Trusts can be a highly effective tool in nursing home planning. Certain types of trusts are effective even when a nursing home stay is imminent or even ongoing. But the list of viable trust options got smaller when the Iowa Supreme Court decided the Cox v. Iowa Department of Human Services case and ruled out pooled trusts in November 2018.

The Facts

In 2016, Mr. and Mrs. Cox deposited most of $575,000 into a special kind of trust called a “pooled trust.” At the time, both Mr. and Mrs. Cox were 65 years old. Shortly after completing the transfer to the pooled trust, the Coxes moved into a nursing home and applied for Medicaid. The Iowa Department of Human Services (DHS) determined that the Coxes had “transferred assets for less than fair market value” under the federal Medicaid statute [1396p(c)(2)(B)(iv)] because they were over the age of 65 when the transfer occurred. The result of the transfer was a penalty period on Mr. Cox that lasted until July 2017 and a penalty period for Mrs. Cox that lasted until July 2023.

The Arguments

The Coxes tried to argue that a different part of the Medicaid statute should apply to their transfer. Specifically, they cited the portion of the federal Medicaid statute that excludes pooled trusts from being counted for Medicaid eligibility regardless of age [see: 1396p(d)(4)(C)].

Unfortunately, the Iowa Supreme Court disagreed. Beginning by breaking down complex Medicaid eligibility determinations, they concluded that while 1396p(d)(4)(C) applies in all instances of Medicaid eligibility, 1396p(c)(2)(B)(iv) overrides that code section in applications for Medicaid’s long-term care benefits. They determined that the Cox’s transfer of assets to the pooled trust after reaching age 65 must be considered for purposes of deciding their eligibility for Medicaid’s nursing home coverage.

The Result

Since the deposit into the pooled trust was obviously a transfer of assets (according to the Court), and the Coxes did not receive any value in return, the Court found that DHS correctly applied penalty periods against Mr. and Mrs. Cox.

The Effect

So what does that mean for Medicaid and nursing home planning going forward? Well, it seems that transfers to a pooled trust will no longer protect assets for people who are over age 65. But the decision is less clear for individuals younger than 65. It’s possible that pooled trusts are still a viable tool, but it’s also possible that the state will continue to erode the pooled trust strategy based on the Court’s reasoning in the Cox case.

As the number of workable options shrinks, it gets more and more important that you talk to an elder law expert to determine which approach will work best – or work at all! – in your situation. Give us a call at (712) 737-3885 to set up a meeting with our elder law team today!