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Pfoser v. Harpstead

Court of Appeals of Minnesota

January 13, 2020

Robert Pfoser, as special administrator of the Estate of David Pfoser, Respondent,
v.
Jodi Harpstead, Commissioner Minnesota Department of Human Services, Appellant, and Dakota County Human Services, Respondent Below.

          Dakota County District Court File No. 19HA-CV-18-3466

          Laurie Hanson, Long, Reher, Hanson, & Price, P.A., Minneapolis, Minnesota (for respondent Robert Pfoser, as special administrator to the Estate of David Pfoser)

          Keith Ellison, Attorney General, Michael N. Leonard, Assistant Attorney General, St. Paul, Minnesota (for appellant)

          Considered and decided by Reilly, Presiding Judge; Bratvold, Judge; and Slieter, Judge.

         SYLLABUS

         1. When a Medical Assistance for Long-Term Care (MA-LTC) recipient challenges a transfer penalty for having transferred assets into a pooled special-needs trust, the Commissioner of Human Services must make a factual determination, based on the evidence, whether the recipient has made a "satisfactory showing" that the recipient "intended to dispose of the assets either at fair market value or for other valuable consideration," and thus is not subject to a transfer penalty under the asset-transfer exception in Minn. Stat. § 256B.0595, subd. 4(a)(4) (2018) and 42 U.S.C. § 1396p(c)(2)(C) (2018).

         2. In determining whether an MA-LTC recipient has made a satisfactory showing under the asset-transfer exception, the Commissioner of Human Services must consider evidence of the asset's fair market value at the time of the transfer and evidence of other valuable consideration received by the MA-LTC recipient before, during, and after the transfer into the pooled special-needs trust.

          OPINION

          BRATVOLD, JUDGE

         David Pfoser had severe Parkinson's disease and was disabled mentally and physically. He injured himself while living at home, which he and his siblings inherited from their parents. Pfoser moved to a long-term care facility and received MA-LTC benefits from the State of Minnesota. After it became evident that Pfoser would not return to live at home, his siblings sold the home, and Pfoser received a share of the proceeds, $28, 010.10. Pfoser's legal guardian and conservator received court approval to transfer the proceeds into a pooled special-needs trust restricted to making distributions for Pfoser's benefit for needs not provided for by MA-LTC. Based on Pfoser's asset transfer, Dakota County Human Services (the county) imposed a transfer penalty against Pfoser of about four months of ineligibility for MA-LTC benefits.

         This appeal arises from the decision of appellant Commissioner Minnesota Department of Human Services (commissioner) to affirm the transfer penalty. Pfoser asserted an exception to the transfer penalty and offered evidence before the Department of Human Services (DHS) that he had a life expectancy of just over 14 years from the date of assessment. Pfoser also established that the trustee expected to deplete Pfoser's sub-account in a "few years" by paying for goods and services, such as an adaptive recliner and equipment for Pfoser's wheelchair, which are not covered by Medical Assistance (MA) or other government programs. The commissioner found, however, that Pfoser "did not receive adequate compensation or fair market value when he transferred the cash into the trust, at the time the transfer was made." Pfoser appealed to the district court, which reversed the commissioner's decision.[1]

         We conclude that the commissioner erred in affirming the transfer penalty against Pfoser. First, we determine that, when an MA-LTC recipient challenges a transfer penalty and asserts the asset-transfer exception, the commissioner must make a factual determination whether the recipient intended to dispose of the assets either at fair market value or for other valuable consideration. Second, we determine that while analyzing whether an MA-LTC recipient has proven the asset-transfer exception, the commissioner must consider evidence of fair market value received at the time of the transfer and evidence of other valuable consideration received before, during, and after the time of the transfer.

         Third, we examine the commissioner's factual determination that Pfoser "did not receive adequate compensation or fair market value when he transferred the cash into the trust" under the applicable standard of review. We conclude that the commissioner's determination was affected by legal error because she did not consider other valuable consideration Pfoser received before, during, and after the time that he transferred his assets into a pooled special-needs trust. Also, we conclude that the commissioner's decision was arbitrary and capricious, affected by legal error in its analysis of the trust's characteristics, and unsupported by substantial evidence in the administrative record as a whole. Thus, we affirm the district court's reversal of the commissioner's decision.

         FACTS

         Until 2014, Pfoser received Social Security disability benefits and lived in a home that he and his siblings inherited from their parents. In March 2014, Pfoser was found on the floor of his home, unable to get up or crawl to a telephone. He was hospitalized, and the district court appointed Fiduciary Services of Minnesota as Pfoser's guardian and conservator.[2] Pfoser then moved to a nursing facility paid for by MA-LTC.

         Pfoser's siblings sold the home in August 2016. Pfoser received his share of the sale proceeds, $28, 010.10, in late 2017. Pfoser petitioned the district court for authorization to transfer his share of the sale proceeds to a pooled special-needs trust. The district court granted the petition and authorized the transfer by court order. In December 2017, Pfoser executed a joinder agreement (joinder agreement) with Lutheran Social Service of Minnesota (LSS), a nonprofit corporation that has established two pooled trusts, one for special needs and one for supplemental needs, [3] which together have about 420 sub-accounts. Pfoser, the grantor, and LSS, the trustee, adopted the 2017 Amended and Restated LSS Special Needs Pooled Trust Agreement (LSS pooled-trust agreement). Pfoser agreed to transfer $28, 010.10 into a sub-account of the LSS pooled trust for special needs, and, from that sum, to pay a $1, 000.00 one-time enrollment fee. Pfoser was 65 years old at the time of the transfer into the LSS pooled trust.

         The joinder agreement provided that LSS would manage and administer the trust sub-account for the benefit of the beneficiary, Pfoser, as provided by the LSS pooled-trust agreement. In the joinder agreement, Pfoser recognized that "all disbursements [were] discretionary, as directed by" LSS. The joinder agreement stated that LSS could make distributions "for any so items for [Pfoser's] benefit" when "such supplemental care or special needs [are] not being provided by any public agency, or [are] not otherwise being provided by any other source available to [Pfoser]." In the joinder agreement, Pfoser acknowledged that the trust was irrevocable and that, after he transferred funds to the LSS pooled trust, he would "not have further interest in and [would] thereby relinquish and release all rights in, control over, and all incidents of interest of any kind or nature in and to the contributed assets and all income thereon." The joinder agreement provided that all "unspent amounts" in Pfoser's sub-account after his death "must be used to reimburse the state or states for medical services received." If funds remained after Pfoser's death, the LSS pooled trust would retain a remainder share of ten percent of the value of the sub-account "as of the date of termination and prior to payment of any amounts to the State(s)." The joinder agreement is governed by Minnesota law.

         As mentioned above, the joinder agreement adopted the LSS pooled-trust agreement. The LSS pooled-trust agreement provided that LSS is the settlor and trustee of the LSS pooled trust and that LSS created the trust to provide supplemental care and special-needs assistance to MA and MA-LTC recipients. The LSS pooled-trust agreement stated that LSS would manage, invest, and disburse trust assets "to promote the comfort and well-being of each Beneficiary by providing for supplemental needs." LSS also promised that it would "not make any disbursements that would have the effect of replacing, reducing or substituting any Government Assistance or other Public Benefit otherwise available to a Beneficiary or which would render the Beneficiary ineligible for Government Assistance." The LSS pooled-trust agreement provided that LSS had "sole and absolute discretion" to make distributions as "necessary or advisable to provide for the supplemental care or supplemental needs of the Beneficiary." The LSS pooled-trust agreement also stated that LSS would "not make distributions" for "anything other than necessary services or for services which [would] enhance the quality of life for the Beneficiary." The LSS pooled-trust agreement provided a "non-exclusive list of permissible distributions" that included, among other things, medical, dental, and diagnostic treatment, for which no private or public funds are available as well as other expenditures "to improve the Beneficiary's quality of life."

         Two months after Pfoser transferred the funds to the LSS pooled trust, the county notified Pfoser by email that his transfer of funds to the LSS pooled trust was "being reviewed." The county's "[i]nitial indication [was] that the establishment of this trust may have caused an improper transfer under the MA/long term care guidelines." The county later concluded that Pfoser "diverted [his] income and/or gave away assets" and assessed a transfer penalty of about four months of ineligibility for MA-LTC benefits.

         Pfoser appealed the transfer penalty to the DHS. In support of his position, Pfoser submitted a "fair market value assessment" of his sub-account in the LSS pooled trust that included an estimate of expenditures he expected the trust to pay and that MA would not cover. The assessment included one-time expenditures such as adaptive equipment for Pfoser's wheelchair, as well as ongoing expenses such as STEM activity boxes and fees for guardian services and trust administration. The assessment stated that Pfoser's sub-account would be depleted in less than two years with the assumption that the sub-account received interest income of three percent per year.

         An affidavit submitted by the director of the LSS pooled trust stated that while on MA, Pfoser could keep $97 each month from his Social Security disability benefits and his sub-account would pay for goods and services "to enhance the quality of his life-which he cannot [] purchase with his $97 personal need allowance and which are not covered by Medical Assistance or other government benefit programs." The director averred that she had reviewed the goods and services identified in Pfoser's written assessment and concluded that "the trust money will be easily spent for [Pfoser's] benefit in a few years as reflected in the assessment."

         At a hearing, a Human Services Judge (HSJ) heard testimony from the county financial worker assigned to Pfoser's case. The financial worker said that the county based the transfer penalty "on policy showing that . . . the addition to a pool trust by a beneficiary . . . after the beneficiary reaches . . . age 65 is evaluated as an uncompensated transfer." The financial worker testified that "that's where [she] stopped with [her] calculation" and, because she "did not receive anything further indicating that adequate compensation was received . . ., that was where [her] determinations stopped." When asked by Pfoser's attorney whether it was the county's position that a "transfer into the pool trust is just simply a per se improper transfer[, ]" the county financial worker testified that "[a]ccording to the manual when there is a long-term care client, yes."

         In a written decision, the HSJ recommended that the commissioner affirm the county's decision to impose the transfer penalty. The HSJ found that Pfoser retained an equitable interest in his trust sub-account but had "given up or relinquished all ownership or control in the money ($28, 010.10) he transferred into the pooled trust." The HSJ also found that the LSS pooled trust was discretionary and irrevocable; therefore, Pfoser essentially "entered into an irreversible agreement to give a broker/investor $27, 010.10 to invest and paid that individual $1, 000.00 for the agreement. In return, the broker/investor, may, at his absolute discretion, return some of the money over time." The HSJ stated he did "not believe any reasonable seller/buyer or objective observer would consider this type of exchange to be a transfer for adequate compensation or for fair market value." The commissioner adopted the HSJ's findings and recommendation without change and affirmed the transfer penalty.

         Pfoser appealed the commissioner's decision to the district court. The district court found that the county's decision to impose a transfer penalty was arbitrary and capricious because it "deemed [Pfoser's] transfer per se improper based solely on his age at the time of the transfer, and did not further evaluate information to determine if adequate compensation was received." The district court also found that, upon execution of the joinder agreement, Pfoser "gained an immediate vested equitable interest in the trust assets" that did not "diminish [in value] or disappear upon its transfer into the pooled trust, but became professionally managed, protected, and disbursable to supplement" Pfoser's receipt of MA-LTC benefits. The district court reversed the commissioner's decision because it was based on the HSJ's belief about a reasonable seller and buyer and this belief "is unsupported by substantial evidence in view of the entire record as submitted." The district court held that, on the record before the commissioner, Pfoser's transfer of assets into the LSS pooled trust was for "adequate compensation." Thus, the district court reversed the commissioner's order and the county's assessment of the transfer penalty. The commissioner appeals.

         ISSUES

         I.

         Before affirming a transfer penalty against Pfoser, who is disabled, over 65 years old, and an MA-LTC recipient who transferred assets into a pooled special-needs trust, must the commissioner make a factual determination based on the asset-transfer exception and the evidence offered by Pfoser?

         II.

         Before affirming a transfer penalty against Pfoser and while analyzing whether Pfoser satisfied the asset-transfer exception, must the commissioner consider evidence of fair market value received at the time of the transfer and evidence of valuable consideration received before, during, and after the time of the transfer?

         III.

         Did the commissioner err in affirming the county's decision to impose a transfer penalty on Pfoser when it determined that Pfoser did not receive adequate compensation or fair market value at the time he transferred assets to the LSS pooled trust?

         ANALYSIS

         Judicial review of the commissioner's order is authorized under Minn. Stat. § 256.045, subd. 7 (2018). We may affirm, reverse, remand, or modify the commissioner's decision if it prejudiced Pfoser's substantial rights and was:

(a) in violation of constitutional provisions; or
(b) in excess of the statutory authority or jurisdiction of ...

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