Brown v. Ind. Family & Soc. Servs. Admin.

• Decision Date: 18 November 2015
• Docket Number: No. 87A01–1501–PL–38.,87A01–1501–PL–38.
• Citation: 45 N.E.3d 1233
• Parties: Ada BROWN, Appellant–Defendant, v. INDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION, Appellee–Plaintiff.
• Court: Indiana Appellate Court

45 N.E.3d 1233

Ada BROWN, Appellant–Defendant

v.INDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION, Appellee–Plaintiff.

No. 87A01–1501–PL–38.

Court of Appeals of Indiana.

Nov. 18, 2015.

Kevin R. Patmore, Patmore Law Office, Santa Claus, IN, Attorney for Appellant.

Gregory F. Zoeller, Attorney General of Indiana, Aaron T. Craft, Deputy Attorney General, Indianapolis, IN, Attorneys for Appellee.

VAIDIK

, Chief Judge.

Case Summary

[1] Ada and Roy Brown transferred their home to a trust in 2000 and shortly thereafter made the trust irrevocable. Ten years later, and two years after Ada moved to a nursing home, the trust sold the home for $75,000. In 2012 Ada applied for Medicaid benefits and submitted documentation that the house had sold for $75,000. The Indiana Family and Social Services Administration (“FSSA”) found Ada eligible for Medicaid benefits; however, it imposed a transfer penalty based on the sale of the home in 2010. In calculating the penalty, the FSSA valued the home at $91,900 based on a tax assessment. Ada appealed the imposition of the penalty, the ALJ affirmed, and Ada appealed to this Court. Because the evidence shows that the proceeds from the sale of the house were placed back in the trust, and that the fair market value of the house was $75,000, we reverse the imposition of the transfer penalty. Further, although the FSSA asks us to remand to the agency to redetermine eligibility, we decline to do so as eligibility was never an issue with the FSSA, the ALJ, or the trial court.

Facts and Procedural History

[2] In March 2000, Ada and Roy Brown executed the Brown Joint Primary Trust (“the Trust”). The following month, the Browns conveyed legal title of their Warrick County residence to the Trust for the sum of $1.00. The Trust became irrevocable when Ada and Roy resigned from their trusteeships in October 2000. Ada and Roy lived in their home until February 2008, when seventy-nine-year-old Ada moved to a nursing home because she was suffering from dementia. Roy stayed in the home until June 2010, when Ada and Roy's granddaughter purchased it for $75,000.

[3] On July 25, 2012, Ada filed an application for Medicaid benefits. On August 31, 2012, the FSSA sent Ada a form, which explained that additional information was needed to determine her eligibility. Specifically, the form asked Ada to submit a deed, mortgage, or land contract. The comments accompanying the request provided as follows:

The [W]arrick [C]ounty [A]ssessor site shows the property on 1600 62 E Hwy in Booneville, IN valued at $91,900.00. We showed it sold for $75,000.00. If you disagree with this appraised value then turn in another appraisal to show the home's value. Also, turn in [a] copy of the sales disclosure page, which shows the amount of the gross and net sales and any costs such as closing cost, mortgage, etc for the property on 1600 62 E Hwy in Booneville. If any of the proceed[s] from the sale went to Roy or Ada Brown then turn in verification if they received any proceeds from the sale, when, amount and what happened to the money.

Ex. p. 76.

[4] In response to FSSA's request, Ada submitted the following comments:

Please find following sales disclosure/closing statement for 1600 62 E in Boonville, [Indiana] owned by irrevocable trust. No appraisal was completed by or for the trust, but the price was reduced due to the need to replace the sewer service. No amount or proceeds from the sale of 1600 62 E was paid to or received by Roy or Ada Brown.

[5] Id. at 79. Ada also submitted the following documents: 1) a copy of the Trust; 2) an Indiana Sales Disclosure form from the 2010 sale of the house, which states that the Trust was the seller and the sale price was $75,000; and 3) a settlement statement from the 2010 sale, which provides that the Trust was the seller of the property and that the Trust received $75,000 in cash for the sale of the home.

[6] On September 13, 2012, the FSSA notified Ada that her Medicaid application had been approved and that she was eligible for benefits retroactive to April 1, 2012. The notice also advised her, however, that nursing-facility services would not be covered between April 1, 2012, and August 5, 2013, because FSSA was imposing a transfer penalty due to the 2010 sale of her home.

[7] Brown appealed the imposition of the transfer penalty, and an Administrative Law Judge (“ALJ”) held a hearing in December 2012. At the hearing, Ada's attorney and grandson, Kevin Patmore, testified that the $75,000 proceeds from the sale of the house were placed back in the Trust. In support of his testimony, Patmore pointed to the settlement statement from the 2010 sale, which provided that the Trust was the seller of the property and received $75,000 in cash for the sale. Patmore also testified that the fair market value of the home was its sale price, which was the amount the buyer was willing to pay because a new sewer system was required.

[8] Following the hearing, the ALJ sustained the FSSA's determination. Specifically, the ALJ found that:

10. The community spouse resided in said real estate until the sale on June 10, 2010. This property sold for $75,000. Per best available documents from the Warrick County Assessor's records, the property had a value of $91,900.

11. The State agency contends that the property was sold for less than fair market value. In addition, the proceeds from the sale of the property are subject to the transfer of property rules.

12. The appellant's Authorized Representative contends that the proceeds from the sale of the property were transferred to the Brown Joint Primary Trust and are not subject to transfer of property rules.

13. No evidence that the proceeds from the sale of the real estate at issue were placed in the Brown Joint Primary Trust was submitted.

14. The transfer of the $75,000 in proceeds from the sale of real estate did occur in the look back period and [is] subject to the rules of property transfer.

[9] Tr. p. 133, 135. The trial court denied Ada's petition for judicial review and affirmed the agency action in December 2014. Ada now appeals.

Discussion and Decision

[10] In an appeal from a decision of an administrative agency, our standard of review is governed by the Administrative Orders and Procedures Act (AOPA). Austin v. Ind. Family & Soc. Servs. Admin., 947 N.E.2d 979, 981 (Ind.Ct.App.2011)

. When reviewing an administrative agency decision, we may neither try the case de novo nor substitute our judgment for that of the agency. Id. Judicial review of disputed issues of fact must be confined to the agency record for the challenged action, and we will not reweigh the evidence. Id. We defer to the expertise of the administrative body, and will reverse the agency's decision only if it is:

(1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law;

(2) contrary to a constitutional right, power, privilege, or immunity;

(3) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;

(4) without observance of procedure required by law; or

(5) unsupported by substantial evidence.

Ind.Code § 4–21.5–5–14(d)

; Austin, 947 N.E.2d at 982. The burden of demonstrating the invalidity of an agency action is on the party asserting its invalidity. Id.

[11] Before addressing the merits of this case, we provide a relevant legal background. The Medicaid program, 42 U.S.C. § 1396 et seq. (2001)

, was established by Congress in 1965. Its purpose is to provide medical assistance to needy persons whose income and resources are insufficient to meet the expenses of health care. Ind.

Family & Soc. Servs. Admin. v. Thrush, 690 N.E.2d 769, 771 (Ind.Ct.App.1998), trans. denied. The program operates through a combined scheme of state and federal statutory and regulatory authority. Id. States participating in the Medicaid program must establish reasonable standards for determining eligibility, including the reasonable evaluation of an applicant's income and resources. Id. To qualify for Medicaid, an applicant must meet both an income-eligibility test and a resources-eligibility test. Id. If either the applicant's income or the value of the applicant's resources is too high, the applicant does not qualify for Medicaid. Id.

[12] If an applicant is found to be eligible, federal law requires the FSSA to “look back” sixty months from the date of the application to determine if any uncompensated or undercompensated transfers of assets were made. Austin, 947 N.E.2d at 982

. “Assets” is defined broadly and includes all income and resources of the applicant or recipient, and of the applicant's or recipient's spouse. 405 I.A.C. 2–3–1.1(a)(1). A “transfer of assets” is also defined broadly and “includes any cash, liquid asset, or property that is transferred, sold, given away or otherwise disposed of ... [and] includes any total or partial divestiture of control or access.” 405 I.A.C. 2–3–1.1(d)(1). If a transfer of assets has occurred within the sixty-month look-back period and that transfer was for less than the fair market value, a transfer penalty is imposed, and an institutionalized individual is ineligible for nursing-facility services during the penalty period. 405 I.A.C. 2–3–1.1(c), (e).

[13] This case also involves an irrevocable trust. For the first two decades of Medicaid, an irrevocable trust was not considered an asset in determining whether an applicant was sufficiently needy to qualify for Medicaid benefits. Ramey v. Reinertson, 268 F.3d 955, 958 (10th Cir.2001)

. During this time, financial advisors and attorneys advised their clients to shelter their assets in irrevocable trusts because a trust settlor was able to qualify for public assistance without depleting his assets. Id. He could therefore “once more enjoy those assets if he no longer needed public assistance; and, if such a happy time did not come, could let them pass intact pursuant to the terms of the trust to his heirs.” Cohen v. Comm'r of the Div. of Med. Assistance, 423 Mass. 399, ...