Meyer v. South Dakota Dept. of Social Services, 20341

• Decision Date: 01 June 1998
• Docket Number: No. 20341,20341
• Citation: 581 N.W.2d 151,1998 SD 62
• Parties: Harold MEYER, Plaintiff and Appellant, v. SOUTH DAKOTA DEPARTMENT OF SOCIAL SERVICES, Defendant and Appellee. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 151

581 N.W.2d 151

1998 SD 62

Harold MEYER, Plaintiff and Appellant, v. SOUTH DAKOTA DEPARTMENT OF SOCIAL SERVICES, Defendant and Appellee.

No. 20341.

Supreme Court of South Dakota.

Considered on Briefs June 1, 1998.

Decided June 24, 1998.

Rick A. Cain of Cain & Associates, Mobridge, for plaintiff and appellant.

Mark W. Barnett, Attorney General, Joan P. Baker, Assistant Attorney General, Pierre, for defendant and appellee.

GILBERTSON, Justice.

¶1 After the South Dakota Department of Social Services (DSS) rejected his application for Medicaid, appellant Harold Meyer (Harold) received an "Administrative Fair Hearing." The hearing examiner upheld DSS' decision, as did the trial court on appeal. The sole issue raised is whether DSS improperly denied Harold Medicaid benefits. We affirm.

FACTS AND PROCEDURE

¶2 Harold is 77 years old and had owned a ranch consisting of over 6,000 acres in Corson County, South Dakota. Harold held a portion of this land outright and some as joint tenant with his wife Lorraine who is now deceased.

¶3 In 1986, Harold was injured in an automobile accident. Harold and Lorraine (Meyers) sought the assistance of Neil Cahill (Cahill), a certified public accountant, to assist them in estate and income tax planning. Cahill discussed an estate plan with the Meyers, their children (Dianna, Wiley, Constance, and Derry), and their children's spouses. Acting upon Cahill's advice, the parties attempted to reduce Harold's estate through a series of four "gift/lend-back" transactions. Each gift/lend-back transaction began with the Meyers writing personal checks from their joint account to their four children and noting "gift" on each check. The children would immediately endorse the checks back to their parents who would deposit the uncashed checks back into their joint account. The Meyers would execute mortgages and, in most instances, promissory notes against their ranch for the identical amount of the "gifts" borrowed back from their children. ¹

¶4 On June 20, 1991, Harold entered a nursing home. On June 25, 1991 he submitted his first Medicaid application. Harold's application was denied for failure to provide sufficient information concerning his resources. He reported $9,040 in "Lease or Rental Income" in this application for Medicaid. However, Derry leased his parent's ranch in 1991 (and again in 1992 and 1994) at the rate of $25,000 per year.

¶5 Harold's wife, Lorraine, was subsequently appointed as his guardian in 1991 and filed seven more applications, all of which were denied. Most of the applications were denied after finding Harold had excess resources. (ARSD 67:46:05:30). Efforts to secure Medicaid assistance continued and were ultimately approved. Harold received benefits from January 1, 1995, through October 1, 1996, when his benefits were terminated because of excess resources. DSS claims Harold should not have received these benefits. See n. 2 infra.

¶6 Several relevant events occurred during Harold's five-year attempt to convince DSS that his ranch was validly encumbered to his children through the gift/lend-back transactions. On August 13, 1991, Harold's Attorney, Curtis Hanks (Hanks) sent mortgage and lease information to DSS which was requested so Harold's application could be processed. Concerning the "gift" checks written by the Meyers to their children in return for the mortgages and notes, Hanks stated, "There was no money actually transferred."

¶7 In August, 1992, DSS again expressed its concerns over the transactions and requested information concerning the mortgage debt on the Meyer ranch. Attorney Hanks replied by letter "[n]o money changed hands in the mortgages." As a result, DSS denied Harold's application due to excess resources.

¶8 On May 9, 1994, CPA Cahill became involved in the application process and sent a letter to DSS indicating that Hanks "did not know what he was talking about" when he stated no money exchanged hands between the Meyer's and their children in the gift/lend-back transactions. Cahill went on to state, "[b]y looking at the documentation, you can see that there was consideration received for the mortgages." DSS accepted Cahill's explanation that the mortgages were valid liens against the ranch. Harold received Medicaid benefits from January 1, 1995, through October 1, 1996, when his benefits were terminated. ² Harold's appellate attorney, Rick Cain (Cain), stated in a November 15, 1996 letter to DSS that Lorraine owned the land which was entitled to CRP payments and that Harold would not be receiving Derry's lease payment because Harold had voluntarily conveyed the property back to his children in lieu of foreclosure. In a letter dated February 5, 1997, DSS notified Cain that it was denying Harold's application. The DSS explained:

We are still concerned about the mortgage/gift device used to transfer assets in this case. We are also concerned with actions taken after the death of [Lorraine]. A requirement of Medicaid eligibility is that [Harold] must avail himself to all resources.

¶9 Harold then requested a hearing before DSS. The administrative law judge (ALJ) found one issue decisive: whether the 1989-1991 transactions between the Meyers and their children created valid encumbrances on Harold's property thereby reducing his resources and making him eligible to receive Medicaid benefits. The ALJ held in favor of DSS that the transactions did not create valid liens against Harold's property. Additionally, the ALJ held the transactions were in violation of both state and federal Medicaid provisions as well as contrary to the public policy concerning Medicaid assistance. DSS adopted the ALJ's decision and in June, 1997, Harold appealed to the circuit court. The circuit court affirmed the DSS decision denying Harold's benefits. Harold appeals claiming the issues are:

1. Whether the notes and mortgages executed by Meyers created valid encumbrances against their real estate and therefore were improperly considered a resource for purposes of Medicaid assistance.

2. Whether the notes and mortgage instruments executed by the Meyers constitute a Medicaid Qualifying Trust (MQT).

3. Whether the gift/lend-back transactions violate public policy.

4. Whether the subject real estate should have been considered a resource to Harold.

STANDARD OF REVIEW

¶10 Recently in Sopko v. C & R Transfer Company, 1998 SD 8, pp 6-7, 575 N.W.2d 225, 228-29, this court made clear the standard of review for administrative appeals:

Our standard of review, delineated in SDCL 1-26-36, requires us to give great weight to the findings and inferences made by the Department on factual questions. Helms v. Lynn's, Inc., 1996 SD 8, pp 9-10, 542 N.W.2d 764, 766; Finck v. Northwest Sch. Dist. No. 52-3, 417 N.W.2d 875, 878 (S.D.1988). We examine agency findings in the same manner as the circuit court to decide whether they were clearly erroneous in light of all the evidence. In re Northwestern Bell Tel. Co., 382 N.W.2d 413, 415 (S.D.1986). If after careful review of the entire record we are definitely and firmly convinced a mistake has been committed, only then will we reverse. Spitzack v. Berg Corp., 532 N.W.2d 72, 75 (S.D.1995) (citing Day v. John Morrell & Co., 490 N.W.2d 720, 723 (S.D.1992)); see also United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 541, 92 L.Ed. 746 (1948) (origin of definition). Questions of law, of course, are fully reviewable. Caldwell v. John Morrell & Co., 489 N.W.2d 353, 357 (S.D.1992); Egemo v. Flores, 470 N.W.2d 817, 820 (S.D.1991).

ANALYSIS AND DECISION

¶11 1. Whether the notes and mortgages executed by Meyers created valid encumbrances against their real estate and therefore were improperly considered a resource for purposes of Medicaid assistance.

¶12 We begin our analysis of these gift/lend-back transactions with the checks. Harold claims the checks to his children were gifts. The essential elements of a gift are intent, delivery, and acceptance. Schuldies v. Millar, 1996 SD 120, p 21, 555 N.W.2d 90, 97 (citing Owen v. Owen, 351 N.W.2d 139, 142 (S.D.1984)). Cahill testified Harold did not have the liquidity to make the gifts at the time the checks were written and took out unsecured loans to cover them. The ALJ concluded that the checks written to Harold's children were not valid gifts after finding Harold lacked the requisite intent to transfer his assets. Under the totality of the circumstances presented, we agree with DSS that Harold did not intend the checks written to his children to operate as gifts. "The donor must intend to relinquish the right of dominion on the one hand, and to create it on the other, and this intention to make a gift must be a present intention; a mere intention to give in the future will not suffice." 38 Am.Jur.2d Gifts § 17 (1968) (emphasis added) (collecting cases).

¶13 In addition, a present donative intent "must be executed by a complete and unconditional delivery." 38 Am.Jur.2d Gifts § 18. Harold's children testified that prior to receiving the checks they were aware of the estate plan and followed Cahill's advice and direction in entering into the disputed transactions. The record supports the conclusion that the children did not expect to receive the moneys represented by the checks or exercise the rights reserved in the promissory notes and mortgages in the event of default. See Estate of Flandreau v. Comm'r, 994 F.2d 91, 93 (2nd Cir.1993) (holding that similar gifts conditioned upon subsequent loans not a valid attempt at avoiding federal taxes when sons and daughters-in-law of donee were acting as creditors and "never expected that the money they transferred to donee would be repaid"). Based upon the record, it is inconceivable that Harold ever intended for his children to cash the checks. If the children had demanded payment on these purported gifts Harold would have been rendered insolvent.

¶14 It is obvious the children conditionally received the checks so long...