4-Aug-21
Medicaid Eligibility and Federal Preemption
Take-Away: With Medicare and Medicaid benefits now comprising a large part of each state’s annual budgets, many states are now passing laws in an attempt to curb eligibility to receive Medicaid benefits. Some of those state laws seem often seem to go a bit ‘too far.’
Background: It is no secret that Medicaid has become a primary source of funds to finance an individual’s long-term care expenses. It is a constant battle between elder care lawyers who find creative strategies to position their client’s assets to become eligible to receive Medicaid benefits, and state agencies to write rules to limit the effectiveness of those strategies. A recent example shows how one state’s law went a bit ‘too far.’
Reported Decision: Geyen v. Commissioner Minnesota Department of Human Services, (Minn Court of Appeals, no. A20-1300, July 12, 2021)
Facts: In 2011 Dorothy Geyen created two separate irrevocable trusts for her children and grandchildren. Neither trust instrument permitted the trustee to loan assets or make gifts to Dorothy. In 2019, Dorothy applied for Medicaid benefits.
Dorothy’s application for Medicaid benefits was denied for having ‘excess assets’ because under a Minnesota statute, Dorothy’s irrevocable trusts became revocable trusts when she applied for Medicaid benefits.
Minnesota had adopted a statute that provided, in part: “When making a determination about eligibility for Medicaid benefits, any irrevocable trust containing the applicant’s assets becomes revocable for the purpose of that determination.”
Litigation: Relying on this statute, the Minnesota Department of Human Services denied Dorothy’s application for Medicaid benefits . Dorothy appealed that denial. She claimed that the Minnesota ‘deemed revocable’ statute conflicts with federal law.
Trial Court: The District Court agreed with Dorothy that under federal law the two trusts were not ‘available assets’ with regard to her, and that federal law preempted the Minnesota law. The State of Minnesota appealed that decision.
Court of Appeals: The Minnesota Court of Appeals affirmed the trial court’s decision. The appellate court’s decision was “because the trust agreements did not permit the trustees to make payments to or for the benefit of [Ms.] Geyen and ‘under any circumstances’ they were not available assets.”…”For the sole purpose of a Medicaid eligibility determination, the sate law conflicts with the federal requirements govenering the treatment of irrevocable trusts.”
Conclusion: ‘Deeming’ an irrevocable trust as a revocable trust seems like a pretty drastic remedy to use to stop perceived Medicaid eligibility abuses. Then again, we now have pending bills in Congress that would treat a lifetime gift as a ‘deemed sale’ in order to generate capital gains tax revenues upon making that gift. ‘Deeming’ apparently is the new way where government circumvents the form of a transaction if the government does not like the result that form produces. In this case, it would seem that Minnesota’s legislature went a bit too far in its quest to limit eligibility for Medicaid benefits.