Irrevocable Trust in MN – What Is It?

Background

For many years people in Minnesota and other states used a special type of irrevocable trust to shelter assets from having to be spent on the long-term care expenses that often arise towards the end of life (whether in the form of assisted living or nursing home care). To simplify things, when one goes into a care facility, someone must pay for the cost of that care. The most common ways that people pay these expenses are either to self-pay or pay using government assistance program called Medical Assistance (Minnesota’s name for Medicaid). Although many would like to use the Medical Assistance program to pay for these expenses, the Medical Assistance program has very stringent qualification requirements and advertises itself as the payor of last resort. In the past people who would not otherwise qualify for Medical Assistance were able to preplan by placing their assets into this special type of irrevocable trust and, after a five-year waiting period, these assets would no longer be countable against them if they applied for Medical Assistance.

The Minnesota Statute

All of this came to a screeching halt on July 1, 2005. On that date a Minnesota Statute went into effect that purported to make all irrevocable trusts holding the assets or income of a Medical Assistance applicant revocable for purposes of determining Medical Assistance eligibility. This, in effect, meant that all assets in an irrevocable trust would now be counted against individuals applying for Medical Assistance, even after a five-year waiting period.

The effect that this had on the elder law attorneys was chilling. Many elder law attorneys, not being litigators, immediately stopped doing these types of irrevocable trusts altogether and began recommending alternative strategies that were either more risky or less effective. However, a few firms persisted in doing these types of irrevocable trusts believing the Minnesota Statute in question to be overruled or “preempted” by a Federal Statute that specifically allowed for these types of irrevocable trusts.

Preemption, in the Medical Assistance context, occurs when a State has qualification standards that are more restrictive than those issued by the Federal government. A State’s qualification standards are more restrictive than those of the Federal government when people who would qualify under the standards of the Federal government do not qualify under the standards of the State. This preemption would be the focus of overturning the Minnesota Statute.

Overruling the Minnesota Statute – The Braland Case

It would take many years, but the first dent in the armor of this Minnesota Statute would come on January 20, 2012 when the Crow Wing County District Court decided the case Braland v. Commissioner of the Minnesota Department of Human Services. In this case the District Court ruled that the Minnesota Statute was preempted by the Federal Statute and therefore invalid and unenforceable. This case was not appealed by the Minnesota Department of Human Services and was therefore, arguably, the law of the land.

As a result of the Braland case a few elder law practitioners, relying on that case, began doing irrevocable trusts again to protect and preserve assets. Despite this, the Minnesota Department of Human Services took a different view of things. They argued, without merit, that the holding of the Braland case only applied to that case and was in no way precedential. A collision course was set.

Overruling the Minnesota Statute – The Geyen Case

The predictable collision occurred in February of 2019. In that month Dorothy Geyen applied for Medical Assistance to the Health and Human Service Department of Carver County while having two irrevocable trusts created in July of 2011 and funded in August of 2011. Predictably, Carver County denied her application and in so doing held that the assets of the irrevocable trusts were assets countable against her as those irrevocable trusts became revocable when she applied for Medical Assistance. Dorothy appealed to the Minnesota Department of Human Services Appeals Division and had her appealed denied, albeit on different grounds.

Dorothy then appealed her case to the Carver County District Court. On August 8, 2020, the Carver County District Court ruled against the Commissioner of Human Services and in favor of Dorothy Geyen. In so doing the Carver County District Court adopted the reasoning of the Braland case and held that the Minnesota Statute was preempted by the Federal Statute and therefore invalid and unenforceable.

This time, unlike the Braland case, the Minnesota Department of Human Services did appeal the decision to the Minnesota Court of Appeals. Briefing on this case occurred during the first few months of 2021 and oral arguments were held before a panel of the Minnesota Court of Appeals on April 14, 2021. On July 12, 2021 the Minnesota Court of Appeals, in a precedential decision, sided with Dorothy Geyen against the Commissioner of Human Resources. In so doing the Court of Appeals affirmed the reasoning of the Crow Wing County District court in Braland which was adopted by the Carver County District Court in Geyen. The Minnesota Statute was indeed preempted by Federal Statute and the State of Minnesota can not count these irrevocable trusts in determining Medical Assistance eligibility.

Conclusion

The Minnesota Department of Human Services could still appeal this decision to the Minnesota Supreme Court (or even the Supreme Court of the United States); however, it is difficult to see there being a different result from either of these Courts. Federal Preemption is a very well-established doctrine when it comes to Medical Assistance. It is also clear that the Minnesota Statute results in a situation where people who would qualify under the Federal standards do not qualify under the standards of the State of Minnesota.

The exceedingly high likelihood is that irrevocable trusts will again be a tool available to Minnesota residents to preserve and protect assets from having to be spent on long-term care expenses. There are numerous advantages to an irrevocable trust over and against other options for protecting and preserving assets, but these trusts must be very carefully drafted to accomplish the intended purpose. Whether or not an irrevocable trust is the right tool for you is something that can only be determined in consultation with an experienced elder law attorney. We at Safe Harbor Estate Law have this experience and would appreciate the opportunity to serve you.

Michael Teeter is an attorney at Safe Harbor Estate Law.  He drafted the portion of Dorothy Geyen’s appellate brief to the Minnesota Court of Appeals dealing with Federal Preemption.  Prior to coming to Safe Harbor Estate Law, Michael spent 6 years working under Paul Stier, who argued and won the Braland case.  Michael has experience with using irrevocable trusts to protect and preserve assets from having to be spent on long-term care expenses.