SBO Policy Change Update

The question most frequently asked of me when I am out and about is:  What’s the status of the SBO Trust? I haven’t written about this issue on this blog sight before, although I have written and spoken about it a number of times in recent months.

The SBO Trust (or “solely for the benefit trust”) was the primary planning tool for married persons seeking Medicaid benefits in long term care situations for nearly two decades.  I am proud to say it was first created by two attorneys now with Chalgian and Tripp:  David Shaltz and John Bos.  The SBO Trust allowed assets above the community spouse “protected spousal amount” to be sheltered for the benefit of the community spouse. (The community spouse is the person married to the Medicaid applicant.)  It worked great for a long time.

In August 2014, the Department of Human Services (“DHS”) began treating SBO Trust assets as available resources, essentially negating any benefit to their use.  This was done without any policy change, by announcing a new interpretation of existing policy.

As a result of this change two things happened:  (1) Applications pending with SBO Trusts were denied, and (2) This helpful planning tool was made unavailable for future clients.

With respect to the first issue, litigation was initiated by the Elder Law Section of the State Bar in the Michigan Court of Claims.  Chalgian and Tripp attorney David Shaltz led that effort.  If successful, the lawsuit would have protected those clients who had applications pending at the time of this change, and would have required the DHS to take appropriate steps to implement a formal policy change before changing the way it treated SBO Trusts.  Earlier this week that lawsuit was dismissed by the Court of Claims on Summary Disposition.  That means this case was unsuccessful. To read the opinion from the Court of Claims, click here.  As a result, the only protection for people with applications pending at the time of the change would be to appeal through the administrative appeals process.  It is uncertain whether the decision from the Court of Claims will itself be appealed, or whether such an appeal would have any likelihood of success.

With respect to the second issue, there is a potential for litigation in federal court.  Such litigation would essentially sue the state to force them to require DHS to allow SBO Trusts to be treated in the same manner they were treated before the change in August 2014.  The Elder Law Section of the State Bar is still considering whether it will initiate such an action.

So, in conclusion, an important tool in Medicaid planning, the SBO Trust, is not currently viable and those who were impacted by the change will not have relief except potentially through the appeal of individual cases.  Whether this tool might ever return in the future is speculative at best.

  • Tyler Martinez

    Thank you, Doug, for another educational blog!