Trust established by children bars mother’s claim for state medical assistance

By Joe Forward, Legal Writer, State Bar of Wisconsin

Oct. 13, 2011 – A state appeals court recently ruled that an irrevocable trust, established by three children to benefit their parents in limited circumstances, now bars the mother's claim for medical assistance.

For purposes of determining an individual's eligibility for or amount of medical assistance benefits under Wis. Stat. section 49.454, payments that could be made to an individual from an irrevocable trust are considered a resource available to the individual in certain circumstances.

The trust will be considered an income resource if the individual’s (or spouse’s) assets were used to form all or part of the trust corpus, and the individual, the individual’s spouse, or someone with legal authority established the trust. Trust amounts established at the individual’s request are also included.

The Wisconsin Department of Health Services denied Lucille Hedlund’s request for medical assistance after she entered a nursing home in 2008, 17 years after an irrevocable trust was created. Hedlund argued that she did not own the assets that were transferred to the trust, her children did.

In June 1991, Hedlund and her husband (now deceased) transferred all their real property and financial assets to their three children. On the same day, and in the same document transferring the property and assets to the children, the children created a family trust and transferred all the assets to the trust.

The purpose of the trust was to provide for the support and welfare of Lucille Hedlund and her husband, but only when no other funds were available and to supplement social security and medical assistance benefits. The children are to receive remaining assets in the trust upon their mother’s death.

In Hedlund v. Wisconsin Department of Health Services, 2010AP3070 (Oct. 13, 2011), the District III Wisconsin Court of Appeals agreed that trust assets were “available” under the meaning of section 49.454, despite Hedlund’s argument that she did not own the assets transferred to the trust.

“[The statute] does not require that the individual have legal ownership of the assets used to form the trust at the time the trust is formed,” wrote Judge Margaret Vergeront.

This is so, the appeals court explained, because trust amounts established at the individual’s request are also included (for financial eligibility purposes), even if the trust was established by someone who did not have legal authority to act on behalf of the individual.

“[A] person without the legal authority to act on behalf of the individual could not establish a trust using the individual’s assets as a corpus if the individual retained legal ownership of the trust assets,” the judge wrote. In other words, the children could not establish the trust with a transfer of assets first.

The administrative law judge ruled that Hedlund requested the trust be established, because it was solely for her benefit and the benefit of her husband while alive.

“The ALJ’s inference that Hedlund transferred her assets to her children for the purpose of establishing the trust for her and her husband’s benefit is certainly a reasonable inference from the evidence, if not the only reasonable inference,” the appeals court noted.

Finally, Hedlund argued that the court should determine whether the trust is available for medical assistance eligibility based on the statute in effect when the trust was formed, Wis. Stat. section 49.45(23) (1991-92). But the court refused to rule on that issue because it was not raised before the administrative law judge. It was first raised in a reply brief before the circuit court.