March 3

Medicaid Applicant’s Irrevocable Trust Is an Available Resource Because Trustee Can Make Distributions

An Alabama appeals court rules that a Medicaid applicant’s special needs trust is an available resource because the trustee had discretion to make payments under the trust. Alabama Medicaid Agency v. Hardy (Ala. Civ. App., No. 2140565, Jan. 29, 2016).

Denise Hardy inherited a one-half interest in a house and placed it in an irrevocable trust. The trust instrument stated that the trustee could distribute income to Ms. Hardy at the trustee’s discretion and that the trust was intended to be a special needs trust. Ms. Hardy entered a nursing home and applied for Medicaid. The state determined that the trust was an available resource.

Ms. Hardy appealed, and an administrative law judge agreed that the trust was an available resource. Ms. Hardy appealed to court, arguing that the trust was not available because it was irrevocable and could not be altered. The trial court reversed the state’s decision and ordered the state to pay Ms. Hardy benefits. The state appealed.

The Alabama Court of Civil Appeals reverses, holding the trust is an available resource. According to the court, a trust is an available resource if there is any circumstance under which payments can be made to the beneficiary, and that in this case, “if the house was sold and half of the proceeds of the sale were placed in the trust, the trustee could then make distributions as required by the terms of  [Ms.] Hardy’s trust.”

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February 29

Federal Court Grants Preliminary Injunction Continuing Medicaid Benefits in Decanting Case

A federal district court grants a Medicaid beneficiary’s request for a preliminary injunction preventing the Connecticut Department of Social Services from treating two trusts established for the beneficiary by her deceased mother as countable resources before they were decanted into supplemental needs trusts.  Simonsen v. Bremby (D.Ct., No. 15-cv-1399, Dec. 23, 2015).

Joy A. Miller established two inter vivos trusts for her daughter, Dawn Simonsen, that were funded when Ms. Miller died in 2003.  The trusts, established in Florida, gave the trustee the ability to “pay to [Dawn] or utilize for her benefit so much of the income and principal of her trust as the trustee deems necessary or advisable from time to time for her health, maintenance in reasonable comfort, education and best interest considering all of her resources known to the trustee . . . the trustee is encouraged to be liberal in its use of the funds for her even to the extent of the full expenditure thereof.”  

Ms. Simonsen, a quadriplegic on a ventilator, was admitted to a nursing home in October 11, 2013, and she applied for Medicaid on July 31, 2014.  On August 29, 2014, the trustee of the two trusts successfully petitioned a Florida court for permission to decant the two trusts into two new supplemental needs trusts.  Although the Connecticut Department of Social Services (DSS) initially approved Ms. Simonsen’s Medicaid application, it subsequently determined that the original trusts were countable resources and assessed a seven year transfer of assets penalty for the decanting into the clearly inaccessible supplemental needs trusts.  Ms. Simonsen appealed DSS’s decision and while that appeal was pending filed a request for a preliminary injunction with the federal district court asking it to prohibit the state from terminating her Medicaid benefits and to hold that the previous trusts were not accessible resources, voiding the transfer penalty.

Referring to the Social Security Administration’s Program Operations Manual System (POMS), the U.S. District Court for the District of Connecticut grants the motion for a preliminary injunction, finding that the original trusts are not countable resources because they “do not contain terms providing the beneficiary with any right or authority to direct any payments, and instead empowered the Trustee with the sole discretion to determine when to make a distribution . . . Moreover, the Predecessor Trusts contained a valid spendthrift clause . . . In short, if a trust contains a spendthrift clause, the beneficiary has no legal right or authority to access the trust principal, and, therefore, it is not counted as an available resource for SSI, and consequently Medicaid, eligibility purposes.”

For the full text of this decision, click here. 

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February 8

Medicaid Applicant Entitled to Additional Time to Provide Documentation

An administrative law judge in New Jersey rules that a disabled Medicaid applicant is entitled to additional time to provide documentation to support his application and that the Medicaid agency is required to assist him. R.P. v. Division of Medical Assistance (N.J. Office of Administrative Law, No. HMA 3127-15, Jan. 15, 2016).

R.P. entered a nursing home and applied for Medicaid benefits. Due to a dementia diagnosis, R.P. was unable to assist with the Medicaid application. The state denied the application for failure to provide required documentation.

R.P. filed a second application. The state denied the application again for the same reason, and R.P. appealed, requesting a hearing. R.P.’s attorney claimed that she attempted to obtain the necessary information, but that it was difficult without R.P.’s assistance. She argued R.P. needed additional time.

The administrative law judge (ALJ) rules that R.P. was entitled to additional time to provide the necessary information for the application. According to the ALJ, the regulation requiring applications to be filed in a timely manner was “not intended to be a tool to administratively or procedurally dismiss applications for disabled applicants.” The ALJ also rules that the Medicaid agency should assist R.P. in acquiring the necessary documents.

For the full text of this decision, click here. 

For a summary of the ruling by New Jersey ElderLawAnswers member attorney Donald D. Vanarelli, click here.

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February 4

Medicaid Applicant’s Ability to Occupy House in an Irrevocable Trust Means Trust Is Available Asset

A Massachusetts trial court rules that a Medicaid applicant’s irrevocable trust is an available asset because he retained the right to use and occupy the property that was placed in the trust. Nadeau v. Thorn (Mass. Super. Ct., No. 14-DV-02278C, Dec. 30, 2015).

In 2001, Lionel Nadeau and his wife created an irrevocable trust and transferred their house into the trust. The trust provided that the Nadeaus had the right to use and occupy the house, which they did until Mr. Nadeau entered a nursing home. In 2014, Mr. Nadeau applied for Medicaid benefits. The state considered the trust a countable asset and denied benefits.

Mr. Nadeau appealed. The state affirmed denial of benefits, ruling that the trust was an available asset because he was able to use the property in the trust during his lifetime. Mr. Nadeau appealed to court, arguing that his home could not be considered available unless the trust gave him a right to some sort of payment.

The Massachusetts Superior Court affirms, holding that the trust is an available asset. The court rules that while state regulations may require an asset in an irrevocable trust to be both available and payable, federal regulations in the form of Transmittal 64 provide that payment may include non-cash disbursements, including the right to use and occupy real property.

For the full text of this decision, click here.

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January 28

Discretionary Supplemental Needs Trust Doesn’t Pass Ohio’s Medicaid Test

In a case argued by ElderLawAnswers member William J. Browning, an Ohio appeals court upholds the state’s decision to count the assets in a fully discretionary supplemental needs trust against a Medicaid recipient because the trust contains language allowing the trustee to use funds for the beneficiary’s health or welfare and the beneficiary did not obtain a declaratory judgment stating that the trust is an exempt resource.  Cook v. Ohio Department of Job & Family Services (Ohio. Ct. App.,10th, Nos. 14AP-852, 14AP-853, Nov. 19, 2015).

Virginia Cook was the beneficiary of a supplemental needs trust set up by her mother in 2000.  Between 2004 and 2011, Ms. Cook received Medicaid benefits from the Ohio Department of Job and Family Services (DJFS), but upon review of the trust, DJFS terminated Ms. Cook’s benefits in 2013.  The state claimed that the trust was not an exempt resource because it contained language allowing the trustee to use trust funds for Ms. Cook’s health or welfare and it did not fall within several exceptions.

Ms. Cook appealed, arguing that since the trust was wholly discretionary, it could not be a countable resource and was specifically exempted under state and federal law.  In support of this argument, Ms. Cook pointed to a decision by the Ohio Supreme Court in 2008 (Pack v. Osborn, 117 Ohio St.3d 14, 2008-Ohio-90) that allowed a trustee to obtain a declaratory judgment clarifying that a trust was completely discretionary for purposes of qualifying for Medicaid benefits.  She also argued that the doctrine of equitable estoppel should prevent the state from disapproving a trust it had reviewed and approved in 2004.

The Ohio Court of Appeals, Tenth District, upholds the state’s decision.  The court finds that the trust does not fall within any allowable exceptions and that it is not exempted by law.  The court states that “the proper method for determining whether a trust is a wholly discretionary trust . . . for purposes of a Medicaid eligibility determination is through a declaratory judgment action.  Such an interpretation could then be used in the Medicaid eligibility review process to determine whether the trust qualifies under the exceptions listed [in the statute].”  The court also rejects the equitable estoppel argument because the Ohio Supreme Court has not allowed the doctrine to be used against political subdivisions engaged in governmental functions.

To read the court’s decision, go to: http://www.supremecourt.ohio.gov/rod/docs/pdf/10/2015/2015-Ohio-4966.pdf

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