Michigan Supreme Court Approves Using A Trust For A Healthy Spouse As A Valid Medicaid Asset Protection Strategy

In Hegadorn v. Department of Human Services, the Michigan Supreme Court approved the use of a trust established for the sole benefit of the healthy spouse as a valid method to protect the assets of a married couple when the ill spouse is a Medicaid recipient in a nursing home or other long-term care facility. The court held that assets held in a trust for the sole benefit of a community spouse were not “countable resources” when establishing Medicaid eligibility unless there were “any circumstances” under which payment could be made to or for the benefit of the nursing home spouse.

Plaintiffs were three elderly women paying privately for long-term care in nursing homes. After institutionalization, each plaintiff’s husband, identified as the “community spouse” by the Medicaid agency, created an irrevocable trust that was solely for his own benefit (an SBO trust). After each trust was established, the couples then transferred a majority of their property to each SBO trust, giving up any claim of ownership of the property.

After each SBO trust was established, each institutionalized spouse applied for nursing home Medicaid benefits. The Department of Health and Human Services and its director (collectively, the department) determined that the entire value of each SBO trust was a countable asset for the purpose of determining each institutionalized spouse’s eligibility for Medicaid benefits. As a result, the department denied the Medicaid applications because the value of the trust assets put each plaintiff’s countable resources above the $2,000 resource limit.

Plaintiffs contested the department’s determinations regarding their respective applications, and filed appeals. In each case, an administrative law judge (ALJ) affirmed the department’s determination. Plaintiffs again appealed. Plaintiffs all died during the appeals process, and their personal representatives were substituted as parties.

The Court of Appeals granted the department’s application for leave to appeal. Then, the appellate court reversed, holding that assets placed by a Medicaid applicants spouse into an SBO trust are countable assets when determining whether an individual is eligible for Medicaid benefits.

Plaintiffs filed an application for leave to appeal to the Michigan Supreme Court. The application was granted. The Supreme Court held that marital assets placed in an irrevocable trust for the sole benefit of a community spouse are not automatically considered countable assets for the purpose of an institutionalized spouse’s initial eligibility determination for Medicaid long-term-care benefits. Rather, such assets become countable only if circumstances exist under which the trust could make a payment to or for the benefit of the institutionalized spouse. Accordingly, the Court of Appeals judgment and the ALJ’s final hearing decisions in each case were vacated.

The case is attached here – [gview file=”https://vanarellilaw.com/wp-content/uploads/2020/01/Hegadorn-v.-Department-of-Human-Services.pdf”]

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