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Medicaid; Eligibility; Irrevocable Trust

The Iowa supreme court held that an irrevocable trust created with funds received

from the settlement of a malpractice action brought on behalf of an individual with

mental retardation by his conservator-parents was not considered an exempt Medicaid

qualifying trust (MQT) for the purpose of determining Medicaid eligibility. Also, the

MQT exemption for children residing in an intermediate care facility for the mentally

retarded (ICF/MR) did not apply, for his family's home was not the functional equivalent

of an ICF/MR. Strand v. Rasmussen, 648 N. W.2d 95 (Iowa Sup. Ct. 2002).

David M. Strand, Jr. had extensive brain damage when he was born that caused

profound mental retardation. After settling a malpractice suit, his parents established a

trust with those funds. The trustee had sole discretion to distribute as much of the

principal as the trustee believed necessary for David's benefit, but he had to get written

court approval before expending any funds. In 1985, the trust was amended to also allow

the trustee to distribute up to $2,000 each year to David without court approval.

On December 11, 1997, David's mother applied, on David's behalf, for benefits

under the Medicaid waiver services provisions listing the irrevocable trust as a resource.

The state agency initially approved the application, but later canceled those benefits when

it determined that the entire $304,703 trust corpus was available to David through the

trustee. As a result, the agency deemed David ineligible for Medicaid benefits.

An administrative law judge (ALJ) agreed with the agency that the irrevocable trust

was an MQT under Iowa Administrative Code Rule 441-75.9(1). The ALJ found that the

trustee had unfettered discretion to make the entire trust corpus available to David. The

ALJ also found that exemption for MQTs for children with mental retardation residing in

an ICF/MR did not apply, for David's family home was not the functional equivalent of

an ICF/MR. The state district court denied judicial review.

The state supreme court affirmed. The trust was a MQT that made David Medicaid

ineligible. The fact that David's parents established the trust did not change the result. A

trust established by an individual's legal conservator on his or her behalf is deemed the

individual's trust. See Forsyth v. Rowe, 629 A.2d 379,384 (Conn. Sup. Ct. 1993);Ronney

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v. Department of Soc. Servs., 532 N.W2d 910,913 (Mich. Ct. App. 1995), 19 MPDLR

670. See also 42 U.S.C. 1396p(d)(2)(A)(iii); Iowa Admin. Code R. 441-75.24(1)(a). A

person who gives consideration for a trust is deemed to have created it, even if the trust

was actually set up by someone else. See Masterson v. Department of Soc. Servs., Div. Of

Family Servs., 969 S.W.2d 746, 748 n.4 (Mo. Sup. Ct. 1998); In re Lennon, 683 A.2d

239, 241 (N.J. Super. Ct Ch. Div. 1996), 20 MPDLR 816. This includes a person acting

as an individual's legal representative where that individual cannot act on his or her own.

See Ronney, 532 N.W.2d at 913. A contrary interpretation would create an absurd result.

See In re Lennon, 683 A.2d at 242; Forsyth, 629 A.2d at 385; Ronney, 532 N.W.2d at

914.

Further, the trust assets were available in full to David. In evaluating the availability

of trust principal, the agency considers the maximum amount that may be permitted

under the trust terms assuming the full exercise of discretion by the trustee. See Iowa

Admin. Code Rule 441-75.9(2). Thus, the maximum amount capable of being distributed

is available, regardless of whether the trustee actually exercises his or her discretion. See

Forsyth, 629 A.2d at 386; In re Lennon, 683 A.2d at 241. The court disregarded the

limitation of obtaining court approval before making distribution. See Cohen v.

Commissoner of Div. of Med. Assistance, 668 N.E.2d 769, 783 (Mass. Sup. Jud. Ct.

1996).

Finally, the court refused to extend the exemption of Rule 441-75.9(1) for children

with mental retardation residing in an ICF/MR. Although Rule 441-83 allowed the

provision of Medicaid benefits to certain persons with mental retardation residing at

home, the high court could find no provision referring to the functional equivalent of

an ICF/MR. Thus, it is not clear whether the agency considers homes receiving MR

waiver services as the functional equivalent of such an institution. The testimony of the

agencys Medicaid policy specialist indicates otherwise. Also, the fact that David is not

required to reside in an ICF/MR to get MR waiver service benefits does not preempt the

MQT provisions. Otherwise, the Rule 441-75.9(2) exemption would be superfluous.

Further, the Strands home does not satisfy all the elements of an ICR/MR. See Iowa

Admin. Code R. 441-83.60; 42 U.S.C. 1396d(d).