## Facts

- Dorothy Schell was the lifetime income beneficiary and primary beneficiary of a testamentary residuary trust created by her late husband’s will, with discretion in the trustee to distribute principal for her benefit.
- The trustee petitioned the orphans’ court to terminate the trust as impractical to administer; upon termination, Dorothy became entitled to receive the remaining trust principal (about $300,000).
- Dorothy executed a renunciation/disclaimer of her right to receive that principal, causing the funds to pass to the contingent remainder beneficiaries (the Schells’ children).
- About a year later, Dorothy entered a nursing home and a Medical Assistance–Long Term Care (MA–LTC) application was filed on her behalf.
- The Department of Public Welfare (DPW) treated the disclaimer as disposal of an available resource for less than fair market value and imposed a transfer-of-assets penalty.
- DPW calculated the penalty as 582 days of ineligibility (January 28, 2011 through August 16, 2012), based on the $300,000 amount and the applicable nursing-home rate.
- An ALJ recommended affirmance, DPW’s Bureau of Hearings and Appeals issued a final order affirming, and Dorothy sought judicial review.

## Issues

1. Whether a MA–LTC applicant’s renunciation/disclaimer of a vested right to receive principal from a terminated testamentary residuary trust constitutes a transfer of assets for less than fair consideration.
2. Whether DPW properly treated the disclaimed principal as an available resource supporting a penalty period of ineligibility.

## Decision

- The Commonwealth Court affirmed DPW’s final administrative order.
- The court held that Dorothy’s disclaimer of her right to receive approximately $300,000 after trust termination was a transfer of assets for less than fair consideration.
- The court upheld the resulting 582-day MA–LTC ineligibility period and DPW’s penalty calculation.

## Legal Principles

- For MA–LTC eligibility, an applicant’s legally enforceable right to receive a distribution can be treated as an available resource even if the applicant never takes possession of the funds.
- A disclaimer/renunciation that causes an applicant’s vested entitlement to pass to others without receiving comparable value constitutes a transfer for less than fair consideration.
- Transfer-of-assets rules apply based on substance: voluntarily relinquishing a present right to property is treated as a disqualifying transfer when it shifts value to third parties.
- The penalty period may be computed by dividing the value of the transferred resource by the applicable care-cost divisor rate, and will be sustained if supported by the record and consistent with governing regulations.

## Conclusion

Because Dorothy Schell had a present right to receive the trust principal upon termination and disclaimed that right without consideration so the funds passed to her children, DPW properly treated the disclaimer as a transfer for less than fair consideration and imposed a 582-day MA–LTC ineligibility penalty, which the court affirmed.


Schell v. Dep’t of Pub. Welfare, 80 A.3d 844 (Pa. Commw. Ct. 2013)