Irrevocable Trust Assets Found Available Resources for Medicaid in Arkansas

 Assets in a Medicaid applicant’s irrevocable trust are available resources for Medicaid spend down, because the trustee had the discretion to make distributions for the applicant’s health and welfare, according to an Arkansas appellate court. Arkansas Department of Human Services v. Hogan (Ark. Ct. App., No. CV-19-491, Feb. 19, 2020).

Bobbie Hogan created an irrevocable trust, which gave the trustee the discretion to make distributions of principal and income for Ms. Hogan’s health, support, medical care, and welfare. Ms. Hogan transferred her home to the trust, sold the home, and deposited the proceeds in the trust. More than five years later, Ms. Hogan applied for Medicaid. The state determined that the trust assets were available resources and denied her benefits.

Ms. Hogan appealed the denial to court. The trial court ruled that the trust was not an available resource, because the trustee had absolute discretion to make distributions. The state appealed.

The Arkansas Court of Appeal reversed, holding that the trust is an available resource. According to the court, because the trust allowed distributions of principal and income for Ms. Hogan’s health, support, medical care, and welfare, “there are circumstances in which payments can be made to or for the benefit of [Ms. Hogan] from the trust, making the trust an appropriate available resource for [Ms. Hogan].”  

This decision underscores how important the drafting of the trust is to accomplish a particular objective.  Trusts filled with unfettered discretion, and comfort clauses ultimately provide the State opportunities to defeat the objectives of the trust.  The risks of irrevocable trust planning must be carefully considered, understood, and accepted.  While it is discomforting, the best course to plot toward an objective is the simplest, most direct, clear course.  Trusts that expressly prohibit distributions of income and/or principal for health, support, maintenance, comfort and welfare, are, often the best course to an objective that seeks to protect eligibility for Medicaid.     

Aging in Place in a Community

Ocean Atlantic Sotheby’s International Realty authored an excellent article, entitled, The Many Benefits of Aging in a Community, in the Cape Gazette.  I am reprinting it in it's entirety (with some links added):  

"There’s comfort in being around people who share common interests, goals, and challenges. That comfort in a community doesn’t wane with age – it actually deepens. Whether it’s proudly talking about grandchildren or lamenting the fact that our eyes aren’t as good as they used to be, it helps to be around people who not only understand what we’re saying but actually feel the same joys and concerns as well.

That’s why many boomers are deciding to move into an active adult community. In the latest 55places National Housing Survey, they were described by one out of three seniors as an “outgoing, social community of likeminded people.”

Bill Ness, Chief Executive Officer and Founder of 55places.com, explains:

“Baby boomers are now reaching the age when moving to an active adult community is the ideal opportunity for them…Many boomers now want to downsize, experience a maintenance-free lifestyle, and pursue more social opportunities. It’s exciting that there are so many choices for baby boomers.”

There’s still a desire, however, among many seniors to “age-in-place.” According to the Senior Resource Guide, aging-in-place means:

“…that you will be remaining in your own home for the later years of your life; not moving into a smaller home, assisted living, or a retirement community etcetera.”

The challenge is, many seniors live in suburban or rural areas, and that often necessitates driving significant distances to see friends or attend other social engagements. A recent report from the Joint Center for Housing Studies of Harvard University (JCHS) titled Housing America’s Older Adults addressed this exact concern:

“The growing concentration of older households in outlying communities presents major challenges for residents and service providers alike. Single-family homes make up most of the housing stock in low-density areas, and residents typically need to be able to drive to do errands, see doctors, and socialize.”

The Kiplinger report also chimed in on this subject:

“While most seniors say they want to age in place, a much smaller percentage of them actually manage to accomplish it, studies show. Transportation is often a problem; when you can no longer drive, you can’t get to medical appointments or to other outings.”

Driving may not be a challenge right now, but think about what it may be like to drive 10, 20, or 30 years down the road.

There are also health challenges brought on by a possible lack of socialization when living at home versus a community of seniors. Sarah J. Stevenson is an author who writes about seniors. In a recent blog post for A Place for Mom, she explains:

“Social contacts tend to decrease as we age for reasons such as retirement, the death of friends and family, or lack of mobility.”

[Ms. Stevenson's referenced article, "20 Facts about Senior Isolation That Will Stun You," is a sobering article about a too-often ignored subject!]

Thankfully, research from the same article suggests if you’re spending time with others in a community, thus reducing the impact of loneliness and isolation, there’s less of a risk of developing high blood pressure, obesity, heart disease, a weakened immune system, depression, anxiety, cognitive decline, Alzheimer’s disease, and early death.

Though the familiarity of our current home may bring a feeling of warmth, comfort, and convenience, it’s important to understand that staying there may mean missing out on crucial socialization opportunities. Living with adult children, joining a retirement community, or moving to an assisted living facility can help us continue to be with people we enjoy every day.

Bottom Line

“Aging-in-place” definitely has its advantages, but it could mean getting “stuck-in-place” too. There are many health benefits derived from socialization with a community of people that shares common interests. It’s important to take the need for human interaction into consideration when making a decision about where to spend the later years in life.
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Rising Gray Divorce Rate Complicating Planning

The rise in “gray divorce,” or split-ups among couples over the age of 50, is causing an increase in family conflicts and complicating financial and estate planning, according to a survey conducted by TD Wealth, the private wealth unit of TD Bank, found that gray divorce is adding another layer of complexity to an estate planning process that now often includes blended families and ever-changing domestic structures. The results were based on responses from attorneys, trust officers, accountants, charitable giving professionals, insurance advisers, elder law specialists and wealth management professionals.

“As a result of the growing divorce rate, it’s more important than ever to proactively review and discuss estate plans with clients and their families on an ongoing basis,” said Ray Radigan, head of private trust at TD Wealth.

The rate of gray divorce which has doubled since 1990, is posing a strain on retirement finances and having an impact on a variety of issues affecting older adults. The survey found that it is affecting decisions about powers of attorney (7%), determining appropriate Social Security benefits (6%) and drafting wills (5%).

VA Initiates Family Caregiving Program

ID 89103462 © Iakov Filimonov | Dreamstime.com

Department of Veterans Affairs (VA) hospitals are undertaking a new effort focused on assuring family members and loved ones caring for veterans are included in treatment.  The practice is already implemented at some facilities, but wasn't before standard policy.

The initiative finds medical providers at a handful of VA centers across the country reaching out to veterans to determine whether they want their caregiver in the room during treatment. On paper, the caregiver would then be involved in the entire care process, including treatment planning with doctors.

The new effort, kicking off first in three VA regions, was spurred by the Elizabeth Dole Foundation, an advocacy group for the 5.5. million spouses, parents, family members and friends who take care of injured veterans at home.  Elizabeth Dole, a former Republican senator from North Carolina and secretary of labor and transportation issued a statement reading "They [caregivers] are the first line of defense against the worst of all possible outcomes — suicides.  These heroes provide care that is extensive, intimate and around the clock."

“It’s about including the caregiver as a true partner. We know the veteran in our clinics but we don’t know what’s happening the other 23 hours of the day,” Lisa Pape, deputy chief officer for patient care services at VA told Stars and Stripes. “That caregiver is experiencing that life journey. And they can fill in the pieces and paint the picture that we’re not able to see so we want to include them.”

Too many caregivers  find roadblocks while trying to accompany patients they care for during treatment or while trying to communicate with doctors. While there’s a trial period at a handful of hospitals in the northwest and Ohio, the VA hopes a full integration within two years.

The VA cites data from a 2009 National Alliance for Caregiving study that suggests one-quarter of caregivers have difficulty coordinating care with health care providers. That study did not consider exclusively VA patients.

Community Spouse's Annuity Cannot Be Recovered by State

Estate recovery is the authority of a state to recover costs for services rendered under the State Medicaid program upon the Medicaid recipient’s death.  A Massachusetts trial court has recently illustrated the limits to estate recovery, holding that the state is not entitled to recover Medicaid benefits from a community spouse’s annuity. 

Robert Hamel, a community spouse, purchased an annuity that named the state as primary beneficiary to the extent any Medicaid benefits are paid. His daughter, Laurie Dermody, was the contingent beneficiary. Mr. Hamel’s wife, Joan, was an institutional spouse who had entered a nursing home and applied for Medicaid. The state approved her application. 

When Mr. Hamel died, the state demanded payment from the annuity as reimbursement for benefits paid on Ms. Hamel’s behalf, and the annuity company paid the state. Mr. Hamel,  had never received Medicaid benefits,  but passed away while Mrs. Hamel was in the nursing facility. The Commonwealth demanded payment under the terms of the annuity for services rendered to Mrs. Hamel, even though she was neither the owner nor the annuitant on the policy.  

The daughter, Ms. Dermody, sued the state and the annuity company, claiming that she is entitled to the remainder of the annuity contract as the contingent beneficiary. Ms. Dermody argued that Mr. Hamel purchased the annuity under the “sole benefit rule,” 42 U.S.C. § 1396(c)(2)(B), which allows transfers to a spouse for the sole benefit of the spouse. The state argued that the “ to the extent benefits are paid” language in the annuity applied to benefits paid on behalf of Ms. Hamel.

The Massachusetts Superior Court granted Ms. Dermody’s motion for summary judgment. The court held that any transaction that satisfies the sole benefit rule is exempt from the transfer penalty rules, including the requirement to name the state as the primary beneficiary of an annuity. According to the court, Mr. Hamel “was not required to name [the state] as his primary beneficiary to the extent benefits were paid on [Ms. Hamel’s] behalf, and because [Mr. Hamel] did not receive [Medicaid] benefits himself, [Ms. Dermody] is the proper beneficiary of his annuity contract.”

This is a favorable decision for Massachusetts seniors, and permits seniors a strategy to preserve their assets for the next generation. The decision is, nonetheless, only a trial court decision, and does not have the weight of an appellate or supreme court decision by the state, or of a federal court decision.  It will be interesting to watch how other courts and jurisdictions treat the court's decision in Dermody v. The Executive Office of Health and Human Services (Mass. Super. Ct., No. 1781CV02342, Jan. 16, 2020).