Sbo Trusts After Hegadorn: What You Should Know

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If you’ve reached this page, you should know that the law has changed again. Learn about the 2019 Michigan Supreme Court decision.

The prospect of placing a spouse in a nursing home is daunting for many reasons, not least of which is financial. The average cost of nursing home care in Michigan is $249 per day, or over $90,000 per year. This, of course, doesn’t include the living expenses of the spouse who remains at home, also known as the “community spouse.”

Fortunately, Medicaid is available to help cover the high cost of care in a long-term facility, but there’s a catch: the patient must have “countable assets” of less than $2000, and the community spouse is eligible to keep a modest amount of assets. Until the couple has “spent down” their countable assets, the spouse in need of care will not qualify for Medicaid.

The notion of “countable” assets, of course, implies that there are assets that are non-countable. With proper planning, certain assets could be removed from the “countable” bucket and placed in another, figuratively speaking, in which they would be “non-countable.” Until recently, an option for making some assets non-countable was an irrevocable trust designed to be solely for the benefit of the community spouse, giving rise to its commonly used name, the SBO trust.

The Hegadorn Case and Eligibility for Medicaid

The Michigan Court of Appeals held in a June 2017 case, Hegadorn v. Department of Human Services Director that assets placed in an irrevocable trust by the spouse of a nursing home resident should be considered countable assets, because the principal in the “SBO” trust could be paid to or used for the institutionalized spouse.

The facts of Hegadorn and the associated cases are as follows: Three women, two in Livingston County and one in Washtenaw County, entered long-term care facilities. Shortly thereafter, each of their husbands created an SBO trust for their own benefit. After the establishment of the SBO trusts, the women applied for Medicaid assistance. Michigan’s Department of Human Services declared that the trusts were assets available to the women, and denied their application for benefits.

The women appealed on the premise that the assets were not available to them because the trusts were for the sole benefit of their husbands. Two of the trial courts hearing the cases issued rulings that the trust assets were not, in fact, available assets. The state agency appealed these rulings, and the cases were decided together by the Michigan Court of Appeals.

The Court of Appeals reversed the trial court rulings, finding that the assets in the SBO trusts were available, “countable” assets for purposes of Medicaid eligibility determination. The Court reasoned that when states initially determine an individual’s eligibility for Medicaid benefits, the institutionalized spouse’s assets and the assets of the community spouse were considered. The Court of Appeals reviewed the language used by Congress, specifically 42 USC 1396d(d)(2)(A)(i)-(ii), regarding whether trust assets should be considered, and concluded that they should.

What Hegadorn Means for Medicaid Planning

Unfortunately, the Hegadorn holding removes the SBO trust from the toolkit of options for protecting family assets from needing to be spent down to qualify for Medicaid. The good news is that there are still a number of options left. However, they may require a bit more advance planning than did the creation of an SBO trust, which could be (and necessarily was) put into place at or after the time one spouse entered a nursing home.

None of us knows whether we or our spouses will someday need care in a long-term facility. The safest option, financially speaking, is to assume it’s likely and to plan accordingly. An experienced Michigan elder law attorney can help you review your remaining options for protecting your family’s hard-earned assets from the nursing home.

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