Protect Assets from Nursing Home: Irrevocable Trust May not be Adequate

 In Estate Planning

A Wisconsin appeals court recently ruled that the assets in an irrevocable trust established by three children with funds gifted to them by their parents are available to pay for the mother’s nursing home care.  The decision should be noted by people relying on an irrevocable trust to protect assets from nursing home expenses.

Background

In 1991, Lucille Hedlund and her husband (now deceased) transferred all their real estate and financial assets (with the exception of one checking account) to their three children. On the same day the assets were transferred to the children, the children created a family trust and transferred all the assets to the trust.  The transfers from the parents to the children and the establishment of the trust by the children were all detailed in the same document.

The stated purpose of the trust was to provide for the support and welfare of the parents, but only when no other funds were available and to supplement social security and medical assistance benefits. Upon their mother’s death, the children are to receive any assets remaining in the trust.  An apparent objective of the family was to protect assets from nursing home expenses of the parents.

Medicaid Application Denied

In 2008, 17 years after the trust was established, Lucille Hedlund entered a nursing home and applied for medicaid.  The Wisconsin Department of Health Services denied her application, taking the position that the assets in the trust were assets available to pay for her care.  Hedlund argued that she did not own the assets that were transferred to the trust, her children did.

Court Ruling: Trust does not Protect Assets from Nursing Home Expenses

The District III Wisconsin Court of Appeals found that trust assets were available to Hedlund, and thus her assets exceeded the limit for medical assistance eligibility.

With limited exceptions, Wis. Stat. § 49.454 provides that assets in a trust are considered available to an individual if two requirements are met: (1) “if assets of the individual or the individual’s spouse were used to form all or part of the corpus of the trust”; and (2) “if any of the following persons established the trust” (other than by will):

  1. The individual.
  2. The individual’s spouse.
  3. A person, including a court or administrative body with legal authority to act in place of or on behalf of the individual or the individual’s spouse.
  4. A person, including a court or administrative body, acting at the direction or upon the request of the individual or the individual’s spouse.

Hedlund argued that the first requirement had not been met, because the assets did not legally belong to her or her husband at the time they were transferred to the trust.

The Court interpreted the “assets of the individual” in a broader sense, stating that the “‘assets of the individual’ within the meaning of Wis. Stat. § 49.454(1)(a) are not restricted to assets that are legally owned by the individual at the time the trust is established. Reading § 49.454(1)(a) as a whole and in the context of the entire medical assistance statute, we conclude that trusts are covered under § 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.”

Asset Protection Attorney Commentary

As a Wausau estate planning attorney, I often counsel clients wishing to protect assets from nursing home care expenses.  The decision of the Court of Appeals in this case comes as no surprise to me.  Given the statute’s specific inclusion of trusts established at the direction of the individual or his or her spouse, it seems clear that transactions such as those undertaken by the Hedlund family were contemplated under the statute.  It should be noted, however, that if the trust had prohibited the distribution of the principal for the parents’ benefit, the result may have been that only the trust income would be deemed an available asset, thereby achieving the clients’ objective to protect assets from nursing home care expenses.

Protect Assets from Nursing Home Expenses

If you want to learn more about how to protect assets from nursing home expenses, Mary John, an estate planning lawyer in Wausau, can assist you.  Contact Mary to find out how you can protect assets from nursing home care expenses. Call for free telephone consultation about how to protect assets from nursing home expenses. Call 715.843.6700 to speak with a Wausau attorney with the experience to protect assets from nursing home care costs. Email your questions about how to protect assets from nursing home care expenses.

Protect Assets from Nursing Home Expenses: Call Eaton John Overbey Jackman, LLP

Serving clients in Wausau, Wisconsin and throughout Marathon County.

Recent Posts
estate planning attorney, marshfield