Trust Could Disqualify Spouse From Medicaid

Elder Law Answers case summary.The Michigan Court of Appeals holds that a trust benefiting a community spouse but providing for a possible future trust for the institutionalized spouse could disqualify the institutionalized spouse from Medicaid. In Hegadorn v. Livingston County Department of Health and Human Services (Mich. Ct. App. No. 356756, October 19, 2023).

Mary Ann Hegadorn sought long-term care Medicaid benefits. While she received long-term care, her husband, Ralph Hegadorn, remained in the community.

Mrs. Hegadorn’s assets could not exceed $2,000 for her to receive Medicaid. Using marital assets, her husband created the Ralph D. Hegadorn Irrevocable Trust No. 1 (Hegadorn SBO Trust). He was the beneficiary. The trust terms referenced a second trust as a possible residual beneficiary: the Special Supplemental Care Trust for Mary Ann Hegadorn. If Mr. Hegadorn predeceased his wife, the second trust would benefit her. The second trust is not part of the record.

The Michigan Department of Health and Human Services (MDHHS) denied Mrs. Hegadorn’s Medicaid application. She appealed. The Administrative Law Judge affirmed the decision denying her benefits, determining that the Hegadorn SBO Trust exceeded the community spouse resource alliance. The ALJ found that the contents of the trust could be paid to her, viewing payment to her husband as the same as a payment to her since they were married.

The circuit court reversed. It concluded that the Hegadorn SBO Trust was not countable because it was created before an MDHHS memorandum specified that SBO trusts were countable.

Consolidating the case with two others, this court held that the SBO trust assets were countable. This court reasoned that even though the Hegadorns and other couples intended for the community spouse to exhaust their SBO trust, payments to the institutionalized spouse remained possible.

The Supreme Court reversed and held that under 42 USC 1396r-5(c)(2), the principal of a trust formed solely to benefit the community spouse is not a resource available to the institutionalized spouse. Under 42 USC 1396r-5, Medicaid eligibility depends on the total joint resources and the resources available to the institutionalized spouse on the date of the Medicaid application. A trust benefitting the community spouse is not automatically a countable resource, but it can be under the following circumstances:

  • First, the trust principal must come from the institutionalized spouse’s assets.
  • Second, the institutionalized or community spouse did not use a will to create the will.
  • Third, a payment could benefit the institutionalized spouse.

Since Mrs. Hegadorn’s assets comprised the trust, and a will did not create it, the first two prongs are satisfied. Rather than resolving the third prong, the Supreme Court remanded it to the ALJ.

On remand, the ALJ affirmed the denial of benefits. The ALJ determined that payment to Mr. Hegadorn satisfied the any-circumstances rule because spouses are responsible for each other.

The circuit court reversed the ALJ’s decision because the Hegadorn SBO Trust did not provide payment to the institutionalized spouse, even if Mr. Hegadorn died. Instead, it provided for the creation of a testamentary trust, which is exempt from the any-circumstances test. An appeal to this court followed.

The court of appeals finds that the circuit court was correct in concluding that the ALJ erred in finding that payment to Mr. Hegadorn satisfied the any-circumstances rule. The law allows spouses to maintain separate property.

The circuit court erred concerning the possible future testamentary trust. Contrary to the circuit court’s conclusion, the second trust could satisfy the any-circumstances rule and disqualify Mrs. Hegadorn from Medicaid.

The Hegadorn SBO Trust could fund the Supplemental Care Trust, which would benefit Mrs. Hegadorn. Since the Supplemental Care Trust arises from the first trust’s terms, it could satisfy the any-circumstances test depending on the terms of the Supplemental Care Trust.

As the Supplemental Care Trust is not part of the record, this court remands to the ALJ once again. The ALJ must review the Supplemental Care Trust to determine whether its assets would be countable.

Read the full opinion.