Jennifer Nelson for www.theindianalawyer.com

Based on evidence presented that a Medicaid recipient’s home sold for $75,000 – the fair market value – and proceeds went back to the irrevocable trust that held legal title of the home, the Family and Social Services Administration incorrectly imposed a transfer penalty against the woman after it found the fair market value was $91,900, the Court of Appeals ruled Wednesday.

Ada and Roy Brown executed the trust in 2000 and conveyed legal title of their home to the trust. It became irrevocable when the couple resigned from their trusteeships in October 2000. In 2008, Ada Brown moved into a nursing home and Roy Brown stayed in the home until they sold it in 2010 to their daughter for $75,000. The price was based on the sewer work the home needed.

Ada Brown filed for Medicaid benefits in July 2012 and was found eligible. If an applicant is found to be eligible, federal law requires the FSSA to “look back” 60 months from the date of the application to determine if any uncompensated or undercompensated transfers of assets were made. If a transfer of assets has occurred within the 60-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, the court explained.

FSSA assessed Ada Brown a transfer penalty based on an assessment of the home of $91,900. 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,” Chief Judge Nancy Vaidik wrote.

“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.”

But her eligibility for Medicaid was not an issue at the agency level; only the transfer penalty is the issue. Evidence shows that the trust received $75,000 in cash for the sale of the home and those funds were placed back into the trust. In addition, it’s unknown when the tax assessment used was made and Indiana-Medicaid-eligibility requirements require use of the most recent property tax assessment. Also, the evidence shows $75,000 was fair market value based on the work that needed done on the sewer system, the court held. The matter is remanded with instructions to vacate the transfer penalty.

The case is Ada Brown v. Indiana Family and Social Services Administration,  87A01-1501-PL-38.