Castle Wealth Group

October 18, 2018

Michigan Supreme Court Hears Arguments on Sole Benefit Trusts for Medicaid Asset Protection

In 2014, Michigan made sweeping changes to how married couples in Michigan could qualify for nursing home Medicaid when one spouse needed care in a nursing home and the other spouse was healthy and living in the community.  Prior to August 2014, elder law attorneys through out Michigan would use a Sole Benefit Trust where they could move money to the healthy spouse.

All of sudden in August 2014, with no notice or warning, Medicaid applications were getting denied across the state.  We wondered what happened?  Well, the state changed their interpretation of the current manual for handling claims.  So, as a group of elder law attorneys, we sued the State of Michigan.  The case finally made it to the Michigan Supreme Court. You can watch it here.  Then below are the rough transcripts.

Now keep in mind, this is just on the Sole Benefit Trust which was a type of trust we could do when an individual was entering a nursing home.  So, within the Medicaid 5 year look back period.  This case has nothing to do with asset protection trusts for Medicaid that start the 5 year look back clock, like Castle Trusts.https://www.youtube.com/embed/MDlIdPrE6Lg

Transcript from The Michigan Supreme Court on Medicaid Sole Benefit Trusts

Stephen Markman: Next argument will be Hegadorn versus Department of Human Services Director.

Jim Steward: May it please the Court. My name is Jim Steward, or James Steward. I’m the attorney for the three appellants in this case who are the plaintiffs below, and I wish to reserve three minutes of my time for rebuttal and it should be noted on the record I’m sharing some of the time with one of the amicus brief attorneys, Ronald Landsman.

Stephen Markman: Can you please pay attention to your time so you don’t intrude on the other and your colleague’s time, if you would.

Jim Steward: Correct.

Stephen Markman: But we will preserve the time that you asked to be preserved.

Jim Steward: Thank you. These cases, as you know, are involving Medicaid applications by an institutional spouse who was married at the time of application, and the division of assets and resources between the institutionalized spouse and the community spouse. The correct starting point for the analysis, though, and determining whether or not the Department has ruled correctly, is to work through the definition of what is a resource.

Jim Steward: A resource is defined in the statute. It does not mean just anything. There is a particular meaning that is attributed to that under the federal rules. And the best statement of that is found in the Code of Federal Regulations at 416, and it’s cited in the briefs.

Jim Steward: And basically, it says that the resources are cash, other liquid assets, or a real, or a personal property that the person owns – the individual or spouse owns – and could convert to cash to be used for his or her support and maintenance, and then goes on to state that if the property right cannot be liquidated, the property will not be considered a resource of the individual or spouse. And that is the starting point that has to be used here because in order to calculate what is a “countable” resource, you have to start with that rule and then go from there.

Jim Steward: The other important thing is that it is the date of the application that determines what assets are gonna be counted by the Department. They must look to that date as controlling what they are to rule upon. And even if the application is actually decided upon and processed two months later, three months later – in the case of Mrs. Ford, some seven to eight months later – it’s still the original date of application that applies in that context.

Jim Steward: The other thing to note is that income is not a resource, and that’s excluded in the statute as well. An item of income is not a resource to the Medicaid applicant if that income is to the community spouse. And that’s true throughout the process.

Jim Steward: And that brings us, then, to the trusts that are involved here, because as has been stated in the briefs, the particular trusts here are what are referred to generally as sole benefit trusts. And there are several different types. But because a Medicaid applicant can create a sole benefit trust for a disabled child, a disabled, another person who’s under age 65, and so on, there’s other types of beneficiaries that can be used.

Jim Steward: And one of those, though, is the spouse. So that was done in all three cases here. The trust was created … Actually in some cases, it may have been actually by the spouse who created it. But they were asked … Because of the wording of the statute, assets were transferred that … Some of which may have belonged to the institutionalized spouse, some of which may have belonged to the community spouse. So those were transferred to those particular trusts. And under the federal scheme, in 1396p, which is what the Court of Appeals decided it was controlling, is that, well, if the institutionalized spouse and community spouse puts assets into the trust, then it’s gonna be treated as though, or could be treated as though the institutionalized spouse created the trust.

Jim Steward: But that doesn’t end the analysis. That’s not where we’re going with what is a countable resource and what is not a countable resource. That just gets us to the point of, well, who created the trust. And the Court of Appeals stopped there, and said, well, since they both could be considered to have created the trust, then it’s all countable. And that is not the rule. That’s when we get into the 1396(d)(3) provisions, that spell out how this is done.

Jim Steward: And the wording that’s used in the statute is referring to the term individual, and that’s use throughout the Medicaid statute, the 1396 provisions and some of the other social security-related statutes, as meaning the person who applied for benefits. That’s the person who is being referred to. And if they want to talk about the spouse of the applicant – in this case, the institutionalized spouse – they refer to that person as the spouse of the individual or the individual’s spouse. And that’s done throughout.

Jim Steward: In fact, all you have to do is look at 1396p(d)(1), (2), and (3), and you can see right in there that when it’s talking about the spouse, it says spouse. When it’s talking about just the individual who is the Medicaid applicant, it just uses that term.

Jim Steward: And that is the term that’s used in the (b)(1) section. It only talks about the individual. If there was a circumstance under which the trust can make payments to the individual – the Medicaid applicant – then it would be countable. But that’s the change from the usual countability rules that applies in the special circumstances outlined in this statute. That does not apply to these sole benefit trusts because the Medicaid applicant individual was not the person who was the beneficiary. The trust does not permit any distributions to the Medicaid applicant.

Bridget M.: Isn’t that not true in one case, counsel? In the Hegadorn case, isn’t it the case that the wife Medicaid recipient is the beneficiary if the community spouse dies first under the testamentary instruments?

Jim Steward: Possibly under the testamentary instruments, but the nature of the sole benefit trust is that it’s supposed to be paying while the beneficiary spouse is alive to that person and only that person. That’s the nature of a sole benefit trust.

Bridget M.: I understand that, but the statute says if there are circumstances under which the trust can benefit, and isn’t that a circumstance under which the trust would benefit?

Jim Steward: No, that is not, because that does not apply while the spouse is living. And so there is no circumstance-

Bridget M.: But the statute doesn’t say if there are circumstances while the spouse is living under which the … It just says if there are circumstances under which it benefits the institutionalized spouse.

Jim Steward: The-

Bridget M.: In that one case, I agree. The other two, the testamentary instruments do not leave it to the institutionalized spouse. But under the one, I’m wondering why that’s not a circumstance.

Jim Steward: Because that does not apply while the spouse is living.

Bridget M.: But that’s not-

Jim Steward: There’s no … While the spouse is living-

Bridget M.: That limitation isn’t in the statute. You want me to read that limitation in the statute.

Jim Steward: I think you have to, because-

Bridget M.: Okay.

Jim Steward: … while the … Under the sole benefit trust rules, in order to qualify, the only beneficiary who can receive payments during that person’s lifetime is the designated beneficiary, and in this case, the spouse of the applicant. That’s the only person who can receive them.

Jim Steward: And the Department, in all three cases, determined that that rule was satisfied – the sole benefit trust rules were satisfied – and so that person was the only person who could receive benefits while they are living. Now, if the person dies, then that would potentially change it, but I don’t recall right now what the structure was, because there are some trusts that, like testamentary-

Bridget M.: It’s at page 204 of your Appendix. It says that it reverts to the wife in that one case. It’s in the documents you gave us.

Jim Steward: I’d have to look at it again. I don’t recall that specific. I know that in some cases, what the document will provide is that if the spouse beneficiary, the husbands in these cases, dies, then the assets can be distributed to a trust under the will of the deceased spouse for the benefit of the institutionalized spouse, and that is an exception. That’s a separate exception where that trust is not countable.

Stephen Markman: Mr. Landsman, you’ve used up your reserve time and you’re beginning to use up Mr. Landsman’s time.

Jim Steward: Okay, then I will leave it there for now, and thank you for your attention.

Stephen Markman: Thank you, counsel.

Ron Landsman: May it please the Court. My name is Ron Landsman. I represent the Friend of the Court, the National Academy of Elder Law Attorneys. So, the issue before the Court is how to treat a trust for the benefit of a spouse under a federal statute that very clearly focuses on trust for the benefit of a Medicaid applicant, and then has provisions to say what to do when the Medicaid applicant could get no benefits under the trust.

Ron Landsman: The statute says treat that situation as a transfer, and that takes you to the transfer rules, which then tells you what to do if a transfer is made to someone for the benefit of the spouse. These provisions are, I’d say, nested in a pretty complicated set of statutes. But a common feature – although there is to provide protections for spouses and disabled children and some others – that avoid the standard resource limitations that we’re all familiar with.

Ron Landsman: 1396p(d) was a statute enacted in ’93, and I think it’s a brilliant statute because it solves the problem about people using trusts for Medicaid planning, and if you drafted it the right way, you could get the best of both worlds. And what Congress said is, no, we’re gonna change the system. If you set up a trust for yourself, the Medicaid applicant, then the money is either available to you, [forced 00:13:02] available, or you’ve transferred it, and there’s no in-between. It’s really quite a brilliant statute. And then there are sets as exceptions on each side. If it’s for your benefit, you get exceptions under (d)(4), where you have payback. If it’s for someone else – spouse, disabled child, someone else under 65 who’s disabled – it then goes under a sole benefit rule, which, once again, is designed to protect that person, but also to protect the Medicaid program. And that’s what happens here.

Ron Landsman: So let me be clear. The fight with the State is over whether you should read these trusts as for the benefit of the spouse as well as for the benefit of the Medicaid applicant. Plainly, Congress said otherwise. The statute, with the 1396p(d) refers to the spouse a couple times. It refers to the spouse when it’s setting up the trust or funding the trust. It refers to the applicant – referring to the Medicaid applicant – 21 times, and in not one of those times does it refer to the spouse of the applicant.

Bridget M.: Counsel, can I ask you. You-

Ron Landsman: Please.

Bridget M.: Why would … If I’m gonna go practice elder law when I leave the Court, why would I ever recommend a client use the annuity provisions that would require that the Medicaid be paid back if the community spouse predeceases-

Ron Landsman: Right.

Bridget M.: … the institutionalized spouse, over this trust provision? Why wouldn’t I steer all of my clients to this trust provision?

Ron Landsman: Oh. That’s easy, Your Honor. If you use a trust, you’ve given up control. You’ve given the money to a trustee who can use the money only for you and not for any other purpose, and has to use it for you during your lifetime. You’ve really made … I mean, your question’s exactly on point. It’s a complicated system, and Congress has approved to set up a number of ways to mitigate the harshness of what began as a poverty program and is not any longer. So there’s the-

Bridget M.: So the-

Ron Landsman: … spousal resource allowance, there are … You can use annuity [inaudible 00:15:18], you can use promissory notes, or you can use the trust. If you use the trust, you’ve done two things. You’ve tied the money up so that you can’t use it for anyone … You’ve given up control, you’ve tied the money up so it can’t be used for anyone else in the world, and it has to be used during your lifetime. That’s the point of sole benefit.

Ron Landsman: That means when the … And you’ve made the choice. I’m gonna get Medicaid for my spouse, but I will not get Medicaid until all of that money that was [protected 00:05:47] for me has been spent on my assisted living, on my nursing home care, on whatever else I need. So-

Bridget M: So-

Ron Landsman: … that’s exactly a choice.

Bridget M.: That’s helpful. I tried to figure out … I looked at elder law sites in other states. I can’t find it. Is Michigan just ahead of the curve, right? Is our Elder Law Bar just smarter and better than the Elder Law Bars [crosstalk 00:16:10]-

Ron Landsman: I won’t [crosstalk 00:16:11] that, Your Honor.

Bridget M.: No, it’s okay if we are.

Ron Landsman: Oh.

Bridget M.: I wanna know. But … No, I’m curious. Why hasn’t this-

Ron Landsman: Oh.

Bridget M.: Why don’t we see this in other states? [crosstalk 00:16:15]

Ron Landsman: Because in Maryland, for example, we’re allowed to put money into a trust, into a … We can fund a trust for the disabled spouse at home over age 65 by putting money into a pooled trust. Many states don’t allow that because of misinterpret … There’s a fight over what that means. In other states, people can use annuities [inaudible 00:16:39]. I don’t know the limitation in Maryland, but you can use annuities.

Bridget M.: But if you use the annuity, and the community spouse predeceases the institutionalized spouse, the annuity then has to repay the Medicaid payment. [crosstalk 00:16:48]

Ron Landsman: No, I understand that, Your Honor. But clients choose to take that risk. I mean, they’re … The goal … My client’s spouse says, I need money to live on, and if I could turn it into income for you, [inaudible 00:16:59] says, okay. She’s not concerned about providing for her kids when people make that choice, and it works.

Bridget M.: But it’s just … So it’s … Sorry. Is it that clients in Michigan just think differently about these? I just don’t understand why the … This has been the … The rules … This isn’t a new rule. Why-

Ron Landsman: Oh. Well-

Bridget M.: Why are there no cases around the country?

Ron Landsman: So, a number of states … Other states, for example, follow what’s called the Assignment Rule. New York, Connecticut, and New Jersey, and D.C., where if the spouse says I’d rather not use my money, but if I’ll … If you want to sue me for support, I’ll pay you support, but I can get to keep my resources. And so in some jurisdictions, that’s an attractive alternative to tying the money up in a trust.

Ron Landsman: The answer is … And there’s actually a recent case from your Court of Appeals, [crosstalk 00:17:51] support orders. So a number of jurisdictions … We tend not to use them in Maryland very much, but a number of Courts are quite liberal in using spousal transfer … resource [crosstalk 00:18:01] orders. If a court authorizes the transfer to the community spouse, the amount that’s transferred, if it’s higher than the normal resource allowance, becomes the new resource allowance for the community spouse. So there are a … You’re right, there-

Bridget M.: So, other states just have different rules in how they-

Ron Landsman: That’s right.

Bridget M.: Okay, gotcha.

Ron Landsman: And some are popular in the west, I mean-

Bridget M.: Gotcha.

Ron Landsman: It’s like it-

Bridget M.: So this is just a-

Ron Landsman: Some are popular … It varies from county to county as well, Your Honor. But that’s a … That’s part of both the complexity of the way Medicaid works and what the Congress has put in place, and how people … We work with our clients to figure out all the choices.

Ron Landsman: So there’s maybe … Let me just … I just want to stick with the [tactical 00:18:48] issue for a minute because the way the statute is written, it says whichever spouse puts money into a trust, if it’s for the benefit of the applicant, it comes under these rules that say it’s available. Think of it like a funnel. Whichever spouse puts money in, if it’s going to the applicant, it’s available.

Ron Landsman: The State wants to turn the funnel upside-down and say, well, if the applicant puts money into the trust, whichever one it goes to, it’s available. But that’s not the way the statute is written. The statute is written very clearly and very carefully to limit its aggressive application, forced availability, only to trusts for the benefit and payable to the Medicaid applicant, not the spouse.

Ron Landsman: Once you recognize … And the State’s case depends upon forced availability. That is to say if there are any circumstances then it’s considered available to the nursing home spouse.

Ron Landsman: Once you’re outside of that rule, how does the statute treat it? It treats it as a transfer, and that takes you over to the transfer rules. And the transfer rules have a number of exceptions. Transfers to anyone under age 65, transfers to a disabled child of any age … I’m sorry, let me … sole benefit of someone under 65 who’s disabled, sole benefit of a disabled child, or the sole benefit of your spouse.

Ron Landsman: And so, for the people who want to make that choice, the money can be put there. At that point, from the spouse’s point of view, the community spouse’s point of view, it’s a third-party trust, and those trusts are somewhat more friendlier in this context, and will result in the assets not being available.

Ron Landsman: The Department says that this gets around spousal rules, and it’s true. It mitigates the effects of the spousal rules just the way annuities do, just the way promissory notes do, just the way other types of transfers do.

Ron Landsman: The federal agency that regulates this system recognizes that. The Center for Medicare and Medicaid Services, in their what we call Transmittal 64 – the State Medicaid Manual Provision – says if you use a trust that meets all the requirements of sole benefit, it can affect eligibility. And all the State’s arguments are in the face of that absolute acknowledgment by the federal agency – that that was Congress’s purpose and that’s one result. I guess I think I’ve used up my time, Your Honor.

Stephen Markman: Are there any further questions?

Ron Landsman: I’d be happy to answer any questions.

Stephen Markman: Thank you, counselor.

Ron Landsman: Thank you.

Geraldine Brown: May it please the Court, Chief Justice Markman, esteemed Justices. My name is Geraldine Brown. I’m an Assistant Attorney General, and I represent the Department of Health and Human Services in this matter.

Geraldine Brown: This case goes to the very heart of what Medicaid is and what it is not. It goes to the heart of who benefits from Medicaid and who cannot. Medicaid is intended for the needy, who otherwise could not provide medical services for themselves. And Medicaid is a limited pool that must be husbanded to provide care to those who really need it.

Geraldine Brown: It is not a subsidy. It is medical care. And because it is for the needy, it is means tested. No one disputes that the three couples here all had too many assets to qualify for Medicaid, and that’s even after they would receive all the benefits of the additional assets and additional income that the Medicaid Catastrophic Care Act allows them.

Geraldine Brown: And no one disputes that they put their excess assets into a trust in order to evade the Medicaid limits. And no one disputes that the assets of both spouses – regardless of how they’re held – are counted for the eligibility of the institutionalized or nursing home spouse.

Geraldine Brown: Appellants are arguing that millionaires, or anyone with excess assets – and that’s regardless of any amount – can qualify for Medicaid long-term care and put the burden on the taxpayers to pay for their nursing home care, just by putting the assets into a trust. And that is not what Congress intended. It is not what the law says.

Geraldine Brown: If Congress wants to provide nursing home care to everyone, it will do so, and it will also provide the funding, which it has not done. I would waive the rest of my [free fire 00:24:08] if you have [crosstalk 00:24:10].

Brian Zahra: That sounded like a great speech to be given from the floor of Congress.

Geraldine Brown: Oh.

Brian Zahra: What you just said. Let me just ask you. 42 U.S.C. 1382, relating to Social Security benefits, has a similar any circumstance rule. Almost identical to 42 U.S.C. 1396p(b), et cetera, except that it specifically provides that any portion of the corpus from which payment to or for the benefit of the individual or the individual’s spouse is countable. Yet Congress didn’t include it in the provision we’re looking at today. How are we supposed to take that?

Geraldine Brown: We believe that both sections are applicable, and that they come to the same result. If you look at 1396-

Brian Zahra: So in the Social Security Act, it really wasn’t necessary for Congress to say that?

Geraldine Brown: To use the spouse?

Brian Zahra: Individual or of the individual’s spouse is countable.

Geraldine Brown: That’s correct. It’s not necessary. In reading the law, in reading [crosstalk 00:25:17]

Brian Zahra: It’s just extra language that they didn’t need to use.

Geraldine Brown: No, it’s the way that the Social Security, the SSI standards, are generally written. They always mention the spouse. But you do come to the same result if you logically follow through the statute.

Geraldine Brown: And Hegadorn, on page 569, did exactly that. They said that it is clear from the statute that assets means all assets of either spouse, that is, the institutionalized spouse and the community spouse. So if the trust pays to the community spouse, her assets are for eligibility deemed to the institutionalized spouse.

Brian Zahra: All right, I want to stick to the language of the statute. 42 U.S.C. 1396p(b)(1) directs the reader to section (d)(3), where it says, “The individual referred to in (d)(3).” Doesn’t that logically refer to the same individual referred to in (d)(1)? And in that case, which is the applicant?

Geraldine Brown: The section (d)(1) does not exclude … Excuse me. I want to look at the exact … P, and-

Brian Zahra: 42 U.S.C. 1396p(d)(1) states that, “For purposes of determining the individual’s eligibility, the rules of 42 U.S.C. 1396p(d)(3) apply to the ‘a trust established by such individual.'”

Geraldine Brown: It does not say that it won’t apply to any other trust for anyone else whose assets must be counted. That is referring to people who have special needs trusts. Congress went to very explicit detail to say that if you have a special needs trust, if you are an individual, you have put your own assets into a special needs trust, and you qualify – and qualifying requires that you be under the age of 65 and that you be disabled under 1382c and a number of other provisions – then you can keep those assets. Those assets will not be counted against you for eligibility.

Geraldine Brown: But for everybody else, Congress essentially made two kinds of trusts. There’s special needs trusts, where – if you qualify – your assets don’t count against you. They will count as income as you take them out, but you can have Medicaid and the special needs trust is intended so that you can have those special things – a van, a special wheelchair, all of those sort of things.

Geraldine Brown: You get down to section (2), and that’s what explains for everyone whose assets must be counted for eligibility. And we know that for a Medicaid eligibility for long-term care, for medically-needy couples like the Hegadorns, Lollars, and Fords, the assets of both spouses must be counted. And there is-

Brian Zahra: Well, how …

Geraldine Brown: There is no reason-

Stephen Markman: Can I ask you a [crosstalk 00:29:02]. How do you reconcile that? I guess I’m following up on Justice Zahra’s question, but how do you reconcile that with the fact that the immediately previous provision, 1396p(d)(2), refers to the individual and the individual’s spouse? Doesn’t that further suggest that the individual in the provision Justice Zahra is asking about is in fact the person applying for benefits, and not also that person’s spouse?

Geraldine Brown: Which section are you looking at now?

Stephen Markman: 1396p(d)(2)(a).

Geraldine Brown: (D)-

Stephen Markman: (D).

Geraldine Brown: (2)(a), yes. All right, I gotta get back to my trust. Yes, so what it’s saying there is we know that you have established trust. Any individual. Any individual on this planet has established a trust if either the individual’s assets are in the trust or the individual’s spouse’s assets are in that trust.

Stephen Markman: But the point is it knows how to differentiate between those two categories there, but it didn’t do that in the provision that Justice Zahra just inquired about.

Brian Zahra: [inaudible 00:30:09], first of three. Section (1)-

Geraldine Brown: Section (1). Section (1) is intended to carve out the exemption for paragraph 4, which is the special needs trust. And in fact, when it tells us about the trust – and this is a section that the Hegadorn Court cited – 42 U.S.C. 1396p(d), in their trust section, at (2)(c), says that this section applies – and that is the section that tells us what’s countable in a trust – applies without regard to, and it says, any restrictions on when or whether disbursements, distributions can be made, and any restrictions on the use of the distributions. So the fact that they just go to the community spouse isn’t significant. We know, from 42 U.S.C. 1396a(a)(17), section (17)(d), that the assets of the spouse are always deemed to be available to the institutionalized spouse.

Stephen Markman: You know, it’s not only this internal inconsistency that concerns me a bit, but I think you cite elsewhere in your brief the Supplemental Security Income statute, and that fairly routinely refers to the individual in the context of the any circumstance test, whereas … I’m sorry, that refers to the individual and the individual’s spouse-

Geraldine Brown: Individual and spouse, yes.

Stephen Markman: … whereas this statute refers just to the individual. I understand that they’re separate statutes, but it seems to me it’s a relevant thing to compare those statutes-

Geraldine Brown: Yes.

Stephen Markman: … just as it is to compare the [inaudible 00:32:19] provisions of the Medicaid statute.

Geraldine Brown: They have limited the term individual to mean applicant. There’s nothing in the statute that actually implies that. An individual … When they’re talking, this is the general rule for trust. And how do you know how to deal with assets in a trust for anyone whose assets must be counted? Any individual. And this is the way any individual’s assets will be evaluated.

Geraldine Brown: They would like you to believe that even though Congress says over and over again that the assets of both the institutionalized and the community spouse’s assets are combined and deemed available to each other, that there would be no way to evaluate what they put into a trust. No state permits this.

Richard B.: Counsel, I just have a very basic question, and the thing that I’m just trying to understand is if I create an irrevocable trust, I don’t have … The spouse doesn’t really have access … It’s … I don’t have … It’s not liquid. I can’t control it. It’s irrevocable and I guess the question is, is that if you create an irrevocable trust, who really has control of the money from that point?

Geraldine Brown: Well, what … They made these sole benefit of trust, which only exclude them from getting an investment penalty. But they made them so that it must be spent during their lifetime. But most of that money is immediately available the day after the eligibility determination. They’ve limited 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. But the (d)(2)(c) is pretty clear that it applies without those restrictions. That time element doesn’t matter.

Geraldine Brown: So, yes, for the most part, those assets were immediate … She could take ’em and – he, in this case, they were all husbands – they could’ve taken those assets the next day and had them all in cash, put them in an investment account. So, no, there was no limitation there. They could’ve [setted 00:34:51] them up if they had wanted them to be limited, but they didn’t. They just said they had to be paid to them within their lifetime. Yes, they could’ve gotten it tomorrow.

Richard B.: There was no limitations? There was no … even though it’s an irrevocable trust the money was accessible, available, and open to them at that point?

Geraldine Brown: They put in … The money was, of course, completely available to them ’til they established the trust.

Richard B.: Right.

Geraldine Brown: They deliberately chose to do it. They put it in and the provisions in one of them said the first distribution cannot be made until after the eligibility determination. Another one said that the first distribution, which could be everything in these cases, first distribution took place May 15th. And the third one, the Hegadorn case, never had any limitation whatsoever. They could’ve taken that money at any time. It was always available to them.

Stephen Markman: Any further questions? Well, thank you, counsel.

Geraldine Brown: Thank you very much.

Stephen Markman: Does anyone have any questions for the appellants?

Richard B.: I actually do. I’d like to hear your response to sister counsel’s comment. Is the money, in fact, available at any time without reservation?

Stephen Markman: This is Mr. Steward responding.

Jim Steward: Yeah, this is … No, it is not, because the trustee is the one that has to make the distribution, and as was indicated in the brief, maybe I didn’t mention this in the oral part of this yet, distributions from this type of trust – irrevocable trust – to the beneficiary, in this case, the spouse of the applicant, under the Medicaid rationale, the Medicaid statutory structure, that distribution is income. That is counted as income under the Medicaid system, and the Medicaid system states specifically that no income of the spouse of the applicant is counted as available to the applicant. Very specifically.

Richard B.: Right, but I just want to understand the simplistic fact. If an irrevocable trust is created, can you basically go in and take that money? That’s what … I just wanna understand.

Bridget M.: Can the trustee give … As soon as the eligibility determination is made, can the trustee then distribute all the money back to the community spouse?

Jim Steward: That would depend on the terms of the trust. That might be applicable in some trusts. That’s possible.

Bridget M.: Is it applicable in any of the ones in this case?

Jim Steward: I think that all of ’em actually say that if distributions have been made to the spouse of the applicant on an actuarily sound basis during lifetime of the person. That does not prohibit, though – I will acknowledge – it does not prohibit making a larger distribution to the spouse beneficiary. 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.

Jim Steward: But if that’s done, that is income to that person. It’s after the application has been processed, presumably, and at that point, then, it’s not countable as the applicant’s income or asset because it’s income to the spouse.

Jim Steward: This is just like the annuity situation. This was discussed in the Hughes versus McCarthy case that’s cited in our brief. And I also want to mention that the Hughes versus McCarthy case also addressed your question regarding the contingent beneficiary and analyzed that, and said that it would not adopt that rationale that if the current beneficiary dies, then therefore it’s countable to whoever gets it next. And it cited the Center for Medicare and Medicaid Services and its analysis, and in fact that Department actually filed an amicus brief in that case that addressed that.

Jim Steward: So, the any time in the future thing doesn’t apply to contingent beneficiaries that might take if the current beneficiary dies. That’s not normally within the control of anybody.

Elizabeth C.: So, if we go back to a larger distribution coming from the trust to the community spouse, that could then impact the Medicaid eligibility of the institutionalized spouse?

Jim Steward: No, it does not, because after the person is in the institution, then – in fact, before and after – no income coming to the spouse of the institutionalized spouse is countable to the institutionalized spouse.

Bridget M.: Why wouldn’t everybody do this, then? I just … I still don’t understand why-

Jim Steward: Well.

Bridget M.: … We should all do this. I’m gonna [crosstalk 00:40:12]-

Jim Steward: Well, as attorney Landsman was saying, there’s pros and cons to all of these different options. Annuities are one, there’s a few others that are permitted under the statute very specifically. And so there’s pros and cons to all of them.

Richard B.: What’s the risk? What would the risk be?

Bridget M.: What are the cons? I don’t [crosstalk 00:40:32]

Richard B.: Yeah, what’s the risk?

Bridget M.: [crosstalk 00:40:33] seems like a lot of pros to this one. [crosstalk 00:40:35]-

Richard B.: So if I’m in this situation, what would the risks be for doing this?

Jim Steward: Oh, well, one risk is that, as attorney Landsman said, you’re losing control of the assets and relying on the trustee to follow what they’re supposed to do, and sometimes that doesn’t always happen. And the only contract you have is the trust. So you may be left with having to enforce whatever the trust says to make sure your rights are protected. So there is risk there.

Jim Steward: But the other thing that’s really important here, and the … Oh, there’s a claim, oh, millionaires would do this. Well, millionaires don’t do this. Millionaires aren’t gonna put themselves in a nursing home when they don’t need to if they can afford to pay otherwise. That isn’t what’s done. Could it be conceptually done? Well maybe, but why do that? People want to make sure their care is provided for. The Medicaid system is not a perfect system. That’s not the best way to get care. If you have the money to pay for it otherwise, that’s what most people will do. They don’t want to rely on the Medicaid system.

Jim Steward: What happens here in the middle class, lower and middle middle class, is they don’t have the funds. They don’t have any choice. They have to do something to avoid the spouse losing everything. And in the examples, the Lollar case is particularly graphic. They only had like $40 to $50,000 altogether, total, between the trust and what wasn’t in the trust. We’re not talking about rich people.

Jim Steward: Hegadorn and Ford had a little bit more, $400,000 or so. This is what the spouse has to live on the rest of their life.

Stephen Markman: Okay, your time is up, counsel, unless there’s anything further.

Jim Steward: Nothing further, thank you.

Stephen Markman: Thank you, thank you, all. Case will be submitted.