Hegadorn v. Dep't of Human Servs. Dir.

• Decision Date: 01 June 2017
• Docket Number: No. 331242,No. 329508, No. 329511,329508
• Citation: 320 Mich.App. 549,904 N.W.2d 904
• Parties: Mary Ann HEGADORN, Plaintiff–Appellee, v. DEPARTMENT OF HUMAN SERVICES DIRECTOR, Defendant–Appellant. Estate of Dorothy Lollar, by Deborah D. Trim, Personal Representative, Plaintiff–Appellee, v. Department of Human Services Director, Defendant–Appellant. Roselyn Ford, Plaintiff–Appellee, v. Department of Health and Human Services, Defendant–Appellant.
• Court: Court of Appeal of Michigan — District of US

320 Mich.App. 549

904 N.W.2d 904

Mary Ann HEGADORN, Plaintiff–Appellee,

v.DEPARTMENT OF HUMAN SERVICES DIRECTOR, Defendant–Appellant.

Estate of Dorothy Lollar, by Deborah D. Trim, Personal Representative, Plaintiff–Appellee,

v.Department of Human Services Director, Defendant–Appellant.

Roselyn Ford, Plaintiff–Appellee,

v.Department of Health and Human Services, Defendant–Appellant.

No. 329508

No. 329511

No. 331242

Court of Appeals of Michigan.

Submitted January 13, 2017, at Lansing.

Decided June 1, 2017

Approved for publication July 27, 2017, 9:00 a.m.

Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, Matthew Schneider, Chief Legal Counsel, and Geraldine A. Brown and Chantal B. Fennessey, Assistant Attorneys General, for the Department of Health and Human Services.

Law Office of Gary P. Supanich (by Gary P. Supanich ) for Roselyn Ford.

Amicus Curiae: James Schuster for the Elder Law and Disability Rights Section of the State Bar of Michigan.

Before: M. J. Kelly, P.J., and Stephens and O'Brien, JJ.

Per Curiam.

The Department of Health and Human Services¹ and its Director (collectively, the Department) appeal by leave granted the circuit court orders reversing administrative decisions that affirmed the Department's denial of three individuals' applications for Medicaid benefits. Hegadorn v. Dep't. of Human Servs. Dir., unpublished order of the Court of Appeals, entered December 22, 2015 (Docket No. 329508); Lollar v. Dep't. of Human Servs. Dir., unpublished order of the Court of Appeals, entered December 22, 2015 (Docket No. 329511); Ford v. Dep't. of Health and Human Servs., unpublished order of the Court of Appeals, entered April 27, 2016 (Docket No. 331242). The legal question presented in each case is relatively straightforward: Are assets placed by an institutionalized individual's spouse into a "Solely for the Benefit of" Trust (SBO Trust) countable assets for determining whether the institutionalized individual is eligible for Medicaid benefits? We answer that question in the affirmative.

"To be eligible for Medicaid long-term-care benefits in Michigan, an individual must meet a number of criteria, including having $2,000 or less in countable assets." Mackey v. Dep't of Human Servs., 289 Mich. App. 688, 698, 808 N.W.2d 484 (2010). This criteria—requiring that the individual have $2,000 or less in countable assets—is consistent with the purpose of Title XIX of the Social Security Act, commonly known as the Medicaid Act, 42 U.S.C. 1396 et seq., which "created a cooperative program in which the federal government reimburses state governments for a portion of the costs to provide medical assistance to low-income individuals." Ketchum Estate v. Dep't of Health & Human Servs., 314 Mich. App. 485, 488, 887 N.W.2d 226 (2016) (citation and quotation marks omitted). "Participation in Medicaid is essentially need-based...." Mackey, 289 Mich. App. at 693, 808 N.W.2d 484. As this Court has previously recognized, however, "[t]he act, with all of its complicated rules and regulations, has also become a legal quagmire that has resulted in the use of several ‘loopholes' taken advantage of by wealthier individuals to obtain government-paid long-term care they otherwise could afford." Id. at 693–694, 808 N.W.2d 484. That is precisely the concern that the Department expresses in this case.

Mary Ann Hegadorn (Mrs. Hegadorn), the plaintiff in Docket No. 329508, began receiving long-term care at the MediLodge Nursing Home in Howell, Michigan, on December 20, 2013. Approximately one month later, on January 23, 2014, her husband, Ralph D. Hegadorn (Mr. Hegadorn), established the "RALPH D. HEGADORN IRREVOCABLE TRUST NO. 1 (SOLE BENEFIT TRUST)" (the Hegadorn Trust), which provided that it was intended to be "a ‘Solely for the Benefit Of’ trust." On April 24, 2014, approximately four months after beginning long-term care and three months after her husband had established the Hegadorn Trust, Mrs. Hegadorn applied for Medicaid benefits. The Department denied Mrs. Hegadorn's application on August 14, 2014, determining that her countable assets, including the assets that were placed in the Hegadorn Trust, exceeded the applicable eligibility limit.

Dorothy Lollar (Mrs. Lollar), the plaintiff in Docket No. 329511, began receiving long-term care at the MediLodge Nursing Home in Howell, Michigan, on May 1, 2014. Less than two months later, on June 19, 2014, Mrs. Lollar's husband, Dallas H. Lollard (Mr. Lollar), established the "DALLAS H. LOLLAR IRREVOCABLE TRUST" (the Lollar Trust), which provided that it was intended to "be a ‘Solely for the Benefit of’ trust." On July 21, 2014, approximately three months after beginning long-term care and one month after Mr. Lollar established the Lollar Trust, Mrs. Lollar applied for Medicaid benefits. The Department denied Mrs. Lollar's application on August 29, 2014, determining that her countable assets, including the assets that were placed in the Lollar Trust, exceeded the applicable eligibility limit.

Roselyn Ford (Mrs. Ford), the plaintiff in Docket No. 331242, began receiving long-term care at the Saline Evangelical Nursing Home in Saline, Michigan, on December 5, 2013. Approximately one month later, on January 10, 2014, Mrs. Ford's husband, Herbert W. Ford (Mr. Ford), established the "HERBERT FORD IRREVOCABLE TRUST" (the Ford Trust), which provided that it was intended to be "a ‘solely for the benefit of’ trust." On January 30, 2014, almost two months after beginning long-term care and less than one month after Mr. Ford established the Ford Trust, Mrs. Ford applied for Medicaid benefits. The Department denied Mrs. Ford's application on September 29, 2014, determining that her countable assets, including the assets that were placed in the Ford Trust, exceeded the applicable eligibility limit.

Each plaintiff appealed the Department's determination. A consolidated hearing was held before Administrative Law Judge (ALJ) Landis Y. Lain with respect to Mrs. Hegadorn and Mrs. Lollar. ALJ Lain affirmed the Department's determination with respect to Mrs. Hegadorn and Mrs. Lollar, explaining, in pertinent part, as follows:

In this case, the Ralph D. Hegadorn Trust [with respect to Mrs. Hegadorn or the "Dallas Lollar" Trust with respect to Mrs. Lollar] meets all of the criteria of a Medicaid trust. The person whose resources were transferred to the trust is someone whose assets or income must be counted to determine [Medical Assistance (MA) ] eligibility, and MA post-eligibility patient pay amount, a divestment penalty or an initial asset amount. The trust was established by the Claimant's spouse. The trust was established/amended on or after August 11, 1993. The trust was not established by will. The trust does not meet the condition of an exception A, special needs trust; or exception B, pooled trust as described in [Bridges Eligibilty Manual (BEM) ], Item 401.

* * *

In conducting the initial asset assessment the Department must count both Claimant's and his spouse's total combined assets which were in existence as of December 20, 2013 [with respect to Mrs. Hegadorn or May 1, 2014 with respect to Mrs. Lollar], when Claimant entered long-term care. Claimant's spouse did not place assets into an irrevocable trust until January 23, 2014 [or June 19, 2014]. The spouse's transfer of assets to an irrevocable trust does not undo the initial asset assessment amount. The initial amount of combined assets was $487,755.33 [with respect to Mrs. Hegadorn and $62,500 with respect to Mrs. Lollar]. The protected spousal amount limit was $115,920.00 [with respect to Mrs. Hegadorn and $31,267 with respect to Mrs. Lollar] leaving Claimant with total countable assets as of long-term care entry date of $371,835.33 [with respect to Mrs. Hegadorn or $47,184 with respect to Mrs. Lollar]. Thus, the entire amount must be counted for purposes of Medicaid eligibility determination.

* * *

The Department is to count as the person's countable asset the value of the trust's countable income if there is any condition under which the income could be paid to or on behalf of the person. Individuals can keep income made off of property and the money goes to the individual not the trust. Property cannot be taken out of the trust.

* * *

In an application for [long-term case (LTC) ] for an individual, the assets of both spouses are calculated when determining if there are excess assets. The couple is permitted to retain $2,000 for the application spouse plus the amount calculated as the Spousal Protected Resource amount. Medicaid is the joint state/federal program that provides payment for covered health care services for eligible indigent individuals. Medicaid is a means tested program. If Medicaid applicants have sufficient assets, income or insurance to pay for health care they do not qualify for the Medical Assistance program. Federal law allows a community spouse to retain a certain amount of assets. Any assets retained by the applicant or community spouse which exceed those allowed by law are necessarily countable. Transfers from the client's spouse to another SBO irrevocable trust are not divestment. Department policy requires that the distributions to the community spouse be counted for the applicant's eligibility. The trust requires that the assets be distributed back to the beneficiary community spouse during his/her lifetime. Therefore, there is a condition under which the principal could be paid to or on behalf of the person, which makes the assets countable.

* * *

In this case, the community spouse's attempt to circumvent both federal law and policy by creating a SBO trust to shelter excess personal assets is an attempt to retain assets which are in addition to/exceed the amounts allowed by policy and law. Such an attempt must fail. The claimant's spouse cannot retain assets in excess of that allowed by law and policy. Claimant and spouse are not indigent. They, at all times relevant to this application, retained sufficient assets to

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