Medicaid Trusts: Cases

Trust corpus found to be countable ( R.I. Super.)
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Jeanne M. Biagetti established a revocable trust in 1998. According to counsel, it became irrevocable in 2001 when she became unable to manage her own financial affairs. When She applied for Medicaid in 2009, however, the trust was found to be a countable resource and Medicaid eligibility was denied. Jean appealed arguing that the trust assets could not be countable because 60 months had passed since the trust became irrevocable. Unfortunately, the Medicaid rules don’t stop there. A self-settled revocable trust is always countable when applying for Medicaid. Regarding self-settled irrevocable trust, distributions of income or principal are treated as income and the principal is countable to the extent that it COULD BE PAID to or for the benefit of individual. Here, the trust provided that “the Trustee may pay such portions of the principal income of this Trust to said beneficiary or expend the same for her benefit.” On appeal, the Court digressed, finding that the trust was countable because it was a support trust. In light of 42 U.S.C. § 1396p(d)(3)(B)(i), the discussion regarding supports trusts is likely moot.
Biagetti v. R.I. Dep’t of Human Services, 2011 R.I. Super. LEXIS 32 (2/25/2011)

Loans from special needs trust must be documented (S.D. Cal.)
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Scott King, an SSI recipient, was the beneficiary of a special needs trust created in 1996 by his mother. On more than one occasion, following SSI’s review of distributions, Scott’s benefits were reduced due to a finding that he had unearned income. The unearned income were payments of $200 per month from the trust to Scott, which he alleged were loans rather than income. Since Scott allegedly had an obligation to repay the loans, he argued they could not count as income. Unfortunately, Scott could not produce the original loan documents to verify that a written loan agreement predated the distributions. The Commission’s decision was affirmed because the Commissioner correctly premised his demand on the requirement that a bona fide loan be established prior to a distribution.
King v. Astrue, 2011 U.S. Dist. LEXIS 16389 (2/18/2011)

Estate recovery claim permitted against remainder trust in spouse’s estate (Iowa App.)
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Bernice Roth received Medicaid from 1993 until her death on January 1, 2008. Bernice and her husband, Gilbert, who died in July 1994, each owned a 47.5% interest in a 131 acre farm at the time of their deaths. Both of them had remainder trust provisions in their Wills providing for a discretionary trust to benefit the surviving spouse, remainder to their children. After Gilbert’s death, the trust was not funded. Instead, Gilbert’s executor kept the estate open during Bernice’s lifetime. Following Bernice’s death, the farm was sold and 47.5% of the proceeds went into each estate. The Department filed estate recover claims in each estate. A partial settlement was negotiated and, at the time, apparently all parties thought Gilbert’s trust had been funded. The settlement provided that $220,000 of the $241,932.44 that was paid to Bernice’s estate would go to the Department, while the remainder was held in the estate to pay administrative expenses. $140,861.17 from Gilbert’s estate was to be placed in an interest bearing account pending resolution of the Department’s claim while the remainder was to be distributed to heirs. When the hearing on the Department’s claim arose, the trial court found that Gilbert’s trust had never been funded and therefore the settlement agreement was based on mistaken facts and was void. The trial court found that the Department could enforce its entire lien against Bernice’s estate because that estate had an interest in Gilbert’s estate before she died. The estate appealed the trial court’s order voiding the agreement. On appeal, the court found that the trial court erred in setting aside the settlement agreement since neither party took action to void it. The Department’s claim, however, was allowed because the remainder trust (deemed a discretionary trust with standards) did not include a provision allowing the trustee to withhold distributions deemed necessary for reasonable health, education, support and maintenance.
In re Estate of Roth, 2010 Iowa App. LEXIS 1587 (12/22/2010)

Payments to and from pooled trust sub-account not income (N.D. Ill.)
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Jovanie Rios was disabled as a result of a brain injury. She settled personal injury litigation that resulted in payment of a lump-sum in 1987 and a lifetime monthly annuity payment. In 2001, Rios’ mother, Ms. Stein, was appointed as her guardian. On July 25, 2003, Ms. Stein entered into a joinder agreement for the Illinois Disability Pooled Trust; an order was issued on July 30, 2003, giving her leave to create the sub-account. The order provided that the Guardian shall direct Safeco Insurance Company to direct deposit all annuity amounts into the Rios Trust. At the time of this litigation, Safeco is making monthly payments to the trust of $2,214.19. Rios applied for SSI on August 31, 2004. There was no dispute that Rios was disabled or that the funds held in the trust were not a resource. However, her SSI application was denied because Social Security contended that payments into the trust as well as distributions from the trust were income. The appeals council, while declining review, extended the logic of the ALJ decision, making review of the Commission’s final decision a hybrid situation. The first issue was whether the annuity was irrevocably assigned to the trust; if so, then POMS SI 01120.200(G)(1)(d) provides that the annuity payment is not income going into the trust. The ALJ and the appeals council both found that the assignment was revocable. The district court, on the other hand, found that Illinois law requires use of a “common sense” approach when construing a court order and use of the word “shall” with no alternative available for the guardian indicates that the 2003 court which directed the assignment intended for the assignment to be irrevocable. The district court also concluded that the ALJ simply didn’t understand how a pooled trust works when it found that “withdrawals” from the trust were countable unearned income. Beyond the fact that Rios had no right to make “withdrawals,” the master trust provided that distributions could not be used for food or shelter. Thus, there was no legal basis for the conclusion that trust distributions were unearned income.
Rios v. Astrue, 2010 U.S. Dist. LEXIS 121256 (11/15/2010)

Court reaches absurd result, preventing parent from naming SNT as beneficiary of retirement benefits (N.J. App.)
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Thomas Saccone, a member of the Police and Firemen’s Retirement System (“PFRS”) tried to change his retirement benefits to designate that his contingent beneficiary, after his wife, would be a supplemental needs trust for his disabled son. His request was denied because the “Division cannot be party to an effort to enable [the disabled son] to continue to be eligible for public assistance by not reporting the benefit he receives as a beneficiary as taxable income.” Saccone appealed and, on appeal, the Court arrived at the incredible conclusion that Saccone was requesting an advisory opinion “since Saccone and his wife are still alive and his son may or may not be alive when Saccone dies.” The court completely ignored the obvious fact that Saccone could not come back and change the designation after he dies, so if the issue isn’t dealt with now, he would not be able to assign the income to his son’s third party trust later.
Saccone v. Board of Trustees, 2010 N.J. Super. Unpub. LEXIS 2755 (11/15/2010)

Ohio Department plays games with pooled trust cases (Ohio App.)
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Paul Kormanik was appointed guardian for two individuals and sought to establish pooled trust sub-accounts with the Ohio McGivney Pooled Special Needs Trust. In each guardianship, Kormanik joined the Department in an action seeking to establish the sub-account in a manner that maintains Medicaid eligibility. In each case the Department filed a motion to dismiss, arguing that Medicaid eligibility can only be determined through the administrative process. The State argued that the trial court should determine whether to establish the trust and then, once the trusts are established, that Medicaid eligibility would be determined on the administrative level. Of course, this position is ludicrous because it invites the court to roll the dice with the lives if disabled individuals. Still, the court found that any decision it made would constitute a determination of Medicaid eligibility and that it had no power to make such a determination. The Department was dismissed from each case. Appeals were filed and the cases were consolidated on appeal. On appeal the court found that the order below was not styled as a “final order” and that no certificate had been issued by the court certifying the cases for immediate review. Accordingly, because the order was not final, the appeals were dismissed on procedural grounds.
Kormanik v. Cooper, 2010 Ohio 4745 (9/30/2010)

Pooled trust authorized after 65 (Tenn. Chan. Ct.)
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Petitioner asked a Tennessee Chancellor to decide whether individuals over 65 years of age may establish a pooled trust sub-account. Petitioner, a 92 year old suffering from Alzheimer’s dementia, placed $5,000 in a pooled trust and the Department penalized that transfer along with other transfers which were also before the court. The Department asked the court to imply a requirement that individuals 65 or older could not establish a pooled trust subaccount; the court refused to do so, finding that the rules of statutory construction required a plain reading of the statute. The court found that the seeming inconsistency between subsections (c) and (d) is easily resolved; Section 42 U.S.C. § 1396p(c)(2)(B)(iv) has no application to first-party trusts and applies only where an applicant for Medicaid seeks to establish his own eligibility while creating a trust for someone else. A separate issue taken up by the court was whether the Department should have imposed a penalty because a deed was structured with survivorship language. The court found that it should be penalized, but remanded the case for a determination of value.
Beach v. State of Tennessee, Dept. of Human Services, Chancery Court, Davidson County Tennessee, No. 09-2120-III (9/8/2010)

Trust found to be a Medicaid Qualifying Trust (Mass. App.)
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Samuel Victor established a family trust in 1981, the same day he executed his Will. The trust was apparently funded with ten dollars. His will then provided for the transfer of additional assets at Samuel’s death. When Ethel Victor, his wife, applied for Medicaid, the Department took the position that the trust was a Medicaid Qualifying Trust. The family argued otherwise, because the trust was funded through the will. The court rejected the family’s argument since will did not create the trust, but merely provided for the transfer of probate assets to the trustee of a family trust.
Victor v. Mass. Executive Office of Health & Human Services, 2010 Mass. App. Unpub. LEXIS 844 (7/21/2010)

Trust is countable; “Could” means “could” (Minn. App.)
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Edna Rosckes set up an irrevocable trust in 2002 after her husband died. She conveyed land to the trust which was sold for cash. The cash was invested. Her son was the Trustee. The trustee had discretion to use income and principal for Edna “in such portions as the trustee deems advisable.” In 2007, Edna went to a nursing home. The Department issued an equivocal letter telling her to spend down her excess assets; it was taken as a denial and an appeal was filed. A formal denial was issued in June 2008 and Edna died shortly after its issuance. The Department challenged the appeal on jurisdictional grounds, both because of Edna’s death and because the appeal was brought by the trust. The court concluded that the court had jurisdiction because the action was brought before Edna’s death, because the trial court was hearing the case as an appeal from the Department and ordinarily counsel of record may file an appeal. The court found is unnecessary to determine whether the court should have substituted a party for the deceased or whether the trustee had standing to bring the appeal. The court then reached the merits, finding that 42 U.S.C. § 1396p(d) provides that an irrevocable trust is countable to the full extent that the grantor “could” receive “any” income or principal. Because the trustee had discretion to pay income and principal to or for Edna, the trust rendered her ineligible for medical assistance.
In re Rosckes, 2010 Minn. App. LEXIS 85 (6/8/2010)

Court upholds Section 1983 claim in part (U.S. Dist. Colo)
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A special needs trust was established for a child disabled from birth due to anoxic brain injury. After malpractice claims were settled in part, the Department agreed to accept $100,000 for past medical care. When remaining claims were settled, the Department demanded full payment on its lien. The child’s parents filed a Section 1983 claim in federal court seeing declaratory and injunctive relief; the Department filed a motion to dismiss. Relying on Hobbs (579 F.3d 1171), the district court dismissed claims premised on 42 U.S.C. § 1396p(d)(4)(A). However, Hobbs did not address the anti-lien statute and the court found that those claims contemplate the protection of an individual. Further, the statutory language “no lien may be imposed” indicated mandatory language. Accordingly, the motion to dismiss those claims was denied.
Perez v. Henneberry, 2010 U.S. Dist. LEXIS 35963 (4/12/2010)

Assignment of beneficial interest in trust triggered 60 month look-back (Ill. App.)
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Bette Zander established an income-only land trust in December, 2003, while she was residing in a group care facility. She transferred three parcels of land to the trust. Less than two weeks after establishing the trust, Bette assigned her beneficial interest in the trust to her three daughters; her daughter, Karen, served as trustee. In January, 2007, Bette applied for Medicaid. In light of the assignment, the Department imposed a transfer penalty from October, 2006, through June 2014. Bette argued that the assignment was subject to a 36 month look-back rather than a 60 month look-back because it was an assignment of personal property rather than a “payment” from the trust. Bette relied on Illinois law, arguing that a beneficial interest is personal property and, therefore, the 36 month look-back applied. The Court rejected that argument and affirmed the Department’s imposition of a penalty. “We are unpersuaded that the legal characterization of beneficial interest in an Illinois land trust as personal property should necessarily exclude from the term “payment” a transfer of assets from a revocable trust under the Department regulations mandated by section 1396p of the Medicaid Act.”
Zander v. Adams, 2010 Ill. App. LEXIS 190 (3/15/2010)

Florida Lawyer Disbarred for Handling of Special Needs Trust (Fla.)
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In a short opinion, the Supreme Court of Florida disbarred Donald Tobkin for five years or until earlier readmitted. Without providing significant detail, it appears as though Tobkin delayed turning over settlement funds to the trustee of the special needs trust. He was required to pay restitution in the form of statutory interest on the undisbursed funds.
Florida Bar v. Tobkin, 2010 Fla. LEXIS 369 (3/10/2010)

Special Needs Trust ineffective until disability is properly determined (N.J. App.)
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Petitioner J.C. was awarded worker’s compensation benefits. After the award, her mother executed a special needs trust which was approved by the administrative law judge. J.C. then applied for Medicaid and food stamps. The Department determined that she was not eligible for Medicaid because a special needs trust can only be used by someone who is disabled. The necessary disability determination must be completed by the Social Security Administration or by the state disability review team. In this case, neither found that she was disabled. On appeal, the court affirmed, finding that the determination was consistent with federal and state law and, therefore, was not arbitrary, capricious or unreasonable.
J.C. v. Division of Medical Assistance and Health Services, 2010 N.J. Super. Unpub. LEXIS 269 (2/8/2010)

Estate recovery permitted against special needs trust (Iowa App.)
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Orville Kinsel established a testamentary special needs trust for his sister, Faye. After Faye’s death, the State sought to recover the remaining trust assets using its expanded estate recovery statute. The trial court found that Faye had an interest in the trust and, therefore, the State could recovery against it. The contingent beneficiary appealed. On appeal, the court found that, notwithstanding discretionary language, inclusion of the phase “support and care” created an enforceable standard. The support standard gave Faye an interest in the trust, which caused it to become accessible under the estate recovery statute. The court rejected an argument that a subsequent statute recognizing discretionary trusts applied because (1) it was enacted after the trust was created and could be viewed as changing substantive rights; and (2) the first sentence, which described a clear support obligation, did not use discretionary language.
In re Kinsel, 2010 Iowa App. LEXIS 81 (2/10/2010)

Trustor’s Income Deposited into SNT for Child Considered in Determining Medicaid Eligibility (NY)
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Mrs. Hammond established a Special Needs Trust for the benefit of her adult son. She deposited all of her income, which consisted of $1,173 social security and $607 pensions, into the Special Needs Trust. She then applied for Medicaid Long Term Care benefits for herself through Nassau County Department of Social Services (hereinafter NCDSS). NCDSS found Hammond eligible for LTC benefits, but determined her full income would be used to calculate her patient liability amount. The Supreme court of New York held that income payable to Hammond, even if deposited into a supplemental needs trust for her adult disabled son, is included in the calculation of the her eligibility for Medicaid during her lifetime and in the calculation of the obligation of the her estate for the reimbursement of a certain portion of those benefits. Once Hammond entered the nursing home and applied for her own Medicaid benefits, the post-eligibility regulations were triggered, and the DOH was, pursuant to its rules, required to count the income Hammond placed in son’s SNT for purposes of determining her own contribution towards her post-eligibility benefits.
Jennings v. Commissioner, N.Y.S. Department of Social Services., 2010 N.Y. App. Div. Lexis 157 (1/5/2010)

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