NBD v. DEPT. OF SOCIAL SERVICES

• Decision Date: 22 June 2000
• Docket Number: Docket No. 203240.
• Citation: 240 Mich. App. 348,614 N.W.2d 655
• Parties: NATIONAL BANK OF DETROIT, Personal Representative of the Estate of Mary Gretchen Conrad, Petitioner-Appellee, v. DEPARTMENT OF SOCIAL SERVICES, Respondent-Appellant.
• Court: Court of Appeal of Michigan — District of US

614 N.W.2d 655

240 Mich. App. 348

NATIONAL BANK OF DETROIT, Personal Representative of the Estate of Mary Gretchen Conrad, Petitioner-Appellee, v. DEPARTMENT OF SOCIAL SERVICES, Respondent-Appellant.

Docket No. 203240.

Court of Appeals of Michigan.

Submitted June 2, 1999, at Grand Rapids.

Decided March 28, 2000, at 9:00 a.m.

Released for Publication June 22, 2000.

Smith, Haughey, Rice & Roegge (by Jon D. Vander Ploeg), Grand Rapids, for the petitioner.

Jennifer M. Granholm, Attorney General, Thomas L. Casey, Solicitor General, and Erica Weiss Marsden, Assistant Attorney General, for the respondent.

Before: RICHARD ALLEN GRIFFIN, P.J., and WILDER and R.J. DANHOF¹, JJ.

R.J. DANHOF, J.

Respondent, Department of Social Services,² appeals by leave granted from a circuit court order reversing in part a Department of Social Services Bureau of Administrative Hearings determination that Mary Gretchen Conrad (hereafter petitioner) was ineligible to receive Medicaid benefits. We affirm in part, reverse in part, and remand.

I

Petitioner was injured and rendered comatose on December 16, 1986, because of alleged medical malpractice. She was in her early twenties at the time and resided in a nursing home in Michigan until her death in January 1998.³

Petitioner's father brought a medical malpractice action on her behalf, and the case was ultimately settled in 1988. The structured settlement provided for minimum payments of $879.01 a month for a term of twenty years, with required payments of $38,669 a year during the first five years. Petitioner's father, as her court-appointed conservator, established an irrevocable trust on petitioner's behalf in November 1989.⁴ The trust was funded by petitioner's medical malpractice settlement proceeds.

Thereafter, petitioner, through her representatives, applied for Medicaid benefits to pay for her medical and nursing home care. However, in 1990, respondent denied petitioner's application, concluding that the trust was a "Medicaid Qualifying Trust" (MQT) (see subsequent discussion) with assets available to petitioner and thus "countable" for purposes of evaluating her eligibility for Medicaid benefits. Because the trust assets exceeded the monetary limit for Medicaid qualification, respondent found petitioner to be ineligible to receive benefits.

An administrative hearing ensued and, in January 1991, a decision was rendered by hearing referee C. David Jones, who concluded that although petitioner was the beneficiary of an MQT under then existing federal law, she was nonetheless immediately eligible to receive Medicaid benefits. He found, in pertinent part, that because the amount of the trust's principal was under $50,000 before December 1990, petitioner was ineligible for Medicaid benefits; under the terms of the trust, the trustee possessed discretion in that circumstance to invade the trust principal. He further determined, however, that petitioner's Medicaid ineligibility ended in December 1990 when additional settlement installment deposits were made to the trust. This conclusion was based on his finding that once the trust's principal exceeded $50,000, the trust principal was no longer available to petitioner by virtue of the trust's terms and conditions.

Hearing referee Jones' decision was not appealed, and petitioner subsequently received Medicaid benefits until September 1995, at which time she received notice that her benefits would end on October 10, 1995. The denial of benefits was premised on respondent's determination that despite hearing referee Jones' decision to the contrary, "the trust income payable to the client to date ... include[s] $879.01/mo income ... and all interest and dividends paid on the trust principal (which was created by deposits of $38,669.30 per year for five years) since the trust, creation." In this regard, respondent added together the total of all settlement deposits to the trust through July of 1995, then subtracted verified disbursements from the trust, and concluded that the remaining $170,962.98 constituted petitioner's total countable assets under the trust. Similarly, respondent also added the $879.01 monthly settlement amount to the nearly $1,400 in net income earned by the trust to conclude that the trust had a total countable monthly income of $2,272.63.

Petitioner once again challenged this denial of her Medicaid benefits. A second administrative hearing was held and in a decision dated February 14, 1996, hearing referee Terence Merrick concluded that the MQT designation still applied to the trust. However, he found that all the trust's assets (both principal and income) were "countable" and thus deemed available to petitioner; even the monthly payments to the trust to date, together with interest, dividends, and short-term capital gains, constituted "income" that the trustee had discretion under the trust document to distribute. He therefore concluded that all those funds were countable assets that exceeded the Medicaid eligibility limits.⁵

Petitioner appealed to the Benzie Circuit Court, and the court reversed in part hearing referee Merrick's decision. The court affirmed the finding that petitioner's trust is an MQT but held that (1) the monthly deposits of $879.01 from the settlement agreement were additions to the principal of the trust, not "income" subject to distribution under the trust document, (2) the trustee possessed no discretion under the trust instrument to expend principal or income, and (3) respondent may count neither principal nor income as assets when determining petitioner's Medicaid eligibility. The circuit court remanded the case to respondent "for a redetermination of the petitioner's eligibility for Medicaid, retroactive to the date of its denial of September 27, 1995, to exclude from the amount to be counted as petitioner's assets the monthly payments made to trust principal and trust income." Respondent now appeals.

II

Respondent argues on appeal that the trial court clearly erred in holding that the assets from petitioner's trust were not available resources for purposes of determining her Medicaid eligibility. Respondent contends that the trustee has "broad discretion" to distribute both income and principal under the trust document and, therefore, all the trust assets must be counted in determining petitioner's Medicaid eligibility, regardless of whether those assets are principal or income.

Factual findings of administrative agencies are reviewed initially to determine whether they are supported by competent, material, and substantial evidence on the whole record. Ansell v. Dep't of Commerce (On Remand), 222 Mich.App. 347, 354, 564 N.W.2d 519 (1997). A legal ruling by an administrative agency will be set aside "only if it violates the constitution or a statute or is affected by a `substantial and material error of law.' MCL 24.306(1)(a), (f); MSA 3.560(206)(1)(a), (f)." Id. In this case, this Court is reviewing the circuit court's review of respondent's decision:

[W]hen reviewing a lower court's review of agency action this Court must determine whether the lower court applied, correct legal principles and whether it misapprehended or grossly misapplied the substantial evidence test to the agency's factual findings. This latter standard is indistinguishable from the clearly erroneous standard of review that has been widely adopted in Michigan jurisprudence. As defined in numerous other contexts, a finding is clearly erroneous when, on review of the whole record, this Court is left with the definite and firm conviction that a mistake has been made. [Boyd v. Civil Service Comm., 220 Mich.App. 226, 234-235, 559 N.W.2d 342 (1996).]

This Court in Cook v. Dep't of Social Services, 225 Mich.App. 318, 320-323, 570 N.W.2d 684 (1997), recently reviewed the history of the applicable federal law regarding Medicaid eligibility:

The Medicaid program, 42 U.S.C. 1396 et seq., was established by Congress in 1965 as a cooperative federal-state program in which the federal government reimburses the state for a portion of the costs of medical care for needy individuals. Ronney v. Dep't of Social Services, 210 Mich.App. 312, 315, 532 N.W.2d 910 (1995). The test for Medicaid eligibility is essentially a needs-based test, with coverage being denied if the applicant exceeds a ceiling in countable assets. Id. Generally, funds held in an irrevocable trust are not countable assets. Id. This general rule applied ... in 1977.

In 1986, however, Congress amended the Medicaid statutes so that assets in certain trusts would be counted in determining whether a Medicaid applicant satisfied the maximum asset requirement. Relevant to this case was the addition of 42 U.S.C. 1396a(k), which defined an MQT and established the circumstances under which the assets of an MQT would be deemed countable in determining the grantor's Medicaid eligibility....

In 1993, Congress again amended the provisions governing Medicaid qualification. In so doing, § 1396a(k) was deleted and the treatment of trusts for Medicaid qualification was moved to § 1396p(d). At that time, even stricter criteria were added regarding the treatment of trusts. However, Congress specifically provided that the amendments of § 1396p(d) concerning trust assets would not apply "with respect to trusts established on or before the date of the enactment of this Act," August 10, 1993. In light of this provision, it is undisputed that, in this case, the Cook trust is not governed by § 1396p(d). Instead, the issue in this case is whether trusts like the Cook trust, created before August 10, 1993, continue to be governed by the now deleted § 1396a(k).

* * *

It seems clear that, when Congress subsequently amended the Medicaid qualification provisions to provide even more stringent requirements on grantors with trusts established after August 1993, it did not at the same time intend simply to abandon all qualification requirements for grantors with trusts created

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