State High Court Counts Husband’s Trust As Available Resource

APRIL 14, 2003 VOLUME 10, NUMBER 41

Almost every state is facing a serious budget crisis in the current economy, and Kansas is no exception. Kansas’ governor projects a $750 million shortfall in the coming year. Last month the Kansas Supreme Court did what it could to help by deciding that Mary Miller would not qualify for Medicaid assistance because of a trust set up by her husband.

When Edward Miller wrote his will in 1978, he may have been thinking about the possibility that his wife might go into a nursing home sometime in the next quarter-century. That may have been why he directed that a trust be established for her benefit, with their daughter as trustee. Mrs. Miller would be entitled to receive all the income from the trust, but principal distributions would be controlled by the trustee. Mrs. Miller signed a document at the time consenting to the trust arrangement.

Mr. Miller died seventeen years later, and the trust was set up as he directed. Mrs. Miller went into a nursing home four years later. Although she had no assets, her husband’s trust was valued at $190,000 and she was receiving monthly income payments of $1,000.

Mrs. Miller applied for Medicaid assistance with nursing home care, but Kansas’ Medicaid agency decided that the trust should be counted as an available resource despite the fact that she had no control over it. The agency reasoned that she would have been entitled to insist on receiving about half the trust principal when her husband died—if she hadn’t consented to the terms of his will seventeen years earlier.

After the Medicaid agency denied her eligibility Mrs. Miller appealed all the way to the highest court in Kansas. Last month that court decided that the Medicaid agency was right, and that Mrs. Miller had effectively created her own trust by acquiescing in her husband’s estate planning arrangement. The Court, quoting itself from an earlier decision, noted that “public assistance funds are ever in short supply, and public policy demands they be restricted to those without resources of their own.” Miller v. State of Kansas Department of Social and Rehabilitation Services, March 7, 2003.

The approach implemented by Mr. Miller is, despite the Kansas Supreme Court’s disapproval, quite plainly contemplated by federal law. The Court’s zeal to save taxpayers dollars is also shortsighted. Mr. Miller did have another option when he wrote his will. He could have simply disinherited his wife, which would have resulted in her achieving Medicaid eligibility; without the trust contained in his will, the couple’s children would also have saved the monthly income checks now being made to the nursing home for the rest of Mrs. Miller’s life. The other cost forced on individuals by the Kansas decision is less clear, but it becomes increasingly important to secure good legal advice in order to protect as much of an individual’s (or a couple’s) estate as possible from the high cost of nursing home care. The cost of that legal advice itself ultimately comes from nursing home payments and therefore increases the cost to Medicaid programs.

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