Roselyn Ford v. Department of Health and Human Services, 331242

Background

Three Michigan cases involved institutionalized wives (Hegadorn, Lollar, Ford) who applied for Medicaid after their husbands placed substantial assets into irrevocable “Solely for the Benefit Of” (SBO) trusts shortly after the wives entered long-term care.
The Department of Health and Human Services denied Medicaid based on counting the SBO-trust assets as part of the applicants’ countable resources; administrative law judges (ALJs) affirmed the denials.
Circuit courts reversed the ALJs, concluding the trusts’ assets were not countable (relying in part on prior case law and purportedly earlier Department practice) and ordered benefits to commence from application dates.
The Court of Appeals reviewed whether assets placed by a community spouse into an SBO trust are countable for Medicaid eligibility, and whether the Department’s clarified treatment of SBO trusts constituted an impermissible retroactive or unlawful policy change.
The trusts’ terms required distributions to the community spouse on an actuarially sound basis and directed that the trustee distribute assets at a rate to use up the corpus during the spouse’s lifetime.
The Court of Appeals reversed the circuit courts, holding the SBO-trust assets countable under federal law and Michigan’s Bridges Eligibility Manual (BEM), and reinstated the ALJs’ denial decisions.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether assets in a spouse-established SBO irrevocable trust are countable for the institutionalized spouse’s Medicaid eligibility	Trusts are "solely for the benefit" of the community spouse, so assets are not available to the institutionalized spouse and thus not countable	Under BEM and federal statutes, if any condition allows payment of principal or income to/for the institutionalized spouse, the trust (or portion) is a countable resource	Held: Countable — trust language requiring distributions and use-up during spouse’s lifetime creates conditions making corpus countable
Whether the Department’s August 2014 clarification treating SBO trusts as countable constituted an impermissible change in law or policy	The Department impermissibly changed policy to applicants’ detriment and cannot apply change retroactively	Department clarified prior practice to conform with federal requirements; clarification is lawful and necessary to comply with federal law	Held: Not an impermissible change; clarification valid and may be applied (no retroactive entitlement to benefits shown)
Whether the trusts’ distribution language (actuarially sound/use-up during lifetime) requires counting full corpus	Trust wording only benefits community spouse and trustee discretion makes funds unavailable	Language requiring life‑expectancy-based distributions and use-up establishes a condition under which principal could be paid to the person — thus countable per BEM and 42 USC 1396p(d)(3)(B)	Held: Language creates a circumstance under which payment could be made; full corpus is countable
Whether circuit courts correctly reversed ALJ determinations	Applicants: Circuit courts relied on precedent and timing of Department guidance to rule trusts non-countable	Department: ALJs applied proper legal standards and federal statutes; circuit courts misapplied law	Held: Circuit courts erred; ALJ decisions reinstated

Key Cases Cited

Mackey v. Dep’t of Human Servs., 289 Mich. App. 688 (Mich. Ct. App. 2010) (describing Medicaid asset limit and need‑based nature of program)
Ketchum Estate v. Dep’t of Health & Human Servs., 314 Mich. App. 485 (Mich. Ct. App. 2016) (discussing Medicaid program background)
Hughes v. McCarthy, 734 F.3d 473 (6th Cir. 2013) (addressing treatment of annuities/trusts in Medicaid asset determinations)
In re Maloney Trust, 423 Mich. 632 (Mich. 1985) (principle of interpreting trust language to effect settlor’s intent)
Vanzandt v. State Emps. Ret. Sys., 266 Mich. App. 579 (Mich. Ct. App. 2005) (standard for judicial review of administrative agency decisions)
Walters v. Nadell, 481 Mich. 377 (Mich. 2008) (de novo review of questions of law in administrative contexts)
Mericka v. Dep’t of Community Health, 283 Mich. App. 29 (Mich. Ct. App. 2009) (reviewing agency interpretation of statutes)