The Minnesota Supreme Court rules that the state incorrectly imposed a transfer penalty on a Medicaid recipient who at age 65 transferred assets into a pooled special needs trust, finding that the recipient would receive valuable consideration for the transfer in the form of goods and services that Medicaid does not cover. Pfoser v.Harpstead (Minn., No. A19-0853, Jan. 21, 2021).

David Pfoser, who suffered from Parkinson’s disease, moved into a nursing home after an injury and began receiving Medicaid benefits. When it became clear that Mr. Pfoser would not return home, his guardian sold the house and transferred Mr. Pfoser’s share of the proceeds, $28,010, into a pooled special needs trust. Mr. Pfoser was 65 years old at the time of the transfer. Based on its policy that a transfer to a pooled trust after a beneficiary reaches age 65 is an uncompensated transfer, the Medicaid agency imposed a 3.94-month penalty period.

Mr. Pfoser appealed the penalty, arguing that he would use his trust sub-account to pay for goods and services, such as an adaptive recliner and equipment for his wheelchair, which are not covered by Medicaid. The Medicaid agency found that Mr. Pfoser did not receive adequate compensation when he made the transfer and affirmed the penalty period. Mr. Pfoser appealed to court, which reversed the agency’s decision, and the Minnesota Court of Appeals affirmed the lower court, holding that Mr. Pfoser showed valuable consideration. The Medicaid agency appealed again. (Mr. Pfoser died while his case was pending in the court of appeals.)

The Minnesota Supreme Court affirms the decision of the court of appeals. The court holds that Mr. Pfoser’s interest in the pooled trust was approximately equal to the value of the $28,010 transferred into the trust sub-account and, therefore, he was not subject to a transfer penalty. The court determines that, in order to avoid the penalty, Mr. Pfoser was required to make one of two showings: that he actually received fair market value for the transfer or that he intended to receive fair market value or other valuable consideration. The court further determines that “valuable consideration” is a less stringent standard and means compensation that is approximately equal to the fair market value of the transferred asset.

As Mr. Pfoser had presented uncontroverted evidence that he was expected to exhaust the funds in his sub-account on necessary and specific goods and services associated with his disability within two years, he made a satisfactory showing that he intended to dispose of the assets for valuable consideration. Therefore, the transfer penalty does not apply.

For the full text of this decision, click here