Date of Adoption: February 22, 2003.

     Purpose: Adopting new WAC 388-513-1364 Evaluating the transfer of assets made on or after April 1, 2003, for long-term care (LTC) services, and amending WAC 388-561-0001 Definitions.

     As a cost-saving measure, the department is changing the way penalty periods are determined when a long-term care client transfers assets without adequate consideration. Partial months will now be included in the penalty period determination. To establish clear policy on sole-benefit trusts as they affect a client's eligibility for long-term care program services.

     Citation of Existing Rules Affected by this Order: Amending WAC 388-561-0001.

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

      Adopted under notice filed as WSR 03-02-055 on December 26, 2002.

     Changes Other than Editing from Proposed to Adopted Version: The text of the adopted rule varies from the text of the proposed rule. The changes (other than editing changes) are as follows (additions are identified by underline and deletions are identified by strikethrough):

     New WAC 388-513-1364:

     Effective date of rule has been changed from March 1, 2003, to April 1, 2003, throughout the text.

     Subsection (1) The Department disregards does not apply a penalty period to the following transfers by the client, if they meet the conditions described:

     Subsection (1)(e) The transfer of an asset other than the home, if the transfer meets the conditions described in subsection (4), and the asset is transformed:

     (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 the client's child who meets the disability criteria described in WAC 388-511-1105 (1)(b) or (c); or

     Subsection (1)(f) The asset is transferred to the client's spouse or to the client's child, if the child meets the disability criteria described in WAC 388-511-1105 (1)(b) or (c).

     Subsection (2) The department disregards does not establish a period of ineligibility for the transfer of an asset to a family member prior to the current period of institutional status and does not establish a period of ineligibility, if:

     (a) The transfer is in exchange for care services the family member provided the client;

     (b) The client has a documented need for the care services provided by the family member;

     (c) The care services provided by the family member are allowed under the Medicaid state plan or the department's waivered services;

     (d) The care services provided by the family member do not duplicate those that another party is being paid to provide;

     (e) The FMV of the asset transferred is comparable to the FMV of the care services provided;

     (f) The time for which care services are claimed is reasonable based on the kind of services provided;

     (g) Compensation has been paid as the care services were performed or with no more time delay than one month between the provision of the service and payment; and

     (h) There is a written agreement:

     (i) Describing the terms of the exchange;

     (ii) Stating that the transfer of an asset is considered payment for the care services provided; and

     (iii) Signed by the client and family member prior to the date the provision of services began.

     Subsection (4) The department considers the transfer of an asset or the establishment of a trust 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 that no individual or entity except the spouse, blind or disabled child, or disabled individual can benefit from the assets transferred in any way, whether at the time of the transfer or at any time during the life of the primary beneficiary; and

     (c) Produces a tangible benefit as defined in WAC 388-513-0001; and Provides for spending all assets involved for the sole benefit of the individual on a basis that is actuarially sound based on the life expectancy of that individual or the term or the trust, whichever is less; and

     (d) Is paid out in equal monthly installments or budgeted as if paid out in equal monthly installments within the actuarial life expectancy of the beneficiary. The requirements in subsection (4)(c) of this section do not apply to trusts described in WAC 388-561-0100 (5)(a) and (b).

     Subsection (5) If the transfer or trust does not meet the criteria described in (4)(a), (b), (c), and (d), the asset or trust will be considered available when determining eligibility.

     Subsections (6), (7), (8), (9), (10), and (11) have been renumbered, respectively, as (5), (6), (7), (8), (9), and (10).

     Added definition of:

     "For the sole benefit of" means that for a transfer to a spouse, blind or disabled child, or disabled individual, the transfer is arranged in such a way that no individual or entity except the spouse, blind or disabled child, or disabled individual can benefit from the assets transferred in any way, whether at the time of the transfer or at any time during the life of the primary beneficiary.

     "Sole-benefit trust" means an irrevocable trust established for the sole benefit of a spouse, blind or disabled child, or disabled individual. In a sole-benefit trust no one but the individual named in the trust receives benefit form the trust in any way either at the time the trust is established or at any time during the life of the primary beneficiary in the future. A sole-benefit trust may allow for reasonable costs to trustees for management of the trust and reasonable costs for investment of trust funds.

     "Tangible benefits" means an asset that is producing income consistent with its fair market value (FMV), which is used for the sole benefit of a spouse, blind or disabled child, or disabled individual.

     Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 1, Amended 1, Repealed 0.

     Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0;      Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 1, Amended 1, Repealed 0.
     Effective Date of Rule: April 1, 2003.

February 22, 2003

Bonita H. Jacques

for Brian H. Lindgren, Manager

Rules and Policies Assistance Unit

     (1) The department does not apply a penalty period to 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 of the client's home 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 of 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

     (C) Lived in the home for at least two years immediately before the client's current period of institutional status, and provided care that enabled the client to remain in the home; or

     (iii) 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, if the transfer meets the conditions described in subsection (4), and the asset is transferred:

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

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

     (f) The asset is transferred to the client's spouse or to the client's child, if the child meets the disability criteria described in WAC 388-511-1105 (1)(b) or (c).

     (2) The department does not establish a period of ineligibility for the transfer of an asset to a family member prior to the current period of institutional status, if:

     (a) The transfer is in exchange for care services the family member provided the client;

     (b) The client has a documented need for the care services provided by the family member;

     (c) The care services provided by the family member are allowed under the Medicaid state plan or the department's waivered services;

     (d) The care services provided by the family member do not duplicate those that another party is being paid to provide;

     (e) The FMV of the asset transferred is comparable to the FMV of the care services provided;

     (f) The time for which care services are claimed is reasonable based on the kind of services provided; and

     (g) Compensation has been paid as the care services were performed or with no more time delay than one month between the provision of the service and payment.

     (3) The department considers the transfer of an asset in exchange for care services given by a family member that does not meet the criteria as described under subsection (2) as the transfer of an asset without adequate consideration.

     (4) The department considers the transfer of an asset or the establishment of a trust 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;

     (b) Provides that no individual or entity except the spouse, blind or disabled child, or disabled individual can benefit from the assets transferred in any way, whether at the time of the transfer or at any time during the life of the primary beneficiary; and

     (c) Provides for spending all assets involved for the sole benefit of the individual on a basis that is actuarially sound based on the life expectancy of that individual or the term or the trust, whichever is less; and

     (d) The requirements in subsection (4)(c) of this section do not apply to trusts described in WAC 388-561-0100 (5)(a) and (b).

     (5) If a client or the client's spouse transfers an asset within the look-back period described in WAC 388-513-1365 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 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 days found by dividing the total uncompensated value of the assets by the statewide average daily 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 end on the last day of the whole number of days as described in subsection (5)(a)(ii).

     (6) 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 remain after an acquisition described in subsection (6)(a) becomes an available resource as of the first day of the following month.

     (7) 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).

     (8) 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 of income 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 subsection (8)(a) is divided by the statewide average daily private cost for nursing facilities at the time of application; and

     (c) A penalty period equal to the number of whole days found by following subsections (5)(a) and (b) and (8)(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.

     (9) 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.

     (10) 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.

[]

     "Annuity" means a policy, certificate or contract that is an agreement between two parties in which one party pays a lump sum to the other, and the other party agrees to guarantee payment of a set amount of money over a set amount of time. 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. The party guaranteeing payment can be an:

     (1) Individual; or

     (2) Insurer or similar body licensed and approved to do business in the jurisdiction in which the annuity is established.

     "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 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" or "distribution" means any payment from the principal or proceeds of a trust, annuity, or life estate to the beneficiary or to someone on their behalf.

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

     "Exculpatory clause" means 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.

     "For the sole benefit of" means that for a transfer to a spouse, blind or disabled child, or disabled individual, the transfer is arranged in such a way that no individual or entity except the spouse, blind or disabled child, or disabled individual can benefit from the assets transferred in any way, whether at the time of the transfer or at any time during the life of the primary beneficiary.

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

     "Income beneficiary" means 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 the legal instrument cannot be changed or terminated 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 may 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 meeting all of the following conditions:

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

     (2) It is for the sole benefit of disabled individuals (as determined by SSA criteria);

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

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

     (5) It contains a provision that upon the death of the individual, for any funds not retained by the trust, 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 legal instrument can be changed or terminated by the grantor, or by petitioning the court. A legal instrument that is called irrevocable, but that can be terminated if some action is taken, is revocable for the purposes of this section.

     "Sole-benefit trust" means an irrevocable trust established for the sole-benefit of a spouse, blind or disabled child, or disabled individual. In a sole-benefit trust no one but the individual named in the trust receives benefit from the trust in any way either at the time the trust is established or at any time during the life of the primary beneficiary. A sole-benefit trust may allow for reasonable costs to trustees for management of the trust and reasonable costs for investment of trust funds.

     "Special needs trust" means ((a)) an irrevocable trust meeting all of the following conditions:

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

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

     (3) It contains a provision that upon the death of the individual, the state will receive the 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 trust is paid out according to the will.

     "Trust" means property (such as a home, cash, stocks, or other assets) is transferred to a trustee for the benefit of the grantor or 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, bank, insurance company or any other entity that manages and administers the trust for the beneficiary.

     "Undue hardship" means the client would be unable to meet shelter, food, clothing, and health care needs if the department applied the transfer of assets penalty.

[Statutory Authority: RCW 74.04.050, 74.08.090, and 74.09.500. 01-06-043, § 388-561-0001, filed 3/5/01, effective 5/1/01.]

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