A narrowly divided Ohio Supreme Court has ruled that the transfer of a home between spouses prior to Medicaid eligibility is an improper transfer and is subject to the community spouse resource allowance (CSRA) cap. Estate of Atkinson v. Ohio Department of Job and Family Services (Ohio, No. 2013–1773, Aug. 26, 2015). More particularly, the decision means that home ownership in a revocable trust is not without consequence when applying for Medicaid.
The facts of the case present what was "garden variety" conduct of a client before applying for Medicaid. In 2000, Marcella Atkinson and her husband transferred their home into a revocable living trust. In April of 2011, Mrs. Atkinson entered a nursing home and soon applied for Medicaid benefits. In August 2011, following Medicaid’s “snapshot” of the couple’s assets, the home was removed from the trust and placed in Mrs. Atkinson's name. The next day, Mrs. Atkinson transferred the house to her husband. Most attorneys counselled clients regarding such a procedure, and many county caseworkers told applicants of these steps, seemingly necessary to avail the community spouse of the exemption available to the family home.
It is important to know what the "snapshot" means; the "snapshot date" is the day on which the ill spouse enters either a hospital or a long-term care facility in which s/he then stays for at least 30 days. This is called the "snapshot" date because Medicaid is taking a picture of the couple's assets as of this date.
The State in Atkinson, however, determined an improper transfer had occurred and imposed a penalty period. Mrs. Atkinson passed away, and her estate appealed to court, arguing that under federal and state statutes a spouse is not ineligible from receiving Medicaid for transferring a home to the other spouse, and that an institutionalized spouse may transfer unlimited assets to the community spouse between the date the spouse is institutionalized and the date that the spouse's Medicaid eligibility is determined. The estate lost at both the trial court and the Ohio Court of Appeals, and the estate appealed.
In a 4-3 decision, the Supreme Court of Ohio ruled that transfers between spouses are not
unlimited after the snapshot date and before Medicaid eligibility and that such transfers are proper only up to the amount that fully funds the CSRA. The snapshot date is the first day of institutionalization The court rejected the estate’s reliance on the Sixth Circuit Court of Appeals’ holding in Hughes v. McCarthy (6th Cir., No. 12-3765, Oct. 25, 2013) that an annuity purchased by a community spouse before a Medicaid eligibility determination is not an improper transfer, finding that the purchase of annuities are subject to special rules and “not applicable under these facts.” The court remanded the case for review of the penalty imposed because the Medicaid agency may have applied the wrong statute. “Neither federal nor state law,” the court wrote, “supports the agency's confiscation, after the CSRA has been set, of the entire amount of transferred assets, some or all of which may have already been allocated to the community spouse on the snapshot date.”
A dissent joined by three justices states that “What this family did is and was permitted by state and federal law. . . the home is explicitly excluded from the definition of 'resources' for purposes of establishing the CSRA.” [emphasis in original]. The dissent reads in part:
It is clear that the law treats the marital home very carefully to prevent spousal impoverishment at the end of life. And that is the public policy we should be embracing. Based on the plain language of the federal statutes and the Ohio Administrative Code, as well as the holding of the United States Court of Appeals for the Sixth Circuit in Hughes v. McCarthy, 734 F.3d 473, I would hold that the transfer of the home between spouses prior to Medicaid eligibility being established is not an improper transfer and is not subject to the CSRA cap.The case has significant implications for routine planning using a revocable trust. Typically, a marital couple would convey the home to the revocable trust in order to accomplish objectives best accomplished with the trust. Now, the transfer to the trust is problematic, because the home could not be transferred to a community spouse after a spouse enters an institution.
The ill effect is not necessarilly loss of the home; since the home is illiquid it would not be spent down. The community spouse's CSRA, however, which represents the maximum amount of resources permitted the community spouse from the countable assets, currently $119,220.00, would be compromised, and possibly lost. The ill effect would be the community spouse being forced to spend down the liquid assets that would otherwise keep him or her from impoverishment.
Although the ill effect might be avoided if the need for long term care follows a possible event triggering the need, such as when a person suffers from dementia, there is never a guarantee that a person won't suffer an immediate catastrophic event, such as an automobile accident, stroke, aneurysm, heart attack, adverse drug reaction, complication to a routine medical procedure, fall, or the like. In these cases a couple may be rendered powerless to improve their situation, and the home value will remain a countable asset.
Our office is recommending that couples consider preparing a deed transferring the property from the trustees of the trust to the spouses/grantors of the trust, holding the property in a joint tenancy with full rights of survivorship, and employing a Transfer On Death Affidavit conveying the property at the death of the survivor to the trustee of the trust. This strategy avoids probate, and confers to the home the other benefits of the trust at death (e.g., asset protection planning for your beneficiaries, equitable or proportional distribution of assets, private management, and the like).
The obvious adverse consequence of this tactic is the home is no longer protected in the same way from guardianship. A trust avoids guardianship by 1) identifying an alternate decision-maker and thereby eliminating the need for a guardian, 2) removing the incentive for hostile or predatory guardianship by removing assets from the guardianship estate, and 3) setting forth a procedure for appointment of a successor decision-maker with your personal physician empowered to decide issues of competency or capacity rather than reliance upon governmental or judicial determinations. With the home removed from the protection of the trust, it might remain an incentive for a hostile guardian.
The nature of the home as an asset, and particularly the need of the community spouse to live in the home, however, should make the guardianship risk acceptable; it is unlikely a guardian will be able to obtain permission to sell a home when there is a spouse requiring the home as a residence. In most cases, the relatively small risk must be balanced against the ill effect of a potential future need for Medicaid.
Clients and advisers should take this risk seriously because the need for long-term care is inherently unpredictable, and the risk cannot be easily discounted. The cost, too, of long-term care is unpredictable. Medicare does not, typically, pay for long-term care. Only long-term care insurance (preferably a policy that leverages a death benefit for long-term care benefits) or a robust financial plan can buttress your assets in meeting the cost of long-term care.
To read the article discussing the oral arguments, which took place over a year before the Supreme Court's decision, go here.
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