James Steward and Angela Hentkowski of Steward & Sheridan, Ishpeming, were the lead attorneys for the plaintiffs challenging the policy and should be congratulated for an excellent win.
Prior to August 2014, an SBO trust was a common tool that was available to use to avoid spousal impoverishment under the statutes and regulations requiring that a person seeking Medicaid coverage for long-term care must spend down all countable assets to a maximum of $2,000.
The requirements were:
- The transfer to the SBO trust must be irrevocable.
- The distributions or payments from the trust must be made solely for the benefit of the community spouse;
- The distributions to the community spouse must be made on an actuarially sound basis over his or her the projected lifetime;
- There may not be any conditions or circumstances under which either principal or income could be distributed to or used for the benefit of the institutionalized spouse.
Under the Medicaid statute, the definitions that apply are found at 42 USC 1396d. There is no definition of the word “individual” in that section, but it is important to note that that word appears in section 1396d a total of 72 times, and each time it is used it is clear that it refers to the institutionalized person, the person receiving Medicaid benefits, and not to his or her spouse.
Chief Justice Bridget McCormack, concurring in the decision, wrote separately to say that, in her opinion, the transfer of assets by the community spouse into the trust would be regarded as a “divestment” which would trigger a period of disqualification for Medicaid benefits under the divestment rules. She observed that that was not an issue involved in the case before the Court and thus did not require consideration.
We believe that the Chief Justice is probably wrong on this point. At page 9 of the Bridges Eligibility Manual, section 405 (divestment), the DHHS says that:
It is not divestment to transfer resources from the client to:And this DHHS policy statement is based on the Federal Medicaid statute, 42 USC 1396p-c-2-B-i:
The client’s spouse.
Another [person] SOLELY FOR THE BENEFIT OF the client’s spouse. Transfers from the client’s spouse to another SOLELY FOR THE BENEFIT OF the client’s spouse are not divestment.
(2) An individual shall not be ineligible for medical assistance by reason of paragraph (1) to the extent that—
* * *
(B) the assets—
(i) were transferred to the individual’s spouse or to another for the sole benefit of the individual’s spouse,
(ii) were transferred from the individual’s spouse to another for the sole benefit of the individual’s spouse,
(iii) were transferred to, or to a trust (including a trust described in subsection (d)(4)) established solely for the benefit of, the individual’s child described in subparagraph (A)(ii)(II), or
(iv) were transferred to a trust (including a trust described in subsection (d)(4)) established solely for the benefit of an individual under 65 years of age who is disabled (as defined in section 1382c(a)(3) of this title)