Facts
In this consolidated case, the individual Plaintiffs were elderly women who were receiving long-term care in nursing homes. In each case, the Plaintiff’s community spouse created an irrevocable trust that was solely for his own benefit and funded with the couple’s excess marital assets. The distributions from each trust, referred to as an “SBO” trust, were to be distributed at a rate that would deplete the trust within the community spouse’s expected lifetime. Following the creation of these trusts, the respective Plaintiff’s submitted an application for Medicaid benefits. Each of their applications was denied as it was determined by the agency that the entire value of the principal of each SBO trust was a countable asset resulting in the applicants exceeding the Medicaid asset eligibility limits. The Plaintiffs appealed the department’s decision. However, each Administrative Law Judge favored the Department’s interpretation of BEM 401 which required that the assets held by each trust be countable assets because the trust could make payments to the community spouse. The Plaintiffs appealed.
Issue
The main issue in this appeal is whether assets making up the principal of an irrevocable ‘sole benefit of’ (SBO) trust are countable assets for the purpose of determining an institutionalized spouse’s initial eligibility for Medicaid.
Holding
In reviewing the statues, the court found that neither 42 U.S.C. §1396r-5 nor 42 U.S.C. §1396p(d) include language that automatically makes marital assets placed in an irrevocable trust for the sole benefit of a community spouse a countable asset for the purpose of an institutionalized spouse’s initial eligibility determination. Rather, such assets become countable only if circumstances exist under which the trust could make a payment to or for the benefit of the institutionalized spouse. As such, the judgment of the Court of Appeals is reversed.
Rationale
In order to determine whether the trust assets were available to the institutionalized spouse, the Court first assessed the ownership of the trust assets. The property that makes up the principal of a trust is not owned by or otherwise directly available to the beneficiary. Instead, the trustee holds title to the property that constitutes the principal of a trust and holds it in trust for the beneficiary. As such, unless the beneficiary is also the trustee, which is not the case in this circumstance, the beneficiary does not own the property forming the principal of the irrevocable trust. Additionally, the principal of an irrevocable trust generally will not be a resource available to either spouse according to 42 U.S.C. §1396r-5(c) because such property is not held by either spouse. Furthermore, the SBO trusts at issue all contain language stating that distributions or payments from the trust may only be made to or for the benefit of the respective community spouse and that the trust resources may be used only for the community spouse’s benefit. Therefore, if an irrevocable trust can make payments only to the community spouse, then those payments cannot be considered available to the institutionalized spouse unless there is evidence that the payments could be for the benefit of the institutionalized spouse.