Medicaid Penalizes Transfers to Pooled Special Needs Trust for those 65 and older
In the recent case of Hutson v. Mosier, the Kansas Court of Appeals holds a person age 65 or older who transfers assets to a pooled supplemental or special needs trust is subject to the imposition of a transfer penalty under the rules of subsection 42 U.S.C. §1396p(c)(1) if the transfer is for less than fair market value. Hutson v. Mosier, No. 117,020 (September 8, 2017).
The case was remanded to the Douglas County District Court on the issue of whether the Medicaid applicant received fair market value for her transfer.
This case is a problem for persons age 65 and older who receive countable assets for Medicaid purposes, be it through a settlement, an inheritance, or the proceeds from the sale of an exempt asset like a home, and place the countable assets in a pooled special needs trust in the hopes of obtaining or maintaining eligibility for Medicaid in Kansas as it may be difficult, if not impossible, to put a value on such a transfer.
The transfers are made to the pooled trust in the hopes that the trustee will use the money to supplement their needs and improve their quality of life. The trustee has broad discretion on how to use the funds and there is no guarantee that the transferor will receive any benefit from those funds. On the transferor’s death, either the State will be reimbursed for the total amount of Medicaid benefits paid on the transferor’s behalf, or the funds will be absorbed by the trust. There is nothing left for beneficiaries. (Note that this is a provision particular to pooled trusts. First party and third party special needs trusts work differently). There is no simple mathematical formula that can be used to put a value on this transfer in the eyes of the Kansas Court of Appeals.
The imposition of a transfer penalty is harsh. In rough terms, for every dollar transferred for less than fair market value, the person must pay directly for the services Medicaid would have used that dollar for. If Medicaid would have paid $5,000 a month for nursing home services, and $50,000 was transferred for less than fair market value, then the person would have to self pay for nursing home care for 10 months ($50,000/$5,000=10).
For those age 65 and older, transfers to a pooled special needs trust are not generally recommended for obtaining or maintaining Medicaid eligibility in Kansas.