For nearly two decades, married couples in Michigan have been able to preserve their assets by transferring the entire spend-down amount into an irrevocable trust that officials did not count as an asset for Medicaid purposes. But in an abrupt reversal that blindsided elder law attorneys, the state has issued a memorandum to “clarify policy” that assets in these trusts – known as “Solely for the Benefit Of” or SBO trusts – are now to be considered countable resources.
“In the elder law world, it would be literally like there was an F-5 tornado and we are standing in the rubble and wondering what just happened,” Lisa Beatty, an attorney with the Brighton, Michigan, ElderLawAnswers member firm of the Nawrocki Center for Elder Law, Special Needs & Disability Planning, told a local newspaper, the Livingston Daily.
Michigan elder law attorneys have filed an action in state court that includes a request for an injunction on the grounds that the state's change of interpretation constitutes a de facto policy change. Taking the lead as co-counsel are two members of the litigation committee of the State Bar of Michigan's section on elder law: Sanford Mall of the Farmington Hills firm of Mall Malisow & Cooney. P.C., and David Shaltz of the East Lansing firm of Chalgian & Tripp Law Offices PLLC.
“Michigan's Social Welfare Act requires the agency to give 30 days’ notice to the legislature prior to implementation,” says Mall, who is an ElderLawAnswers member attorney. “This is in addition to the fact that, prior to implementation, the state Medicaid agency is required to give notice to the Centers for Medicare and Medicaid Services of any change in policy that affects eligibility.”
State officials contend that no special notification was necessary.
“Because state compliance with federal law is mandatory, providing notice and knowingly refraining from applying federal law for some period of time was not a viable option,” Michigan Department of Human Services spokesman Bob Wheaton told the Livingston Daily.
But elder law attorneys in the state disagree that federal law requires SBO trust assets to be counted when determining Medicaid eligibility.
“It is our position that the federal law clearly allows the SBO trust under 1396p, the [State Medicaid Manual], CMS, and other case law,” says Mall. “We are also considering federal litigation on the substance if needed.”
Initially, it appeared that as a result of the state’s about-face, clients with SBOs who were approved for Medicaid would lose eligibility at their annual redetermination. However, Mall says that based on a letter received from the governor's legal counsel, “we have reason to believe this change in policy will not be applied at redetermination.” In addition, the state’s memorandum makes clear that while SBO trust assets are being deemed countable, the transfer of assets into an SBO trust for the benefit of the community spouse will not be considered a divestment.
For the moment, Medicaid-compliant annuities and promissory notes are now being considered as alternative planning strategies in Michigan.
For more details on the change and on SBOs, click here.
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