Recent Minnesota Ruling: Medicaid Transfer Penalty Exception for a Pooled Trust

In a recent case out of Minnesota, Pfoser v. Harpstead, the state Supreme Court affirmed the decision of the court of appeals, thus affirming the district court’s decision to reverse a transfer penalty imposed by the Commissioner of the Minnesota Department of Human Services on David Pfoser.

Pfoser suffered from Parkinson’s disease and other mental and physical disabilities. In 2014, after sustaining an injury at home, he moved into a nursing facility and began receiving Medicaid benefits. In 2016, once it was clear he would not be able to return home, his siblings sold the home he had been living in. Pfoser’s legal guardian and conservator received approval from the court to transfer his share of the proceeds into a pooled special-needs trust, which Pfoser could then use for needs not covered by Medicaid.

In 2017, Pfoser established a joinder agreement with Lutheran Social Services of Minnesota (LSS) and transferred these assets into a pooled trust for special needs. He was 65 years old at the time of the transfer. Per the joinder agreement, LSS would manage and administer the trust sub-account for the benefit of Pfoser and could make distributions for the purpose of supplemental care or special needs items that are not covered by Medicaid nor being provided by any other source available to Pfoser. The trust was irrevocable, and any unspent funds left in Pfoser’s sub-account at the time of his death would be used to reimburse the state for any medical services received. These conditions comply with 42 U.S.C. § 1396p(d)(4)(C).

Two months after Pfoser transferred the funds into the pooled trust, Dakota County Human Services began investigating whether the establishment of the trust was an improper transfer and eventually assessed a transfer penalty. Minn. Stat. § 256B.0595, subd. 1 (j). Pfoser then claimed an exception to the penalty and provided a satisfactory showing that he intended to receive valuable consideration for the assets transferred into the pooled trust. Minn. Stat. § 256B.0595, subd. 4 (a)(4). Pfoser would use these funds to pay for goods and services, such as an adaptive recliner and special equipment for his wheelchair, which are not covered by Medicaid. Additionally, although his life expectancy was just over 14 years, the trustee expected to deplete Pfoser’s sub-account within the pooled trust in less than two years. The commissioner decided, however, that Pfoser did not receive adequate compensation or fair market value at the time the transfer was made.

Pfoser appealed the case to the district court and, unfortunately, passed away while the appeal was pending. The district court then appointed his brother, Robert Pfoser, as the special administrator of David’s estate for the purpose of the litigation. Since Pfoser was able to make a satisfactory showing that he intended to receive valuable consideration for the transfer of assets, the district court reversed the decision, concluding that Pfoser received adequate compensation for the transfer in the form of vested equitable interest.

The Minnesota State Supreme Court affirmed the district court’s decision and determined that the commissioner erred in upholding the transfer penalty against Pfoser. The Supreme Court concluded the following:

First, when a Medicaid recipient challenges a transfer penalty, the commissioner must determine whether the recipient intended to transfer the assets in exchange for fair market value or for other valuable consideration.

Second, when analyzing whether a Medicaid recipient has proven an asset-transfer exception, the commissioner must consider all evidence of value received before, during, and after the time of transfer.

Third, when the commissioner determined Pfoser did not receive adequate compensation at the time of transfer, she failed to consider other valuable consideration received before, during, and after the assets were transferred.

Finally, the commissioner’s decision was arbitrary and capricious. Her analysis of the trust’s characteristics was erroneous, and her ultimate assessment was unsupported by substantial evidence in the administrative record.

Stay tuned for more information about pooled special-needs trusts and how they can impact Medicaid eligibility in Minnesota and other states. If you have a client currently receiving Medicaid benefits or seeking eligibility who is looking to fund a pooled trust, contact our office to find out how pooled trusts may be treated in your state.