in the following ways:

     (1) 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 (ICFMR).

     (2) 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 largest amount of money (payments) allowed to be distributed under the terms of the trust for the client if:

     (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.

     This applies whether or not:

     (iv) The trust is irrevocable;

     (v) The trustees actually use the discretion allowed by the trust; or

     (vi) The trust was established for purposes other than to establish eligibility for medical assistance.

     (b) If an irrevocable trust doesn't meet the description under subsection (3)(a) of this section:

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

     (ii) The trust is an available resource in the amount of the trust's assets that:

     (A) The client could access; or

     (B) The trustee of the trust distributes as actual payments to the client; and

     (iii) The department applies WAC 388-513-1365 for regulations concerning the transfer of assets.

     (c) If a revocable trust doesn't meet the description under subsection (2)(a) of this section:

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

     (A) The client; or

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

     (ii) Only the amount of the trust to which the client has access is an available resource of the client, if the trust was established by a person other than the client or the client's spouse.

     (iii) 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.

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

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

     (a) The department will consider 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 will not look at:

     (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 (3)(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 (3)(d)(ii) of this section are a transfer of client assets.

     (e) For an irrevocable trust established as described under subsection (3)(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.

     (4) The following trusts, established on or after August 11, 1993, are not considered available resources if they contain the assets of:

     (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 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:

     (i) Is managed by a nonprofit association which:

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

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

     (C) Stipulates that 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.

     (5) The department considers payments made from trusts in subsection (4) above to be unearned income.

     (6) The department will only count income 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.

     (7) This section of WAC does not apply when a client establishes that undue hardship exists.

     (8) WAC 388-513-1365 applies when the department determines that a trust is a transfer of assets.

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An annuity owned by a client, a client's spouse, or a client's legal dependent affects a client's eligibility for medical programs in the following ways:

     (1) A revocable annuity is counted as an available resource.

     (2) The income received from an irrevocable annuity is counted in determining eligibility and the amount of participation in the cost of care. The annuity itself is not counted as a resource or income.

     (3) For irrevocable annuities established January 1, 2001 or after:

     (a) When the annuity is paid out in equal monthly amounts throughout the actuarial life expectancy of the annuitant, the department counts the payments as income.

     (b) When the annuity is paid out in any other way, the department counts the principal as an available resource.

     (c) If the annuity is paid out other than in equal monthly payments, and will still be paid out within the actuarial life expectancy, in order for the annuity to be considered as income rather than resource a client may:

     (i) Change the irregular or lump sum payments into

equal monthly payments throughout the actuarial life expectancy of the annuitant; or

     (ii) Allow the department to calculate and budget the payments as equal monthly payments throughout the actuarial life expectancy of the annuitant.

     (d) If the annuity is paid out in excess of the actuarial life expectancy of the annuitant, the excess amount beyond the life expectancy is a transfer of resources and the department will decide if there is a penalty.

     (i) In the case of long-term care benefits, there may be a period of ineligibility (see WAC 388-513-1365).

     (ii) In the case of other medical programs, there may be ineligibility in the month of application.

     (4) A revocable annuity is counted as an available resource.

     (5) The income received from an irrevocable annuity is counted in determining eligibility and the amount of participation in the cost of care. The annuity itself is not counted as a resource or income.

     (6) For an annuity to be counted as income the annuitant of an irrevocable annuity must be:

     (a) The client;

     (b) The spouse of the client;

     (c) The blind or disabled child of the client; or

     (d) A person designated to use the annuity for the sole benefit of the annuitant.

     (7) If an annuity has a joint owner (co-annuitant) or an irrevocable beneficiary, who must agree before the policy may be cashed, and refuses to agree, the department does not consider the annuity as available unless the joint owner or irrevocable beneficiary is the community spouse. In that case, the department considers the cash surrender value of the annuity as an available resource and counts it toward the maximum community spouse resource allowance.

     (8) An annuity is subject to the transfer of asset rules (see WAC 388-513-1365) unless it:

     (a) Is irrevocable;

     (b) Is issued by an insurer or other body licensed and approved to do business in the jurisdiction in which the annuity is established;

     (c) Generates an equal monthly payment of interest and principal (the original purchase price) which pays out the principal throughout the actuarial life expectancy of the annuitant; and

     (d) Names the state of Washington's department of social and health services or its successor agency, as the beneficiary of funds remaining in the annuity, not to exceed the total of Medicaid funds spent on the client during the client's lifetime, if the client is single or is married and the annuity is in the client's name.

     (9) The dollar amount of resources from an annuity transferred without adequate consideration equals the difference between what will be paid out to the annuitant within the expected lifetime (based on the actuarial tables) and the principal of the annuity (original purchase price) less any early withdrawal and/or tax penalties. The period of ineligibility is determined according to WAC 388-513-1365 for long-term care (LTC).

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A life estate owned by a client, a client's spouse, or a client's legal dependent affects a client's eligibility for medical programs in the following ways:

     (1) A life estate is an excluded resource if:

     (a) The life estate owner is the client, the life estate is for the client's home and the client is living in or expresses an intent to return to the home; or

     (b) It is property other than the home, which is essential to self-support or part of an approved plan for self-support; or

     (c) It cannot be sold due to refusal of joint life estate owner(s) to sell.

     (2) Only the client's proportionate interest in the life estate is considered if there is more than one owner of the life estate.

     (3) A property owner, who transfers legal ownership to a property creating a life estate, is transferring a resource if the life estate cannot be excluded in subsection (1). Refer to WAC 388-513-1365 for transfer of resources.

     (4) A person must receive fair market value (FMV) for the value of the property transferred when creating a life estate.

     (5) If a person does not receive FMV for the property transferred, then the value of the uncompensated portion of the resource is combined with other nonexcluded resources.

     (6) If the total in subsection (5), exceeds the resource standard (WAC 388-470-0005, 388-478-0070, and 388-478-0080), then:

     (a) For CN/MN medical programs, the client is ineligible during the month of transfer; or

     (b) For long-term care programs, a period of ineligibility will be established (see WAC 388-513-1365).

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     The following section of the Washington Administrative Code is repealed:

WAC 388-505-0595

Trusts.

© Washington State Code Reviser's Office