Posts Tagged ‘MediCal’

Special Needs Trust Created Too Late; Funds Go To State


Virgil Lamont Hamilton, a California child, was injured in a tragic swimming pool accident in 1982. Hamilton suffered severe brain damage, and will require total care and extensive medical treatment for the rest of his life. Since the accident, Hamilton has lived in a California state institution, Agnews Developmental Center.

Attorneys for Hamilton brought suit against the swimming pool owner and, in 1984, settled the case. The result of the settlement was that $400,000 was placed into a “medical trust fund” for Hamilton’s benefit, and an annuity was purchased with an additional $100,000. The annuity payments were structured to begin in 1992.

Immediately upon completion of the settlement, Hamilton lost his eligibility for California’s Medicaid program (Medi-Cal). The state Department of Developmental Services stepped in and provided Hamilton’s care, but brought an action against the trustees of the medical trust fund. The result of that action was an order, entered in 1989, directing that the remaining funds in the trust account be paid to the state. Upon exhaustion of the trust account, Hamilton once again qualified for medical assistance through Medi-Cal, and the health care program once again began paying for his medical care.

In 1992 the annuity payments began to arrive. Initially, Hamilton received $5,000 per month. Medicaid/Medi-Cal recipients are required to pay most of their income (minus a small personal needs allowance, in most cases) toward their own medical care, and so Medi-Cal demanded that the entire annuity payment be delivered to the Agnews Developmental Center each month. The result: Hamilton received the same care he would have received if he had not settled his personal injury action, and the proceeds provided no additional care, equipment, therapy or other benefits.

Hamilton’s mother thought she saw a way to benefit her son. In 1995, she asked the California courts to restructure his “medical trust fund,” and the annuity payments, and to effectively create what is usually called a “special needs trust.” With such a trust arrangement, the annuity payments could be used for Hamilton’s extra needs–the types of things not provided by Medi-Cal which might improve his quality of life. Unfortunately, the state’s payments for Hamilton’s care by this time had exceeded $250,000 and the Department of Developmental Services opposed the funding of the special needs trust unless the Department was first reimbursed for those payments.

Hamilton’s mother asked the California court to approve the special needs trust as if it had originally been established when the lawsuit was settled in 1984. She asked the court to enter the order nunc pro tunc–as if that had been the original order of the court, but a clerical error had been made in the entry of the formal order. The trial court agreed, saying that it was rectifying “the court’s [earlier] failure to establish a properly drafted trust.” The Department appealed.

The California Court of Appeals reversed the nunc pro tunc order. Saying that the use of such a process is limited to truly clerical errors, and not to remedy judicial mistakes, the judges refused the request to modify Hamilton’s trust fund. Hamilton v. Laine, September 16, 1997.

What does the Hamilton case have to do with elder law? Many Medicaid recipients are elderly, and a disproportionate portion of nursing home residents are aged. Those who have been injured (or who inherit money) may find that they receive no benefit from their settlement unless a properly drafted special needs trust is established at the time. Competent legal assistance is essential for institutionalized personal injury plaintiffs of any age.

Medicaid Liens in California

MARCH 14, 1994 VOLUME 1, NUMBER 17

A recent article in the Orange County Register indicated that many Medicaid recipients (and newspaper reporters) are likely to be surprised by the implementation of Medicaid estate recovery programs. The article (reprinted in the Arizona Republic as “Californians get surprise bills for care”) detailed the plights of several Californians whose spouses had died while receiving benefits from MediCal, California’s version of Medicaid.

Pursuant to August, 1993, changes in federal law, states are required to implement an aggressive program to recover assets from the estates of deceased recipients of Medicaid long-term care (known in Arizona as ALTCS). Among the measures already implemented in California is an automatic lien imposed on the residence of MediCal recipients, which may be collected upon the death of a surviving spouse or upon sale of the property.

Arizona has not yet complied with the new federal mandate, though changes are expected at any time. If California’s experience is any guide, seniors who seek ALTCS benefits for their spouses, and the children of ALTCS patients, are in for a surprise.

The Register article told of Edward F. Gunz, whose Parkinson’s disease required his nursing home placement in January, 1993. When he died in October, California authorities placed a $17,287.53 lien against his widow’s home.

Litigation Filed

Gunz’ widow is one of six plaintiffs in a class action seeking to invalidate the California lien program. Another plaintiff is Ralph Ainsworth, whose wife Virginia received $11,700 of MediCal care. When she died last September, Ainsworth received a form inquiring about assets and telling him there would be no lien against his home so long as he lived there. After the lien was filed, MediCal officials explained that he “got an old form” and that the new ones hadn’t been printed up at the time of her death.

Pat McGinnis, director of the California Advocates for Nursing Home Reform in San Francisco, is quoted as saying that “this is just a way to balance California’s budget on the backs of nursing-home residents and their families.” The article also notes that California’s share of long-term care costs is running about $1.5 billion per year. California has about 3 million citizens over age 65.

Other States

According to Linda DeRuvo-Keegan, vice president of American Health Care Association, other states are also taking advantage of the new federal mandate to collect money from estates. She indicates that she is unaware of any other lawsuits.

The California lawsuit alleges only that the surviving spouses were given inadequate notice of the liens, not that the liens are themselves illegal. California authorities are quick to point out that the liens will not be foreclosed so long as a surviving spouse resides in the home. Less clear is how the appreciation in real estate values between the deaths of the first and second spouse will be treated.


Arizona has not yet adopted an estate recovery program, although liens were extensively used by County eligibility offices prior to the enactment of ALTCS. One choice facing Arizona will be whether to use an expanded definition of “estate” authorized by federal law. If followed to the extreme, the new law might permit recovery against the families of patients who only owned a life estate–a right to use the property during the patient’s life.

ALTCS has not been quick to involve family members, lawyers or other advocates for the elderly or disabled in the planning process. We all eagerly await the final outcome.

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