Michigan Justices Hear Dispute Over Medicaid Trusts

(CN) – Attorneys for three Michigan residents receiving long-term care in nursing homes argued before the state’s highest court Tuesday that a spouse’s transfer of assets to a trust should not prevent them from receiving Medicaid benefits.

Before applying for benefits, the spouses of those receiving care created so-called “Medicaid 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.

Over 45 days after their Medicaid applications were filed, the Michigan Department of Health and Human Services adopted a new policy deeming these trusts as “countable assets” and denied the applications.

All three applicants sued but an administrative law judge upheld the decision, which was reversed by a circuit court but then reinstated by the Michigan Court of Appeals last year.

The three-judge panel in the state appeals court ruled the policy change was necessary to comply with federal mandates and that both spouses’ assets should be considered when determining Medicaid eligibility.

“Accordingly, 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 each trust were properly determined to be countable assets by the department,” the 12-page opinion states.

The ruling prompted an appeal to the Michigan Supreme Court. Amicus briefs were filed by the Elder Law and Disability Rights Section of the State Bar along with the National Academy of Elder Law Attorneys, or NAELA.

Attorney James Steward of Steward Sheridan and amicus attorney Ron Landsman of NAELA represented the Medicaid applicants at Tuesday’s oral arguments in the state’s high court.

Michigan Assistant Attorney General Geraldine Brown argued on behalf of the Department of Health and Human Services, telling the seven justices that the couples put their assets in trusts to evade Medicaid limitations.

Justice Richard Bernstein asked her who controls the money in an irrevocable trust.

“[The couples] made these ‘sole benefit of trusts’ which only exclude them from getting an investment penalty, but they made them so that it must be spent during their lifetime. But that money is immediately available the day after the eligibility determination. They limited [it] to after the eligibility determination because they wanted that date to say, ‘Oh it wasn’t available to anyone before that date so you can’t count it,’” Brown replied.

Justice Bridget Mary McCormack asked the applicants’ attorney, Steward, if this was true and if so, whether it could impact an applicant’s eligibility for Medicaid benefits.

“So it is possible, once again depending on the wording of the trust, to make a larger distribution after the particular time has gone by, but if that’s done that is income to that person, it’s after the application has been processed. Presumably, at that point then it’s not countable as the applicant’s income or assets because it’s income to the spouse,” Steward said.

“Why wouldn’t everybody do this then? We should all do it. I’m going to do it,” Justice McCormack remarked.

“One risk, as attorney Landsman said, is you’re losing control of the assets and relying on the trustee to do what they’re supposed to do,” Steward replied.

Arguments lasted about 40 minutes and no timetable has been set for the Michigan Supreme Court’s decision.

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