Pfoser v. Harpstead, 012021 MNSC, A19-0853

Docket NºA19-0853
Opinion JudgeCHUTICH, JUSTICE
Party NameRobert Pfoser, as special administrator of the Estate of David Pfoser, Respondent, v. Jodi Harpstead, Commissioner Minnesota Department of Human Services, Appellant, and Dakota County Human Services, Respondent Below.
AttorneyLaurie A. Hanson, Long, Reher, Hanson & Price, P.A., Minneapolis, Minnesota, for respondent. Keith Ellison, Attorney General, Michael N. Leonard, Assistant Attorney General, Saint Paul, Minnesota, for appellant. Margaret M. Grathwol, Chestnut Cambronne PA, Minneapolis, Minnesota, for amicus curia...
Judge PanelANDERSON, J.,
Case DateJanuary 20, 2021
CourtSupreme Court of Minnesota

Robert Pfoser, as special administrator of the Estate of David Pfoser, Respondent,

v.

Jodi Harpstead, Commissioner Minnesota Department of Human Services, Appellant,

and

Dakota County Human Services, Respondent Below.

No. A19-0853

Supreme Court of Minnesota

January 20, 2021

Court of Appeals Office of Appellate Courts

Laurie A. Hanson, Long, Reher, Hanson & Price, P.A., Minneapolis, Minnesota, for respondent.

Keith Ellison, Attorney General, Michael N. Leonard, Assistant Attorney General, Saint Paul, Minnesota, for appellant.

Margaret M. Grathwol, Chestnut Cambronne PA, Minneapolis, Minnesota, for amicus curiae Minnesota Chapter of the National Academy of Elder Law Attorneys.

Ron M. Landsman, Landsman Law Group, Rockville, Maryland, for amicus curiae National Academy of Elder Law Attorneys.

Brenna M. Galvin, Maser, Amundson & Boggio, P.A., Richfield, Minnesota; and David L. Shaltz, Chalgian & Tripp Law Offices, East Lansing, Michigan, for amicus curiae Special Needs Alliance.

SYLLABUS

A disabled recipient of Medical Assistance for Long-Term Care benefits who is age 65 or older is not subject to a penalty for transferring assets into a pooled special-needs trust when he made a satisfactory showing that he intended to receive "valuable consideration" under Minnesota Statutes section 256B.0595, subdivision 4(a)(4) (2020).

Affirmed.

OPINION

CHUTICH, JUSTICE

This case requires us to decide whether the Commissioner of the Minnesota Department of Human Services correctly imposed a transfer penalty on David Pfoser, a disabled Medicaid recipient who resided in a long-term care facility, after he transferred, at age 65, partial proceeds from the sale of a house into a pooled special-needs trust. State and federal law impose a penalty on recipients of Medical Assistance for Long-Term Care benefits if they transfer assets for less than fair market value. Minn. Stat. § 256B.0595 (2020); 42 U.S.C. § 1396p(c)(1)(A). But no penalty may be imposed if the recipient makes a satisfactory showing that he "intended to dispose of the assets either at fair market value or for other valuable consideration." Minn. Stat. § 256B.0595, subd. 4(a)(4); accord 42 U.S.C. § 1396p(c)(2)(C)(i). The district court reversed the transfer penalty, ruling that Pfoser received adequate compensation. The court of appeals affirmed the district court, concluding that the Commissioner's decision was legally erroneous, arbitrary and capricious, and unsupported by substantial evidence. Because we conclude that Pfoser made a satisfactory showing that he intended to receive valuable consideration for his transfer of assets, we now affirm the decision of the court of appeals.

FACTS

David Pfoser had Parkinson's disease and other mental and physical disabilities.1Following an injury in 2014, Pfoser moved into a long-term care facility and applied for Medical Assistance for Long-Term Care benefits, which is part of Minnesota's Medicaid program. Fiduciary Services of Minnesota, Inc., served as Pfoser's guardian and conservator.2

In 2016, Pfoser's siblings sold the home that Pfoser had been living in, which had been their parents' home, when it was clear that he would not be able to return there. Pfoser's share of the proceeds was $28, 010.

In 2017, Pfoser petitioned the district court to transfer the proceeds into a pooled special-needs trust operated by the non-profit Lutheran Social Service of Minnesota (Lutheran Social Service). A pooled special-needs trust is a trust funded by the assets of disabled beneficiaries, with individual sub-accounts, to pay for Medicaid-ineligible goods and services that will improve the quality of the beneficiaries' lives. Ctr. for Special Needs Tr. Admin., Inc. v. Olson, 676 F.3d 688, 695 (8th Cir. 2012). "Pooled special needs trusts allow disabled individuals with relatively small amounts of money to pool their resources for investment and management purposes." Me. Pooled Disability Tr. v. Hamilton, 927 F.3d 52, 54 (1st Cir. 2019).

The district court granted Pfoser's petition for permission to transfer the funds. Pfoser and Lutheran Social Service executed two agreements, a joinder agreement to enroll Pfoser in the trust, and a standard pooled trust agreement (Trust Agreement) that contained additional terms and conditions. Pfoser agreed to transfer $28, 010 into a sub-account of the trust to be administered solely for his benefit according to the terms of the Trust Agreement, subject to a $1, 000 enrollment fee and certain other management fees owed to Lutheran Social Service.

The Trust Agreement named Lutheran Social Service as trustee and required that trust assets be "managed, invested, and disbursed to promote the comfort and well-being of each Beneficiary." All disbursements from the trust were limited to the "sole and absolute discretion" of Lutheran Social Service as trustee to make distributions as "necessary or advisable to provide for the supplemental care or supplemental needs of the beneficiary." Such needs could include medical, dental, and diagnostic work; supplemental nursing care; and expenditures for travel or a personal care attendant, which are not covered by Medicaid.

In the Trust Agreement, Pfoser acknowledged that he had no "further interest, rights in, or control over" the funds and that Lutheran Social Service had no obligation to support him. The trust was irrevocable. Notably, the Trust Agreement also provided that up to 90 percent of any funds remaining in the sub-account at the time of Pfoser's death must be paid to the State to reimburse the Medical Assistance program for the costs paid on behalf of Pfoser. Lutheran Social Service would retain the other 10 percent in a charitable trust for the benefit of indigent pooled trust beneficiaries who had exhausted the funds in their sub-accounts. By enrolling in the trust, Pfoser would be eligible to receive benefits from the charitable trust if he exhausted the funds in his sub-account.

In accordance with the agreements, Pfoser transferred the funds, which were credited to his sub-account. He was 65 years old at the time of the transfer.

Two months later, Dakota County Human Services (Dakota County) notified Pfoser that it was investigating whether the establishment of his trust sub-account may have been an improper transfer under the statutes governing Medical Assistance for Long-Term Care. Under those statutes, a recipient "may not give away, sell, or dispose of" any asset for less than fair market value. Minn. Stat. § 256B.0595, subd. 1(a); accord 42 U.S.C. § 1396p(c)(1)(A). But no penalty may be imposed if the recipient makes a satisfactory showing that he "intended to dispose of the assets either at fair market value or for other valuable consideration." Minn. Stat. § 256B.0595, subd. 4(a)(4); accord 42 U.S.C. § 1396p(c)(2)(C)(i). Dakota County ultimately concluded that Pfoser improperly transferred assets. It assessed a transfer penalty of 3.94 months of ineligibility for Medical Assistance for Long-Term Care benefits.

Pfoser appealed the penalty, and a hearing was held before a human services judge. Pfoser claimed that he had received fair market value for the transfer in the form of future goods and services that the trust would provide. In support of his position, Pfoser submitted copies of the joinder agreement and Trust Agreement. He also submitted an affidavit by the director of the pooled trusts operated by Lutheran Social Service, which included an assessment of the fair market value of Pfoser's sub-account.

In her affidavit, the director stated that Lutheran Social Service operates two pooled trusts containing about 420 sub-accounts. The sub-accounts of the trust in which Pfoser participated are for clients who are disabled as defined by the Social Security Administration. Although the trust is discretionary, the director attested that Lutheran Social Service views its discretion to be limited by contractual and fiduciary obligations to pay for items or services for beneficiaries "as long as the expenditure promotes the comfort and well-being of the beneficiaries." According to the director, denying a reasonable request would be in bad faith and a breach of contract.

The fair-market-value assessment of Pfoser's sub-account estimated that his sub-account would be depleted in less than 2 years. This assessment reflected specific one-time expenditures for expensive items like an adaptive recliner, equipment for his wheelchair, and restorative dental work, which are not covered by Medicaid. It also budgeted for annual expenses like STEM activity boxes, [3] over-the-counter medications not covered by Medical Assistance, wheelchair cushions, household goods and personal expenses, and fees for guardian services. The assessment also calculated Pfoser's life expectancy at 14.86 years.

Dakota County did not present any evidence in response to Pfoser's expected expenditures and fair-market-value assessment. At the hearing, the county financial worker assigned to Pfoser's case testified that, according to the policy of the Minnesota Department of Human Services, "the addition to a pool[ed] trust by a beneficiary . . . after the beneficiary . . . reaches age 65 is evaluated as an uncompensated transfer." She also testified, "And that's where I stopped with my calculation," after determining that Pfoser was age 65 at the time of the transfer.

The human services judge found in favor of Dakota County. Because Pfoser had transferred the cash into an irrevocable trust from which any distributions were discretionary, the judge concluded that no "reasonable seller/buyer or objective observer" would consider this exchange to be a transfer for fair market value. Accordingly, the judge found that Pfoser did not...

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