Marinaro secures Court reversal of Medicaid denial where the proof required by DMAHS just didn’t exist

The burden to prove eligibility for Medicaid rests with the applicant, but sometimes, the agency just refuses to accept the evidence they are given. This is demonstrated in a recent New Jersey case in which a denial of benefits was reversed by the Appellate court. The decision is “not approved for publication ,” which means it doesn’t establish a precedent that’s binding on other courts, but it does provide an interesting view of what can happen in a case. L.A. vs DMAHS decision

L.A and her husband established a revocable living trust for their own benefit, and transferred their house into it. Their Social Security numbers were associated with this trust. An attorney wrote the trust. The Asset Schedule  at the back of the Trust document wasn’t filled out, so nothing was shown as to the assets that were placed into the trust. Some years later, in 2012, the trustees transferred the property out of the trust into the names of L.A. and her husband. In 2017, the couple terminated the Trust — which held no assets and apparently no longer had any purpose —  and transferred the house into L.A.’s sole name. Later, a Medicaid application was filed for L.A. They didn’t disclose the Trust when they provided the 60-month look-back documents. For the look-back, one must submit records of all assets held within the prior 60 months. As noted, the Trust had not held any assets during the look-back period. The agency reviewed the Deed and asked for the Trust records. The applicant submitted the trust document, the trust termination document, and a letter from their attorney which stated that the only asset that was ever in the Trust was the house. As noted above, Schedule A to the trust was blank, so no assets were listed on the Trust. The application was denied for “failure to submit required verifications” of the assets in the trust. L.A. requested a fair hearing appeal before the Office of Administrative Law (OAL).

At the hearing before the Administrative Law Judge (ALJ), the attorney who wrote the trust testified in accordance with the letter he had written for the application, and explained that the annexed Schedule was left blank because it called for information not applicable to the situation. Both he and L.A.’s husband testified that the house was the only asset that was ever in the Trust. Tax return evidence was submitted which did not show income from any trust assets.  The ALJ concluded that they were credible, but that the explanation about the blank schedules was inadequate and that plaintiff had indeed failed to submit the “required verifications” to establish Medicaid eligibility, and upheld the denial of benefits. The DMAHS adopted that decision, and L.A. appealed, represented by our Firm. Essentially, the Final Agency Decision stood for the proposition that even when there is no proof of assets, the agency may presume that they exist, and may deny eligibility for failure to prove otherwise.

On appeal, the court reversed, ruling that the final agency decision was not supported by the record. An administrative agency must base its decision on the “substantial credible evidence” in the case record, and the appellate court can overrule an agency decision if it is based on “findings that are contrary to the record.”  The court noted that the agency “reviewed the application with skepticism” despite the explanations,  and despite that information, “speculated” that additional assets were in the trust, leading to a situation in which “L.A. was required to produce information that simply did not exist” The Court reversed the denial, and held that “L.A. supplied all the necessary information for review of her application, and that her benefits should not have been denied because of the omission” of evidence that simply does not exist.

The Medicaid application process is a minefield with many traps for the unwary. As individuals grow older they need to always be looking to the future when they set up their financial arrangements, maintain their paperwork and handle their accounts and trusts, because things can turn on a dime and it just might become necessary to prove one’s eligibility for Medicaid. We’re here to help at every step of the way.

 

Call for advice and representation concerning Medicaid planning, applications and appeals ……. 732-382-6070

Trusts can undermine Medicaid eligibility even if they accomplish other goals

A “Trust” is an estate-planning structure that has many different uses and purposes. Fundamentally, to be valid, there needs to be (a) a Trustee — the manager, who is not the owner of the assets; (b) a Beneficiary – the party that the trustee can spend assets on, who is not the owner of the assets, (c) terms and conditions – usually contained in a legal document which could be a Will or could be another document that creates the Trust. Until a Trust receives assets, it is an unfunded trust and may be referred to as a “dry trust.” Some trusts are irrevocable, others are revocable. Sometimes the Trust is assigned its own taxpayer EIN# which is obtained from the IRS. Sometimes the Trustee is also the Beneficiary; other times the assets are placed in Trust as a gift, for benefit of other family members. . Certain trusts are designed to provide “creditor protection” by shielding the assets from those who might be coming after the beneficiary’s creditors. Certain Trusts are designed to preserve the Beneficiary’s eligibility for means-tested disability-related services. Certain trusts give total discretion to the trustee, whereas others place obligations on the Trustee (such as “pay all the income to the beneficiary for 5 years” or “give the beneficiary 1% of the principal every year in January”). How it is written depends on what the purpose is.

The Medicaid program has strict, low financial restrictions for eligibility. As readers of this blog know, a resource is defined as something that the applicant (or his spouse) owns and which can be converted to cash to be used for the applicant’s support and maintenance. Other than a properly-structured  first-party Special Needs Trust, a residence, one car, an irrevocable funeral trust, a burial place and a life insurance policy whose face value is less than $1,500, pretty much anything else that meets this criteria is treated as a  countable “resource.”  There are special regulations concerning when the assets in a Trust are counted as a resource of the individual.

Section 4.11 of the State Medicaid Manual describes the treatment of Trusts. It applies to trusts that were created by an applicant, his or her spouse, or another party who has legal authority to act on their behalf (Guardian, Agent under Power of Attorney, or Court). It does not apply to trusts created by a spouse of the applicant in their Will (but keep in mind, e.g., the requirements of the DeMartino case and the elective share statute). If assets of the individual or their spouse form any part of the Trust and the individual or their spouse are beneficiaries,  100% of the Trust is a countable resource if the Trust is revocable (such as a “Revocable Living Trust” that some people use to “avoid probate”), and if it is an irrevocable trust, the portion of income or principal that could be paid to or for benefit of the individual (or spouse) continues to be counted as income or as a resource. Either way, any of this could adversely affect eligiblity.  A person might be treated as a Beneficiary without even realizing it.

We see many different Trusts in our practice, and we write Trusts when they are useful. I am frequently asked by new elder care clients, “do I need a trust?”  (and even more often, “I heard that I need a Trust so the nursing home doesn’t take it all”). The response of course is, “what do you want to accomplish, who do you want to protect, how’s your health, and what do we have to work with?”

The problems caused when a Trust is deemed to be a “countable resource” can create substantial financial jeopardy for an applicant, particularly because after the Medicaid application is filed, it may be many months before that bad news is received from the agency.  When discussing a trust strategy later in life, it is a good idea to talk with the attorney about the impact of the Trust on Medicaid eligibility as well as its efficacy for whatever other issues are being addressed. Forewarned is forearmed.

Call us for advice on trusts and Medicaid eligibility and for individualized estate planning strategies …. 732-382-6070