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This blog is written by Brian E. Barreira, an estate planning, probate and elder law attorney with offices at 118 Long Pond Road, Suite 206, Plymouth, Massachusetts, and 175 Derby Street, Unit 19, Hingham, Massachusetts. Brian has been named a Massachusetts Super Lawyer® in Boston Magazine in 2009-2015 and is listed in The Martindale-Hubbell Bar Register of Preeminent Lawyers in the fields of Elder Law and Trusts & Estates, Wills & Probate. Brian's biographical website can be found at SouthShoreElderLaw.com

Nothing on this blog should be considered to be legal advice or tax advice.

Contrary to the Independent “Research” of the Office of the Attorney General, the Definition of “Available” Was in MassHealth Regulations from 10/1/1999-12/31/2013

May 15, 2016

In a Suffolk Superior Court case where my client is challenging the Office of Medicaid’s ludicrous legal position that a home in an irrevocable trust is always a countable asset if it is “available” (which to the agency now means you can use it), I pointed out that the definition of that word was removed from the MassHealth regulation at 130 CMR 515.001 on January 1, 2014.  Before then, the word “available” was defined as “a resource that is countable under Title XIX of the Social Security Act.”  To my great dismay, a lawyer from the Office of the Attorney General who is defending the agency’s actions in this case performed her own independent “research” and “reviewed the official regulations” back to 1998 and reported in her brief to the Court that the word “available” was never defined in MassHealth regulations.

Apparently, the lawyer from the Office of the Attorney General was so independent in her research that she never ran her research findings by her actual client.  If she had done so, the Office of Medicaid would probably have been forced to inform her that MassHealth regulatory changes are attached to Eligibility Letters, and that Eligibility Letters dating back to 2002 can be found on the MassHealth part of mass.gov, the official website of the Commonwealth of Massachusetts. Thus, the definition of the word “available” before January 1, 2014 can be easily found online, attached to official MassHealth documents.

Let’s first look at Eligibility Letter 195 in 2010.   On page 6, there is the definition that the Attorney General’s lawyer supposedly was looking for elsewhere but could not find: “Available – a resource that is countable under Title XIX of the Social Security Act.” That definition is on the first page of 515.001. This Eligibility Letter also tells us where to find the last change to the page that this definition is on.  Moving back to page 1 of the Eligibility Letter, under Manual Upkeep, in the Insert column, look for 515.001 (1 of 8); looking across the row, it tells us that the last time that page was changed was in E.L. (Eligibility Letter) 147.

Now let’s look at Eligibility Letter 147 in 2006.   On page 3, there it is again: “Available – a resource that is countable under Title XIX of the Social Security Act.”  On page 2, under Manual Upkeep, in the Insert column, look for 515.001 (1 of 8); looking across the row, it tells us that the last time it was changed was in E.L. (Eligibility Letter) 95.

Now let’s look at Eligibility Letter 95 in 2002.   On page 17, once again, we find the definition that the Office of the Attorney General claims never existed: “Available – a resource that is countable under Title XIX of the Social Security Act.”  On page 2, under Manual Upkeep, in the Insert column, look for 515.001 (1 of 8); looking across the row, it tells us that the last time it was changed was in E.L. (Eligibility Letter) 72, which we cannot find on the MassHealth part of mass.gov, as the Eligibility Letter must have been issued before 2002.

The Plymouth Law Library has assisted me in looking further backwards.  Here is what I was informed via email, with pre-2002 research into whether available was and wasn’t in MassHealth regulations attached to the email:

The method for tracing back regulations used by the Trial Court law libraries is to use the annual cumulative table of changes and then pull the specific Mass. Registers containing the appropriate amendments.  Because Plymouth only has the former CMR pages going back to 2009, I contacted the Hampshire Law Library for assistance.  The staff member determined that the word “available” first appeared in 130 CMR 515.001 as of Oct. 1, 1999.  If you look at the filing sheet under the section called “Summary of Regulation,” it says the Division became aware of the need for revisions pursuant to the Omnibus Budget Reconciliation Act of 1993 so apparently it took the agency several years to realize the necessary changes required under the federal law.

Attached to this email is the filing sheet from Mass. Register 877 and 130 CMR 515.001 (page 771 dated 9/3/99) showing that the word “available” was not included under the list of definitions.  After those three pages is the filing sheet from Mass. Register 879 and 130 CMR 515.001 (page 771 dated 10/1/99) which does include the definition for “available.”

Earlier research by the Plymouth Law Library into the definition of available since 2000 had also shown that the word “available” was defined until the end of 2013.

Why is the definition of “available” in 130 CMR 515.001 important? Because it proves that from October 1, 1999, when the agency first implemented the 1993 federal Medicaid trust law, until January 1, 2014, when the definition disappeared from MassHealth regulations, the official position of the agency was that a home in a trust was available if it was countable. The agency in this case is trying to get away with arguing the exact opposite, that a home in a trust is countable if it is available, and is arguing that the word means something completely different than how it has been interpreted by the agency in the past.

How is it that the research done by the Office of the Attorney General found that the word “available” was never in the “official version of regulations,” while the agency itself has copies of its own official publications on its part of the Massachusetts governmental website, showing the word defined? Why is that the Office of the Attorney General strangely did not confirm its research findings with the agency itself?  It is indeed troubling that the Office of the Attorney General, the highest legal arm of Massachusetts government, cannot be counted on to be thorough in its legal research process.

The Case of Heyn v. Director of the Office of Medicaid Brings Much of Medicaid Trust Law in Massachusetts Back to Reality

April 18, 2016

Since the time that the Massachusetts Appeals Court handed down the decision of Doherty v. Director of the Office of Medicaid, 74 Mass.App.Ct. 439 (2009), lawyers representing the Office of Medicaid have been engaging in distortions of what was actually decided there. In Heyn v. Director of the Office of Medicaid, decided April 15, 2016, the Massachusetts Appeals Court clarified its decision in Doherty, and laid waste to a great deal of the Office of Medicaid’s legal distortions.

Everlenna Roche, the deceased settlor of the trust in question in the Heyn case, had filed a MassHealth application and been denied. A fair hearing was requested, and the Hearing Officer assigned to the case, Thomas J. Goode, ruled in Fair Hearing Decision 1306280 that there were circumstances where the assets of the trust could be made available to her.  On appeal to the Superior Court under Massachusetts General Laws, Chapter 30A, Judge William F. Sullivan upheld the hearing decision. In Heyn, the Massachusetts Appeals Court reversed those decisions and approved the trust and the MassHealth application.

Judge Sullivan and Hearing Officer Goode are emblematic of the frustrations that many Massachusetts elder law attorneys have had in recent years with MassHealth applications and appeals involving trusts, as their decisions have been inconsistent. A mere six days before affirming the decision in Fair Hearing Decision 1306280, Judge Sullivan had taken the exact opposite position in approving a similar trust in the Superior Court appeal of O’Leary v. Thorn, a case that was not appealed afterwards by the Office of Medicaid. Hearing Officer Goode, who had been the hearing officer in Fair Hearing Decision 0608458 (which was the fair hearing decision underlying the Doherty case), for years had apparently not seen an irrevocable trust he didn’t disapprove of, with his buying into the Office of Medicaid’s unsupportable claim that federal Medicaid trust law created a presumption that trusts were countable assets, then suddenly on December 4, 2014 reversed course in Fair Hearing Decision 1404746, and later issued Fair Hearing Decision 1509625, becoming a staunch intellectual critic of many of the anti-trust positions taken by the lawyers at the Office of Medicaid. Unfortunately, because of the inconsistent decisions rendered by them, as well as by other fair hearing officers and Superior Court judges, Massachusetts elder law attorneys had been left with uncertainty on the outcome of any case involving a trust.

The Heyn case should bring a great deal of logic and law back to the MassHealth application and appeal processes. In Heyn, the Massachusetts Appeals Court reviewed an irrevocable income-only trust and found it to be acceptable under federal Medicaid trust law. Several arguments against the trust had been raised by the Office of Medicaid at the fair hearing, and they were shot down by the court. Let’s review these issues not in order of importance, but rather in the order in which they present themselves in the Court’s opinion:

(1) In the “Background” provided by the Court, it is specifically stated that the trust owned “her former residence, held by the trust.”  Where the hearing officer had specifically rejected the arguments of the Office of Medicaid regarding the home being “available” under 130 CMR 520.023(C)(1)(d), perhaps the Office of Medicaid now may be estopped from continuing to raise that issue, which is not in accordance with law anyway; see Is a Home That Is Owned by an Irrevocable Trust Automatically a Countable Asset under Federal Medicaid Trust Law?

(2) The Doherty case was about a particular trust, and did not change Massachusetts Medicaid trust law. The Massachusetts Appeals Court specifically stated in its decision that “it is settled that, properly structured, such trusts may be used to place assets beyond the settlor’s reach and without adverse effect on the settlor’s Medicaid eligibility.”

(3) Under the 1993 federal Medicaid trust law, “countable assets” include any portion of the trust principal that could “under any circumstances” be paid to or for the benefit of the settlor of the trust.  The proper standard of review is “assessing whether the trust would allow distribution of principal.”

(4) The trustee had the power to make distributions of assets from the trust to persons other than the settlor, and the Court had no problem with that power and did not even choose to comment on it specifically.  The Court did implicitly render a comment in another context that “a provision making trust principal available to persons other than the grantor does not by its nature make it available to the grantor.” Thus, a provision in an irrevocable income-only trust that allows distributions to persons other than the settlor or the settlor’s spouse has been approved by the Massachusetts Appeals Court.

(5) The settlor had reserved a special or limited power of appointment, the “power, exercisable at any time or from time to time, by written instrument during the Grantor’s lifetime or by the Grantor’s will or any codicil thereto, to appoint any part or all of the principal or income of this Trust to any one or more of the Grantor’s issue.” The Court had no problem with that power, concluding that “a provision making trust principal available to persons other than the grantor does not by its nature make it available to the grantor, any more than if the grantor had gifted the same property to such a person when she created the trust, rather than placing it in trust.”  Thus, a provision in an irrevocable trust wherein the settlor reserves a special or limited power of appointment, exercisable either during lifetime or by will, has been approved by the Massachusetts Appeals Court.

(6)  The hearing officer had concluded that the irrevocable trust was countable because there was a possibility that the recipients of assets from the trust could return those assets to or use them for the settlor.  The Court shot down that type of analysis, because “for purposes of computing countable assets, Medicaid does not consider assets held by other family members who might, by reason of love but without legal obligation, voluntarily contribute monies toward the grantor’s support.” Thus, the Office of Medicaid is precluded from presuming collusive activities between the settlor and other trust beneficiaries, and is limited to a one-step analysis when reviewing any trust provision.

(7) The trustee had the power to make allocations between principal and income.  The Court had no problem with that power because the trustee’s authority was constrained by “reasonable accounting principles and practice and state law.” Thus, the argument often made by lawyers at the Office of Medicaid that state law doesn’t matter in reviewing a trust under Medicaid law was eviscerated.

(8) The settlor had reserved a so-called power of substitution, entitling the settlor to require the trustee to “transfer any trust assets in exchange for assets of equivalent value,” exercisable by the settlor “solely in a nonfiduciary capacity.” The Court had absolutely no problem with that power, concluding that “[s]uch an exchange would be equivalent to a sale of trust assets, with the grantor in the role of purchaser and the proceeds of the sale nonetheless retained by the trust as principal. Such a transfer would not effect any distribution or diminution of trust principal, any more than a sale of trust assets to unrelated third parties, followed by a reinvestment of sale proceeds by the trust.” Thus, a power of substitution is viewed by the Massachusetts Appeals Court as an option to purchase at fair market value, not a prohibited power to receive assets from the trust.

(9) Central to the case was that the Office of Medicaid had argued, and the Hearing Officer and Superior Court judge had concluded, that the trustee could purchase an annuity, and treat all of the payments, including the return of principal, as income distributable to the settlor. The Court confirmed the major points made in Potential Annuity Purchases by the Trustee Do Not Provide the Settlor of an Income-Only Irrevocable Trust with Access to Principal. The Court shot down the Office of Medicaid’s annuity argument, stating that “the allocation of annuity payments as between principal and income is governed by G. L. c. 203D, § 18(a), which creates a statutory presumption that any amount received by the trust, not expressly characterized as dividend or interest income, shall be allocated to principal.” The Court re-emphasized the point by stating that “[t]he income portion available for distribution in such circumstances would be no different in character than interest earned on a certificate of deposit, dividends from stocks purchased and held by the trust, or other income earned on any trust assets.” Further, this conclusion by the Massachusetts Appeals Court was made by utilizing Massachusetts law, further eviscerating the argument often made by lawyers at the Office of Medicaid that state law doesn’t matter in reviewing a trust under Medicaid law.

(10) The Court appears to have concluded its decision by attempting to minimize the continued usage of the Doherty case as a reason for issuing denials in MassHealth applications involving irrevocable trusts, as the Court explained Doherty: “[P]ursuant to the terms of the trust there are no circumstances under which the trustee may distribute trust principal to Roche. The case is in that respect in contrast to Doherty, supra, in which Art. XXII of the trust expressly authorized the trustee “in its sole discretion” and notwithstanding “anything contained in this Trust Agreement” to the contrary, to “pay over and distribute the entire principal of [the] Trust fund to the beneficiaries thereof [including the Medicaid applicant], free of all trusts.””  Thus, the Massachusetts Appeals Court clarified the narrow rationale for its decision in Doherty, and highlighted that, for the trust’s assets to be deemed countable assets, there must be a direct path of the trust assets from the trust to the settlor.

(11) In footnote 10, the Court includes the following quote from the trust:  “The Grantor intends that this trust be a grantor trust for federal income tax purposes and all provisions of this trust shall be construed so as to effectuate this intent.” Thus, where the Massachusetts Appeals Court did not otherwise mention this provision in its decision, the Court has implicitly approved it, so the intention that an irrevocable trust be a grantor trust for federal income tax purposes is legally a non-issue when reviewing an irrevocable trust for Medicaid purposes.

Until we actually see how the lawyers representing the Office of Medicaid react to the Heyn decision, optimism should be temporarily tempered, but the Massachusetts Appeals Court appears to have left them little room for continued distortions about the Doherty case and how to apply federal Medicaid trust law when reviewing irrevocable trusts.

Is a Home That Is Owned by an Irrevocable Trust Automatically a Countable Asset under Federal Medicaid Trust Law?

March 15, 2016

I am representing the Plaintiff in the Suffolk Superior Court case appealing Fair Hearing Decision 1409671, where the narrow issue is whether a home is “available” in the absence of a life estate or a trust provision allowing usage of the home. The following is a revised and expanded version of my memorandum on my motion for judgment on the pleadings. It is posted here for the benefit of Massachusetts elder law attorneys facing similar MassHealth trust denials.

Under the leading Massachusetts case regarding interpretation of federal Medicaid trust law, Cohen v. Division of Medical Assistance, 423 Mass. 399 (1996), the Supreme Judicial Court (“SJC”) held that the essence of federal Medicaid trust law was whether a creditor could reach the settlor-applicant’s interest in the trust, as Congress had implemented “Restatement (Second) of Trusts s. 156 (1959), which provides:  “Where the Settlor is a Beneficiary . . . (2) Where a person creates for his own benefit a trust for support or a discretionary trust, his transferee or creditors can reach the maximum amount which the trustee under the terms of the trust could pay to him or apply for his benefit.  … Under such a trust, a grantor puts his assets in a trust of which he is the beneficiary, giving his trustee discretion to pay out monies to gratify his needs but limiting that discretion so that the trustee may not pay the grantor’s debts. Thus, the grantor hopes to put the trust assets beyond the reach of his or her creditors.” Cohen at 414.  The Cohen court described a successful self-settled, spendthrift trust as putting the trust assets beyond the reach of the settlor’s creditors, then proceeded to find that the four trusts in the Cohen case had not done so. Cohen had also concluded that “a trust might be written to deprive the trustee of any discretion (for instance allowing the payment only of income).” Cohen at 418.

Attorney Steven Weiss, who serves as a bankruptcy trustee, had submitted at the fair hearing an unrebutted expert witness affidavit detailing that a bankruptcy trustee could not gain access to the assets of the trust for the benefit of the Plaintiff’s creditors, and the Hearing Officer accordingly found that the trust assets consisting of bank accounts could not be distributed to or for the benefit of the settlor or the settlor’s spouse; see pages 20-23 of the Fair Hearing Decision. The Hearing Officer approved the appeal as to the bank accounts held in the trust, yet issued a partial denial of the appeal in part due to the Plaintiff’s home being a trust asset, based on unwarranted deference to a newly-minted regulatory interpretation suggested by the Office of Medicaid that was contrary to many years of contrary interpretation by the agency.

Because the income-only irrevocable trusts in this case have already been approved by the Hearing Officer, the primary issue to be decided by the Court is whether the Plaintiff’s one-half of the Plaintiff’s former home, owned not by him but by an irrevocable trust he had established and funded more than five (5) years prior to the date of the MassHealth application, is somehow “available” to him even though the Hearing Officer found that the assets of the trust cannot be distributed to him.  The questions for this Court are what is “available” supposed to mean in the MassHealth regulation at 130 CMR 520.023(C)(1)(d) and should a declaratory judgment be issued to clarify what the regulation means or doesn’t mean.

Note the peculiarity and arbitrariness that if the Plaintiff’s home had been sold a day before the MassHealth application, the proceeds thereof could have been added to the bank accounts, and the Plaintiff’s MassHealth appeal would have been approved in full.  Nowhere in federal Medicaid trust law or federal Supplemental Security Income (“SSI”) law, which also must be followed by the Office of Medicaid, is the countability of an irrevocable trust evaluated based upon the details of its investment portfolio.  The regulatory interpretation in this case was arbitrary and capricious and an error of law because if the Plaintiff’s trust had owned anything other than his home, then none of the assets in the Plaintiff’s irrevocable trust would have been treated as countable under the primary holding in the Hearing Decision.

(I)  The MassHealth Regulation at 130 CMR 520.023(C)(1)(d), as Newly Interpreted by the Office of Medicaid, Is an Invalid Expression of Federal Medicaid Trust Law

The treatment of trusts funded by the MassHealth applicant under federal Medicaid law is found at 42 U.S.C. § 1396p(d).  The proper review of such irrevocable trusts for countability is set forth in federal Medicaid trust law at 42 U.S.C. § 1396p(d)(3)(B)(i), which simply states:

In the case of an irrevocable trust, if there are any circumstances under which payment from the trust could be made to or on behalf 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.

Thus, being “available” under federal Medicaid trust law means that the Trustee can make a payment to or for the settlor under the terms of the trust, which would allow a creditor of the settlor to reach the assets under state debtor-creditor law, as the SJC had concluded in Cohen. “[I]f, in any circumstances any amount of money might be paid to a beneficiary, the maximum of such amount is deemed to be available to the beneficiary.”  Cohen at 406-407.  Any other analysis of federal Medicaid trust law would allow the MassHealth program, the MassHealth applicant and the applicant’s irrevocable trust to have no financial liability to the nursing home, and would mean that Congress irrationally chose to leave the nursing home (which under other federal laws cannot easily discharge nonpaying residents) without any potential payment source.

The regulation at issue in this case is 130 CMR 520.023(C):

(C)  Irrevocable Trusts.

(1)  Portion Payable.

(a)  Any portion of the principal or income from the principal (such as interest) of an irrevocable trust that could be paid under any circumstances to or for the benefit of the individual is a countable asset.

(b)  Payments from the income or from the principal of an irrevocable trust made to or for the benefit of the individual are countable income.

(c)  Payments from the income or from the principal of an irrevocable trust made to another and not to or for the benefit of the nursing-facility resident are considered transfers of resources for less than fair‑market value and are treated in accordance with the transfer rules at 130 CMR 520.019(G).

(d)  The home or former home of a nursing-facility resident or spouse held in an irrevocable trust that is available according to the terms of the trust is a countable asset. Where the home or former home is an asset of the trust, it is not subject to the exemptions of 130 CMR 520.007(G)(2) or 520.007(G)(8).

The reason for this Suffolk Superior Court appeal is that (d) in this regulation was misinterpreted by the Hearing Officer after it was recklessly misrepresented by the Office of Medicaid. Under (a), (b) and (c) the analysis was correctly determined as to whether a payment can be made to or for the settlor.  Following a changed regulatory interpretation of (d) urged on the Hearing Officer by the Office of Medicaid but not disclosed to him as being a new interpretation, he ruled that, even though the Plaintiff had reserved no right to use the home either in the trust or in the deed funding the trust, the Plaintiff’s home was “available,” and therefore countable, due to its mere usage as the Plaintiff’s home.  The Office of Medicaid argued below that if the settlor of the trust can or does use the home, then it is “available,” and therefore per se countable, yet the regulation and its interpretation are not in accordance with federal Medicaid trust law or the Office of Medicaid’s long history of implementing the law correctly.

Before January 1, 2014, the Office of Medicaid had an official, published position on what the term “available” meant, as under the “Definition of Terms” in 130 CMR 515.001, the term “available” was defined as “a resource that is countable under Title XIX of the Social Security Act.”  It was then clear that an asset was considered available if it was countable, and not the other way around, as the Hearing Officer was urged to decide here.  Since January 1, 2014, the word “available” has no longer been defined anywhere in the MassHealth regulations, and the Office of Medicaid chose not to disclose the pre-2014 definition of the word “available” to the Hearing Officer, nor the agency’s long history of treating a MassHealth applicant’s home as available only when the trust principal was payable to or for the applicant. By choosing not to present such pertinent information to the Hearing Officer, the Office of Medicaid violated its duties of administrative consistency and candor to the tribunal.

To my knowledge, there are no fair hearing decisions prior to 2014 wherein the Office of Medicaid had made its “available” argument, as the Office of Medicaid could not make that argument while that word’s definition remained in the MassHealth regulations.  In the case of Doherty v. Commissioner, 74 Mass. App. Ct. 439 (2009), which is known to have involved the appellant’s home held in the trust (as the Massachusetts Appeals Court specifically mentions the appellant’s right to live there), there is no mention whatsoever in the briefs filed at any level by or on behalf of the Office of Medicaid about Muriel Doherty’s home being a countable asset due to her living there and it therefore being “available” and per se countable.

The MassHealth regulation at 130 CMR 520.023(C)(1)(d) itself does not support the interpretation given to it by the Office of Medicaid or the Hearing Officer, where after the word “available” comes the phrase “according to the terms of the trust.”  Mere usage of the home by the Plaintiff did not occur “according to the terms of the trust,” and there was no such finding by the Hearing Officer. In addition, the opening paragraph in 130 CMR 520.023 states the general requirement that the circumstances under which an irrevocable trust is considered available be “described in the terms of the trust,” but the Hearing Officer made no such finding, focusing only on whether the Plaintiff had been living there as a factual matter. Moreover, the MassHealth regulation at 130 CMR 520.023(C)(1) contemplates only whether a payment could be made from the trust, as the title of the applicable portion of the regulation informatively states “Portion Payable.” (emphasis added).  “The statute asks only what the maximum amount of funds available to the beneficiary are in any circumstances pursuant to the exercise of the trustee’s discretion.”  Cohen at 424.

To the extent that the usage of the home could be viewed as a payment from an irrevocable income-only trust, it would be an income payment because the principal is not being consumed or even accessible by merely living there.  A person with a limited lifetime interest in real estate is not considered under Massachusetts law to have access to principal. See Spring v. Hollander, 261 Mass. 373 (1927), where the SJC held that upon a sale of real estate a life tenant is entitled to income only, and principal is not available to the life tenant.

Massachusetts law is controlling as to the nature of the Plaintiff’s beneficial interests, as the United States Court of Appeals for the Third Circuit has already examined Congressional intent in the context of federal Medicaid trust laws and concluded that state law matters in the analysis:

‘Congress rigorously dictates what assets shall count and what assets shall not count toward Medicaid eligibility.  State law obviously plays a role in determining ownership, property rights, and similar matters.”  Lewis v. Alexander, 685 F.3d 325, 334 (3d Cir. 2012). “Trusts are, of course, required to abide by a State’s general law of trusts.”  Lewis at 335, footnote 15.  “[T]here is no reason to believe [Congress] abrogated States’ general laws of trusts.  … After all, Congress did not pass a federal body of trust law, estate law, or property law when enacting Medicaid.  It relied and continues to rely on state laws governing such issues.”  Lewis at 343.

Moreover, Massachusetts law is controlling as to the nature of the Plaintiff’s beneficial interests because in Guerriero v. Commissioner of the Division of Medical Assistance, 433 Mass. 628, 632 (2001), the SJC has already ruled that Massachusetts trust law is controlling in a determination of whether a distribution of assets can be made to the settlor of a trust:

In a written trust, the nature and extent of a trustee’s discretion as to any issue is defined by (1) the terms of the trust instrument and (2) in the absence of any provision in the terms of the trust, by the rules governing the duties and powers of the trustee. Restatement (Second) of Trusts s. 164 (1959) [Note 4]. If the trustee violates any duty to a beneficiary, the trustee will be liable for “breach of trust.” Restatement (Second) of Trusts, supra at s. 201 [Note 5]. Accordingly, the question is whether the “irrevocable waiver” completely deprived the trustee of any discretion to distribute trust principal [Note 6] to Guerriero, evaluating the trustee’s discretion in light of his duties imposed by the written trust instrument and his relationship to the parties of the trust.

Thus, the SJC has held that, in applying federal Medicaid trust law, Massachusetts trust law must first be reviewed to determine the settlor’s interests, and if a distribution cannot be made to the settlor, then, as the Court found in Guerriero, the trust’s assets cannot be treated as countable assets for MassHealth purposes.

In addition to the foregoing, a renowned legal treatise on trust law states that principal is not distributable without written specificity in the trust:  “Nowadays, it is default law that the current beneficiary of a trust is entitled to the net trust accounting income.  It is also default law that a trust is income only, i.e., the current beneficiary is not entitled to principal, unless the governing instrument indicates that the settlor intended otherwise.  Thus, a trust for the “benefit” of C, remainder to D is normally income only absent additional language suggesting the contrary. Without such additional language, the trustee would have no power to invade principal for the income beneficiary.” Charles E. Rounds, Jr. and Charles E. Rounds, III, Loring and Rounds: A Trustee’s Handbook (2013 Edition), §5.4.1.3 at 376-377.

(II)   The Office of Medicaid Has Long Taken the Position that Whether a Trust is Countable Is Based on Whether It is Distributable

The long-standing position of the Division of Medicaid Assistance, now known as the Office of Medicaid, regarding irrevocable trusts was established in a legal policy statement dated 4/29/1992, entitled “Transfer and Trust Issues  Reconciliation of Department Policy” where on page 3 the standard of review, similar to Restatement (Second) of Trusts s. 156 as described in Cohen, was simply that a trust was “countable up to the limit of the trustee’s discretion to distribute it to the applicant.”  The Plaintiff knows of no other official position statement by the agency.

Note that Question 2, parts (a) and (b), on pages 2-3 of that 4/29/1992 position statement, addresses the issue of whether a home transferred to a trust should remain noncountable, and provides the reasoning behind the promulgation of 130 CMR 520.023(C)(1)(d). The rationale for including (d) in the regulation, as made clear by its second sentence, is to cause the settlor’s home to lose its noncountable status when it is transferred to a trust. A home is usually considered to be a noncountable asset if it is in the MassHealth applicant’s name, and the Commonwealth is not disadvantaged by its being noncountable because after death there is an estate recovery claim against it for reimbursement by the Commonwealth for MassHealth benefits paid.  If, however, the home were in a trust yet still considered to be noncountable despite being distributable to the applicant, the transfer of the home to the trust would avoid a post-death estate recovery claim against it for reimbursement by the Commonwealth simply due to its avoiding probate. Thus, the reason for adding (d) to 130 CMR 520.023(C)(1) was to avoid this incongruous result, and the Office of Medicaid appears to have forgotten why it promulgated the regulation in the first place.

Although the federal Medicaid law was legislatively made tighter in 1993, the SJC in Cohen reviewed the 1993 law and did not find a different Congressional intention than in the 1985 law.  The Office of Medicaid agrees, as it represented to Suffolk Superior Court that Congressional intention for the 1993 federal Medicaid trust law was the same as for the 1985 law.  See pages 1 and 10 of the Office of Medicaid’s opposition to the motion for judgment on the pleadings in the Suffolk Superior Court case of Gerson v. Medicaid Board of Hearings, SUCV2012-2635-C, where the Office of Medicaid acknowledged:

The 1993 Amendment made certain clarifications, but did not change the purpose of the statute. See Cohen at 406-07.

Thus, the purpose of federal Medicaid trust law, found by the SJC in Cohen to be the implementation of state debtor-creditor law against trusts, remained intact under the 1993 law, and if a principal payment cannot be made to or for the Plaintiff then the assets of the trust in this case are not countable assets.

(III)   History of Federal Medicaid Law Indicates “Available” Is to Be Narrowly Construed

Under 42 U.S.C. §1396a(a), “[a] state plan for medical assistance must” … “(17)(B) provide for taking into account only such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant or recipient” and “(17)(C) provide for reasonable evaluation of any such income or resources.”

In State of Washington v. Bowen, 815 F. 2d 549 (9th Cir., 1987) the Court delved into the term “available,” and determined that the term must be narrowly construed:

As used in public assistance statutes, the term “available” typically functions as a restrictive term defining a subcategory of “income.” See, e.g., Heckler v. Turner, 470 U.S. 184, 200, 105 S.Ct. 1138, 1147, 83 L.Ed.2d 138 (1985); Gray Panthers, 453 U.S. at 48, 101 S.Ct. at 2642; Schrader v. Idaho Dept. of Health and Welfare, 768 F.2d 1107, 1110 (9th Cir.1985); Young v. Schweiker, 680 F.2d 680, 682 (9th Cir.1982). The legislative history of the Medicaid statute also indicates that “available” should be read as a limiting term. The Senate report accompanying the Medicaid legislation provided: States [are required] to take into account only such income and resources as … are actually available to the applicant or recipient…. States [are] not [to] assume the availability of income which may not, in fact, be available or overevaluate income and resources which are available. S.Rep. No. 404, 89th Cong., 1st Sess. 78 (1965), reprinted in 1965 U.S. Code Cong. & Ad. News pp. 1943, 2018.

The Connecticut Supreme Court has analyzed the availability principle in federal law, and concluded:

[U]nder applicable federal law, only assets actually available to a medical assistance recipient may be considered by the state in determining eligibility for public assistance programs such as title XIX [Medicaid] … A state may not, in administering the eligibility requirements of its public assistance program pursuant to title XIX … presume the availability of assets not actually available.”  Zeoli v. Commissioner of Social Services, 179 Conn. 83, 94 (1979).

The case of Reinholdt v. N.D. Department of Human Services, 2009 ND 17, 760 N.W.2d 101 (2009), cited by the Office of Medicaid below, is instructive on the level of inquiry needed to determine whether the home in the Plaintiff’s trust was actually available to him:

Determining whether an asset is ‘actually available’ for purposes of Medicaid eligibility is largely a fact-specific inquiry depending on the circumstances of each case.  … [i]f an applicant has a colorable legal action to obtain assets through reasonable legal means, the assets are available.  The ‘actually available’ requirement must be interpreted reasonably, and the focus is on the applicant’s actual and practical ability to make an asset available as a matter of fact, not legal fiction. (emphasis added)

The unrebutted expert witness affidavit by Attorney Steven Weiss that is part of the record established that even a bankruptcy trustee stepping into the trustee’s shoes would have no actual or practical ability to make the principal of the trust available to make payment to or for the Plaintiff or his creditors.

(IV)   Since 1994, the State Medicaid Manual Has Supported the Plaintiff’s Position, and the Office of Medicaid Is Required to Follow SSI Law in Its Eligibility Determinations

In 1994, the Health Care Financing Administration, now known as the Centers for Medicare and Medicaid Services, issued HCFA Transmittal Letter 64, which eventually became part of the State Medicaid Manual, which is binding on the States by contract. The Foreword to the State Medicaid Manual, at B.1., states:

Contents.– The manual provides instructions, regulatory citations, and information for implementing provisions of Title XIX of the Social Security Act (the Act). Instructions are official interpretations of the law and regulations, and, as such, are binding on Medicaid State agencies. This authority is recognized in the introductory paragraph of State plans.”

In section 3259.6 D. of the State Medicaid Manual, states are instructed to apply SSI law and principles in their Medicaid eligibility determinations involving trusts:

1. Payments Made From Revocable Or Irrevocable Trusts to or on Behalf of Individual.–Payments are considered to be made to the individual when any amount from the trust, including an amount from the corpus or income produced by the corpus, is paid directly to the individual or to someone acting on his/her behalf, e.g., a guardian or legal representative.

NOTE: A payment to or for the benefit of the individual is counted under this provision only if such a payment is ordinarily counted as income under the SSI program.  (emphasis added)

In violation of this section of the State Medicaid Manual, the Office of Medicaid never made any eligibility determination that usage of the Plaintiff’s home caused it to be treated as income under the SSI program, and the Hearing Officer never made any such finding.

The Office of Medicaid violates federal law whenever it utilizes any eligibility methodology that is more restrictive than that used by the SSI program:

In determining income and resource eligibility for Medicaid, states may not employ a methodology which renders an individual ineligible for Medicaid where that individual would be eligible for SSI. See 42 U.S.C. § 1396a(r)(2)(A)(i). In addition, states must use reasonable standards for determining eligibility which only take into account income and resources which are available to the recipient and which would not be disregarded in determining eligibility for SSI. 42 U.S.C. § 1396a(a)(17). For SSI purposes, if an individual has no authority to liquidate a property right, it is not considered an “available resource.” 20 C.F.R. § 416.1201(a)(1). Social Security Administration guidance further explains that a trust is an “available resource” only if the beneficiary has the legal authority to compel the use of trust assets for her own support and maintenance. See Social Security Administration, Program Operating Manual System (“POMS”) § S01120.200(D)(2).” Brown v. Day, 434 F. Supp. 2d 1035, 1037-38 (D. Kan. 2006).

See also Lewis v. Alexander, 685 F.3d 325 (3d Cir. 2012), 42 U.S.C. § 1396a(r)(2), 42 U.S.C. § 1396a(a)(10)(C)(i)(III), 42 C.F.R. § 435.601, and Fair Hearing Decision 1102569, where the Office of Medicaid has already conceded that it is bound by the doctrine of SSI comparability.

There is no section in SSI law, SSI regulations or the Program Operations Manual System (“POMS”) of the Social Security Administration that would result in the Plaintiff’s home in an irrevocable trust being deemed countable based on its usage, and the Hearing Officer made no such finding or even considered SSI law.  Under the SSI program, if an individual’s home is in a trust of which the individual is a beneficiary and the individual uses it, it does not count as in-kind support and maintenance income.  Further, a home or former home held in an irrevocable trust is not considered a resource under SSI law and regulations.  The term “resources” is defined for SSI purposes at 416 C.F.R. 1201 as “cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance.” The SSI regulation further provides:

If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual (or spouse).” 20 C.F.R. § 416.1201(a)(1).

Further, the U.S District Court for the District of Connecticut, in recently determining whether trusts were countable assets for Medicaid purposes, reviewed the POMS to determine how SSI law properly applies to trusts and found:

[T]he POMS details the three elements required for something to be considered a resource: an ownership interest; the right, authority, or power to convert it to cash; and the legal right to use it for one’s support and maintenance. See, e.g., POMS § SI 01120.010, POMS § SI 01110.100B.1, POMS § SI 01110.100B.3; POMS § SI 01110.115A; POMS § SI 01120.200D. If any one of these elements is missing from an asset, the SSA will not consider it to be a resource for purposes of determining eligibility for SSI.  Simonsen v. Bremby, 2015 U.S. Dist. LEXIS 171099 (2015)

Thus, where there was no finding by the Hearing Officer that the Plaintiff’s home could be sold and the proceeds distributable to him or for his benefit, or that the home could be given to or taken by the Plaintiff from the trust without consideration, the Hearing Decision and the Office of Medicaid’s regulatory interpretation of 130 CMR 520.023(C)(1)(d) are in violation of federal law due to being more restrictive than SSI law and federal law interpretation in the POMS.

(V)   The Board of Hearings, in Rendering the Final Decision of the Office of Medicaid, Has Issued Inconsistent Decisions Regarding What “Available” Means in 130 CMR 520.023(C)(1)(d), and the Office of Medicaid Therefore Fails to Engage in Administrative Consistency

 The Plaintiff is entitled as a matter of law to reasoned consistency in agency decision-making by the Office of Medicaid.  “A party to a proceeding before an agency has a right to expect and obtain reasoned consistency in the agency’s decisions.”  Boston Gas Co. v. Dep’t of Pub. Utilities, 367 Mass. 92, 104 (1975). Unfortunately, decisions in cases involving irrevocable trusts can often depend on who the hearing officer is that was assigned to the case.

In Fair Hearing Decision 1402188, decided on November 10, 2014, in approving an irrevocable trust, Hearing Officer Christopher S. Taffe wrote on page 15:

I conclude that under the terms of the Trust,  there is no evidence that there is any “portion” of the Realty Trust which is “payable” to the Appellant; I will note that while the regulation in 130 CMR 520.023(C)(1)(d)  is somewhat vague as to what “available” means in terms of the former home, the fact that the entire subsection in the regulation at 130 CMR 520.023(C)(1) is titled “Portion Payable” suggests that, for there to be a finding of countability and availability, there must be some circumstances in the trust language which gives an LTC applicant some colorable claim and ability to receive some form of payment from the resource in the trust corpus.  This is also consistent with 42 U.S.C. §1396p(d)(3)(B)(ii), quoted by MassHealth in its memorandum, which uses the phrase “…payment from the trust …” to describe the “any circumstances” test.

In Fair Hearing Decision 1404746, decided March 30, 2015, Hearing Officer Thomas J. Goode on pages 16-17 ruled that the home or former home of the applicant in a trust should not be treated differently than other assets:

I disagree with the MassHealth position that because appellant’s former residence is “available” to the spouse under the terms of the Trust, it is therefore countable under 42 U.S.C. 1396p (d)(2)(A)(B) and (C) and under 130 CMR 520.023(C)(l)(d).  In the case of an irrevocable trust, 42 U.S.C. 1396p(d)(3)(B) imposes the “any circumstances” test under which either income or principal can be paid to the applicant, and considers available the amount that could be paid to the individual from income or from the corpus of the trust.  …  MassHealth interprets the word “available” under 520.023(C)(l)(d) to include the equitable title retained under the life estate interest that allowed Appellant and the spouse the right to use the property during their lifetime.  The MassHealth position implies that by retaining a life estate interest  in the former home under a trust the former … home becomes countable.  However, regulation 130 CMR 520.023(C)(l)(d), read within the context of the “any circumstances” test at 42 U.S.C.l396p(d)(3)(B), requires that Trust property, whether the former home or not, is “available” such that it would result in Trust principal being paid to the applicant.  …  There is no preclusion under either federal law or MassHealth regulations restricting an applicant from retaining a life estate interest in the former residence.  Therefore, it would be inconsistent to determine that the former home held in Trust is automatically countable under 520.023(C)(l)(d) without a finding that, according to the terms of the Trust, the Trustee can sell the property, and pay the proceeds to the individual to be used for the benefit of the applicant.  …  As I have found that there are no such circumstances under the terms of the Trust that allow the sale of the former home such that the proceeds, i.e., Trust principal, could be paid to Appellant or the spouse to be used for the benefit of the applicant/individual, the former home is not countable.

The Board of Hearings is a part of the Office of Medicaid, and under M.G.L. c. 118E, s. 48, “[t]he decision of the referee shall be the decision of the division,” yet the Office of Medicaid chose not to bring the fair hearing decisions in Appeal 1402188 or Appeal 1404746 to the attention of the Hearing Officer, in violation of its duties of administrative consistency and candor to the tribunal.  It is a violation of the duty of administrative consistency to continue to issue eligibility determinations that both ignore and are inconsistent with the previous fair hearing decisions of the agency.  Under the doctrine of offensive issue preclusion, also known as offensive collateral estoppel, the Office of Medicaid is prohibited from continuing to bring up issues where its position had already been ruled against.  Bellermann v. Fitchburg Gas and Electric Light Company, 470 Mass. 43, 60 (2014)   “The principles of claim preclusion and issue preclusion  … apply both to administrative boards and to courts.”  Lopes v. Board of Appeals of Fairhaven, 27 Mass. App. Ct. 754, 755 (1989)  “Courts routinely apply collateral estoppel to issues resolved by agencies.”  Kenneth Culp Davis and Richard J. Pierce, Jr., Administrative Law Treatise 13.4 at 260 (1994).

In addition, the Office of the Attorney General, which often ends up defending fair hearing decisions rendered by the Board of Hearings of the Office of Medicaid, has taken the position that agencies have the duty of administrative consistency, which requires disclosures and explanations of contrary decisions:

In cases in which a board is departing from longstanding precedent, the board must explain its rationale carefully. Although not bound in a strict sense by stare decisis, boards and administrative tribunals are under a special duty to explain themselves where they depart from an established line of decisions.” Manual for Conducting Administrative Adjudicatory Proceedings, Office of the Attorney General of the Commonwealth of Massachusetts (Robert L. Quinan, Jr., Editor), p. 64 (2012)

The Office of Medicaid is failing to fulfill the agency’s duties, where under 42 C.F.R. 435.901, “[t]he Medicaid agency’s standards and methods for determining eligibility must be consistent with the objectives of the program and with the rights of individuals under the United States Constitution, the Social Security Act, title VI of the Civil Rights Act of 1964, section 504 of the Rehabilitation Act of 1973, and all other relevant provisions of Federal and State laws.”  The Office of Medicaid has a duty under all of these laws to treat all MassHealth applicants fairly and consistently, yet makes no attempt to reconcile its fair hearing decisions and Superior Court decisions on similar facts and issues.

The Director of the Office of Medicaid had the right to order rehearings in Appeals 1402188 and 1404746, but did not do so, and let those decisions stand.  Thus, where a fair hearing is the final decision of the agency on a particular legal issue or set of facts, and where the agency has a duty of administrative consistency, it is a violation of the Plaintiff’s rights, including Equal Protection under both the United States and Massachusetts Constitutions, to receive a different result than the appellants in those cases on the issue of the interpretation of the word “available” in MassHealth trust regulations. In addition, there may be more hearing decisions that are unknown to the Plaintiff on the issue of whether a home being lived in by a MassHealth applicant is “available,” and the Office of Medicaid has a duty to disclose those fair hearing decisions to the Court and explain any similarities or differences therein.

(VI)   The Office of Medicaid Has Violated Its Duties of Administrative Consistency and Candor, and Is Entitled to No Deference

The doctrine of administrative consistency required the Office of Medicaid to disclose to the Hearing Officer its inconsistent treatment of the regulation in question, and to explain its disparate treatment of MassHealth applicants.

The law demands a certain orderliness. If an administrative agency decides to depart significantly from its own precedent, it must confront the issue squarely and explain why the departure is reasonable. … [T]he prospect of a government agency treating virtually identical legal issues differently in different cases, without any semblance of a plausible explanation, raises precisely the kinds of concerns about arbitrary agency action that the consistency doctrine addresses.  Davila–Bardales v. Immigration and Naturalization Service, 27 F.3d 1, 5 (1st Cir. 1994)

Under Rule 3.3 of the Massachusetts Rules of Professional Conduct, the lawyers representing the Office of Medicaid have a duty not to make any false statement of fact or law and to correct false statements all the way through to the end of the case. They also have the duty to disclose legal authority that is directly adverse to the Office of Medicaid’s position, if not disclosed by opposing counsel. The current rule states, in relevant part:

Rules of Professional Conduct Rule 3.3: Candor Toward the Tribunal

(a) A lawyer shall not knowingly:

(1) make a false statement of fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer;

(2) fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel….

(c) The duties stated in paragraphs (a) and (b) continue to the conclusion of the proceeding including all appeals …

The comment section under Rule 3.3 of the Massachusetts Rules of Professional Conduct spells out what is now expected of lawyers practicing in Massachusetts:

Legal Argument

[4] Legal argument based on a knowingly false representation of law constitutes dishonesty toward the tribunal. A lawyer is not required to make a disinterested exposition of the law, but must recognize the existence of pertinent legal authorities. Furthermore, as stated in paragraph (a)(2), an advocate has a duty to disclose directly adverse authority in the controlling jurisdiction that has not been disclosed by the opposing party. The underlying concept is that legal argument is a discussion seeking to determine the legal premises properly applicable to the case. (emphasis added)

The Office of Medicaid cannot withhold pertinent information, some of which is readily available to or known only by the agency itself, and it is not permissible for a state governmental agency to decide for tribunals what is and isn’t pertinent.  The Hearing Officer was supposed to have all relevant facts and law in front of him when making his decision, as the discovery of truth is the primary function of the legal system:

If a lawyer deliberately omits adverse authority, there is risk that neither opposing counsel nor the court will discover the governing law and an erroneous decision (that could have been avoided) will result. … Rule 3.3(a)(3) refers to “legal authority,” which should be understood to include not only case law precedents, but also statutes, ordinances, regulations, and administrative rulings.  Indeed, the duty to reveal the latter kinds of authority is of greater practical significance, precisely because they are less likely to be discovered by the tribunal itself.   Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering, s. 29.11, at 29-16 (3rd ed. 2000).  (emphasis added).

Under M.G.L. c. 118E, s. 48, a fair hearing decision is the agency’s decision.  The many years of MassHealth determinations and fair hearing decisions that ran counter to this one should have been disclosed to the Hearing Officer, and the change in position should have been disclosed and explained.  If the agency had treated the applicable regulation, as well as previous versions thereof, completely differently for the previous twenty (20) years or more, how would it not have been pertinent for the Hearing Officer to know about the agency’s previous positions when the agency claims that it is entitled to deference?  “It is usually the initial not the changed interpretation of a statute that earns … deference.”  Cohen v. Commissioner of the Division of Medical Assistance, 423 Mass. 299 (1996), footnote 18.  “The common sense behind this stance is powerful: Inconsistency suggests an arbitrary or unsure interpreter upon whom the regulated cannot rely.” Richard W. Murphy, “Judicial Deference, Agency Commitment, and Force of Law,” 66 Ohio State Law Journal 1013, 1015 (2005).

Unfortunately, the lawyer who represented the Office of Medicaid at the fair hearing did not bring one fair hearing or Superior Court decision to the attention of the Hearing Officer unless it fit into her argument against the trusts.  No adverse decisions were argued about or differentiated. The Office of Medicaid, in fulfillment of its duties of administrative consistency and candor to the tribunal, must produce, explain and synthesize all fair hearing decisions approving trusts wherein an “available home” argument had been made by the Office of Medicaid.

(VII)   Previous Written Positions of the Office of the Attorney General in Appellate Court Cases Support the Plaintiff’s Position 

The major Massachusetts appellate court cases through the time of this fair hearing had been Cohen in 1996, Lebow v. Commissioner of the Division of Medical Assistance, 433 Mass. 171 (2000), Guerriero in 2001 and Doherty in 2009, and the briefs filed in those cases by the Office of the Attorney General support the Plaintiff’s contention that the principal of a trust is only countable when a payment from principal can be made to or for the settlor of the trust.  In all references in those briefs as to whether an asset in a trust is ‘available,” the context is whether the asset is distributable by the Trustee to the settlor-applicant, but what is even more revealing is what does not appear; in none of the briefs is there even a hint that usage of a home makes it “available” and therefore a countable asset.

The brief of the Office of the Attorney General in Doherty is especially telling, in that the new “available home” argument was not made anywhere in that brief.  The reported Doherty case specifically mentions that the settlor had the right to live in her home, yet nowhere in the Doherty brief is an issue raised as to the home being “available” based on its usage. The Office of the Attorney General conceded on pages 8-9 of its brief that the 1993 law merely tightened the 1985 law regarding trustee discretion.

(VIII)   This Court’s Review of the Regulation at 130 CMR 520.023(C)(1)(d) Is De Novo

The issues of law presented by the Plaintiff in this case are subject to de novo review by this Court.  “Where an agency determination involves a question of law, it is subject to de novo judicial review.” Flemings v. Contributory Retirement Appeal Board, 431 Mass. 374,375 (2000).

The case cited in Cohen for the proposition that deference is not applicable when an agency takes new positions was Barnett v. Weinberger, 818 F.2d 953 (D.C. Cir. 1987), where the proper roles and duties of the Office of Medicaid and this Court reviewing its actions were elucidated:

It is well established that the prestige of a statutory construction by an agency depends crucially upon whether it was promulgated contemporaneously with enactment of the statute and has been adhered to consistently over time.  … In addition to these difficulties, we are mindful that an administrative interpretation is not of itself dispositive of an issue of statutory construction.  Rather, its force depends upon other factors, including the thoroughness and validity of its reasoning, and its compatibility with the general purposes that motivated enactment of the legislation interpreted. … We emphasize, as the Supreme Court and this court often have, that “statutory construction ultimately is a judicial function.” While an agency’s interpretation of any statute it administers must be fully and respectfully considered, its reading ultimately prevails, if at all, only by virtue of the persuasive power it exerts. Deference to interpretative agency promulgations should not lapse into mere ” ‘judicial inertia,’ ” and we would neglect a fundamental responsibility were we to ” ‘stand aside and rubber-stamp [our] affirmance of administrative decisions that [we] deem inconsistent with a statutory mandate or that frustrates the congressional policy underlying a statute.’ ” Barnett v. Weinberger, 818 F.2d 953, 960-963 (D.C. Cir. 1987).

Further, mere deference to whatever decision was made by the Office of Medicaid is not what is envisioned by M.G.L. c. 30A, as the SJC has held:

We have observed … that G. L. c. 30A, s. 11 (8), requires the decision of the department to “be accompanied by a statement of reasons . . . including determination of each issue of fact or law necessary to the decision.” … A purpose of that statutory provision is to require the department to give a ” ‘guide to its reasons’ so that this court may ‘exercise . . . [its] function of appellate review.” ” Hamilton v. Department of Pub. Utils., 346 Mass. 130 , 137 (1963), quoting Leen v. Assessors of Boston, 345 Mass. 494 , 502 (1963).  Massachusetts Institute of Technology v. Department of Public Utilities, 425 Mass. 856, 868 (1997)

The Hearing Officer gave deference to positions in a memorandum filed during the fair hearing by a lawyer representing the Office of Medicaid, who withheld pertinent information and did not fulfill her duty of candor to the tribunal.  If this Court were simply to defer to the Hearing Officer, then the Office of Medicaid would have received double deference without any scrutiny of the actual federal Medicaid and SSI trust law it is supposed to be implementing or its violations of the doctrine of administrative consistency and the duty of candor. Thus, it is the proper role of this Court to strike down, without deference due to unexplained inconsistency and violation of federal laws, the illegality and arbitrariness of the Office of Medicaid’s position that when the settlor’s former home is owned by an irrevocable trust and lived in by the settlor, the usage of the home causes it to be a countable asset even where the trust allows no distributions of principal to or for the settlor.  For the sake of judicial economy, a declaratory judgment should be issued to clarify what 130 CMR 520.023(C)(1)(d) means and what it does not mean.

(IX) A New Wrinkle Emerges: A Misinterpreted Sentence in the State Medicaid Manual

The Office of Medicaid has recently begun pointing out that the State Medicaid Manual states, at 3259.1 A.6.:

Payment.–For purposes of this section a payment from a trust is any disbursal from the corpus of the trust or from income generated by the trust which benefits the party receiving it.  A payment may include actual cash, as well as noncash or property disbursements, such as the right to use and occupy real property.

Note that this section of the State Medicaid Manual contemplates that a payment could be either income or principal, and that usage of the Plaintiff’s home could be treated as a payment.  The new position of the Office of Medicaid (apparently not even yet developed at the time of the Plaintiff’s fair hearing) appears to be that mere usage of a home transferred to a trust is per se a payment of principal, but note the logical fallacy of the Office of Medicaid’s reading of those two sentences of the State Medicaid Manual.  The first sentence specifies that a payment could be from principal, or in the alternative it could be from income.  The second sentence is not specific, and does not mention principal or income.  To reduce the Office of Medicaid’s illogical reading of those two sentences into mathematical terms, where a Payment is X, Principal is A and Income is B, the Office of Medicaid claims that if X = A or B, then X = A.

Also note that in this case the Office of Medicaid did not even have the legal right to live in the home under the terms of the deed or trust, so the payment would have to be implied from conduct, which inquiry is not suggested or authorized under the State Medicaid Manual or SSI law.

Even though it has always been the duty of the Office of Medicaid to scrutinize its own fair hearing decisions for consistencies and inconsistencies and report them to this Court as inherent to the doctrine of administrative consistency, the agency has chosen not to do so.  The Plaintiff has expended a significant amount of time reviewing some of the 2015 fair hearing decisions, and while all relevant decisions may not have been found, only one fair hearing decision appears to have been issued in 2015 that specifically discussed the Office of Medicaid’s cite to State Medicaid Manual 3259.1 A.6. and whether a home in a trust is per se a countable asset.  In Fair Hearing Decision 1509625, dated November 2, 2015, Hearing Officer Thomas J. Goode analyzed the new position of the Office of Medicaid in the context of an applicant who had actually reserved the right to live in the home (unlike in this case, where no such right was reserved) and soundly rejected the Office of Medicaid’s legal argument as a matter of law:

Assuming the right to occupy the property is properly considered a disbursal, and is therefore a payment dated to the Trust’s inception, the value of the payment would be limited to the value of the right to occupy the property, i.e., Appellant’s equitable interest that she reserved. However, characterizing the right to occupy as a payment to Appellant does not vest in the Trustee the discretion or requirement to make legal title to the property available to Appellant. Moreover, as Appellant is an income only beneficiary, and cannot receive payments from principal, it follows that characterizing the right to occupy the former residence as a payment would result in an income payment and not a payment from principal. …  As a practical matter, the presumption here is that the proceeds could be paid to the individual/applicant free of Trust to pay for the cost of nursing facility care. The availability of an equitable interest only cannot accomplish this goal.

It appears that the issue of whether a home in a trust is “available” and per se countable under section 3259.1 A.6. of the State Medicaid Manual has been ruled upon negatively by Hearing Officer Thomas J. Goode, and where the Director of the Office of Medicaid chose not to order a rehearing on this narrow issue of law and therefore acquiesced to the hearing decision, this legal issue already appears to be settled.

(X)  Conclusion     

Upon approval of the Plaintiff’s Superior Court appeal, the MassHealth benefits that were applied for would be paid directly to the nursing home, but upon denial of this appeal, if the nursing home cannot reach the assets of the trust as a creditor (as already determined by both the Hearing Officer and the bankruptcy law specialist who served as the Plaintiff’s expert witness), then the nursing home would be left without any payment source.  Any arguments made by the Office of Medicaid that Congress intended that such a result be possible when passing the 1985 and 1993 federal Medicaid trust laws should be met with extreme skepticism.

Can Saving One Penny Cost Your Estate $33,200 in Massachusetts Estate Taxes?

January 4, 2016

If you are a Massachusetts resident, a difference in a mere one penny in your net worth at death can result in $33,200.00 in Massachusetts estate taxes. The Massachusetts estate tax kicks in on a taxable estate of $1,000,000.00, and the estate tax on an estate of exactly $1,000,000.00 is $33,200.00. If instead the decedent’s taxable estate is one penny less, or $99,999.99, the tax is zero. Due to the thoughtless way the Massachusetts estate tax law was implemented, if a decedent’s Massachusetts taxable estate is between $1,000,000.00 and 1,033,000.00, the persons inheriting from that estate actually inherit less than if the taxable estate had been $99,999.99.

This strange estate tax result is based on a 2002 reaction (or thoughtless overreaction) by the Massachusetts state legislature to the so-called Bush tax cuts that occurred in 2001. A few years earlier, the previous Massachusetts estate tax had been repealed because a study had found that the existence of the Massachusetts estate tax caused a net loss in overall tax receipts due to older persons changing their domicile to avoid the estate tax.

When the latest version of the Massachusetts estate tax was implemented, the 2001 Bush tax cuts were phasing out the amount of the federal estate tax that had been shared with the states (known as the sponge tax or the “credit for state death taxes”), and the Massachusetts state legislature then passed legislation that allowed Massachusetts to continue receiving the same amount of estate tax revenue. Instead of coming from the federal government, the estate tax is now payable directly to the Commonwealth of Massachusetts by the decedent’s estate.

The odd implementation of the Massachusetts estate tax is highlighted by the manner in which the tax is calculated. In order to figure out the current Massachusetts estate tax, a 1999 Form 706, the Federal Estate Tax Return, must be filed. A blank copy of the 1999 Form 706, along with instructions, can be found on the Estate Tax page on the Massachusetts Department of Revenue’s website. Preparation of the 1999 Form 706 must be done to determine how much the Commonwealth of Massachusetts would have received if the federal estate tax exemption were now $1,000,000.00 and the federal tax law had not changed in 2001 to eliminate the credit for state death taxes. When the 1999 Form 706 is completed, the amount that the Commonwealth of Massachusetts receives as the Massachusetts estate tax is found on line 15, the credit for state death taxes.

Some simple last-minute moves can often be made by Massachusetts residents (and non-residents) to minimize or avoid paying the Massachusetts estate tax on amounts over $999,999.99.  Where the federal estate and gift tax exemption is now $5,450,000.00 in 2016, it may be time for the Massachusetts state legislature to take a moment to think the Massachusetts estate tax through so that it becomes more fair or sensible.

When Can a “Payment” of a Home Be Made from an Irrevocable Trust in Violation of Federal Medicaid Trust Law?

November 6, 2015

Lawyers currently practicing elder law in Massachusetts will tell you that just about any trust will be challenged by the Office of Medicaid in a MassHealth application. (See IrrevocableTrust.info for over 100 examples of trusts that went to fair hearings in the past 4 years.) Due to an appalling lack of trust law knowledge or ethics, some lawyers representing the Office of Medicaid seem to be willing to say and write just about anything if it means that a MassHealth application involving a trust could be denied.  The bottom line inquiry, however, is supposed to be whether a payment can be made directly to the settlor of the trust.

The very headings of the key MassHealth regulations at 130 CMR 520.023(C) state “Portion Payable” and “Portion Not Payable,” yet the Office of Medicaid never brings that point up in its relentless attack against all trusts.  These headings make two points: first, that it is possible for only a portion of a trust to be countable, and second, and more importantly, that something must be payable from the trust for it to be countable. The Office of Medicaid has put many trusts through contortions of logic to be able to claim they were countable, but now the Office of Medicaid is simply taking the position that a MassHealth applicant’s former home in any trust is automatically a countable asset, no matter what the trust says.

A mere right to use property in a trust does not make that property payable or distributable out of the trust to the person with the right of or opportunity for usage.  Similarly, a Trustee may have the authority to use principal to generate income, but that authority does not in and of itself become expanded to usage of the principal.  Without concern for law or logic, but concerned only about attacking any trust it sees, the Office of Medicaid has written in many recent MassHealth fair hearings that a settlor’s right to use and occupy the settlor’s former home held in trust makes that home a countable asset, even if it is not payable or distributable out of trust to the applicant.  The rationale for this new position is 130 CMR 520.023(C)(1)(d), which states: “The home or former home of a nursing-facility resident or spouse held in an irrevocable trust that is available according to the terms of the trust is a countable asset.”

Before January 1, 2014, the Office of Medicaid had an official, published position on what the term “available” meant in its MassHealth trust regulations, and under the “Definition of Terms” in 130 CMR 515.001, the term “available” was defined as “a resource that is countable under Title XIX of the Social Security Act.”  It was then clear that availability was determined by countability, and not the other way around.  The fact that the word “available” is now undefined allows lawyers at the Office of Medicaid to believe they somehow can now ethically take a contrary position about what the word means.

Nowhere in federal Medicaid or SSI trust law is a trust evaluated based upon what it owns, yet it appears to be the new position of the Office of Medicaid that the 1993 Medicaid trust law states that assets in trust are countable depending upon their nature, that the former home of a MassHealth applicant, who has the right to use that home held in trust, or who does not have the legal right but simply does so, is a countable asset in a MassHealth application. What the Office of Medicaid ignores in its “analysis” is why, if the trustee had sold that home prior to the applicant’s applying for benefits, those sale proceeds might not be countable, depending on the terms of the trust.

The latest argument from the Office of Medicaid involves the State Medicaid Manual, HCFA Transmittal 64, s. 3259.1(A)(8), which states, in part: “A payment may include actual cash, as well as noncash or property disbursements, such as the right to use and occupy real property.”  The sentence preceding that one, however, provides the context:  “[A] payment from a trust is any disbursal from the corpus of the trust or from income generated by the trust which benefits the party receiving it.”  Nowhere does HCFA 64 suggest that a right to income or right to use and occupy real estate is tantamount to access to principal, but somehow the Office of Medicaid tries to mislead hearing officers and judges to draw that erroneous conclusion, despite the fact that payment is required even under its own regulation at 130 CMR 520.023(C)(1)(a), which states:  “Any portion of the principal or income from the principal (such as interest) of an irrevocable trust that could be paid under any circumstances to or for the benefit of the individual is a countable asset.”  (emphasis added)

Even though the Office of Medicaid continues to make this same silly argument in case after case, some fair hearing officers are understanding the legal issue and displaying some independence by ruling against the Office of Medicaid.  In Appeal 1402188, decided on November 10, 2014, in approving an irrevocable trust, Hearing Officer Christopher S. Taffe wrote on page 15:

“I conclude that under the terms of the Trust,  there is no evidence that there is any “portion” of the Realty Trust which is “payable” to the Appellant; I will note that while the regulation in 130 CMR 520.023(C)(1)(d)  is somewhat vague as to what “available” means in terms of the former home, the fact that the entire subsection in the regulation at 130 CMR 520.023(C)(1) is titled “Portion Payable” suggests that, for there to be a finding of countability and availability, there must be some circumstances in the trust language which gives an LTC applicant some colorable claim and ability to receive some form of payment from the resource in the trust corpus.  This is also consistent with 42 U.S.C. §1396p(d)(3)(B)(ii), quoted by MassHealth in its memorandum, which uses the phrase “…payment from the trust …” to describe the “any circumstances” test.”

Further, in Appeal 1404746, decided March 30, 2015, Hearing Officer Thomas J. Goode on pages 16-17 ruled that the home or former home of the applicant in a trust should not be treated differently than other assets, and ruled that the home and other assets in the trust were not countable:

“I disagree with the MassHealth position that because appellant’s former residence is “available” to the spouse under the terms of the Trust, it is therefore countable under 42 U.S.C. 1396p (d)(2)(A)(B) and (C) and under 130 CMR 520.023(C)(l)(d).  In the case of an irrevocable trust, 42 U.S.C. 1396p(d)(3)(B) imposes the “any circumstances” test under which either income or principal can be paid to the applicant, and considers available the amount that could be paid to the individual from income or from the corpus of the trust.  …  [R]egulation 130 CMR 520.023(C)(l)(d), read within the context of the “any circumstances” test at 42 U.S.C.l396p(d)(3)(B), requires that Trust property, whether the former home or not, is “available” such that it would result in Trust principal being paid to the applicant.  …  There is no preclusion under either federal law or MassHealth regulations restricting an applicant from retaining a life estate interest in the former residence.  Therefore, it would be inconsistent to determine that the former home held in Trust is automatically countable under 520.023(C)(l)(d) without a finding that, according to the terms of the Trust, the Trustee can sell the property, and pay the proceeds to the individual to be used for the benefit of the applicant.”

A simple, straightforward reading of the federal Medicaid and SSI trust law shows that available means payable and countable, and that something that is not payable out of the trust to the MassHealth applicant is unavailable and noncountable.  The Office of Medicaid’s illogical new claims about the regulation at 130 CMR 520.023(C)(1)(d) lack any legislative underpinning, and display a lack of knowledge of federal Medicaid trust law, or perhaps a simple choice on the part of its lawyers to distort everything possible, even beyond reason.

It is an open question as to whether the new ethical rules governing Massachusetts lawyers will finally reign in lawyers at the Office of Medicaid, who often adopt an ends-justifies-the-means strategy in attacking trusts. Revised Rule 3.3 of the Massachusetts Rules of Professional Conduct, effective July 1, 2015, has strengthened a lawyer’s duty of candor in presenting evidence and legal argument to a court or other tribunal, including a fair hearing, and a lawyer is prohibited from knowingly making any false statement to a tribunal, not just material false statements. Further, comment 13 to Rule 3.3 clarifies that a lawyer’s obligation to rectify false statements to the tribunal extends until a final judgment in a proceeding has been affirmed or the time for appeal has expired.

Should Alternatives to Irrevocable Trusts Be Considered for Massachusetts Medicaid Planning Purposes?

November 4, 2015

In 2014, I established the irrevocabletrust.info  website to disclose recent MassHealth fair hearing decisions involving irrevocable trusts, as well as to publicize the memoranda of the Office of Medicaid filed at fair hearings, which always contain reckless misrepresentations of law.  (Attempts to receive permission to publish sample fair hearing memoranda at Massachusetts Continuing Legal Education programs have been met with refusal, so the intentional hiding of the work of Katy Schelong and her ilk at the Executive Office of Health and Human Services underscores the sneaky intentions behind their attacks against trusts.)  It appears that just about any trust involved in a MassHealth application can result in the need for a fair hearing appeal, with the outcome often being based on which hearing officer is randomly assigned to the appeal by the Board of Hearings.  Thus, using an irrevocable trust when it is not needed can be asking for trouble, no matter how well-drafted the trust is.

When in pre-internet days my article entitled “An Irrevocable Grantor Trust Can Assure Eligibility for Medicaid” was published in the March/April 1989 issue of Estate Planning, it was the first major article published nationally on how to establish an irrevocable trust that worked for both Medicaid and capital gains tax purposes.  Included in the article was what was then considered a novel approach of including a special (or limited, non-general) power of appointment in the irrevocable trust.  I was then invited to speak about trust planning at the Second Annual Elder Law Symposium, and one of the first Fellows of the National Academy of Elder Law Attorneys roasted me for the very idea of using a special power of appointment; it was an affront to her sense of the goals of governmental benefit programs, and she said it would never work.

Despite that lawyer’s 1990 beliefs, the inclusion of a special power of appointment in an irrevocable trust has passed muster for many years throughout the United States, but the same gut reaction as the NAELA Fellow’s to a special power of appointment may have occurred in the leading Massachusetts case of Doherty vs. Director of the Office of Medicaid, 74 Mass. App. Ct. 439 (2009).  As I have been told, the Massachusetts Appeals Court had on its own motion inquired into the concept of the power of appointment. The Doherty opinion is somewhat vague about what was wrong about that trust, and in its next-to-last paragraph there seems to be a missing transitional point in its decision against the trust.  It seems that the Court may have had a problem with the special power of appointment, but didn’t know quite what, if anything, to write about it.

Egged on by reckless misrepresentations of law by the Office of Medicaid, some of the hearing officers ruling on irrevocable trusts at MassHealth fair hearing appeals seem to conclude that control over the trust is the equivalent of owning the assets, and special powers of appointment are often mentioned in those decisions. Thus, if the lawyers representing the Office of Medicaid cannot be trusted to present and enforce the federal Medicaid trust law honestly, and if the lawyers hearing the appeals at the Board of Hearings are easily misled due to a lack of proper training, I suggest that Massachusetts elder law attorneys hired to perform estate planning for elders should be considering alternatives to irrevocable trusts wherever feasible. There is no such thing as a one-size-fits-all solution, where clients have different goals and varying needs, but joint tenancies or deeds with reserved life estates and/or special powers of appointment can often give clients who own real estate a practical estate planning solution without the later risk involved in defending irrevocable trusts.

I am not suggesting that irrevocable trusts are not valid estate planning tools, or that the federal Medicaid trust law, which has not changed since 1993, disallows them. What I am suggesting is that the unethical lawyering taking place at the Office of Medicaid, as well as the questionable or nonexistent training being provided to hearing officers by the Director of the Board of Hearings (who reports directly to the Director of the Office of Medicaid, who is allowing these trust attacks to continue), should be disclosed to clients and, as a result, alternatives to irrevocable trusts be considered.

What Are the 2016 Federal and Massachusetts Estate and Gift Tax Filing Figures?

October 27, 2015

The Internal Revenue Service has recently announced that in 2016 the federal estate tax exemption will rise from $5,430,000.00 to $5,450,000.00 per person. (Under current law, this figure is adjusted annually for inflation.) Married couples can get the benefit of two exemptions, so in 2016 the total federal estate tax exemption per couple can be $10,900,000.00. The top estate tax rate on amounts above the exemption is 40%.

Under a fairly new concept known as portability, the surviving spouse in some situations can use the unused exemption of the first spouse to die. Portability requires, in part, the timely filing of a federal estate tax return for the first spouse to die.  Unfortunately, the surviving spouse cannot use the deceased spouse’s unused exemption after a remarriage.

Few estates are expected to owe any federal estate tax in 2016, so the federal estate tax is no longer the biggest concern for many wealthy U.S. citizens who want to avoid taxes on wealth they leave behind to their heirs. The focus for many wealthy U.S. citizens has changed to minimizing capital gains taxes.

Although some state estate tax filing figures throughout the nation are being increased, there is no change planned for Massachusetts residents.  The Massachusetts estate tax still begins at a taxable estate of $1,000,000.00, with a minimum tax of $33,200.00.  Oddly enough, the tax is largely calculated through the preparation of a 1999 Federal Estate Tax Return, a  copy of which is on the Commonwealth’s website.  Persons who are not Massachusetts residents but own real estate in Massachusetts are affected by this tax, as well as an unrecorded Massachusetts estate tax lien that arises by operation of law.

The Internal Revenue Service has also announced that in 2016 the annual gift exclusion will remain $14,000.00 per recipient. The provision sets the highest amount that an individual can give on an unreportable tax-free basis, without affecting the gift-giver’s federal estate tax exemption, to any person who isn’t the gift-giver’s spouse, or to an unlimited number of persons.

Transfers or gifts between spouses are usually tax-free, but not always. Whether the gift is tax-free is based on whether the spouse who is receiving the gift is a U.S. citizen. A spouse who is a U.S. citizen can receive unlimited gifts, but a spouse who is not a U.S. citizen will be limited to receiving $148,000.00 in 2016.

Gifts made in excess of the $14,000.00 or $148,000.00 rules require the filing of a federal gift tax return, and make use of part or all of the gift-giver’s federal estate tax exemption.  There is no gift tax in Massachusetts, so there is no filing requirement regarding gifts with any Massachusetts governmental entity.

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