Irrevocable Trust Belonging to Community Spouse Is Not Automatically an Available Resource, Michigan High Court Rules

Reversing an appeals court, Michigan's highest court holds that 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. Hegadorn v. Department of Human Services Director (Mich., Nos. 156132, 156133, and 156134, May 9, 2019).

Three women entered nursing homes and their husbands created irrevocable "sole benefit trusts." The trusts allowed the trustee to distribute principal to the husbands as necessary with the expectation that all the resources would be used up during the husbands' lifetimes. A few months later, the women applied for Medicaid. The state determined that the trusts were available assets and denied the applications.

The women appealed, arguing that the trusts were not countable assets because they were for the sole benefit of the husbands. After three trials, two trial courts ruled that the assets in the trust were not available, and the state appealed The cases were consolidated, and the court of appeals reversed, holding that the trusts are available assets because there was a condition under which the principal could be paid to or on behalf of the spouse.

The Michigan Supreme Court reverses, holding that assets in an irrevocable trust for the sole benefit of a community spouse are not automatically countable assets for the purposes of the institutionalized spouse's Medicaid eligibility. According to the court, assets in an irrevocable trust are available to "an institutionalized spouse if there are any circumstances, whether likely or hypothetical, under which the trust could make a payment to or for the benefit of the institutionalized spouse." The court remands the case for additional administrative hearings.

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