Trust Purpose

A trust may be created for any lawful purpose.[1] Although the Medicaid program clearly disfavors trusts, the Medicaid Act does not declare the use of trusts to be illegal.[2] In fact, the Medicaid eligibility rules do not alter property rights. Instead, the Medicaid rules regulate eligibility based on an applicant’s ownership, control or disposal of resources.[3] For that reason, individuals seeking to arrange their legal affairs may use trusts when engaged in estate planning, a time honored lawful purpose.

A trust is unenforceable where it is impossible to comply with its terms,[4] or where the trust is indefinite.[5]

A trust should always state it’s purpose. A special needs trust, for example, will generally state (in some form), that it’s purpose is to supplement, not supplant, public benefits. The following is exemplar language that might be found in a special needs trust:

The purpose of the Trust is to provide for those special needs of “Beneficiary” and to supplement, not reduce or supplant, the public benefits available to “Beneficiary”. “Beneficiary” shall not be considered to have access to income and/or principal of the Trust and has no power to direct the Trustee to make distributions of income and/or principal to “Beneficiary”.

Notes:

1. O.C.G.A. § 53-12-22(a); Restatement (Second) of Trusts, § 59.

2. A trust created for an illegal purpose would be invalid. Restatement (Second) of Trust, § 60. A trust is also invalid if performance of the trust involved commission of a criminal or tortious act, Restatement (Second) of Trusts, § 61, or if enforcement is against public policy. Restatement (Second) of Trusts, § 62.

3. The Medicaid rules regarding trusts appear at 42 U.S.C. § 1396p(d). A trust is invalid if its purpose is to defraud creditors. Restatement (Second) of Trusts, § 63. However, no cause of action exists for a governmental entity or its agents or assignees with respect to a transaction which may otherwise constitute a fraudulent transfer if the transaction complies with the applicable state and federal laws concerning transfers of property in the determination of eligibility for public benefits. O.C.G.A. § 18-2-80(b).

4. Restatement (Second) of Trusts, § 65A.

5. Restatement (Second) of Trusts, § 65B.

Start Here

Enter your name and email address to keep up with what’s new at EZ Elder Law!

  • This field is for validation purposes and should be left unchanged.

[Return to Top]