Court of Appeals addresses trust issue

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Placing assets into a trust constitutes divestment of assets, for medical assistance purposes, even if the assets are first channeled through another.

The Wisconsin Court of Appeals held on Thursday, “Reading sec. 49.454(1)(a) as a whole and in the context of the entire medical assistance statute, we conclude that trusts are covered under sec. 49.454 if the assets of the individual are transferred to another person who, at the direction or request of the individual, uses those assets to form all or part of the corpus of a trust.”

In 1991, Lucille and Clarence Hedlund transferred the bulk of their assets to their three children. The same day, the children created an irrevocable trust and transferred all the assets their parents had transferred to them to the trust. The same document was used to accomplish both transfers.

The purpose of the trust is to provide for the support and welfare of the parents and is to be used when no other funds, including medical assistance, are available.

Upon the death of the Hedlunds, the children were to receive the remaining assets.

In 2008, Lucille entered a nursing home and applied for medical assistance (Clarence had died by that point). Her application was denied on the ground that the trust was an available asset and therefore her assets exceeded the eligibility limits.

The circuit court affirmed, as did the Court of Appeals, in an opinion by Judge Margaret Vergeront.

In relevant part, sec. 49.454 provides that assets of a trust belong to an individual if: (1) assets of the individual were used to form the corpus of the trust; and (2) the trust was established by “A person … acting at the direction or upon the request of the individual…”

The court first held that Hedlund’s assets were used to form the trust.

The court held that it is not necessary that the individual have legal ownership of the assets at the time the trust was formed, because this would render the second requirement superfluous.

Turning to the second requirement, the court held that the children acted at Hedlund’s direction.

The court found, “The documentary evidence in this case shows that the Hedlunds transferred all their property except for one checking account to their children, and, on the same day IN THE SAME DOCUMENT, the children transferred that property to the trust, which was also created on that same day (emphasis added by court).”

The court held this evidence sufficient to show that the children created the trust at the direction or upon the request of Hedlund and her husband.

Analysis

The question raised by the opinion is the significance of the court’s putting “in the same document” in italics.

Arguably, if the Hedlunds had transferred the property to their children, free of any restrictions, in one document and the children created the trust with another the next day the opinion could be distinguished on that basis.

In such a case, the children could “take the money and run,” instead of creating the trust. Thus, they would not be acting at the direction of the parents.

But it would be contrary to common sense to believe that they were not creating the trust at the request of the parents, which is sufficient for the trust assets to be considered the assets of the parents when applying for medical assistance.

As a result, this two-step process would seem inadvisable. It carries an unavoidable risk the children will just keep the money instead of creating the trust and the trust assets will probably be considered “available” under sec. 49.454, anyway.