Blog Viewer

DHS Counting SBO Trust Assets

By Douglas G. Chalgian posted 08-21-2014 07:20

  

For those who haven’t heard, the Department of Human Services has begun denying eligibility in Medicaid long term care cases in which there is a married person, and in which assets were placed in a so-called “solely for the benefit” trust (“SBO trust”).  For those who do Medicaid planning, they will recognize that the SBO trust is the most favored planning tool in most married persons cases.  The SBO trust has traditionally allowed assets in excess of the protected spousal amount to be preserved for the needs of the community spouse.

The first SBO trust in Michigan was drafted about 18 years ago by David Shaltz and John Bos.  Since then, SBO trusts have been used thousands of times and have been approved by the department as a matter of course – until about two weeks ago.  Now, DHS has decided that all the assets in an SBO will be counted. 

DHS is asserting that this change is not a change in policy, only a change in the way they are applying policy – or, in other words, they have been doing it wrong up until now. What they seem to be saying is that the policy allows them to count the principal of an irrevocable trust (including an SBO trust) to the extent there are any circumstances under which it could be distributed to the beneficiary (in this case, the community spouse).  Because all of the assets in an SBO can ultimately be distributed to the community spouse, all of the assets are countable.  In other words, what I think the are saying is that even though the SBO trust may expressly preclude distributions during the period of time the application is being processed, they can count all of the assets in the trust because someday the trust could distribute the property to the community spouse.  Again, this is my understanding of their position based on the memos and other correspondence I have seen.  Whether this is a correct interpretation of policy, and if so, whether policy is consistent with federal law, are issues that will need to be litigated. 

For clarification, DHS acknowledges that funding an SBO trust is not divestment.  This is clear from BEM 405.  In reaching the position that the assets in the SBO trust can be counted as available resources, they are looking instead to BEM 401, which talks about the extent to which assets in an irrevocable trust can be counted.

In the meantime, it appears, planners should stop using SBO trusts unless they want to be denied and want to try to win on appeal.  Other planning options, including: protective orders, commercial annuities and divorce, should be looked at.  Each of these options have challenges and considerations which need to be considered – and which are too numerous to address in this post.

As for applications that are pending in which SBO trusts were used, denials should be expected.  In each case, the planner and his client(s) will have to decide whether to appeal or take some other action to provide for the needs of the impaired spouse. 

Stay tuned.  More information will become available, and will be shared through ICLE and other outlets in the near future.

0 comments
671 views

Permalink