Minn. High Court Rules That a Community Spouse’s Interest in Life Estate Is Countable When Determining the Asset Allowance

Reversing a lower court, Minnesota’s highest court holds that a state law excluding non-salable life estates from asset rules when determining a Medicaid applicant’s eligibility does not apply to assets held by a community spouse. In re Schmalz (Minn., No. A18-2156, June 23, 2020).

Esther Schmalz and her husband, Marvin, sold three parcels of farmland to their sons, reserving life estates to themselves in each parcel. Ms. Schmalz entered a nursing home and filed an application for Medicaid long-term care benefits. Although it was undisputed that the sons did not intend to purchase the life estates and that there was no plan to sell the properties, the Medicaid agency included the value of the life estates when counting the couple’s assets to determine the community spouse asset allowance.

Ms. Schmalz challenged this determination. Following a hearing, the Medicaid agency affirmed that the life estates were countable assets under state and federal law. A trial court reversed the agency, concluding that under state law, Mr. Schmalz's life estate interests were not salable and therefore not available assets for purposes of determining his wife's eligibility. (The Minnesota Chapter of the National Academy of Elder Law Attorneys filed an amicus brief at the trial court.) State law provides that when determining eligibility, an “individual” does not have to spend down a life estate to reach asset limits. The Medicaid agency appealed, and the court of appeals affirmed. The Medicaid agency appealed, arguing that the term “individual” in the state law exempting life estates referred only to the Medicaid applicant, not the community spouse.

The Minnesota Supreme Court reverses, holding that the state law exempting non-salable life estates from asset limits does not apply to assets held by a community spouse. According to the court, the plain language of the provision exempting life estates states that it applies only to medical assistance eligibility and not the community spouse asset allowance and “is not ambiguous.” The court rules that the section of state law that defines whether an applicant is eligible for Medicaid and “allows the applicant to become eligible regardless of whether the applicant holds a nonsalable life estate” has no bearing on the section that “defines the amount of assets a community spouse may retain without jeopardizing the institutionalized spouse’s eligibility.”

For the full text of this decision, go to: http://www.mncourts.gov/mncourtsgov/media/Appellate/Supreme%20Court/Standard%20Opinions/OPA182156-062420.pdf

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