Plaintiff Dawn Simonsen is a 57-year old quadriplegic requiring ventilator care.  Her mother created two inter vivos (living) trusts for Dawn’s benefit.  The trusts contained the following wording:  “The trustee shall pay to my daughter or utilize for her benefit so much of the income and principal of her trust as the trustee deems necessary or advisable from time to time for her health, maintenance in reasonable comfort, education and best interests considering all of her resources known to the trustee and her ability to manage and use such funds for her benefits.”  The trusts gave the trustee total discretion over distributions, and both trusts contained “spendthrift” clauses.  Spendthrift clauses state that the beneficiary has no power to pledge or commit the trust assets to his or her creditors or others.
The trustee subsequently applied for Medicaid on behalf of Simonsen and petitioned a Florida court to “decant” the trusts and create two third-party special needs trusts.  Decanting is the process of transferring assets from one trust to another trust that is substantially similar but may have more advantageous provisions to serve the intent of the original trustmaker.  The Connecticut Department of Social Services considered the two original trusts to be general support trusts and available assets for Medicaid eligibility.  (If a trust dictates that the income and/or principal is to be spent for the beneficiary’s health, maintenance and support, Medicaid considers the trust assets as available assets of the beneficiary.)  The Department further concluded that decanting was a transfer for less than fair market value and instituted a Medicaid penalty period.
Simonsen appealed to an administrative law judge (ALJ) who upheld the Department’s decision.  Simonsen thereafter filed a Motion for Preliminary Injunction and Temporary Restraining Order claiming that the law would support the decanting and that she would suffer irreparable harm if her Medicaid benefits remained cut off. The United States District Court of Connecticut agreed and granted the preliminary injunction.
A preliminary injunction is appropriate if the moving party shows both that she will suffer irreparable harm absent the injunction and a likelihood of success on the merits.  The court held that denial of Medicaid benefits is recognized as irreparable injury per se, satisfying the first prong.  It further concluded that the predecessor trusts were not available resources, and accordingly, Simonsen will likely be successful on the merits.  The predecessor trusts did not contain terms providing Simonsen with the ability to revoke the trust, direct the use of principal for her support and maintenance, or sell her beneficial interest, which are all requirements under federal supplemental security income (SSI) and Medicaid methodology in considering asset availability.  Indeed, the existence of the spendthrift clauses alone defeats the Department’s asset-availability analysis.   Simonsen v. Bremby, 2015 WL 9451031 (D. Conn. Dec. 23, 2015)
We at Courtney Elder Law Associates have successfully modified and decanted trusts to comply with requirements for SSI and Medicaid, and we have prevailed in many appeals contesting Medicaid denials.  Call us today at 601-987-3000 if you have questions about these things.