SBO Trusts Targeted Again

By Doug Chalgian on June 25, 2020

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Yesterday, DHHS released a proposed policy which is summarized as follows:

Effective October 1, 2020 all transfers by the applicant or the applicant’s spouse to a trust established solely for the benefit of the client’s spouse will be evaluated for divestment …

The policy bulletin is short and vague. It provides almost no explanation of how this change is justified, or how it will work. It says little more than that by making this change DHHS policy will become better aligned with Federal law, and specifically: 42 USC 1396p(c)(2).

Click here to read the proposed policy.

The battle over the viability of the SBO Trust is not new. We have written about the SBO Trust several times, most recently in May of 2019, when the Michigan Supreme Court issued the Hegadorn decision which held that the DHHS was wrong when it changed the treatment of SBO Trusts to cause them to be unusable for Medicaid planners.

Click here to read Hegadorn.

Click here to read my prior post about Hegadorn.

But Hegadorn was a case about the countability of the assets in an SBO. This new policy seeks to attack SBO Trusts on the basis of divestment.

Curiously, in her concurring opinion in Hegadorn, the Chief Justice of the MSC, Bridget McCormack, alluded to a divestment analysis in the offing. At the time, her comments seemed odd and inexplicable. After all, the SBO Trust is rooted in 42 USC 1396p(c)(2), which is a law about divestment. That law says, pretty directly, that transferring assets to another solely for the benefit of a community spouse is not divestment.

Click here to read 42 USC 1396p(c)(2)

So, here we go again. The cat and mouse game between DHHS and Medicaid planners continues. Whether this proposed policy is some sort of trial balloon, and what, if any, authority DHHS thinks they have to back this up, may or may not come out before October 1. Comments are due by July 29.

[But you can comment below, any time you like.  Just keep it clean.]

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mm By: Doug Chalgian
Doug Chalgian

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