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| Ron M. Landsman before the Michigan Supreme Court |
Attorneys for three Medicaid applicants who were denied benefits due to irrevocable trusts created by their spouses argued before the Michigan Supreme Court October 9 that the trusts should not be considered available assets. One of the two attorneys representing the applicants was ElderLawAnswers member Ron M. Landsman for amicus National Academy of Elder Law Attorneys.
The case involves three Michigan nursing home residents whose husbands living in the community created irrevocable "sole benefit trusts." The trusts allowed the trustees to distribute principal to the husbands as necessary with the expectation that all the resources would be used up during the husbands' lifetimes. When the wives applied for Medicaid, the state determined that the trusts were available assets and denied the applications.
The women appealed, arguing that the trusts were not countable assets because they were for the sole benefit of the husbands. After three trials, two trial courts ruled that the assets in the trusts were not available; the state appealed, and the Michigan Court of Appeals consolidated the three cases. In Hegadorn v. Department of Human Services Director (Mich. Ct. App., No. 329508, June 1, 2017), the appeals court held that the trusts were available assets. The court ruled that when states make an initial eligibility determination, "an institutionalized individual’s assets includes not only those that he or she has, but also those that his or her spouse has." [emphasis in original] According to the court, 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."
Before the Michigan Supreme Court, Landsman and attorney James Steward argued that the appeals court erred when it interpreted the term "individual" in the federal Medicaid law's irrevocable trust provision to include the individual's spouse. The trusts, they said, are to be treated as transferred for the benefit of the husbands and so are subject to Medicaid’s transfer rules. The attorneys also argued that the state violated due process by retroactively changing its interpretation of the treatment of sole benefit trusts without providing notice. The attorney for the state argued that the spouses put the assets in a trust in order to evade Medicaid law and that if there is any possibility a Medicaid applicant's spouse can get money from a trust, the trust assets must be counted.
Justice Bridget Mary McCormack wanted to know why she didn’t find cases in other states involving such trusts. “Is Michigan just ahead of the curve?” she asked. “Is our elder law bar just smarter and better than the elder law bars [elsewhere]?”
Landsman replied that state rules differ and there are often better alternatives. “In Maryland, for example, we can fund a trust for the disabled spouse at home over age 65 by putting money into a pooled trust,” he said. “Many states don’t allow that.”
After fielding follow-up questions from the justices, Seward closed with an impassioned defense of this type of Medicaid planning. “The claim is that millionaires do this,” he said. “Well, millionaires don’t do this.. . . They don’t want to rely on the Medicaid system. . . . What happens here with the lower and middle class is they don’t have the funds, they have to do something to avoid the spouse losing everything. . . . We’re not talking about rich people. . . . This is what the spouse has to live on the rest of their life.”
For video of the 42-minute oral arguments, go to: https://www.youtube.com/watch?v=MDlIdPrE6Lg
To read the briefs filed in the case, click here.
To read an article about the oral arguments from Courthouse News Service, click here.
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