Hegadorn v. Dep't of Human Servs. Dir., Docket No. 156132
| Decision Date | 09 May 2019 |
| Docket Number | Calendar No. 3, Docket No. 156133,Docket No. 156132, Docket No. 156134 |
| Citation | 931 N.W.2d 571,503 Mich. 231 |
| Parties | Ralph D. HEGADORN, Personal Representative of the Estate of Mary Hegadorn, Plaintiff-Appellant, v. DEPARTMENT OF HUMAN SERVICES DIRECTOR, Defendant-Appellee. Deborah D. Trim, Personal Representative of the Estate of Dorothy Lollar, Plaintiff-Appellant, v. Department of Human Services Director, Defendant-Appellee. Denise Tindle, Personal Representative of the Estate of Roselyn Ford, Plaintiff-Appellant, v. Department of Health and Human Services, Defendant-Appellee. |
| Court | Michigan Supreme Court |
In these consolidated cases, the individual plaintiffs1 were elderly women receiving long-term care in nursing homes. In each case, the plaintiff, an "institutionalized spouse,"2 began receiving long-term care at a nursing home at her own expense. One to two months later, each plaintiff’s husband, a "community spouse,"3 created an irrevocable trust that was solely for his own benefit. Such a trust is commonly called a "solely for the benefit of," or "SBO," trust.4 The couples then transferred a majority of their individual and marital property to each SBO trust or its trustee, giving up any claim of title to that property. Distributions or payments from each SBO trust were to be made on an actuarially sound basis and solely to or for the benefit of the community spouse. The actuarially sound distribution schedule required that each trustee distribute the income and resources held by the trust to each community spouse at a rate that would deplete the trust within the community spouse’s expected lifetime. A short time after each SBO trust was formed, each institutionalized spouse applied for Medicaid benefits. The Department of Health and Human Services5 and its director (collectively, the Department) determined that the entire value of the principal of each SBO trust was a countable asset for the purpose of determining each institutionalized spouse’s eligibility for Medicaid benefits. Thus, the Department concluded that each institutionalized spouse did not show the requisite financial need because the value of the trust assets put their countable resources above the monetary threshold, and it denied each application.
In each case, the plaintiff unsuccessfully contested the Department’s decision in an administrative appeal, but each decision was then reversed on appeal in the circuit court. On appeal in the Court of Appeals, all three cases were consolidated, and the Department’s denial decisions were reinstated in a published opinion.
With the cases having been appealed in this Court, we conclude that the Court of Appeals erred in its interpretation of the controlling federal statutes, which caused the Court of Appeals to improperly reinstate the Department’s denial decisions. As explained in this opinion, the fact that an irrevocable trust, which includes former assets of an institutionalized spouse, can make payments to a community spouse does not automatically render the assets held by the trust countable for the purpose of an institutionalized spouse’s initial eligibility determination. See 42 U.S.C. 1396p(d)(3)(B) ; 42 U.S.C. 1396r-5(c)(2). Accordingly, we reverse the judgment of the Court of Appeals. Because the administrative hearing decision in each case suffered from the same faulty reasoning used by the Court of Appeals, this legal error may have caused the administrative law judges (ALJs) to forgo a more thorough review of the Medicaid applications at issue or to disregard other avenues of legal analysis. Therefore, rather than order that the Medicaid applications be approved at this time, we vacate the hearing decision of the ALJ in each case and remand these cases to the appropriate administrative tribunal for any additional proceedings necessary to determine the validity of the Department’s decision to deny plaintiffs’ Medicaid applications.6
This appeal involves three cases that have been consolidated for the purpose of appellate review. In Docket No. 156132, Mary Ann Hegadorn (Mrs. Hegadorn) began receiving long-term care at the MediLodge Nursing Home in Howell, Michigan, on December 20, 2013. Approximately one month later, her husband, Ralph D. Hegadorn (Mr. Hegadorn), established the "Ralph D. Hegadorn Irrevocable Trust No. 1 (Sole Benefit Trust)." (Hegadorn Trust). Mr. Hegadorn is the beneficiary of the Hegadorn Trust, and neither he nor his wife is the trustee or successor trustee. Section 2.2 of the Hegadorn Trust states that the "Trustee shall distribute the Resources of the Trust at a rate that is calculated to use up all of the Resources during" Mr. Hegadorn’s expected lifetime, and it includes a suggested distribution schedule that is based on the Department’s policies. The Hegadorn Trust also lists another trust as a possible residual beneficiary, stating:
At my death, if my Spouse is surviving, Trustee shall distribute the remaining trust property to the trustee of the Special Supplemental Care Trust for Mary Ann Hegadorn, created by my Will dated the same day as this Agreement, as my Will may be amended from time to time. [Hegadorn Trust, § 3.3 (formatting altered).]
On April 24, 2014, Mrs. Hegadorn applied for Medicaid benefits. The Department subsequently denied Mrs. Hegadorn’s application, determining that her countable assets, including the assets that were placed in the Hegadorn Trust, exceeded the applicable financial eligibility limit.
In Docket No. 156133, Dorothy Lollar (Mrs. Lollar) began receiving long-term care at the MediLodge Nursing Home in Howell, Michigan, on May 1, 2014. Approximately a month and a half later, Mrs. Lollar’s husband, Dallas H. Lollar (Mr. Lollar), established the "Dallas H. Lollar Irrevocable Trust" (Lollar Trust), which provided that it was intended to "be a ‘Solely for the Benefit of’ trust." Mr. Lollar is the beneficiary of the Lollar Trust, and neither he nor his wife is the trustee or successor trustee. Section 2.2 of the Lollar Trust states that the Trustee "shall ... pay or distribute" to Mr. Lollar, "or for [his] sole benefit, during [his] lifetime such part or all of the net income and principal" of the Trust "as Trustee determines is necessary to distribute the resources in [sic] an actuarially sound basis ...." The Lollar Trust also lists another trust as a possible residual beneficiary, stating that in the event of Mr. Lollar’s death, he "give[s] all the rest, residue and remainder of this Sole Benefit Trust to the Dallas H. Lollar Revocable Trust Agreement U/A/D June 19, 2014, and administered according to the terms of that Agreement." Lollar Trust, § 3.2b (formatting altered). On July 21, 2014, Mrs. Lollar applied for Medicaid benefits. The Department subsequently denied Mrs. Lollar’s application, determining that her countable assets, including the assets that were placed in the Lollar Trust, exceeded the applicable financial eligibility limit.
In Docket No. 156134, Roselyn Ford (Mrs. Ford) began receiving long-term care at the Saline Evangelical Nursing Home in Saline, Michigan, on December 5, 2013. About a month later, Mrs. Ford’s husband, Herbert W. Ford (Mr. Ford), established the "Herbert Ford Irrevocable Trust" (Ford Trust), which provided that it was intended to be "a ‘solely for the benefit of’ trust." Mr. Ford is the beneficiary of the Ford Trust, and neither he nor his wife is the trustee or successor trustee. The Ford Trust also provides that the "Trustee shall ... pay or distribute to [Mr. Ford], or for [his] sole benefit, during his lifetime whatever part of the net income and principal (the Resources) of the Trust that Trustee determines is necessary to distribute the resources on an actuarially sound basis." Section 3.2 of the Ford Trust lists as possible residual beneficiaries separate trusts to be established by Mr. Ford’s will for the benefit of his living children and the descendants of his deceased children. On January 30, 2014, Mrs. Ford applied for Medicaid benefits. The Department subsequently denied Mrs. Ford’s application, determining that her countable assets, including the assets that were placed in the Ford Trust, exceeded the applicable financial eligibility limit.7
Each plaintiff timely requested an administrative hearing to contest the Department’s decision. With respect to Mrs. Hegadorn’s and Mrs. Lollar’s cases, a consolidated hearing was held before ALJ Landis Y. Lain, who affirmed the Department’s decision. With respect to Mrs. Ford’s case, a hearing was held before ALJ Alice C. Elkin, who similarly affirmed the Department’s decision. Each ALJ agreed with the Department that Bridges Eligibility Manual (BEM) 401 required the Department to count the assets held by each trust because the trust could make payments to the community spouse. The ALJs further concluded that this was consistent with the controlling federal statutes. The ALJs made no factual findings and rendered no conclusions of law regarding possible payments to the trusts that are listed as residual beneficiaries in the SBO trusts.
The plaintiff in each case appealed in the appropriate circuit court and, in each case, the circuit court reversed the ALJ’s decision. The Department appealed each circuit court decision in the Court of Appeals, which consolidated the cases. In a published opinion, the panel reversed the circuit courts and reinstated the ALJs’ decisions to deny benefits. Plaintiffs timely sought leave to appeal in this Court. We granted plaintiffs’ application in an order entered March 7, 2018, stating:
The parties shall include among the issues to be briefed whether: (1) the Court of Appeals clearly erred in holding that the trust assets of the plaintiffs’ spouses and decedent Lollar’s spouse are "countable assets" for purposes of Medicaid eligibility; and (2) the Department of Health and Human Services could base its decision on the retroactive application of a...
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