Fujimori v. Dep't of Human Servs.

On the briefs:

Gregory W. Kugle, Christopher J.I. Leong (Damon Key Leong Kupchak Hastert), Honolulu, for Appellants-Applicants/Appellants.

Ruth K. Oh, Deputy Attorney General, for Appellees-Appellees.

HIRAOKA, PRESIDING JUDGE, NAKASONE AND MCCULLEN, JJ.

OPINION OF THE COURT BY MCCULLEN, J.

Appellants-Applicants/Appellants Edward Fujimori (Edward ) and Florence Fujimori (Florence ) (collectively, Fujimoris ) appeal from the Circuit Court of the First Circuit's¹ April 26, 2017 order and May 11, 2017 judgment affirming Appellees/Appellees Department of Human Services' (DHS ) administrative decisions denying Edward's and Florence's applications for Medicaid assistance to pay for their long-term care. In challenging the circuit court's order and judgment, Edward and Florence request that we vacate and remand with instructions to "issue all benefits ... determined to be due and owing since the time of their original applications." We affirm the circuit court's order and judgment.

BACKGROUND

A. Relevant Medicaid History

"The purpose of [M]edicaid is to provide assistance to those whose income and resources are inadequate to meet the costs of necessary medical services." Barham by Barham v. Rubin, 72 Haw. 308, 312, 816 P.2d 965, 967 (1991) (citing 42 U.S.C. § 1396 ). "Medicaid is a cooperative Federal and State program that provides medical assistance to low income persons based on financial need[,]" Fournier v. Sec'y of the Exec. Off. of Health & Human Servs., 488 Mass. 43, 170 N.E.3d 1159, 1164 (2021) (citation and internal quotation marks omitted), and "is designed to be the payer of last resort, available only when no other source is liable for

the expense." Est. of Scheidecker v. Montana Dept. of Pub. Health & Human Servs., 404 Mont. 407, 490 P.3d 87, 91 (2021) (citation and internal quotation marks omitted). Generally, an individual must have less than $2,000.00 in assets to qualify for Medicaid assistance. See Hawai‘i Administrative Rules (HAR ) § 17-1725.1-43 ; see also Fournier, 170 N.E.3d at 1164 ; Social Security Programs Operations Manual System at SI 01110.003.A.1, SI 01110.003.A.2 (effective Dec. 8, 2010).

"Through the practice known as Medicaid planning, however, individuals with significant resources devise strategies to appear impoverished in order to qualify for Medicaid benefits." Fournier, 170 N.E.3d at 1164 (citation and internal quotation marks omitted). "One such strategy is to transfer assets into an inter vivos trust, whereby funds appear to be out of the individual's control, yet generally are administered by a family member or loved one." Id. (citation omitted). "Accordingly, a loophole existed under the pre-1986 law, pursuant to which individuals anticipating the need for expensive long-term medical care could impoverish themselves and qualify for Medicaid assistance while preserving their resources for their heirs." Petition of Est. of Braiterman, 169 N.H. 217, 145 A.3d 682, 687 (2016) (cleaned up).

In 1986, Congress responded to this loophole by enacting 42 U.S.C. § 1396a(k) (1988) (repealed 1993), which "deemed available to the applicant (the beneficiary) the maximum amount that could, at the trustee's discretion, be distributed to the beneficiary from an irrevocable trust regardless of whether the funds were actually distributed." Braiterman, 145 A.3d at 687 (cleaned up). In other words, Medicaid qualifying trusts "were no longer a permissible means to shelter assets for purposes of Medicaid eligibility." Id. at 688 (citation omitted). "Congress sought to prevent wealthy individuals, otherwise ineligible for Medicaid benefits, from making themselves eligible by creating irrevocable trusts in order to preserve assets for their heirs." Barham, 72 Haw. at 312, 816 P.2d at 967 (citation omitted).

"In 1993, in reaction to the sophisticated instruments used to circumvent the [Medicaid qualifying trust] rules, Congress repealed § 1396a(k) and enacted § 1396p(d) (1993), which was aimed at more effectively curtailing the use of trusts or similar mechanisms to qualify for Medicaid." Braiterman, 145 A.3d at 688 (cleaned up). In that enactment, the Omnibus Budget Reconciliation Act of 1993, "Congress established a general rule that trusts would be counted as assets for the purpose of determining Medicaid eligibility." Id. (citation omitted).

With respect to an irrevocable trust, the act provides that "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 from which, or the income on the corpus from which, payment to the individual could be made shall be considered resources available to the individual."

Fournier, 170 N.E.3d at 1164 (quoting 42 U.S.C. § 1396p(d)(3)(B)(i) ).

B. Edward And Florence Fujimori

In August 2006, Edward and Florence created the "Edward M. and Florence Y.K. Fujimori Irrevocable Trust" (Trust ) "for the benefit of [their] descendants, by representation," and assigned their son, Alan Y. Fujimori, as trustee (Son ). That same day, they funded the Trust with their residential property at 5314 Uhiuhi Street in Honolulu (Property ), reserving "a life estate in an undivided ten-thousandth (.0001 or 1/10,000) interest in and to" the Property. (Formatting altered.)

Six years later, in 2012, Son, as trustee, sold the Property for $700,000 to Clint and Lisa Kagami (Kagamis ), and conveyed the Property by warranty deed. In the same warranty deed, Edward and Florence conveyed their life estate in the undivided 0.0001% interest in the Property to the Kagamis. Two checks totaling $666,873.81 ($333,436.90 and $333,436.91) were made payable to the Trust and were deposited into two separate bank accounts belonging to the Trust.

Two years later, in July 2014, Florence applied for Medicaid assistance to pay...