Irrevocable Trust Belonging to Medicaid Applicant's Spouse Is Available Asset

A Michigan appeals court rules that assets placed in an irrevocable trust by a Medicaid recipient's spouse are countable assets because the principal in the trust can be paid to spouse. Hegadorn v. Department of Human Services Director (Mich. Ct. App., No. 329508, June 1, 2017); Lollar v. Department of Human Services Director (Mich. Ct. App., No. 329511, June 1, 2017); and Ford v. Department of Health and Human Services (Mich. Ct. App., No. 331242, June 1, 2017).

Three women entered nursing homes. 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 and the Michigan Court of Appeals decided the cases together.

The Michigan Court of Appeals reverses, holding that the trusts are available assets. The court rules that when states make an initial eligibility determination, "an institutionalized individual’s assets includes not only those that he or she has, but also those that his or her spouse has." [emphasis in original] According to the court, because "there was a 'condition under which the principal could be paid to or on behalf of the person from an irrevocable trust,' the assets in the trusts were properly determined to be countable assets."

For the full text of this decision, go to: http://publicdocs.courts.mi.gov/OPINIONS/FINAL/COA/20170601_C329508_63_329508.OPN.PDF

Did you know that the ElderLawAnswers database now contains summaries of more than 2,000 fully searchable elder law decisions dating back to 1993? To search the database, click here.