Ruling on a challenge to a Pennsylvania law, the Third Circuit Court of Appeals holds that those over age 65 may transfer assets into a pooled trust, although they may still be subject to a transfer-of-assets penalty. The court also determines that states may not place restrictions on the amount of funds retained by a pooled trust when a Medicaid beneficiary dies, nor may they dictate what types of expenditures a pooled trust can make so long as they are for the sole benefit of a person with disabilities. Lewis v. Alexander (3rd Cir., No. 11-3439, June 20, 2012).
In 2005, Pennsylvania passed a law designed to regulate special needs trusts, including pooled trusts. The new law stated that in order for the assets in a pooled trust to remain uncountable for the purpose of determining a trust beneficiary's Medicaid eligibility, the beneficiary would have to be under the age of 65 and have special needs that would not be met without the trust. Trust expenditures would have to bear a reasonable relationship to the needs of the beneficiary and, upon the death of a pooled trust beneficiary, the state could seek reimbursement for the cost of medical care provided to the beneficiary from up to 50 percent of the funds retained by the pooled trust. A group of pooled trust beneficiaries and several pooled trusts challenged the law in federal court, and the district court ruled primarily in the plaintiffs' favor on a motion for summary judgment.
Pennsylvania submitted a host of arguments on appeal, but substantively the state alleged that 42 U.S.C. § 1396(d)(4) does not require states to exempt special needs trusts from Medicaid asset calculations at all. The state also argued that by restricting access to pooled trusts to people under the age of 65, it was actually seeking to protect Medicaid applicants who were over 65 from incurring a transfer-of-assets penalty for placing funds into a pooled trust.
The 3rd Circuit dismisses the state's arguments and upholds the majority of the district court's ruling. The court finds that "Congress' intent was not merely to shelter special needs trusts from the effect of 42 U.S.C. § 1396p(d)(3). It was to shelter special needs trusts from having any impact on Medicaid eligibility." Ruling on the pooled trust age limit, the court determines that "Congress did not include an age restriction for pooled special needs trusts. On that basis alone, the age restriction . . . transgresses Congressional intent." The court also points out that Congress did place an age restriction on (d)(4)(A) and (d)(4)(b) trusts, clearly distinguishing pooled trusts from the others. The court does note that states may still impose a transfer-of-assets penalty on transfers into pooled trusts by those over age 65, and it also upholds the enforcement provisions of the Pennsylvania statute, which could potentially allow the state to void an entire pooled trust if one trust account is mismanaged.
For the full text of this decision, go to: https://www.ca3.uscourts.gov/opinarch/113439p.pdf
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