Medicaid Applicant Receives Penalty Period Based on Wife's Transfer on Death

A Missouri court of appeals has ruled that a Medicaid applicant is subject to a penalty period based on his wife's transfer on death of his interest in property to a revocable trust. Hallam v. Missouri Department of Social Services (Mo. Ct. App., No. WD81466, Oct. 9, 2018).  The case demonstrates the complexity of estate planning for farmers, and provides an object lesson in the significance of unintended consequences.

Evelyn and Joe Bell were farmers, and their homestead constituted their farm. They  entered into a postnuptial agreement which provided that each spouse had "the power to dispose of their share of the marital assets at their death free of any statutory or other claims of their spouse."  The Bells thereafter each created a limited liability company (LLC),  in which each served as the sole member. On the same date, the couple transferred into each LLC a one-half interest in the real estate and adjoining farmland that had served as their homestead. 

The Operating Agreement for Mrs. Bell's LLC provided that on her death, her member interest in her LLC would be transferred to the trustee of Mrs. Bell's revocable trust. Mr. Bell was neither the trustee of Mrs. Bell's trust, nor was he a beneficiary.  The foregoing events all took place in 2011.  In 2013, Mr. Bell transferred his LLC to Mrs. Bell, who in turn who transferred the LLC to the trust effective upon Mrs. Bell's death.  The Court agreed that the transfer from Mr. Bell to Mrs. Bell is permitted by state and federal law:

"Relevant to this case, [federal law] provides that: An individual shall not be ineligible for medical assistance...to the extent that -- (A) the assets transferred were a home and title to the home was transferred to -- (i) the spouse of such individual[.]"

Mrs. Bell died in January, 2014, her trust was administered and the assets distributed to the beneficiaries, Mrs. Bell's children.  In December, 2014, Mr. Bell entered a nursing home and applied for Medicaid. The state imposed a penalty period, finding Mr. Bell transferred property for less than market value.

Mr. Bell appealed, arguing that Mrs. Bell's transfer on death of the couple's property was not a voluntary disposal of assets by a spouse that would disqualify Mr. Bell from benefits. After all, Mr. Bell could not control his wife's disposition of her property, and Mrs. Bell did not voluntarily transfer the assets to her children, but were transferred as a consequence of her death. The state upheld the penalty period, nonetheless, and Mr. Bell appealed to court.

The Missouri Court of Appeals affirmed the penalty period, holding that Mrs. Bell's transfer on death was a disposition of assets that subjected Mr. Bell to a penalty period. The court concludes that there "can be no meaningful dispute that the instruments executed by Mrs. Bell 'gave away' her assets, albeit in a delayed manner that first required the condition of her death." According to the court, federal Medicaid law requires that the assets in Mrs. Bell's trust that previously belonged to Mr. Bell were to be treated as assets disposed of by Mr. Bell.  Thus, although Mr. Bell was not in control of his wife's disposition, he and his estate, nonetheless, suffered the consequences.