                                                                        Nov 18 2015, 6:31 am




ATTORNEY FOR APPELLANT                                     ATTORNEYS FOR APPELLEE
Kevin R. Patmore                                           Gregory F. Zoeller
Patmore Law Office                                         Attorney General of Indiana
Santa Claus, Indiana
                                                           Aaron T. Craft
                                                           Deputy Attorney General
                                                           Indianapolis, Indiana



                                            IN THE
    COURT OF APPEALS OF INDIANA

Ada Brown,                                                 November 18, 2015
Appellant-Defendant,                                       Court of Appeals Case No.
                                                           87A01-1501-PL-38
        v.                                                 Appeal from the Warrick Circuit
                                                           Court
Indiana Family and Social                                  The Honorable David O. Kelly,
Services Administration,                                   Judge
Appellee-Plaintiff                                         Trial Court Cause No.
                                                           87C01-1303-PL-346



Vaidik, Chief Judge.




Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015               Page 1 of 13
                                           Case Summary
[1]   Ada and Roy Brown transferred their home to a trust in 2000 and shortly

      thereafter made the trust irrevocable. Ten years later, and two years after Ada

      moved to a nursing home, the trust sold the home for $75,000. In 2012 Ada

      applied for Medicaid benefits and submitted documentation that the house had

      sold for $75,000. The Indiana Family and Social Services Administration

      (“FSSA”) found Ada eligible for Medicaid benefits; however, it imposed a

      transfer penalty based on the sale of the home in 2010. In calculating the

      penalty, the FSSA valued the home at $91,900 based on a tax assessment. Ada

      appealed the imposition of the penalty, the ALJ affirmed, and Ada appealed to

      this Court. Because the evidence shows that the proceeds from the sale of the

      house were placed back in the trust, and that the fair market value of the house

      was $75,000, we reverse the imposition of the transfer penalty. Further,

      although the FSSA asks us to remand to the agency to redetermine eligibility,

      we decline to do so as eligibility was never an issue with the FSSA, the ALJ, or

      the trial court.


                                Facts and Procedural History
[2]   In March 2000, Ada and Roy Brown executed the Brown Joint Primary Trust

      (“the Trust”). The following month, the Browns conveyed legal title of their

      Warrick County residence to the Trust for the sum of $1.00. The Trust became

      irrevocable when Ada and Roy resigned from their trusteeships in October

      2000. Ada and Roy lived in their home until February 2008, when seventy-


      Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015   Page 2 of 13
      nine-year-old Ada moved to a nursing home because she was suffering from

      dementia. Roy stayed in the home until June 2010, when Ada and Roy’s

      granddaughter purchased it for $75,000.


[3]   On July 25, 2012, Ada filed an application for Medicaid benefits. On August

      31, 2012, the FSSA sent Ada a form, which explained that additional

      information was needed to determine her eligibility. Specifically, the form

      asked Ada to submit a deed, mortgage, or land contract. The comments

      accompanying the request provided as follows:

              The [W]arrick [C]ounty [A]ssessor site shows the property on
              1600 62 E Hwy in Booneville, IN valued at $91,900.00. We
              showed it sold for $75,000.00. If you disagree with this appraised
              value then turn in another appraisal to show the home’s value.
              Also, turn in [a] copy of the sales disclosure page, which shows
              the amount of the gross and net sales and any costs such as
              closing cost, mortgage, etc for the property on 1600 62 E Hwy in
              Booneville. If any of the proceed[s] from the sale went to Roy or
              Ada Brown then turn in verification if they received any proceeds
              from the sale, when, amount and what happened to the money.


      Ex. p. 76.

[4]   In response to FSSA’s request, Ada submitted the following comments:

              Please find following sales disclosure/closing statement for 1600
              62 E in Boonville, [Indiana] owned by irrevocable trust. No
              appraisal was completed by or for the trust, but the price was
              reduced due to the need to replace the sewer service. No amount
              or proceeds from the sale of 1600 62 E was paid to or received by
              Roy or Ada Brown.


      Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015   Page 3 of 13
[5]   Id. at 79. Ada also submitted the following documents: 1) a copy of the Trust;

      2) an Indiana Sales Disclosure form from the 2010 sale of the house, which

      states that the Trust was the seller and the sale price was $75,000; and 3) a

      settlement statement from the 2010 sale, which provides that the Trust was the

      seller of the property and that the Trust received $75,000 in cash for the sale of

      the home.

[6]   On September 13, 2012, the FSSA notified Ada that her Medicaid application

      had been approved and that she was eligible for benefits retroactive to April 1,

      2012. The notice also advised her, however, that nursing-facility services would

      not be covered between April 1, 2012, and August 5, 2013, because FSSA was

      imposing a transfer penalty due to the 2010 sale of her home.

[7]   Brown appealed the imposition of the transfer penalty, and an Administrative

      Law Judge (“ALJ”) held a hearing in December 2012. At the hearing, Ada’s

      attorney and grandson, Kevin Patmore, testified that the $75,000 proceeds from

      the sale of the house were placed back in the Trust. In support of his testimony,

      Patmore pointed to the settlement statement from the 2010 sale, which

      provided that the Trust was the seller of the property and received $75,000 in

      cash for the sale. Patmore also testified that the fair market value of the home

      was its sale price, which was the amount the buyer was willing to pay because a

      new sewer system was required.

[8]   Following the hearing, the ALJ sustained the FSSA’s determination.

      Specifically, the ALJ found that:


      Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015   Page 4 of 13
               10. The community spouse resided in said real estate until the
               sale on June 10, 2010. This property sold for $75,000. Per best
               available documents from the Warrick County Assessor’s
               records, the property had a value of $91,900.


               11. The State agency contends that the property was sold for less
               than fair market value. In addition, the proceeds from the sale of
               the property are subject to the transfer of property rules.


               12. The appellant’s Authorized Representative contends that the
               proceeds from the sale of the property were transferred to the
               Brown Joint Primary Trust and are not subject to transfer of
               property rules.


               13. No evidence that the proceeds from the sale of the real estate
               at issue were placed in the Brown Joint Primary Trust was
               submitted.


               14. The transfer of the $75,000 in proceeds from the sale of real
               estate did occur in the look back period and [is] subject to the
               rules of property transfer.


[9]    Tr. p. 133, 135. The trial court denied Ada’s petition for judicial review and

       affirmed the agency action in December 2014. Ada now appeals.



                                  Discussion and Decision
[10]   In an appeal from a decision of an administrative agency, our standard of

       review is governed by the Administrative Orders and Procedures Act (AOPA).

       Austin v. Ind. Family & Soc. Servs. Admin., 947 N.E.2d 979, 981 (Ind. Ct. App.

       2011). When reviewing an administrative agency decision, we may neither try

       Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015   Page 5 of 13
       the case de novo nor substitute our judgment for that of the agency. Id.

       Judicial review of disputed issues of fact must be confined to the agency record

       for the challenged action, and we will not reweigh the evidence. Id. We defer

       to the expertise of the administrative body, and will reverse the agency’s

       decision only if it is:

               (1) arbitrary, capricious, an abuse of discretion, or otherwise not in
                   accordance with the law;

               (2) contrary to a constitutional right, power, privilege, or immunity;

               (3) in excess of statutory jurisdiction, authority, or limitations, or short of
                   statutory right;

               (4) without observance of procedure required by law; or

               (5) unsupported by substantial evidence.


       Ind. Code § 4-21.5-5-14(d); Austin, 947 N.E.2d at 982. The burden of

       demonstrating the invalidity of an agency action is on the party asserting its

       invalidity. Id.


[11]   Before addressing the merits of this case, we provide a relevant legal

       background. The Medicaid program, 42 U.S.C. § 1396 et seq. (2001), was

       established by Congress in 1965. Its purpose is to provide medical assistance to

       needy persons whose income and resources are insufficient to meet the

       expenses of health care. Ind. Family & Soc. Servs. Admin. v. Thrush, 690 N.E.2d

       769, 771 (Ind. Ct. App. 1998), trans. denied. The program operates through a

       combined scheme of state and federal statutory and regulatory authority. Id.

       States participating in the Medicaid program must establish reasonable
       Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015   Page 6 of 13
       standards for determining eligibility, including the reasonable evaluation of an

       applicant’s income and resources. Id. To qualify for Medicaid, an applicant

       must meet both an income-eligibility test and a resources-eligibility test. Id. If

       either the applicant’s income or the value of the applicant’s resources is too

       high, the applicant does not qualify for Medicaid. Id.


[12]   If an applicant is found to be eligible, federal law requires the FSSA to “look

       back” sixty months from the date of the application to determine if any

       uncompensated or undercompensated transfers of assets were made. Austin,

       947 N.E.2d at 982. “Assets” is defined broadly and includes all income and

       resources of the applicant or recipient, and of the applicant’s or recipient’s

       spouse. 405 I.A.C. 2-3-1.1(a)(1). A “transfer of assets” is also defined broadly

       and “includes any cash, liquid asset, or property that is transferred, sold, given

       away or otherwise disposed of . . . [and] includes any total or partial divesture

       of control or access.” 405 I.A.C. 2-3-1.1(d)(1). If a transfer of assets has

       occurred within the sixty-month look-back period and that transfer was for less

       than the fair market value, a transfer penalty is imposed, and an

       institutionalized individual is ineligible for nursing-facility services during the

       penalty period. 405 I.A.C. 2-3-1.1(c), (e).

[13]   This case also involves an irrevocable trust. For the first two decades of

       Medicaid, an irrevocable trust was not considered an asset in determining

       whether an applicant was sufficiently needy to qualify for Medicaid benefits.

       Ramey v. Reinertson, 268 F.3d 955, 958 (10th Cir. 2001). During this time,

       financial advisors and attorneys advised their clients to shelter their assets in

       Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015   Page 7 of 13
       irrevocable trusts because a trust settlor was able to qualify for public assistance

       without depleting his assets. Id. He could therefore “once more enjoy those

       assets if he no longer needed public assistance; and, if such a happy time did not

       come, could let them pass intact pursuant to the terms of the trust to his heirs.”

       Cohen v. Comm’r of the Div. of Med. Assistance, 668 N.E.2d 769, 771-772 (Mass.

       1996). In other words, the settlor “was able to have his cake and eat it too.” Id.

       at 772.


[14]   In 1986, Congress closed this “loophole” in the Medicaid act so that assets in

       certain trusts would be considered in determining whether a Medicaid applicant

       satisfied the maximum asset requirement. Boruch v. Neb. Dep’t of Health and

       Human Servs., 659 N.W.2d 848, 853 (Neb. Ct. App. 2003). Seven years later,

       Congress enacted even tighter restrictions, which expanded the types of trusts

       that could be considered to preclude applicants from Medicaid eligibility. Id.

       The Indiana restrictions, which were adopted in 1995, provide in pertinent part

       as follows:

               (c) An irrevocable trust established by an applicant or recipient
               shall be considered as follows:


                    (1) If there are any circumstances under which payment from
                    the trust could be made to or for the benefit of the individual,
                    the portion of the corpus or income from which payment to
                    the individual could be made shall be considered resources
                    available to the individual.


                    405 I.A.C. 2-3-22.


       Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015      Page 8 of 13
[15]   Thus, under the plain language of these restrictions, if a person establishes an

       irrevocable trust with his or her assets and the individual is able, under any

       circumstances, to benefit from the corpus of the trust or the income derived

       from the trust, the individual is considered to have formed a trust which is taken

       into account in the determination of Medicaid eligibility. See Boruch, 659

       N.E.2d at 853 (interpreting 42 U.S.C. § 1396p(d), the federal counterpart to the

       Indiana statute). In addition, the corpus of the trust shall be considered

       resources available to the individual. Id.


[16]   As FSSA aptly notes in its brief, Medicaid is a rocky terrain and that terrain is

       even more treacherous when an individual’s assets are held in trust. FSSA

       makes two decisions when deciding the amount of medical assistance an

       individual receives to meet the expenses of health care. First FSSA determines

       eligibility based on the available resources of the individual. If a trust is

       involved, then assets held in trust for the benefit of the individual are included

       in available resources.1 Second, if an individual is found eligible for Medicaid

       benefits, the FSSA may impose a transfer penalty if any uncompensated or

       under-compensated transfers of assets were made.




       1
        But there is a long list of ways that an asset is considered unavailable for purposes of eligibility. One such
       way is by taking advantage of the Community Spouse Resource Allowance. Within 90 days of an eligibility
       decision, an applicant may transfer property from joint ownership to a spouse individually up to a certain
       value, in this case $76,227, and those transferred assets will not be considered assets for purposes of eligibility
       determinations. See 42 U.S.C. § 1396r-5.

       Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015                            Page 9 of 13
[17]   Here, FSSA found Ada eligible for Medicaid benefits but assessed her a transfer

       penalty. Both the ALJ and trial court affirmed that decision based on the

       notion that the transfer of the assets occurred when the house was sold in 2010,

       which was during the look-back period of 60 months from the application date.

       With refreshing candor, the FSSA admits that the agency, the ALJ, and the trial

       court did not analyze this case properly under the trust statutes and regulations.

[18]   Nonetheless, the FSSA argues that Ada is not entitled to relief because at the

       time she applied for Medicaid benefits in 2012 either (1) she was ineligible for

       the benefits because the trust held $75,000, the proceeds of the sale of the home,

       and those funds were available assets to her under the trust regulations; or (2)

       she was appropriately assessed a transfer fee because the funds from the sale in

       2010 were not placed back into the trust or given to Ada, leading to an

       uncompensated transfer of funds and thus a transfer of assets within the look-

       back period; or (3) she owes a transfer fee, but a smaller one than was imposed,

       for selling her home for $75,000, which was $16,900 under the fair market value

       of $91,900. We address each of these arguments.

[19]   With regard to her eligibility for Medicaid, the FSSA is correct that if the Trust

       contained the proceeds of the sale of the Brown’s home, then those assets

       would be available to her for determining her Medicaid eligibility. Because

       Ada was able to benefit from the Trust, the Trust assets were resources available

       to her. But, eligibility was never an issue at the agency level, with the ALJ, or

       with the trial court; instead, the transfer penalty has been and remains the issue.



       Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015   Page 10 of 13
       Since the issue is not before us, we decline to overrule the eligibility

       determination of the FSSA.2

[20]   As to the argument that the proceeds of the sale of the home were never

       transferred to Ada or the Trust in 2010 and therefore the transfer penalty was

       properly imposed, it is true that the ALJ concluded that the funds were

       transferred when the house was sold. The ALJ determined there was an

       uncompensated transfer in 2010 because there was no evidence the proceeds

       were placed back in the Trust or given to Ada. However, our review of the

       evidence reveals that the uncontroverted evidence shows otherwise.


[21]   Ada’s counsel, Patmore, testified that the Trust received $75,000 in cash for the

       sale of the house and that those funds were placed back in the Trust. The

       exhibits, including the settlement statement that shows the Trust received

       $75,000 in cash for sale of the house, support Patmore’s testimony. On the

       other hand, there was no testimony or evidence that the $75,000 was placed

       anywhere other than the Trust. The ALJ’s conclusion that the proceeds from

       the sale of the house were transferred because they were not placed back in the

       Trust is therefore unsupported by substantial evidence.




       2
         In any event, the proceeds of the sale of the home, which were the corpus of this trust, were $75,000 plus
       any interest earned between the sale in 2010 and the Medicaid application in 2012. This is less than the
       $76,227 Community Spouse Resource Allowance that Roy would have been entitled to had Ada transferred
       her interest in the asset within 90 days of the eligibility determination. Since the 90-day period of time for
       transfer has long since passed, we decline to remand this case back to the FSSA for it to reopen its eligibility
       decision and determine whether the transfer was made.

       Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015                         Page 11 of 13
[22]   Finally the FSSA argues that the property was transferred when it was sold for

       less than its fair market value and therefore a transfer penalty is appropriate for

       the difference between the fair market value of $91,900 and the sale price of

       $75,000, or $16,900. In its findings, the ALJ concluded that based on a

       property-tax assessment, the fair market value of the Browns’ home was

       $91,900. However, under Indiana Medicaid-eligibility requirements, when tax

       records are used to determine the value of real property, the most recent

       property tax assessment must be obtained. Indiana Client Eligibility System

       Manual § 2605.25.10. Further, a tax assessment cannot be used if it is more

       than one-year old, is under appeal, or is based on a fixed-rate-per-acre method.

       Id. Here, we know nothing about the tax assessment that was used.

       Specifically, we do not know when the assessment was made—at the time of

       the sale in 2010 or at the time of the Medicaid determination. The ALJ’s

       conclusion that the fair market value of the Brown’s home was $91,900 was

       therefore also unsupported by substantial evidence.

[23]   Rather, the fair market value is $75,000—the sale price of the home. Fair

       market value is the price at which property would change hands between a

       willing buyer and seller where neither is under any compulsion to consummate

       the sale. Southtown Props., Inc. v. City of Fort Wayne, 840 N.E.2d 393, 400 (Ind.

       Ct. App. 2006), trans. denied. Anything affecting the sale value on the date of

       the taking is a proper matter for consideration in attempting to arrive at a fair

       market value. Id. Generally, all facts which an ordinarily prudent man would




       Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015   Page 12 of 13
       take into account before forming a judgment as to the market value of property

       he contemplates purchasing are relevant and material. Id.


[24]   Here, the evidence reveals a willing buyer and seller, albeit with a family

       relationship, and no evidence that either was under any compulsion to

       consummate the sale. The evidence further shows that the price of the house

       was reduced because the sewer system needed to be replaced. In light of this

       testimony regarding the buyer and the seller, as well as the need for a new sewer

       system, we find substantial evidence that the house’s fair market value was

       $75,000 at the time of the sale. Accordingly, the transfer penalty was

       improperly assessed.

[25]   Reversed and remanded with instructions to vacate the transfer penalty.

       Robb, J., and Pyle, J., concur.




       Court of Appeals of Indiana | Opinion 87A01-1501-PL-38 | November 18, 2015   Page 13 of 13
