(CN) – The Michigan Supreme Court ruled Thursday that nursing home residents cannot be automatically denied Medicaid benefits simply because they transferred assets to a trust benefiting their non-institutionalized spouse.
Justice Richard Bernstein delivered the unanimous ruling in the consolidated cases of Mary Hegadorn, Dorothy Lollar and Roselyn Ford, all of whom died during the appeals process.
All three women were paying for long-term nursing care out of their own pockets. Before applying for Medicaid benefits, the spouses of those receiving care created trusts in which each couple’s assets were moved to a trust solely for the benefit of the non-institutionalized spouse to be paid over that spouse’s lifetime.
The Michigan Department of Health and Human Services denied the Medicaid applications, determining that the entire value of the so-called SBO trusts is a “countable asset.” Applicants do not quality for Medicaid if their countable assets and income exceed $2,000 during the period they apply for benefits.
The trial courts overturned the department’s decision but the Michigan Court of Appeals consolidated the cases and reversed, agreeing with the department that SBO trust assets should be counted.
This set up a showdown in the Michigan Supreme Court, which overturned the appeals courton Thursday.
“The fact that an irrevocable trust, which includes former assets of an institutionalized spouse, can make payments to a community spouse does not automatically render the assets held by the trust countable for the purpose of an institutionalized spouse’s initial eligibility determination,” Justice Bernstein wrote.
But if the trust assets are available to the nursing-home resident under “any circumstances,” Bernstein said, those assets count toward the Medicaid decision.
Instead of approving the Medicaid applications, the Michigan Supreme Court remanded the cases to administrative law judges for the application of the “any circumstances” test.
“If the ALJs determine that circumstances exist under which payments from the trusts could be made to or for the benefit of the institutionalized spouse, then the ALJs should explain this rationale and affirm the department’s decision,” Bernstein wrote. “However, if no such circumstances exist, the ALJs should reverse the department’s decisions and order that the Medicaid applications be approved.”
Chief Justice Bridget McCormack wrote a concurring opinion.
“The majority opinion should not be interpreted as permitting a married Medicaid applicant to shelter and preserve any amount of wealth without restriction, and then immediately receive financial assistance as if she did not have it,” McCormack wrote.
She added that she is not convinced of the plaintiffs’ belief that the transfer of assets is exempt from a divestment penalty.
Without such a penalty, McCormack wrote, “a married applicant can evade virtually every restriction that Congress has placed on Medicaid financial assistance. There would be no limitation on the amount of assets that a Medicaid applicant could transfer penalty-free to her spouse, virtually immediately, not subject to the repayment requirements for (d)(4) trusts and trust-like devices such as annuities, and shielded from Medicaid’s initial resource assessment.”