When are Trust Assets Countable for Medicaid Eligibility?

In three consolidated cases, Hegadorn v DHHS, (Docket No. 329508), the court looked at the individual funding of long-term care under Medicaid deciding that assets placed by an institutionalized individual’s spouse into a “Solely for the Benefit of” Trust (“SBO Trust”) are countable assets for determining whether the institutionalized individual is eligible for Medicaid benefits.

FACTS: The facts in each case are identical. Mary Ann Hegadorn, Dorothy Lollar and Roselyn Ford began receiving long-term care at nursing homes. Within a short time after receiving care, their spouses established “Solely for the Benefit” (SBO) trusts. After the trusts were established, the women applied for Medicaid benefits. The Department of Health and Human Services (the Department) denied their applications determining that each had countable assets, including those placed in the SBO trusts, exceeding the applicable Medicaid benefits eligibility.

Each appealed to an Administrative Law Judge and in each case, the ALJ affirmed the Departments initial asset assessment that because the assets of the parties were in existence when the women entered long-term care, they must be counted in determining eligibility.

In each case, the plaintiffs appealed the ALJ’s decision to the circuit court. Livingston Circuit Judge Michael P. Hatty reversed the ALJ's decisions to affirm the Department’s denial of Mrs. Hegadorn’s and Mrs. Lollar’s applications. Judge Hatty explained that as of the date of the filing of the request for benefits, the assets placed in an SBO trust were not countable to the institutionalized spouse. Later, the Department made a change in policy which would include the assets, adversely affecting the parties. Relying on Hughes v McCarthy, 734 F.3d 473 at 480, he set aside the order of the ALJ on both files. Washtenaw Circuit Judge Timothy P. Connors, relying on Judge Hatty’s reasoning also reversed the ALJ’s decision in the third case.

The MCOA concluded that the circuit courts did not apply the correct legal principles in these appeals, reversing the circuit court’s orders and reinstating the decisions reached by the ALJs.

ANALYSIS

According to the MCOA, each trust at issue in this case was a Medicaid trust. Using the guidance of Bridges Eligibility Manual which stated that the amount of the principal of a trust that is a countable asset depends on the terms of the trust.

Thus, the issue before the court is whether “there is any condition under which the principal could be paid to or on behalf of the institutionalized person from an irrevocable trust.”

After reviewing the sections of each trust title “Distribution of Assets,” the court concluded that the trust assets placed into each trust shortly before the Medicaid applications were filed are to be “use[d] up” during the husbands’ lifetimes. Similarly, all three trusts included language that instructs the trustees to distribute the assets “on an actuarially sound basis,” which means that the “spending must be at a rate that will use up all the resources during the party’s lifetime.”

Thus, the court concluded, because there was a “condition under which the principal could be paid to or on behalf of the person from an irrevocable trust,” the assets in the trusts were properly determined to be countable assets by the Department.”

The COA Disagreed with the Plaintiff’s Argument

The Department didn’t impermissibly change its policy - the change was a clarification of the way it had treated SBO trust assets for Medicaid-eligibility purposes, explaining that the change was required in order to comply with federal mandates, but that is not a change in law or policy.   

Retroactive application - plaintiffs argue that the change was inapplicable to them because the change cannot be retroactively applied. The court disagreed. First, there could be severe consequences statutorily imposed on the Department should it choose not to comply with the federal requirements. Second, the plaintiffs and amicus do not cite, and we are unable to find, any authority to support the proposition that individuals who are not entitled to Medicaid benefits should nevertheless receive them based on an alleged change in interpretation of applicable state and federal authority.

After a review of federal statutes and related administrative manuals, the court concluded that the clear legislative language that Congress intended that when making an initial eligibility determination, states are to consider assets held by the institutionalized spouses - in this case, the plaintiffs - and the community spouses - in this case, the plaintiffs’ husbands.

Accordingly, the court held the assets were countable and reversed the circuit courts’ orders providing otherwise and reinstate the decisions reached by the ALJs.