A federal court rules that Colorado’s Medicaid agency acted properly when it imposed a penalty period on a nursing home resident’s benefits after she transferred her share from the sale of a residence to her late husband’s fully discretionary testamentary trust. Kadingo v. Johnson et al (U.S. Dist. Ct., D. Col., No. 15-cv-02835-NYW, Aug. 14, 2007).
In 2011, nursing home resident Lilafern Kadingo applied for Medicaid benefits. At the time, Mrs. Kadingo was the sole beneficiary of a fully discretionary testamentary trust established by her late husband’s will after his death months earlier. Mrs. Kadingo also owned a residence, which she sold in 2013, placing the proceeds into the trust.
In 2014, the Colorado Department of Health Care Policy and Financing, the state’s Medicaid agency, determined that Mrs. Kadingo had received an overpayment of $98,703.52 in Medicaid benefits. Mrs. Kadingo appealed and an administrative law judge (ALJ) determined that there had been a transfer without fair consideration that warranted a 14-month penalty period. The agency upheld the decision.
Mrs. Kadingo appealed, but before a final agency decision was issued she filed a lawsuit against the agency. Mrs. Kadingo argued that the agency’s policy, which presumed that the failure of a surviving spouse to elect a share of a spouse’s estate is a transfer without consideration, violated her rights insofar as federal Medicaid law excludes testamentary trusts established by the individual or the individual’s spouse from the rules governing the treatment of trusts in eligibility determinations. The agency countered that the rules do not wholly exempt assets contained in testamentary trusts and that because Mrs. Kadingo placed the proceeds from the sale of the residence into the trust and failed to take an elective share of her husband’s estate, it amounted to a transfer without fair consideration. Mrs. Kadingo and the agency filed competing motions for summary judgment.
The United States District Court, D. Colorado, grants the agency’s motion for summary judgment, finding that “…nothing in the [law] suggests that once a testamentary trust is excluded as an exempt trust for the purposes of Medicaid eligibility, later-acquired assets placed in that Trust cannot be considered as some other type of asset for eligibility purposes at all simply because of where they are deposited.” [emphasis in original] The court explains that, if followed, Mrs. Kadingo’s interpretation would undermine the law and allow a recipient to “transfer assets she is legally entitled to under the auspices of the testamentary trust exception while concomitantly avoiding any transfer penalty and enjoying both continued Medicaid benefits as well as the use of the transferred assets.”