STATE MEDICAID MANUAL 3257-3259 "Transmittal 64"

GENERAL AND CATEGORICAL

11-94 ELIGIBILITY REQUIREMENTS 3257

3257. TRANSFERS OF ASSETS AND TREATMENT OF TRUSTS

A. General.--Section 13611 of the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) amended §1917 of the Act by incorporating in §§1917(c) and (d) new requirements for treatment of transfers of assets for less than fair market value and for treatment of trusts. The following instructions apply only to transfers made and trusts established after the effective date explained in §3258.2. For transfers made and trusts established before that effective date, the old policies regarding treatment of trusts and transfers apply. See §§3215 and 3250 for instructions on the treatment of trusts established and transfers made before August 11, 1993.

B. Definitions.--The following definitions apply, as appropriate, to both transfers of assets and trusts:

1. Individual.--As used in this instruction, the term "individual" includes the individual himself or herself, as well as:

o The individual’s spouse, where the spouse is acting in the place of or on behalf of the individual;

o 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; and

o Any person, including a court or administrative body, acting at the direction or upon the request of the individual or the individual’s spouse.

2. Spouse.--This is a person who is considered legally married to an individual under the laws of the State in which the individual is applying for or receiving Medicaid.

3. Assets.--For purposes of this section, assets include all income and resources of the individual and of the individual§s spouse. This includes income or resources which the individual or the individual§s spouse is entitled to but does not receive because of any action by:

o The individual or the individual’s spouse;

o 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

o Any person, including a court or administrative body, acting at the direction or upon the request of the individual or the individual’s spouse.

For purposes of this section, the term "assets an individual or spouse is entitled to" includes assets to which the individual is entitled or would be entitled if action had not been taken to avoid receiving the assets.

The following are examples of actions which would cause income or resources not to be received:

o Irrevocably waiving pension income;

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3257 (Cont.) ELIGIBILITY REQUIREMENTS 11-94

o Waiving the right to receive an inheritance;

o Not accepting or accessing injury settlements;

o Tort settlements which are diverted by the defendant into a trust or similar device to be held for the benefit of an individual who is a plaintiff; and

o Refusal to take legal action to obtain a court ordered payment that is not being paid, such as child support or alimony.

However, failure to cause assets to be received does not entail a transfer of assets for less than fair market value in all instances. For example, the individual may not be able to afford to take the necessary action to obtain the assets. Or, the cost of obtaining the assets may be greater than the assets are worth, thus effectively rendering the assets worthless to the individual. Examine the specific circumstances of each case before making a decision whether an uncompensated asset transfer occurred.

4. Resources.--For purposes of this section, the definition of resources is the same definition used by the Supplemental Security Income (SSI) program, except that the home is not excluded for institutionalized individuals. In determining whether a transfer of assets or a trust involves an SSI-countable resource, use those resource exclusions and disregards used by the SSI program, except for the exclusion of the home for institutionalized individuals.

In determining whether resources have been transferred for less than fair market value, you may not apply more liberal definitions of resources which you may be using under §1902(r)(2) of the Act. For transfer of assets purposes, if you are a 209(b) State, you cannot use more restrictive definitions of resources that you may have in your State plan.

However, in determining whether and how a trust is counted in determining eligibility, you may apply more liberal methodologies for resources which you may be using under §1902(r)(2) of the Act. For trust purposes, if you are a 209(b) State, you may use more restrictive definitions of resources that you may have in your State plan.

For noninstitutionalized individuals, the home remains an exempt resource.

5. Income.--For purposes of this section, the definition of income is the same definition used by the SSI program. In determining whether a transfer of assets involves SSI-countable income, take into account those income exclusions and disregards used by the SSI program.

You may not, for transfer of assets purposes, apply more liberal definitions of income that you may be using under §1902(r)(2) of the Act. If you are a 209(b) State, you cannot use more restrictive definitions of income that you may have in your State plan.

However, in determining whether and how a trust is counted in determining eligibility, you may apply more liberal methodologies for income which you may be using under §1902(r)(2) of the Act. Also, for trust purposes, if you are a 209(b) State, you may use more restrictive definitions of income that you may have in your State plan.

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GENERAL AND CATEGORICAL

11-94 ELIGIBILITY REQUIREMENTS 3258.1

6. For the Sole Benefit of.--A transfer is considered to be for the sole benefit of a spouse, blind or disabled child, or a disabled individual if 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 in the future.

Similarly, a trust is considered to be established for the sole benefit of a spouse, blind or disabled child, or disabled individual if the trust benefits no one but that individual, whether at the time the trust is established or any time in the future. However, the trust may provide for reasonable compensation, as defined by the State, for a trustee or trustees to manage the trust, as well as for reasonable costs associated with investing or otherwise managing the funds or property in the trust. In defining what is reasonable compensation, consider the amount of time and effort involved in managing a trust of the size involved, as well as the prevailing rate of compensation, if any, for managing a trust of similar size and complexity.

A transfer, transfer instrument, or trust that provides for funds or property to pass to a beneficiary who is not the spouse, blind or disabled child, or disabled individual is not considered to be established for the sole benefit of one of these individuals. In order for a transfer or trust to be considered to be for the sole benefit of one of these individuals, the instrument or document must provide for the spending of the funds involved for the benefit of the individual on a basis that is actuarially sound based on the life expectancy of the individual involved. When the instrument or document does not so provide, any potential exemption from penalty or consideration for eligibility purposes is void.

An exception to this requirement exists for trusts discussed in §3259.7. Under these exceptions, the trust instrument must provide that any funds remaining in the trust upon the death of the individual must go to the State, up to the amount of Medicaid benefits paid on the individual’s behalf. When these exceptions require that the trust be for the sole benefit of an individual, the restriction discussed in the previous paragraph does not apply when the trust instrument designates the State as the recipient of funds from the trust. Also, the trust may provide for disbursal of funds to other beneficiaries, provided the trust does not permit such disbursals until the State’s claim is satisfied. Finally, "pooled" trusts may provide that the trust can retain a certain percentage of the funds in the trust account upon the death of the beneficiary.

3258. TRANSFERS OF ASSETS FOR LESS THAN FAIR MARKET VALUE

3258.1 General.--Under the transfer of assets provisions in §1917(c) of the Act, as amended by OBRA 1993, you must deny coverage of certain Medicaid services to otherwise eligible institutionalized individuals who transfer (or whose spouses transfer) assets for less than fair market value. You may also choose to deny coverage for certain other services for noninstitutionalized individuals who transfer (or whose spouses transfer) assets for less than fair market value. The following instructions explain the specific circumstances and rules under which you must deny Medicaid services.

The provisions explained in these instructions apply to all States, including those using more restrictive eligibility criteria than are used by the SSI

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3258.1 (Cont.) ELIGIBILITY REQUIREMENTS 11-94

program, under §1902(f) of the Act. Thus, 209(b) States cannot apply periods of ineligibility due to a transfer of resources for less than fair market value except in accordance with these instructions.

A. Definitions.--The following definitions apply to transfers of assets.

1. Fair Market Value.--Fair market value is an estimate of the value of an asset, if sold at the prevailing price at the time it was actually transferred. Value is based on criteria you use in appraising the value of assets for the purpose of determining Medicaid eligibility.

NOTE: For an asset to be considered transferred for fair market value or to be considered to be transferred for valuable consideration, the compensation received for the asset must be in a tangible form with intrinsic value. A transfer for love and consideration, for example, is not considered a transfer for fair market value. Also, while relatives and family members legitimately can be paid for care they provide to the individual, HCFA presumes that services provided for free at the time were intended to be provided without compensation. Thus, a transfer to a relative for care provided for free in the past is a transfer of assets for less than fair market value. However, an individual can rebut this presumption with tangible evidence that is acceptable to the State. For example, you may require that a payback arrangement had been agreed to in writing at the time services were provided.

2. Valuable Consideration.--Valuable consideration means that an individual receives in exchange for his or her right or interest in an asset some act, object, service, or other benefit which has a tangible and/or intrinsic value to the individual that is roughly equivalent to or greater than the value of the transferred asset.

3. Uncompensated Value.--The uncompensated value is the difference between the fair market value at the time of transfer (less any outstanding loans, mortgages, or other encumbrances on the asset) and the amount received for the asset.

4. Institutionalized Individual.--An institutionalized individual is an individual who is:

o An inpatient in a nursing facility;

o An inpatient in a medical institution for whom payment is based on a level of care provided in a nursing facility; or

o A home and community-based services recipient described in §1902(a)(10)(A)(ii)(VI) of the Act. For purposes of this section, a medical institution includes an intermediate care facility for the mentally retarded (ICF/MR). (See 42 CFR 435.1009.)

5. Noninstitutionalized Individual.--A noninstitutionalized individual is an individual receiving any of the services described in §3258.8.

6. Nursing Facility Services.--Nursing facility services are services as described in the State Medicaid Plan as nursing facility services.

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11-94 ELIGIBILITY REQUIREMENTS 3258.4

3258.2 Effective Date.--This section applies to all transfers which are made on or after August 11, 1993. Transfers made before August 11, 1993, are treated under the rules in §3250. While this section applies to transfers made on or after August 11, 1993, penalties for transfers for less than fair market value, as described in §3258.8, cannot be applied to services provided before October 1, 1993. Instead, for the period prior to October 1, 1993, apply pre-OBRA 1993 rules regarding transfers of assets to transfers made on or after August 11, 1993, and before October 1, 1993.

EXAMPLE: An individual who applies for Medicaid transfers an asset on September 1, 1993. The transfer is found to have been made for less than fair market value. As such, a penalty, as described in §3258.8, is assessed. Because the transfer occurred after August 11, 1993, the transfer is assessed under the new rules set forth in this section. However, because a penalty under OBRA 1993 rules cannot apply before October 1, 1993, the penalty assessed under OBRA 1993 in this case begins on October 1, 1993. Pre-OBRA 1993 rules are used to determine whether a penalty is assessed for the period between September 1 and October 1. On October 1, begin using the OBRA 1993 rules for the transfer described in this example.

3258.3 Individuals To Whom Transfer of Assets Provisions Apply.--You must apply these provisions when an institutionalized individual or the individual’s spouse disposes of assets for less than fair market value on or after the look-back date explained in §3258.4. You also have the option of applying this provision to noninstitutionalized individuals when those individuals or their spouses dispose of assets for less than fair market value.

See §3258 for definitions of institutionalized and noninstitutionalized individuals.

For purposes of this section, assets transferred by a parent, guardian, court or administrative body, or anyone acting in place of or on behalf of or at the request or direction of the individual or spouse, are considered to be transferred by the individual or spouse.

For noninstitutionalized individuals, you have the option of applying these provisions. If you wish to apply these provisions to noninstitutionalized individuals, you have the further option of choosing the groups to which the provisions apply. You may apply them to all noninstitutionalized individuals, or to specific categorical groups. However, if you choose to apply these provisions only to some groups, the groups you choose must be recognized groups as listed in §1905(a) of the Act.

3258.4 Look-Back Date and Look-Back Period.--The look-back date is the earliest date on which a penalty for transferring assets for less than fair market value can be assessed. Penalties can be assessed for transfers which take place on or after the look-back date. Penalties cannot be assessed for transfers which take place prior to the look-back date. The look-back date varies for individuals transferring assets, depending on whether they are institutionalized, and there are special rules for some trusts, as described in subsection E.

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3258.4 (Cont.) ELIGIBILITY REQUIREMENTS 11-94

A. Institutionalized Individual.-- For an individual in an institution, the look-back date is 36 months prior to the baseline date. The baseline date is the first date as of which the individual was:

o Institutionalized; and

o Applied for medical assistance under the State plan.

When an individual is already a Medicaid recipient and becomes institutionalized, the baseline date is the date upon which both of the above conditions are met, that is, the first day of institutionalization.

B. Noninstitutionalized Individual.--For a noninstitutionalized individual, the look-back date is 36 months prior to the baseline date, which is the date the individual:

o Applies for medical assistance under the State plan; or, if later,

o The date on which the individual disposes of assets for less than fair market value.

C. Multiple Periods of Institutionalization and Multiple Applications.--When an individual has multiple periods of institutionalization or has made multiple applications for Medicaid (whether or not they are successful), the look-back date is based on a baseline date that is the first date upon which the individual has both applied for Medicaid and is institutionalized. Similarly, if a noninstitutionalized individual has applied for Medicaid more than once and has made more than one transfer of assets, the baseline date is that date on which the individual has first applied for Medicaid or, if later, made the first transfer of assets for less than fair market value after applying. Thus, each individual has only one look-back date, regardless of the number of periods of institutionalization, applications for Medicaid, periods of eligibility, or transfers of assets.

D. Look-Back Period.--The look-back period is the period that begins with the look-back date and ends with the baseline date. This can be 36 or 60 months, depending on whether certain kinds of trusts are involved. (See subsection E for look-back periods involving trusts.) The look-back period is the period of time prior to the baseline date during which a previous transfer of assets for less than fair market value can be penalized. However, it is important to note that transfers which occur after the baseline date are also subject to penalty if they are made for less than fair market value.

NOTE: The 36 month look-back periods described above do not become fully effective until August 11, 1996. Prior to that date, a 36 month look-back period actually begins at some time before the date transfers are covered by these rules. While the 36 month look-back period is effective for transfers made on or after August 11, 1993, any transfers actually made before that date are treated under the rules described in §3250. Thus, the look-back period is phased in over the 36-month period ending August 11, 1996.

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11-94 ELIGIBILITY REQUIREMENTS 3258.4 (Cont.)

EXAMPLE 1: Institutionalized Individual

An individual is institutionalized on February 13, 1997. He/she applies for Medicaid on April 7, 1997. The look-back date is the date 36 months prior to the baseline date, when both initiating requirements are met, i.e., institutionalization and application for Medicaid. That date is April 7, 1997. Thus, the look-back date is April 7, 1994. The look-back period is from April 7, 1994, through April 7, 1997.

EXAMPLE 2: Institutionalized Individual

An individual is institutionalized on February 13, 1995. He/she applies for Medicaid on April 7, 1995. The look-back date is 36 months prior to April 7, 1995, or April 7, 1992. However, because the transfer provisions of OBRA 1993 apply only to transfers made on or after August 11, 1993, any transfers made prior to August 11, 1993, are treated under the rules in §3250.

EXAMPLE 3: Noninstitutionalized Individual

An individual applies for Medicaid on February 13, 1997. On April 7, 1997, he/she transfers an asset for less than fair market value. The look-back date in this case is April 7, 1994, 36 months prior to the baseline date on which he/she transferred the asset. If the asset had been transferred before February 13, 1997 (the date of application for Medicaid), the baseline date would have been February 13, 1997 (the date of application). The look-back period would begin February 13, 1994, and extend to February 13, 1997.

E. Look-Back Period for Transfers of Assets Involving Trusts.--When an individual establishes a revocable trust a portion of which is disbursed to someone other than the grantor or for the benefit of the grantor, that portion is treated as a transfer of assets for less than fair market value. When an individual establishes an irrevocable trust in which all or a portion of the trust cannot be disbursed to or on behalf of the individual, that portion is treated as a transfer of assets for less than fair market value. When a portion of a trust is treated as a transfer, the look-back period discussed in subsection D is extended to 60 months from: