Wisconsin state capitol at night

HEDLUND Revisited: Reviewing a 2011 Wisconsin Trust Case

An important aspect of crisis planning is having a clear understanding of what assets will be counted for purposes of Medicaid eligibility pursuant to the rules in your jurisdiction of practice. In the 2011 case Hedlund v. Wisconsin Department of Health Services, 337 Wis.2d 634, 807 N.W.2d 672, 2011 WI App 154 (Ct. App. 2011), the Wisconsin Court of Appeals issued an important decision regarding the countability of irrevocable trusts under Wis. Stat. 49.454 (2007-08 version). Specifically, the Court of Appeals affirmed the denial of Mrs. Hedlund’s application for Medicaid benefits on the basis that her irrevocable trust was countable and therefore placed her above the resource limit for eligibility.

 

The background of the Hedlund case is straightforward. In 1991, Mrs. Hedlund and her husband transferred all their real property and financial assets to their children except for one checking account. On the same day this transfer occurred, and by language in the same instrument providing for the conveyance to the children, the children transferred all of the assets that their parents had transferred to them to “The Clarence and Lucille Hedlund Family Trust.” In 1992, Mrs. Hedlund and her husband transferred additional real property to the children, who again transferred the property to the trust on the same day as the conveyance from Mr. and Mrs. Hedlund. Mrs. Hedlund’s husband later passed away and in 2008, 17 years after the trust was established, Mrs. Hedlund entered a nursing home and applied for medical assistance.

 

The language of the trust provided that the purpose of the trust was to provide for Mr. and Mrs. Hedlund’s support and welfare. The trustee was one of the Hedlunds’ children. The trust instrument further provided that the income and corpus of the trust were only to be used when no other funds were available for their support and welfare; the trust funds were to supplement funds Mr. and Mrs. Hedlund received from social security and medical assistance. Upon both Mr. and Mrs. Hedlund’s deaths, the children would receive all remaining trust assets.

 

The Hedlund case came before the Court of Appeals on Mrs. Hedlund’s appeal from the Polk County Circuit Court. The Circuit Court had affirmed the ALJ’s determination that the Polk County Human Services office had properly denied Mrs. Hedlund’s application for Medicaid. The issue on appeal was “whether the trust is available to Hedlund under Wis. Stat. § 49.454 for purposes of determining whether she is financially eligible for medical assistance.” Hedlund, 337 Wis.2d 638. On appeal, the Court of Appeals reviewed the decision of the ALJ de novo as it related to a question of law.

In affirming the Circuit Court and the denial of Mrs. Hedlund’s application for Medicaid, the Court of Appeals reviewed the language of the statute, giving it its “common meaning.” The Court of Appeals began its analysis reviewing the following statutory language dealing with applicability:

…this section applies to an individual with respect to a trust if assets of the individual or the individual’s spouse were used to form all or part of the corpus of the trust and if any of the following persons established the trust other than by will:

  1. The individual.
  2. The individual’s spouse
  3. A person, including a court or administrative body with legal authority to act in place of or on behalf of the individual or the individual’s spouse.
  4. A person, including a court or administrative body, acting at the direction or upon the request of the individual or the individual’s spouse.

Wis. Stat. § 49.454(1)(a) (emphasis added). Mrs. Hedlund argued that it was not her or her spouse’s assets that were used to form the corpus of the trust but rather the assets of her children that were used to create the corpus of the trust, and pursuant to the emphasized language above, the statute did not apply.

 

The Court of Appeals rejected Mrs. Hedlund’s interpretation “because it adds a limitation not expressed in the statutory language, and this limitation is inconsistent with other language in Wis. Stat. § 49.454(1)(a) and inconsistent with the purpose of § 49.454 when considered in the context of the entire statutory scheme.” Hedlund, 337 Wis.2d 641. The Court of Appeals evaluated the statute and concluded that the language “assets of the individual…were used to form all or part of the corpus of the trust” did not require legal ownership of the assets used to form the corpus of the trust at the time of formation.

 

The Court of Appeals reasoned that reading in the requirement that the assets be owned at the time of formation into the statute would undermine the meaning of the second portion of the statute, specifically that the statute applies to trusts established by one “acting at the direction or upon the request of the individual.” Hedlund, 337 Wis.2d 641 (citing Wis. Stat. § 49.454(1)(a)). The statute covers trusts both created by those with legal authority to act on behalf of the individual, and those trusts created by someone at the individual’s request or direction – two separate and distinct categories. The Court went on:

trusts established with the individual’s assets are included even if established by someone other than the individual or person with legal authority…This necessarily means that the individual’s assets must be transferred to the person establishing the trust: a person without the legal authority to act on behalf of the individual could not establish a trust using the individual’s assets as a corpus if the individual retained legal ownership of the trust assets.

Hedlund, 337 Wis.2d 642 (emphasis added). The Court of Appeals concluded that the statute applied to trusts “not established directly by an applicant or person legally authorized to act on behalf of the applicant but are indirectly established by the applicant in that the applicant directs or requests another person to establish the trust using the individual’s assets.” Id. (emphasis original).

 

In addition to a statutory construction analysis, the Court of Appeals also addressed the purpose of the medical assistance program. Specifically, the Court focused on the goal to provide health care for those who were eligible. The Court’s legal conclusion was that “assets of the individual” in the context of Wis. Stat. § 49.454(1)(a) were not limited to those assets legally owned by the individual at the time of trust formation. Hedlund, 337 Wis. 2d at 643.

 

In applying this conclusion to the facts of the case, the Court explained that because Mr. and Mrs. Hedlund had transferred the assets to the children with the purpose that the children place those assets in a trust for Mr. and Mrs. Hedlund’s benefit, that the ALJ had not impermissibly considered Mrs. Hedlund’s motive (as she had argued), but rather evaluated the facts as they relate to the legal issue of whether the assets were placed in trust at her direction. Because the ALJ’s determination was supported by the substantial evidence in the record, that decision was entitled to deference. The ALJ’s determination was affirmed.

 

The Hedlund case serves a number of purposes in the sphere of crisis planning. First, it provides a wonderful analysis of the statute outlining the applicability of certain trust rules. Second, the case offers a thorough example of statutory construction by the Wisconsin Court of Appeals. Third, it offers a clear conclusion that leaves little if any confusion about the case’s long-term impact. This third point is crucial as it relates to the availability of particular planning options for elder law attorneys in Wisconsin. Because this type of trust planning did not prevent the Medicaid office from considering the trust assets as available, the case sets a clear precedent that other options must be considered for purposes of Medicaid planning.