PRESS RELEASE: Decision in Pooled Trust Case still leaves some unanswered questions
On April 16, 2012, the Eighth Circuit Court of Appeals issued a decision in case No. 11-2158, Center for Special Needs Trust Administration, Inc. v. Carol Olson, etc., affirming the district court’s decision that the pooled trust statute affords the Center a right of action under 42 U.S.C. 1983; that the Center did have standing; and that although North Dakota’s regulations appeared to conflict with federal law, transfers by beneficiaries over age 65 to pooled trusts are subject to Medicaid’s improper transfer penalties. (Attached.)
The Center refused a demand for reimbursement to North Dakota and sued for a declaratory judgment that North Dakota violated federal law by demanding payment from the Center and that state regulations regarding retaining residual amounts after the death of a beneficiary of pooled trusts conflict with federal law. North Dakota argued that because the beneficiary at issue was over 65, that the beneficiary was subject to a transfer penalty.
The Court found that North Dakota expressly reserved the right to apply its regulations against the Center in the future, and therefore the Center has standing as an injured party. Turning to the merits, the Court found that the Center has a cause of action under section 1983, notably refusing to follow reasoning from the Tenth Circuit case of Hobbs v. Zenderman, 579 F.3d 1171, 1179 (10th Cir. 2009). The Court then addressed a 2008 letter from CMS which the district court deferred to extensively in its decision, noting that the district court should not have deferred to the letter and that it did not deserve Chevron deference.
The Appellate Court conceded that 42 U.S.C. 1396p(d)(4)(C) has no age limit, but looked beyond the plain language of the statute to two preceding paragraphs that mention an age limitation. The Court looked to 1396p(c)(2)(B)(iv) and found its age limit controlling on pooled trusts, to the extent that an over 65 beneficiary may participate in a pooled trust but is nevertheless subject to a penalty. The Court was also heavily persuaded by a recent South Dakota State Supreme Court case in which that court found that “transfers of assets for less than fair market value into pooled trusts by beneficiaries age 65 or older will be subject to a transfer penalty period for Medicaid eligibility purposes.” In re Pooled Advocate Trust, ___ N.W.2d ___, 2012 WL 1038644, at *9 (S.D. Mar. 28, 2012).
Notwithstanding the Court’s findings, its reasoning and reliance on the South Dakota case leaves a major question unanswered: whether a self-settled pooled trust is a “transfer of assets for less than fair market value.” Although argued before the Court, the Eight Circuit did not address the issue of fair market value. At oral argument, the proposition that a transfer to a supplemental needs trust is for fair market value was presented to the Court and supported by In Re Sabrina M. Schultz, 368 B.R. 832, 2007 Bankr. LEXIS 1608 (D. Minn. 2007) (attached). The decision seems to leave that question up for debate on another day.
Ironically, the Center’s original request for declaratory judgment that North Dakota’s regulations with regards to the Center’s retaining of residual amounts in a pooled trust was never fully addressed by the district court or on appeal because of an issue never raised by the Center, and only raised by North Dakota after the beneficiary’s death: age. Yet this does not seem to be the end of the issue. A direct challenge to the notion that a self-settled pooled trust is a transfer for less than fair market value is likely the most beneficial strategic next step in the argument about whether a pooled trust is truly a special needs trust, exempt from asset and transfer rules.
The Elder Law and Special Needs Law Community owe the Center for Special Needs Trust Administration, Inc., John Staunton and Leo Govoni special thanks for their resolute commitment to protecting the best interests of the elderly and disabled population.
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