Revocable Trust Shields Farm From Wisconsin’s Claim

AUGUST 25, 1997 VOLUME 5, NUMBER 8

Farmer John Furgason resided in a Wisconsin nursing home. Since the only substantial asset owned by John and his wife Mildred was the family farm, and since Mildred continued to live on the farm, John qualified for Medicaid assistance in March, 1990.

A year later, the Furgasons established a revocable living trust, and both signed deeds transferring the farm into the trust’s name. Mildred continued to live on the farm, and John continued to receive Medicaid assistance with his nursing home costs.

In mid-1995, Mildred also entered the nursing home. When she applied for Medicaid assistance, she was denied; the Wisconsin Department of Health and Social Services informed her that assets held in the revocable trust would be counted as available to her, and therefore make her ineligible. In fact, the DHHS notified John Furgason that his Medicaid assistance would also end.

At issue in the Furgasons’ cases was interpretation of the federal rules involving residences of Medicaid recipients. There is no question that, if the Furgasons held title to the family farm in their own names (or in either of their names), it would be treated as their residence and therefore exempt from being counted as an available resource. DHHS argued, however, that since the property belonged to the revocable trust it could not be the Furgasons’ residence.

The real issue, of course, is Wisconsin’s estate recovery program. Like most states (including Arizona), Wisconsin makes a claim against the estates of deceased Medicaid recipients for reimbursement of Medicaid payments. That claim, however, is only made against the estate passing through the probate system. If the Furgasons were permitted to transfer their farm (and home) to the revocable trust, it would not pass through probate and would therefore defeat the State’s claim for reimbursement.

Wisconsin’s Court of Appeals disagreed with the Department’s reading of trust and Medicaid law. Pointing to general trust law, the Court noted that the Furgasons retained an ownership interest in the trust property by virtue of being beneficiaries of the trust; that interest was sufficient to make the farm their home for Medicaid purposes.

The Department argued that to allow the Furgasons to exempt their home while it remained in the trust would effectively frustrate the State’s claim for estate recovery. While acknowledging that result, the Court of Appeals noted that it would not change the law; the home belonged to the trust beneficiaries, and therefore was an exempt asset. Furgason v. Wisconsin Dep’t. of Health and Social Services, May 15, 1997.

The Furgasons’ case relied on Wisconsin law, which is similar to Arizona law. Arizona trust principles are in accord with those in Wisconsin; the Furgasons would in fact have an ownership interest in the property held in trust. Arizona’s Medicaid law is also similar; the Arizona definition of home property is “any property in which [the applicant] has an ownership interest and which serves as [the applicant’s] principal place of residence.”

Arizona’s ALTCS program treats homes owned in revocable trusts as not qualifying for the home exemption. A challenge to that policy would require litigation and the accompanying uncertainty and costs.

One unintended effect of Arizona’s position is worth mentioning. By treating homes owned in trust as available for eligibility purposes, the State is stuck with counting the value of such homes in calculating the portion of community assets which a spouse residing in the home may retain. The upshot: in many cases where couples established living trusts before one entered the nursing home, simply transferring the house out of the trust can result in Medicaid eligibility, without any additional spend-down requirement. Since this is a complicated area, applicants are well-advised to seek competent legal counsel before making any transfers.

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