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Hartford, Conn.-The 2d U.S. Circuit Court of Appeals has upheld the doctrine of “spousal refusal”—an estate-planning technique that will allow elderly spouses to keep their homes and other assets longer, even when their impoverished spouse is in a nursing home paid for by Medicaid. Previously, Connecticut only recognized a mathematical formula which first forced the institutionalized spouse to be impoverished to the level of $1,600 in possessions. The “community spouse” was required to expend roughly half of his or her remaining assets on the institutionalized spouse’s care. Depending on the couple’s assets at the beginning of the spend-down phase, the community spouse could stop paying the nursing home bills when his or her assets were in the $19,000 to $95,000 range. In an effort to prevent Medicaid’s spousal impoverishment requirements from being too harsh, Congress passed the Medicare Catastrophic Coverage Act of 1988 (MCCA). It allowed the community spouse to formally refuse to have his or her assets counted with the institutionalized spouse’s, on one condition-the spouse in the nursing home had to sign over to the state all of his or her legal rights to be supported by the community spouse. This forced the state to hash out the actual support obligation on the basis of equitable principles, not just math. Paper chase? Some state elder law attorneys see the 2d Circuit’s decision in Morenz v. Wilson-Coker, No. 04-4107-cv, as momentous, with an impact likely to spread beyond the three 2d Circuit states of New York, Connecticut and Vermont. F. William O’Connor, an Avon, Conn., elder law specialist who is also a certified public accountant, said spousal refusal is a valuable new planning tool. “[I]t’s certainly a victory for the elderly. The big question is what the state’s response is going to be. This will have a ripple effect throughout the country,” he said. “It shifts the burden [of collection] to the state, where the state previously did not have the requirement to chase the reticent spouse. Now it’s going to.” In the state’s appellate brief and arguments, Assistant Attorney General Patrick B. Kawanashie repeatedly complained that allowing the spousal-refusal option would force the state into a “pay and chase” scheme, and might allow the elderly to qualify for Medicaid while making their assets harder to collect. Previously, spousal refusal had only been recognized by New York state. “Now you have the two additional states in the 2d Circuit,” said O’Connor. He predicted that some federal legislation will be introduced as a result of Morenz. Ren� H. Reixach Jr. argued the case for plaintiffs Robert and Clara Morenz. Reixach, a partner in the Rochester, N.Y., firm of Woods Oviatt Gilman, has handled federal spousal impoverishment cases in New York, Pennsylvania and Illinois. In his view, the MCCA, 42 U.S.C. 1396r5(c), mandates that the spousal-refusal technique be recognized as legal in all states. “It makes the process more fair,” Reixach said. “It allows an individualized determination. Medicaid eligibility is otherwise based on a formula, a formulaic amount. This year in Connecticut, if you start with $35,000, the state will let you keep $19,100 as the elderly, community spouse-not much of a cushion,” he said. It’s valuable, Rexaich added, to be able to use refusal to qualify for Medicaid coverage, and base support obligations on the individualized circumstances of the community spouse. At the trial level, Jane L. Tyree and Joshua Z. Hersh of Westport, Conn., elder law firm Hersh & Fowler-Cruz, represented the Morenzes. They won before U.S. District Judge Stefan Underhill, who concluded that the spousal refusal statute could not be less ambiguous. On appeal to the 2d Circuit, Patricia Wilson-Coker, the Connecticut Department of Social Services commissioner, argued that the plain meaning rule of statutory construction is inapplicable in this case. Furthermore, she contended, Connecticut has no statute that allows a spouse to assign his or her support rights to the state, making Robert Morenz’s assignment of rights a legal nullity. The 2d Circuit found that Conn. Gen. Stat. � 17b-285 is focused on situations where the community spouse refuses to provide financial information, or the nursing-home spouse is incapacitated, but does not preclude a competent assignment of rights from the institutionalized spouse to the state.

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