Trust used for Nursing home payments

TexTekHank

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Feb 24, 1998, 3:00:00 AM2/24/98

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I guess I should have paid more attention to the lecture
on trusts that I attended some time ago! I have a
client whose wife is in a nursing home. He set up a
trust with his daugthe as trustee. All of his wife's
socaial security and pension income apparently goes into
the trust, and the trust pays all of it to the nursing
home. He wasn't aware that a trust return needs to be
prepared and a K-1 provided to him, so now he's going to
get the forms from IRS for his daughter to use. (she is
not my client). He wants me to include the nursing home
payments in his joint return.

I haven't seen the trust papers, so I'm not sure of it's
purpose or it's contents, but it seems to be set up so
as to meet the Medicade eligibility requirements, so I
am wondering about its legality. On the surface it
appears to me that if the income goes to the trust and
the trust pays the nursing home, then the client cannot
claim a deduction. Can someone enlighten me on how to
handle this?

Hank S

Jon J. Gallo

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Mar 5, 1998, 3:00:00 AM3/5/98

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Without regard to whether the trust is being used to
evade Medicaid eligibility rules, the income of the
trust is properly reportable on the joint return since
it is a grantor trust under IRC section 677 (a grantor
is treated as the owner of any portion of a trust with
respect to which the income is used for the grantor's
benefit).

--
Jon J. Gallo
Greenberg Glusker Fields Claman & Machtinger LLP
(310) 201-7460

TexTax2

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Mar 7, 1998, 3:00:00 AM3/7/98

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"Jon J. Gallo" <jga...@ggfcm.com> writes:

> Without regard to whether the trust is being used to
> evade Medicaid eligibility rules, the income of the
> trust is properly reportable on the joint return since
> it is a grantor trust under IRC section 677 (a grantor
> is treated as the owner of any portion of a trust with
> respect to which the income is used for the grantor's
> benefit).

Not according to the info I received from the NATP
research. This type of trust (Miller Trust) is designed
and approved specifically for the case where the person
has no assets, but too much income to qualify for
medicaid. As long as all of the income goes to the
nursing home, the income is not taxable, and the medical
expense is not deductible.

Hank S

HW Skip Weldon

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Mar 8, 1998, 3:00:00 AM3/8/98

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Does advising clients of this Miller Trust run afoul of
the law (against helping people qualify for Medicaid)?

-HW "Skip" Weldon
Columbia, SC

Edward Zollars

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Mar 8, 1998, 3:00:00 AM3/8/98

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wheat....@alfalfa.edu (HW "Skip" Weldon) wrote:

> Does advising clients of this Miller Trust run afoul of
> the law (against helping people qualify for Medicaid)?

If it is what I think it is, most likely it won't cause
a problem because the assets in the trust all go to the
state. So it's not a case of diverting funds to someone
else to get qualified, but rather diverting the funds to
the state.

---
Ed Zollars, CPA Phoenix, AZ
ezo...@primenet.com
http://www.getnet.com/~hmtzcpas