Medicaid Planners Get Rare Win from COA

The Michigan Court of Appeals has issued an opinion regarding the appropriateness of using probate court protective orders to obtain spousal support orders in situations where such orders impact the calculation of a nursing home resident’s Medicaid “patient pay amount.” The outcome is 80% good for planners, and as such is a refreshing break from the series of punishing COA opinions that have been issued in recent years with respect to Medicaid planning cases.

The case is published, lengthy and involved. Click here to read the combined cases of In Re Joseph VanSach Jr., and In Re Jerome R. Bockes.

For the uninitiated, a “patient pay amount” is the portion of a person’s income that is required to be paid to toward their care when they are in a nursing home receiving long term care Medicaid benefits. The exact amount is a function of Michigan Department of Health and Human Services (DHHS) policy, which provides a formula for calculating the patient pay amount.  When the nursing home Medicaid beneficiary is married, that formula allows for diversion of income to the “community spouse.” DHHS policy also provides that where a court order directs payment from the nursing home resident to the community spouse, that court order supersedes the formula for determining the amount of income diverted.

In both of the cases before the COA, the local probate court ordered that 100% of the income of the nursing home resident would be paid to the community spouse for their support. These two decisions were appealed by DHHS, represented by the Michigan Attorney General, and the two cases were combined by the Court of Appeals.

The main argument of DHHS was that the probate court lacked jurisdiction to hear these cases. That argument was made on several grounds, all of which failed.  In this decision, the COA holds that probate courts have the authority to grant these orders and that in doing so those courts are not engaged in making DHHS eligibility determinations even though the clear purpose of obtaining such orders may be for that reason.  That’s a big win for the planners.

The COA also holds that the fact that these individuals may have had power of attorneys in place at the time of the petition does not preclude the probate court from getting involved. The COA reasons that the specific form of relief desired (a court order of support) would not be something that an agent acting under a POA could provide, and therefore the court does have jurisdiction to hear these matters.  This holding has potential applications beyond Medicaid planning matters.

After dismissing the primary jurisdictional challenge, the COA ventures into a discussion about how a probate court should decide these cases. The COA holds that in the two cases giving rise to the appeal, the probate courts erred in awarding 100% of the nursing home resident’s income to the community spouse, and vacates both orders and remands the cases.

The COA instructs Michigan’s probate courts that the burden is on the party seeking the order of support to show, by clear and convincing evidence, that the community spouse “needs” the additional income, that it is more than a “want,” and that in deciding whether or how much to award, the probate judge must consider the interests of the institutionalized Medicaid beneficiary and their obligation to contribute toward the costs of their own care. The discussion of this process goes on for several paragraphs, and includes several lengthy footnotes, using, at times, vague and clouded statements to explain how this balance should be struck.  In the end, the opinion seems to intentionally avoid the obvious conclusion that the institutionalized spouse has no real interest in paying anything more than they have to toward their care, as their care remains the same notwithstanding, and that in almost every case the interest of institutionalized spouse would be to divert as much income to support their spouse as possible.  The COA seems to want to direct the probate judge to consider public policy and the interest of the DHHS in making its decision – but they never say that – presumably because there would be not legal basis for doing so.

Importantly, the COA rejects the standard requested by DHHS of “exceptional circumstances resulting in significant financial duress.” But in the same footnote discussion, the COA goes on to say:

… as a matter of common sense, when an incapacitated person needs to be institutionalized to receive full-time medical care, it would be an unusual case for a community spouse’s circumstances to trump the institutionalized spouse’s need for use of his income to pay his medical expenses, particularly when the community spouse has the benefit of the CSMIA. In other words, an institutionalized spouse’s receipt of Medicaid, and a community spouse’s protection under the spousal impoverishment provisions, generally weighs against the entry of a support order.

The result of this case will require more effort in bringing these matters to probate courts in the future. Practitioners will want to establish a record that the probate judge can rely upon to conclude that the burden has been met.  As evidenced by the orders vacated in this appeal, a judge simply concluding that the request was “reasonable” is not good enough.

We should also recognize that while this case is about protective orders used to establish income diversion orders to benefit the community spouse, many of the same rules and standards would presumably apply to the other common use of protective orders in Medicaid planning: orders to establish a protected spousal amount.

In the end, these important planning tools (probate court protective orders) survived the COA and planners should celebrate this decision. It isn’t perfect, but in light of the COA’s prior decisions in this arena, it’s a lot more than might have been expected.

Representing the interests of the elder law bar (as appellees) in these two matters were two renowned elder law practitioners: CT’s own David Shaltz, and my friend and colleague Don Rosenberg.

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Remainder Beneficiary of Revocable Trust has Standing to Sue Trustee for Breach

UPDATE: On June 8, 2018, the Michigan Supreme Court vacated those portions of this decision that incorrectly construed the Michigan Trust Code provisions related to standing to initiate a trust proceeding.  The MSC also remanded the case to the Court of Appeals to be corrected and reissued.  Click here to read the MSC Order.  When a new COA opinion is issued, it will be added to this post.

 

Several issues are addressed in this published opinion regarding a family trust contest that occurs while Mom, settlor, is living. Mom’s trust is revocable and Dad is Trustee.  Mom may or may not be competent at the time of the litigation, hence the Trust may or may not have become irrevocable.

To read In Re Rhea Brody Living Trust click here.

The most interesting issue addressed in the opinion is whether Daughter, a residual beneficiary of a trust that remains revocable, has standing to contest the administrative actions of the Trustee. Mom’s Trust provides for both son and daughter to receive equal shares upon the death of survivor of herself and Dad.  Daughter says the sale, by Dad/Trustee, of certain business interests to Son and his children is a breach of his fiduciary duty to her and violates the requirement that he appoint an independent co-Trustee to engage in any action that alters the interests of beneficiaries.  The COA says Daughter, as reidual beneficiary, has standing as an “interested person” under EPIC pursuant to MCL 7.7201 to contest Trustee/Dad’s actions as Trustee which would ultimately affect her interest if the Trust if it is not subsequently amended to remove her.  It rejects the contention that standing is controlled by the “real party in interest” rule set forth in MCR 2.201(c). The COA holds that this would be true regardless of whether Mom is or isn’t competent (that is, regardless of whether trust has or has not become irrevocable).  This is an important clarification of the law, and would presumably mean that Daughter could have sued Mom/Settlor for doing the same thing if Mom were acting as her own Trustee.  (Of course, if that were the case, Mom could simply amend the Trust and make the issue moot.)

Further complicating the analysis is the fact that the Trust provides that if Dad survives Mom, Dad as Trustee may make unequal distributions to the two children. Accordingly Dad and Son argue that this means no harm was done to Daughter even if the sale reduced her expectancy interest in the Trust.  The COA however notes that Dad has not survived Mom and therefore those provisions are not in play.  The COA goes further (perhaps dicta), to conclude that notwithstanding the unequal distribution provisions, the overall intent of the Trust is equal division between children and therefore the actions of Trustee/Dad could be a breach.  The trial court in fact found his actions to be a breach and ruled in favor of daughter on summary disposition.

The COA also provides an interesting analysis of the remedies directed by the trial court regarding two sales that were the basis of the litigation. The trial court ordered reformation of the contract on one sale and rescinded the other.  The COA found that while rescission was an appropriate remedy, reformation was not.  In remanding the reformation portion of the trial court’s order, the COA offers an important explanation of the limitations of a court’s equitable powers.

Finally, and least importantly (although this is the first issue addressed in the opinion), this case looks at subject matter jurisdiction of business courts in relation to probate courts. Dad/Trustee argued that the litigation discussed above was improperly filed in probate court because all business litigation is required to be brought in the “business court.” The COA finds that there is a conflict between the statutes controlling business court and probate court subject matter jurisdiction, but concludes that the probate court does not lose subject matter jurisdiction over trust cases simply because the litigation involves issues related to business interests.  The COA notes that this confusion is temporary for the reason that the business court jurisdiction statute was recently amended to further limit the jurisdiction of business courts to cases in which a business entity is a party.  That change becomes effective October 11 2017.

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