The Oklahoma Bar Journal February 2024

In the case of an irrevocable trust, if there are any circum stances under which payments from the trust could be made to or for the benefit of the individ ual, the portion of the principal of the trust, or the income on the principal, from which payment to the individual could be made is considered available resources . Payments from the principal or income of the trust is consid ered income of the individual. Payments for any other pur pose are considered a transfer of assets by the individual and are subject to the sixty (60) months look back period. Any portion of the trust from which, or any income on the principal from which no payment could under any circumstances be made to the individual is considered as of the date of establishment of the trust (or if later, the date on which payment to the individ ual was foreclosed) to be assets disposed by the individual for purposes of the asset transfer rules and are subject to the 60 months look back period. 7 Mindful of the “any circum stances test,” the careful drafter will prohibit the trustee from electing unitrust status or adjust ing between income and princi pal. The trust instrument should further restrict principal distribu tions to the grantor’s spouse. In Daily v. State ex rel. Oklahoma Dept. of Human Services , the Oklahoma Court of Civil Appeals considered an irrevocable trust wherein the grantor’s wife received all the net income and principal of the trust in 48 monthly installments. 8 Any funds remaining in trust at the wife’s death were to be distributed according to her will. The Daily

court held that the entire trust was a countable resource for the grant or’s Medicaid eligibility. 9 Finally, to prevent an argu ment that the grantor can alter the trust, neither the grantor nor their spouse should serve as a trustee. The author is unaware of any reported cases in Oklahoma denying Medicaid eligibility on this basis. Nevertheless, in dealing with Medicaid, it is prudent to exercise caution. Apart from satisfying technical legal requirements, a skillful plan ner will contemplate the family dynamics. Does everyone get along? Are the client’s decision- makers capable and reliable? How comfortable is the client in relinquishing control? It is this last factor that calls for additional planning tools beyond irrevocable trusts. For reasons both personal and practical, agribusiness clients will likely seek to maintain at least some control over the family farm and its operations. In a lot of instances, the kids are too young or inexperienced to assume managerial responsibilities. Crop subsidies and tax breaks might be lost if the farm is transferred to an irrevocable trust. And due to their rigidity, irrevocable trusts are usually poorly suited to oper ating a business. Accordingly, one should consider coupling an irrevocable trust with a family limited liability company. BEWARE THE FAMILY DYNAMICS

each situation is unique, clients typically have a seemingly contra dictory objective of safeguarding assets while retaining manage ment, custody and control of them. As we will see, there is a way to bridge that gap. IRREVOCABLE TRUSTS: A TIME-TESTED TOOL FOR PROTECTING ASSETS FROM LONG-TERM CARE Traditionally, estate planning and elder law attorneys have utilized irrevocable trusts to pro tect assets from long-term care expenses. The reason? They work! If designed properly, irrevocable trusts are largely unreachable by creditors. Significantly, irrevocable trusts can also position the client to qualify for Medicaid and/or veteran’s benefits. With these goals in sight, the trust must possess a few key features. First, it should be irrevocable because a revocable living trust will not adequately protect the assets for the following reasons. Revocable living trusts offer no creditor protection for the grantor. That is because a revocable living trust allows the grantor to alter, amend or revoke the instrument. Likewise, Oklahoma law is clear that the principal of a revocable liv ing trust is an available resource to the grantor for Medicaid purposes. 6 So, while a revocable living trust offers other benefits like probate avoidance, they are ineffective in Medicaid planning. Second, trusts designed to insu late assets from long-term care expenses must forbid the grantor from accessing the corpus (or prin cipal) of the trust. The Oklahoma Administrative Code, which con tains our state’s Medicaid eligibil ity rules, provides as follows:

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

24 | FEBRUARY 2024

THE OKLAHOMA BAR JOURNAL