Trust That Ends If Medicaid Is Denied Is Still an Asset

The Court of Appeals of Iowa has ruled that a trust that terminates if it causes a Medicaid applicant to be denied benefits should still be counted among the applicant's assets. Bidler v. Iowa D.H.S. (Iowa App., No. 1-738/00-0115, March 13, 2002).

On June 2, 1989, Alma Bidler and her husband created an irrevocable trust. The trustee was permitted to pay the Bidlers income and principal from the trust, but the trust stated that funds from the trust could not be used to support the couple if those funds prevented the Bidlers from receiving government benefits. If the trust did cause the denial of government benefits, the trust would terminate.

About nine years later, Mrs. Bidler entered a nursing home and applied for Medicaid coverage of her care. The Iowa Department of Human Services (DHS) counted the trust funds among her assets and denied her application. Mrs. Bidler appealed to the district court, which reversed the DHS ruling. The district court held that because under the trust's terms a denial of government funds terminated the trust, the trust assets were no longer available to Mrs. Bidler and therefore the DHS could not count them.

The DHS then appealed to the Court of Appeals of Iowa, which disagreed with the district court and reversed. The Court of Appeals ruled that the trust terminated only after government benefits were denied. At the time that Mrs. Bidler applied for benefits, the court said, the benefits had not yet been denied. Thus, the trust was still in effect and Mrs. Bidler could still receive funds from it, making them countable by Medicaid as an available asset.

For the full-text of this decision, click here.