In a pre-2004 case, the Court of Special Appeals looked at the propriety of a Medicaid recipient disclaiming an intestate share of an estate. In Troy v. Hart, 116 Md. App. 468, 697 A.2d 113 (1997), cert. denied, 347 Md. 255, 700 A.2d 1215 (1997), the Court first looked at whether excepting benefits after receiving Medicaid benefits constituted “an assignment, conveyance, voluntary encumbrance … ” under the statute. The Court held that a disclaimer was not barred by that Section due to the disclaimant receiving Medicaid payments. The Court held that the disclaimer of benefits, however, would disqualify the disclaimant for Medicaid payments because those assets, in effect, constituted an available resource:
What this Court is more broadly faced with is the propriety of the disclaimer in light of societal interest and overall policy considerations. What is ludicrous, if not repugnant, to public policy is that one who is able to regain the ability to be financially self-sufficient, albeit for a temporary or even brief period of time, may voluntarily relinquish his windfall.
While we are mindful that social agencies are ‘skewered through and through with office pens, and bound hand and foot with red tape,’ this acknowledgment does not vitiate legal obligation to report a recipient’s change in financial status. Lettich had a legal obligation to ‘pay his own way’ (by means of the inheritance) until such time as his resources were exhausted. Had the disclaimed funds actually been acquired and exhausted, Lettich most certainly would have been eligible to resume his receipt of Medicaid benefits.
In Molloy v. Bank, 214 A.D.2d 171, 631 N.Y.S.2d 910 (1995), the Supreme Court of New York, Appellate Division, confronted the same issue now before this Court. Molloy, a resident of a nursing home, was a recipient of medical assistance. Upon the death of her daughter, Molloy, pursuant to intestacy law, was entitled to her statutory share of the estate. Prior to disposition of the estate, Molloy renounced her interest in it. Acknowledging that the right to renounce a intestate is irreconcilable with the principle that public aid is of a limited nature and should only be afforded to those who demonstrate legitimate need, 631 N.Y.S.2d at 911, the court found that ‘[Molloy]’s renunciation of a potentially available asset was the functional equivalent of a transfer of an asset since by refusing to accept it herself, she effectively funneled it to other familial distributes.’ Id. At 913.
Applying this analysis to the case sub judice, we adopt the reasoning of the New York court. The result of such a transfer prior to application for benefits is that the transferee enjoys a ‘windfall’ for which the applicant/transferor is penalized against the inception of his eligibility. So too should this penalty result in a circumstance in which a Medicaid recipient disclaims or otherwise transfers an inheritance that if accepted would result in a loss of eligibility.
Unfortunately, the Court then went on to “suggest” that the State had a potential cause of action for a constructive trust to seek reimbursement for the payments it made to the disclaimant improperly. [This was a “suggestion” because, as the case stated, the personal representative of the estate had acquiesced to reimbursing the State for any Medicaid benefits erroneously paid for the benefit of the disclaimant.]
2.2.1 Presumably, to the extent it is still good law under the new statute, Troy v. Hart carves out a narrow exception to the provision that creditors have no interest in the property disclaimed. Generally, the Medicaid override is a policy trumping of the statute. Comment to UDPIA (at Section 13):
A number of States refuse to recognize a disclaimer used to qualify the disclaimant for Medicaid or other public assistance. These decisions often rely on the definition of ‘transfer’ in the federal Medical Assistance Handbook which includes a ‘waiver’ of the right to receive an inheritance (see 42 U.S.C.A. § 1396p(e)(1)). See Hinschberger v. Griggs County Social Services, 499 N.W.2d 876 (N.D. 1993); Department of Income Maintenance v. Watts, 211 Conn. 323 (1989), Matter of Keuning, 190 A.D.2d 1033, 593 N.Y.S.2d 653 (4th Dept. 1993), and Matter of Molloy, 214 A.D.2d 171, 631 N.Y.S.2d 910 (2nd Dept. 1995), Troy v. Hart, 116 Md. App. 468, 697 A.2d 113 (1997), Tannler v. Wisconsin Dept. of Health & Social Services, 211 Wis. 2d 179, 564 N.W.2d 735 (1997); but see, Estate of Kirk, 591 N.W.2d 630 (Iowa, 1999) (valid disclaimer by executor of surviving spouse who as Medicaid beneficiary prevents recovery by Medicaid authorities). It is also likely that state policies will begin to address the question of disclaimers of real property on which an environmental hazard is located in order to avoid saddling the State, as title holder of last resort, with the resulting liability, although the need for fiduciaries to disclaim property subject to environmental liability has probably been diminished by the 1996 amendments to CERCLA by the asset Conservation Act of 1996 (PL 104-208). These larger policy issues are not addressed in this Act and must, therefore, continue to be addressed by the States. On the federal level, the United States Supreme Court has held that a valid disclaimer does not defeat a federal tax lien levied under IRC § 6321, Drye, Jr. v. United States, 528 U.S. 49, 120 S. Ct. 474 (1999).