Estate of Dorothy Lollar v. Department of Human Services Director, 329511

Background

Three elderly women (Hegadorn, Lollar, Ford) entered long‑term care and shortly thereafter their husbands created irrevocable "Solely for the Benefit Of" (SBO) trusts funded with substantial assets. Each wife applied for Medicaid within months of placement of assets into the trusts and was denied because the Department counted the trust assets when determining eligibility.
Administrative Law Judges upheld the Department’s denials, concluding the SBO trusts were Medicaid trusts and their principal was countable because the trust terms required distributions to the spouse on an actuarially‑sound, lifetime‑exhaustion basis.
Circuit courts reversed, holding the Department’s change in treatment of SBO trusts (announced by an August 20, 2014 memorandum) was an impermissible retroactive or adverse policy change and that trust assets were not countable as of the application dates.
The Court of Appeals reviewed de novo the statutory and BEM interpretations and the Department’s application of federal Medicaid statutes and BEM trust rules to determine whether spouse‑funded SBO trust assets are countable for the institutionalized spouse’s eligibility.
The Court concluded the trusts’ language made principal payable to or for the benefit of the community spouses during their lifetimes, so federal law and BEM require counting those trust assets when computing initial Medicaid eligibility for the institutionalized spouses.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether assets placed by a community spouse into an SBO irrevocable trust are "countable" resources for the institutionalized spouse's Medicaid eligibility at application	SBO trusts benefit only the community spouse; BEM/42 USC terms "person/individual" refer to applicant only, so spouse's trust assets should not be counted	Federal statutes and BEM require counting community‑spouse resources for initial eligibility; SBO trust terms permit distributions to/for benefit of spouse, so corpus is available and countable	Held: Countable. Trust terms create circumstances under which principal could be paid to/for the benefit of the spouse; federal law and BEM require counting those amounts.
Whether the Department unlawfully changed policy by clarifying that SBO trusts are countable and whether that change can be applied to these applicants retroactively	Department impermissibly changed policy to applicants' detriment; prior practice favored non‑counting, so applicants entitled to earlier rule	The Department merely clarified application to comply with federal law; federal mandates require consistent treatment and noncompliance could have severe consequences	Held: No unlawful change; clarification was required to conform with federal law and may be applied here—applicants were not entitled to benefits they otherwise would not qualify for.
Proper interpretation of BEM 401 and 42 USC 1396p(d)(3)(B) regarding trusts	BEM/ statutes should be read to limit "person/individual" to institutionalized spouse, excluding spouse‑only SBO trusts from being treated as available resources	Statutory text and BEM interpret "resources" to include both spouses' assets and treat trust principal as available if any circumstance allows payment to or for the benefit of the individual	Held: Statutes and BEM support treating spouse‑funded SBO trusts as resources available to the institutionalized spouse for initial eligibility.
Whether trustees' discretion negates availability of trust corpus for counting	Plaintiffs argued trustee discretion or restrictions mean corpus is unavailable and thus not countable	Department and ALJs cited statutory language and guidance holding that trustee discretion does not prevent counting when any circumstance exists under which payments could be made to/for the person	Held: Trustee control does not prevent counting where trust terms permit distributions that would benefit the spouse; full corpus is countable.

Key Cases Cited

Mackey v. Department of Human Servs., 289 Mich. App. 688 (Medicaid eligibility asset limit and program context)
Ketchum Estate v. Department of Health & Human Servs., 314 Mich. App. 485 (Medicaid program overview and state/federal interplay)
Hughes v. McCarthy, 734 F.3d 473 (6th Cir.) (authority relied on by a dissenting judge regarding annuities/trusts—discussed by lower court)
Walters v. Nadell, 481 Mich. 377 (standard of review for statutory interpretation)
In re Maloney Trust, 423 Mich. 632 (trust interpretation focused on settlor's intent)