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In precedential finding, Court of Appeals rules federal law pre-empts Minnesota law
Federal law preempts state law when it comes to medical assistance claims by a grantor who has put assets in an irrevocable trust.
That’s the ruling in a precedential opinion issued July 12 by the Minnesota Court of Appeals in Geyen v. Commissioner of Minnesota Department of Human Services, written by Judge Jeanne Cochran.
The court disagreed with the state’s argument that, under Minn. Stat. 501C.1206(b), some irrevocable trusts become revocable for the sole purpose of determining long-term care eligibility. It said the law conflicts with federal law governing the treatment of irrevocable trust and is therefore preempted.
Trusts counted
In 2011, Dorothy Geyen created two irrevocable trusts for her children and grandchildren. The trustees had full power and control over the trusts but were precluded from making gifts or loans to Geyen. Each trust purchased $25,000 in annuities.
In 2019 Geyen applied for Medical Assistance for Long-Term Care (MA-LTC) Services. Carver County determined that her assets were about $73,000, including the trusts. The county said that Minn. Stat. 501C.1206 determined that the irrevocable trusts became revocable by operation of law when Geyen applied for medical assistance. She was told to reduce her assets to $3,000.
A human-services judge concluded not that the trusts became revocable, but that the assets were still available to Geyen to spend on her own care. She appealed to District Court in November 2019.
At that time, Geyen was behind in payments to her care facility and was facing discharge. To prevent that, a trustee began liquidating assets. She placed the funds into Geyen’s checking account and paid the bill from that account. Geyen then became eligible for medical assistance. The trustee told the court that she believed her actions violated the trust agreement but she had no choice.
Jurisdiction
Geyen died before the District Court hearing. The District Court judge ruled that the assets were not available to Geyen under federal law and that state law was preempted. The state appealed.
The Court of Appeals first ruled that the District Court retained jurisdiction, even though Geyen had died and no party was substituted in her place. But Minn. R. Civ. P. 25.01 does not limit the time when the motion to substitute a party must be made and lack of a substitute did not deprive the court of jurisdiction.
The court also said that Geyen’s death did not render her appeal moot. The case was briefed and argued by the parties and involves issues of law, said the court. Additionally, the issue was of public importance and statewide significance.
Affected by an error of law
The Court of Appeals reviewed the commissioner’s decision de novo, with no deference to the District Court.
Assets are unavailable under federal law when no payments could be made to the grantor under any circumstances, according to 42 U.S.C. § 1396p(d)(3)(B)(i). Conducting a de novo review of the trust documents as a whole, the court concluded that Geyen intended that she not benefit from the trusts. As the ruling states:
“We are not persuaded otherwise by the commissioner’s argument that the trust assets were available to Geyen because one of the trustees ultimately liquidated the trust assets to pay Geyen’s outstanding care-facility bill.”
The payment that the trustee made was not authorized by the trust and did not make the trust funds available to Geyen under federal law, it says.
As a result, the commissioner’s decision that the assets were “countable” was “affected by an error of law,” which is an element of the standard of review of a Department of Human Services commissioner’s decision.
Preemption
The next issue was whether state law made the trusts revocable and whether that law is preempted by federal law. The court agreed that section 501C.1206(b) plainly provides that certain irrevocable trusts become revocable for the sole purpose of determining MA-LTC eligibility and thereby purports to make those trust funds available for MA-LTC eligibility purposes.
But the state statute conflicts with federal law, which excludes the corpus of irrevocable trusts in determining eligibility for Medical Assistance, which is Minnesota’s Medicaid program. Said the court:
“[As] a result, the Minnesota statute stands as an obstacle to Congress’s intent regarding the treatment of irrevocable trusts for Medicaid-eligibility purposes.”
Additionally, Minnesota law is more restrictive than federal law because it makes individual ineligible for assistance, the court added. It said that it was unable to ascertain a limiting construction that would avoid this conclusion.
The court then affirmed the District Court, but remanded to allow for a motion to substitute a party for Geyen.
