Filial responsibility laws make children legally responsible to support and care for indigent parents. Under these laws, a child's assets are recoverable by the state if a senior receives Medicaid to pay for long-term care, such as a nursing home. The state is not limited to recovering only inheritance, or return of lifetime gifts, but can recover assets that a child has worked to acquire for his or her family.
Filial responsibility is a general concern for most estate planning clients, but the prospect of a parent becoming a financial burden to children is particularly troubling for those seniors aging in place and/or implementing asset protection from nursing home spend down (Medicaid planning).
Filial responsibility is one tool that the Centers for Medicare & Medicaid Services (CMS) has long advocated States adopt and enforce in order to financially support Medicaid. CMS is a federal agency within the U.S. Department of Health and Human Services (HHS) that administers the Medicare program and works in partnership with state governments to administer Medicaid.
Despite CMS' support, states that have implemented such laws have visited upon their citizens familial discord, hardship, chaos, and inequity. In addition, these laws even threaten the financial safety net of some seniors by making parents responsible financially for their adult children, ironically making them more likely to need Medicaid! These problems helps explain why many states have resisted pressure from to fundamentally change their Medicaid resource recovery systems.
Many states have, nonetheless, employed various alternative methods to fulfill the spirit of the CMS campaign, by, for example, expanding the assets recoverable by Medicaid to "augmented estates," permitting nursing homes to "work around" federal law prohibiting a home from soliciting a guarantee of payment from family members, and restricting legitimate planning options to reduce Medicaid resource recovery or shielding assets from nursing home spend-down.
One such effort, courtesy of the Minnesota legislature was recently invalidated by a Minnesota appeals court. The Court ruled that a statute "deeming" irrevocable trusts to be revocable for the purposes of a Medicaid eligibility determination is preempted by federal law governing irrevocable trusts. See, Geyen v. Commissioner Minnesota Dept. of Human Services (Minn. Ct. App., No. A20-1300, July 12, 2021).
In 2011, Dorothy Geyen created two irrevocable trusts that named her children and grandchildren as beneficiaries. The trust agreements provided that the trustee was specifically precluded from loaning assets or making distributions to Ms. Geyen. In 2019, Ms. Geyen applied for Medicaid benefits. The state denied her application on the basis of her having excess assets; the court determined that under the state law, her irrevocable trusts were revocable when she applied for benefits. Minnesota law provided that when making a determination about eligibility for Medicaid benefits, any irrevocable trust containing the assets that were formerly the applicant's becomes revocable for the purpose of that eligibility determination. The effect of the law is to invalidate completely transfers to irrevocable trusts specifically permitted by federal law.
Ms. Geyen appealed the denial, arguing that state law conflicts with federal law. The state affirmed the denial, and Ms. Geyen appealed to court. The district court determined that under federal law, the trusts were not available assets and federal law preempted state law. The state appealed, arguing that the funds in the trust were available to Ms. Geyen under federal law and that the trusts became revocable under state law.
The Minnesota Court of Appeals affirmed, holding that the trusts are not available assets under federal law and that federal law preempted state law. According to the court, “because the trust agreements did not permit the trustees to make payments to or for the benefit of [Ms.] Geyen under any circumstances,” they were not available assets. The court further held that by “deeming irrevocable trusts to be revocable” for the sole purpose of a Medicaid eligibility determination, the state law “conflicts with the federal requirements governing the treatment of irrevocable trusts.”
This holding is a great and welcome result. Citizens of the State of Minnesota should be outraged at the colossal assault by their legislature on their rights to lawfully plan and orchestrate their affairs, and for the waste of public resources dragging a family through protracted litigation in a craven effort to save pennies rather than supporting a person (and system) in need.
The only bad news is that as states fail to succeed in efforts to implement alternatives to filial responsibility, filial responsibility becomes more likely. Good planning is the best and most secure means of avoiding unnecessary and avoidable institutionalization and filial responsibility.
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