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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. Brian has been named a Massachusetts Super Lawyer® in Boston Magazine in 2009-2020, is listed in The Martindale-Hubbell Bar Register of Preeminent Lawyers in the fields of Elder Law and Trusts & Estates, Wills & Probate, and is the Editor of Massachusetts Continuing Legal Education's 3-volume, 2000+-page Estate Planning for the Aging or Incapacitated Client in Massachusetts, where he is the author of the "Trusts in the MassHealth Context" and "Taxation of Trusts" chapters. Brian's biographical website, including information for new clients, can be found at SouthShoreElderLaw.com

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

The SECURE Act Has Changed How a Large IRA Should Be Dealt With in an Estate Plan

July 15, 2021

When the Setting Every Community Up for Retirement Enhancement (“SECURE”) Act became federal law on December 20, 2019, it significantly changed the rules about when money has to be withdrawn (and thereby taxed) from inherited IRAs and defined contribution plans such as 401(k)s and 403(b)s. For deaths that occur after 2019, the SECURE Act requires the entire balance of an inherited IRA to be distributed or withdrawn within 10 years of the death of the original IRA owner.

The exceptions to this 10-year rule are when the beneficiary is a surviving spouse, a disabled or chronically ill person (as defined by the IRS), a person not more than ten years younger than the IRA owner, or a child who hasn’t reached the age of majority. A minor child who later reaches the age of majority then becomes subject to the 10-year rule.

The IRA can be partially or fully withdrawn at any time and in any installments desired by the beneficiary during that 10-year period after the original IRA holder’s death. The IRS has recently published its interpretation of the new rules in Publication 590-B (2020), Distributions from Individual Retirement Arrangements (IRAs), and decided that the IRA beneficiary must also make required minimum distributions during that 10-year period (unless the remaining amount in the IRA is withdrawn before the 10 years are up). There is no leeway in the SECURE Act for most beneficiaries, and the penalty for not complying with the withdrawal requirements is a punishing 50% federal excise tax, which is much higher than the highest federal income tax bracket.

Before this change in the federal income tax laws, the normal thought process of many financial planners was for an original IRA holder to take out the bare minimum from the IRA, let the IRA grow and stretch out the family’s withdrawal process for as long as possible, sometimes for generations. Now that the beneficiaries in the next generation are required to drain the IRA within 10 years, that type of thinking almost needs to get reversed. Where the beneficiaries will be adding their IRA withdrawals on top of their other taxable income, and that tax rate can be higher than what the original IRA holder has been paying, it may make sense in many cases for the original IRA holder to be withdrawing much more from the IRA annually, perhaps to the top of the current 24% federal income tax bracket when considering the IRA holder’s other income.

During the estate planning process, most parents want to treat their children equally, even where one child is much more financially successful than another child, so this tax law change needs to be factored into the estate plan. Treating the children equally does not necessarily mean leaving each of them with an equal share of each asset; is an estate plan really equal if the wealthier child would be saddled with greater income taxes as an equal beneficiary of a large IRA? To truly make the inheritance roughly “equal,” it may make sense in some families to leave a larger percentage of a large IRA to the child in the lower income tax bracket, and to leave more of the other assets to the wealthier child.

In Guilfoil v. Sudders, the SJC Approved the Use of Nominee Trusts in MassHealth Planning

March 15, 2021

In Guilfoil v. Sudders, 486 Mass. 788 (2021), the Supreme Judicial Court of Massachusetts (“SJC”) has for the first time tackled the issue of how nominee trusts should be treated under federal Medicaid trust law. In this case, the MassHealth applicant had a life estate listed on the nominee trust’s Schedule of Beneficiaries, and her children owned vested remainder interests. Among the MassHealth agency’s arguments were that the trust was revocable because any beneficiary could require termination, and that the vested remainder beneficiaries could amend the trust to make the MassHealth applicant the sole beneficiary (thereby creating a “circumstance” whereby principal could be made available to the applicant).

Previous SJC decisions in the non-MassHealth context had generally treated nominee trusts as principal-agency relationships instead of trusts. Relying on existing Massachusetts case law, the SJC shot down all the MassHealth agency’s arguments. Although the SJC could possibly have ruled that the actuarial value of the life estate was a countable trust asset until deeded out to the life tenant, the SJC ruled definitively that a life estate in a nominee trust is not a countable asset for MassHealth purposes.

In dismissing the agency’s argument that the beneficiaries could amend the trust to return the real estate to the MassHealth applicant, the SJC stated that such an event would involve an independent act by those beneficiaries. By reiterating language from the 2016 Heyn case in the Massachusetts Appeals Court that had nixed a two-step transfer analysis, the SJC adopted the exact same reasoning:

This “gifting” would constitute an action outside the termination and is not a scenario contemplated within the four corners of the trust document. “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.” Heyn v. Director of the Office of Medicaid, 89 Mass. App. Ct. 312, 318-319 (2016). Guilfoil at 798.

Given that a nominee trust has now received the SJC’s approval as a MassHealth planning device, Massachusetts elder law attorneys who wish to use such “trusts” should not open the door to challenges by the MassHealth agency by changing the basic language seen by the SJC; perhaps the nominee trust form approved by the Real Estate Bar Association of Massachusetts should be utilized.

Limited Powers of Appointment in Irrevocable Trusts Are Wrongfully Challenged by the MassHealth Agency

March 11, 2021

In drafting irrevocable trusts, much concern has to be given to the attitude of the MassHealth agency against irrevocable trusts, especially where the agency ends up having the weight of the Office of the Attorney General of the Commonwealth of Massachusetts on its side against any trusts that end up in Massachusetts courts. Unfortunately, many of the concerns raised at fair hearings by MassHealth agency lawyers lack serious legal research and call upon hearing officers to focus on phrases instead of reading the trust as a whole as the agency had urged the courts to do in the Doherty case.

Many of the arguments made by the MassHealth agency in claiming that powers of appointment make irrevocable trusts countable almost seem to assume an elaborate scheme whereby the holder of the power initially reserved the power with the intention of later acting in a self-serving manner.[1]  One such example is a power to appoint assets to family members, especially where the language in the power of appointment allows the appointment to be made subject to conditions; the agency often claims that the conditions could be to give the appointed assets to the power holder. Another such example often raised by the MassHealth agency in claiming that powers of appointment make irrevocable trusts countable is that a power of appointment exercisable to make donations to charitable or nonprofit organizations can be utilized to have the appointed assets pay for the power holder’s services.[2] Under Massachusetts statutory and case law and the Restatements of Property and Trusts, however, the power holder of a limited power of appointment is prohibited from exercising the power of appointment in favor of the power holder.[3]

A limited power of appointment is not an interest in property.[4]  There is nothing in federal Medicaid trust law that prohibits limited powers of appointment in irrevocable trusts; neither is there any such prohibition in the State Medicaid Manual, which is issued by the MassHealth agency’s federal oversight organization and is binding on the agency.[5]  If in the Medicaid context Congress had wanted state Medicaid agencies to consider the impact of limited powers of appointment in irrevocable trusts, Congress could have incorporated some of the so-called grantor trust rules, Internal Revenue Code sections 671-679, whereby the reservation of certain powers result in the settlor being treated as the owner of a trust for tax purposes.  These Internal Revenue Code provisions were passed by Congress long before it passed Medicaid trust laws, are very detailed, and indicate that Congress is aware that there are many varieties of trust provisions where settlors can reserve varying degrees of control over irrevocable trusts, yet Congress did not opt to subject irrevocable trusts to such scrutiny in the Medicaid context.

A settlor cannot exercise a limited power of appointment collusively with an appointee to utilize it to pay the settlor’s personal expenses, as a limited power of appointment is exercisable only in favor of permissible appointees, and any attempt to exercise a limited power in favor of an impermissible appointee is legally ineffective.  Restatement 3rd Property (Wills and Donative Transfers) § 19.15.[6]  Where an appointment is made with the purpose and expectation that some or all of the appointed property or some collateral benefit will pass to an impermissible appointee, the appointment is ineffective:

An appointment to a permissible appointee is legally ineffective to the extent that it was (i) conditioned on the appointee conferring a benefit on an impermissible appointee, (ii) subject to a charge in favor of an impermissible appointee, (iii) upon a trust for the benefit of an impermissible appointee, (iv) in consideration of a benefit conferred upon or promised to an impermissible appointee, (v) primarily for the benefit of the appointee’s creditor, if that creditor is an impermissible appointee, or (vi) motivated in any other way to be for the benefit of an impermissible appointee.” Restatement 3rd Property (Wills and Donative Transfers) §19.16.[7]

Such an attempt to benefit personally from a limited power of appointment is “frequently referred to as a ‘fraud on the power.’” Restatement 3rd Property (Wills and Donative Transfers) Chapter 19 Part D Introduction and § 19.15.[8] 

Looking at a limited power of appointment from the standpoint of the power holder’s creditor reaches the same conclusion, that it cannot benefit the power holder. If a limited power of appointment could be used (or abused) for personal benefit, it would seem that this issue would have come up in the bankruptcy context, where a court-appointed bankruptcy Trustee would have looked to expand the bankruptcy estate by pulling in assets that are subject to the power. Yet, no such case exists. The settlor’s creditors cannot reach the assets subject to such a power:

“[T]he creditors of the donee[9] of a nongeneral power of appointment (one that cannot be exercised for the economic benefit of the power holder), whether or not presently exercisable, cannot reach the property subject to the power for the satisfaction of their claims[].”  …  “The rights of creditors with respect to trust property over which the debtor has a power of appointment depend on the nature of the power. For example, the creditors of the donee of a nongeneral power of appointment (one that cannot be exercised for the economic benefit of the power holder), whether or not presently exercisable, cannot reach the property subject to the power for the satisfaction of their claims; nor is the property subject to the expenses of administering the donee’s estate.”  Restatement (Third) of Trusts, § 56, comment b (2003)  “Property subject to a nongeneral power of appointment is exempt from claims of the donee’s creditors and from liability for expenses of administering the donee’s estate.” Restatement 3rd Property (Wills and Donative Transfers) §22.1. “Because a nongeneral power of appointment is not an ownership-equivalent power, the donee’s creditors have no claim to the appointive assets, irrespective of whether or not the donee exercises the power. Restatement (Third) of Property § 22.1, comment a. 

Federal bankruptcy law has long reached the same conclusion, that limited powers of appointment do not represent assets available to the power holder:

Section 541(b)(1) of the federal Bankruptcy Code of 1978 (11 U.S.C. § 541(b)(1)) provides that ‘Property of the estate does not include any power that the debtor may only exercise solely for the benefit of an entity other than the debtor.’ This provision excludes from the federal bankruptcy estate property subject to a nongeneral power of the donee-bankrupt.  Restatement 3rd Property (Wills and Donative Transfers) §22.1 cmt d.

The simple reason that there are no bankruptcy cases holding that limited powers of appointment are problematic is that the power to appoint principal is not a power to make payment of the power holder’s personal expenses unless the power is so broad that it is a general power of appointment. Further, of practical significance is that the power holder does not have actual control over the assets, and cannot exercise any such power without going through the Trustee, who controls the assets. The Trustee then has to determine whether the attempted exercise of the power is legally effective, given that both the Trustee and the power holder have fiduciary duties under the Massachusetts Uniform Trust Code.

2. Discussion. The interpretation of a written trust is a matter of law to be resolved by the court. See Mazzola v. Myers, 363 Mass. 625, 633 (1973). The rules of construction of a contract apply similarly to trusts; where the language of a trust is clear, we look only to that plain language. See Harrison v. Marcus, 396 Mass. 424, 429 (1985). … When interpreting trust language, . . . we do not read words in isolation and out of context. Rather we strive to discern the settlor’s intent from the trust instrument as a whole and from the circumstances known to the settlor at the time the instrument was executed.” Hillman v. Hillman, 433 Mass. 590, 593 (2001), citing Pond v. Pond, 424 Mass. 894, 897 (1997).

M.G.L. c. 203E § 105 establishes “the duty of a Trustee to act in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries.” The Massachusetts Uniform Trust Code requires in general that fiduciary duties apply to all trusts, and is more specific about those duties in Article 8, including s. 802 (duty of loyalty), s. 803 (duty of impartiality) and s. 808 (powers to direct). For a Trustee to exercise any power, M.G.L. c. 203E § 815(b) requires that fiduciary duties must apply: “The exercise of a power shall be subject to the fiduciary duties prescribed by this article.”  To determine those fiduciary duties, the Trustee is required to read the trust as a whole.[10]  In Ferri v. Powell-Ferri, 476 Mass. 651 (2017), the SJC recently summarized how to interpret a trust properly under Massachusetts law:

It is fundamental that a trust instrument must be construed to give effect to the intention of the donor as ascertained from the language of the whole instrument considered in the light of circumstances known to the donor at the time of its execution.” Watson v. Baker, 444 Mass. 487, 491 (2005), quoting Powers v. Wilkson, 399 Mass. 650, 653 (1987). … “In determining the meaning of a contractual provision, the court will prefer an interpretation ‘which gives a reasonable, lawful and effective meaning to all manifestations of intention, rather than one which leaves a part of those manifestations unreasonable, unlawful or [of] no effect'” (citation omitted) Siebe, Inc. v. Louis M. Gerson Co., 74 Mass. App. Ct. 544, 550 n.13 (2009). 

Ferri at 654-655.  (emphasis added)

If the Trustee determines that the self-serving exercise of a power of appointment is inconsistent with the trust, read as a whole, then the Trustee cannot take action based on the power holder’s direction, especially where the power holder also has fiduciary duties to the beneficiaries. These points are codified in M. G. L. c. 203E § 808, which states:

(b)  If the terms of a trust confer upon a person, other than the settlor of a revocable trust, power to direct certain actions of the Trustee, the Trustee shall act in accordance with an exercise of the power, unless the attempted exercise is manifestly contrary to the terms of the trust or the Trustee knows the attempted exercise would constitute a serious breach of a fiduciary duty that the person holding the power owed to the beneficiaries of the trust.

(c) A person who holds a power to direct is presumptively a fiduciary who is required to act in good faith with regard to the purposes of the trust and the interests of the beneficiaries. The holder of a power to direct shall be liable for any loss that results from a breach of fiduciary duty.

Thus, if the power holder directed the Trustee to distribute trust assets to a nonprofit nursing home or to a relative in a way that may benefit the settlor, the combination of sections 105, 815(b) and 808 of M.G.L. c. 203E prevents the Trustee from taking such action if it would violate the terms of the trust which prohibit distributions of principal to or for the benefit of the settlor. 

The MassHealth agency’s argument that limited powers of appointment cause a trust to be countable is missing an important element. In the oral arguments preceding the decision in Daley, SJC Chief Justice Ralph Gants pressed the MassHealth agency’s lawyers three times to tell him how the nursing home would get paid if the trusts were found countable. Under federal Medicaid trust law, for a trust to be deemed countable, there has to be a direct mechanism within the trust so that payments could be made to or for the MassHealth applicant or his/her creditors, which would include the nursing home that is providing long-term care. A limited power of appointment does not provide such a mechanism to make the creditor whole.  If a MassHealth applicant is denied benefits due to a problematic trust yet the unpaid nursing home cannot thereafter reach that trust to be reimbursed for the nursing home resident’s unpaid debt, the nursing home would be caught in the middle, and have no source of payment. It strains credulity that Congress would have passed a federal Medicaid trust law whereby a medical provider such as a nursing home would be required to provide extensive, expensive, ongoing health care services to a person who has no potential public or private source of payment.


[1] Hearing Officer Brook Padgett, in Fair Hearing Decision 1604346, has chastised the agency on this point: “MassHealth must review the Trust instrument as a whole, and it does not have free rein to create any scenario which in theory may allow hypothetical access to principal through some convoluted scheme, without concern as to whether the action is prohibited by the Trust or regardless of the fiduciary responsibility and duties of the Trustee.”

[2] This agency argument practically presumes that the drafting attorney intentionally placed this option into the trust after having discussed how to utilize it, and also presumes that a nursing home run as a nonprofit organization would agree to accept payment in this fashion.

[3] The Restatements have detailed coverage of limited powers of appointment because such powers have been utilized for many decades in estate planning, such as in multi-generational estate tax planning and charitable trusts.

[4] Restatement 3rd Property (Wills and Donative Transfers) §22.1 Comment a (“a nongeneral power of appointment is not an ownership-equivalent power.”  Restatement 2nd (Donative Transfers) 13.6, Comment b (“Where a non-general power has been created, the donee is not in the position of an owner either as a matter of common-law doctrine or the practicalities of the situation.)

[5] When the United States Department of Health and Human Services or its Centers for Medicare and Medicaid Services issues an interpretation of federal law in the State Medicaid Manual, the state Medicaid agencies are bound by it. 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.”

[6] See also Pitman v. Pitman, 314 Mass. 465, 476 (1943) (“[T]here is a fraudulent exercise of a power not only where the donee acts corruptly for a pecuniary gain but where he acts primarily for his own personal advantage or that of a third person who is a non-object of the power and thereby abuses the power [].”)

[7] This issue was raised in New York two decades ago, and the United States District Court for the Northern District of New York held that although the settlor had reserved a limited power of appointment over an irrevocable trust, in the absence of bad faith or fraud, the remote possibility of collusion between the settlor and beneficiaries should not be considered in determining whether the assets of the trust are available for federal Medicaid trust purposes. Verdow v. Sutkowy, 209 F.R.D. 309, 316 (N.D.N.Y. 2002).

[8] See also Annotation, “Validity and effect of agreement by donee of power of appointment respecting its exercise or nonexercise,” 163 A.L.R. 1449 (1944).

[9] Note that the holder of a power of appointment is known here as a “donee.”

[10] “When interpreting trust language, . . . we do not read words in isolation and out of context. Rather we strive to discern the settlor’s intent from the trust instrument as a whole[].” Hillman v. Hillman, 433 Mass. 590, 593 (2001), citing Pond v. Pond, 424 Mass. 894, 897 (1997). Under proper trust interpretation, where possible inconsistencies or ambiguities should not be read in the worst possible way, the prohibition against the distribution of principal in the trust to or for the benefit of the MassHealth applicant should not be tossed aside.

Here Is the Massachusetts State Plan on Medicaid, Unavailable Online

January 28, 2020

Through a Massachusetts Freedom of Information Act request, I have received the Massachusetts State Plan on Medicaid. This is the contract between Massachusetts and the federal government on how the joint federal-state Medicaid plan will be run in Massachusetts. This State Plan is unavailable online, so I am posting it here.

1.0 MA Medicaid State Plan copy – Section 1 of 7 – AS OF JULY 6 2016

2.0 MA Medicaid State Plan copy – Section 2 of 7 – AS OF DECEMBER 31 2019

3.0 MA Medicaid State Plan copy – Section 3 of 7 – AS OF DECEMBER 31 2019

4.0 MA Medicaid State Plan copy – Section 4 of 7 – AS OF DECEMBER 31 2019

5.0 MA Medicaid State Plan copy – Section 5 of 7 – AS OF JULY 6 2016

6.0 MA Medicaid State Plan copy – Section 6 of 7 – AS OF JULY 6 2016

7.0 MA Medicaid State Plan copy – Section 7 of 7 – AS OF JULY 6 2016

MA CHIP State Plan – AS OF JULY 6 2016

Does “Imputed Driving Value” Somehow Make an Irrevocable Trust a Countable Asset for MassHealth Purposes?

September 17, 2019

Lawyers representing the MassHealth agency continue to sink to new lows in their continuing battle against irrevocable trusts in Massachusetts. Massachusetts Lawyers Weekly has recently published  an article on the MassHealth agency’s tactics. Unfortunately, that article did nothing to curb what was described as the MassHealth agency’s war on trusts, and one of the MassHealth lawyers has now reached rock bottom with an argument that I refer to as “imputed driving value.” The argument is that if the trust’s assets cannot be distributed to the MassHealth applicant but the assets can be distributed to the applicant’s children, they can then choose to buy an expensive sports car and let the MassHealth applicant drive it. The MassHealth lawyer argues that because there is a value to that driving experience, the MassHealth agency doesn’t have to pay the nursing home for any part of the applicant’s care.

I am not making this up. It’s not my case, but a Massachusetts elder law attorney has shared a September 10, 2019 MassHealth legal brief with me that was submitted by a MassHealth lawyer into the record at a fair hearing, and here is exactly what that brief says:

The Applicant can simply condition an appointment of principal upon the principal being returned outright to him as cash or require the children use the principal to purchase things for his comfort and enjoyment. This would be a payment “for the benefit” of the Applicant and thus make the Trust countable without using the power to discharge a legal obligation. … For example, as argued at the Hearing, the Applicant could distribute Trust principal to his issue on the condition that they purchase a sports car under the name of the issue, with that principal, with the condition that Applicant could use the car when he wanted at his leisure. The legal obligation (i.e., the obligation to pay for the car) would run to the issue, not the Applicant, and yet the Trust principal would still be made available for the benefit of the Applicant – namely the benefit of the use of the car at the Applicant’s whim. This scenario would … allow[] the Trust principal to be used for the Applicant’s benefit: 1) the Applicant would exercise his … special power of appointment to distribute Trust principal, 2) to his issue, 3) upon the condition that the Applicant can use the car at his desire, and 4) not fulfilling any of the Applicant’s legal obligations. All of which still lend the principal to be made available for the benefit of the Applicant, rendering the Trusts countable.

The MassHealth lawyers apparently imagine the scene of great-grandma slowly using her walker to get outside to the nursing home parking lot, then tossing it aside and tooling around in the Lamborghini Veneno Roadster that her children always leave parked there with a full tank of gas.Lamborghini-Veneno-Roadster

If great-grandma crashes this expensive sports car into a telephone pole and totals it, hey, her family can just buy another one with money they received from the irrevocable trust.

Are there no limits to the MassHealth agency’s creative imaginations? What’s next — an “imputed recliner” argument? After all, the children receiving a distribution from the trust could buy a new recliner for the nursing home resident, and could replace it every week.

How did we get to the point where such a ridiculous idea as “imputed driving value” is advanced by a government lawyer in an administrative hearing? In 1985, Congress had discovered that just about any trust could help get an applicant onto Medicaid, and put a new law in place that was slightly revised in 1993. The central point of the 1993 federal Medicaid trust law is that if the assets of an irrevocable trust can be given to or used for the MassHealth applicant, why should the government be paying the nursing home instead of the trust? Somehow the lawyers representing the MassHealth agency have gotten so caught up in their war against trusts that they have lost sight of the reason for the law, and have no apparent concern for whether the nursing home that is providing care could actually get paid. The lawyers representing the MassHealth agency certainly cannot have thoughtfully considered that the value of that driving experience would somehow make the MassHealth applicant’s payment to the nursing home, and they apparently have not grasped their recent legal spanking in Daley v. Secretary of the Executive Office of Health and Human Services, 477 Mass. 188 (2017), where the Supreme Judicial Court of Massachusetts ruled that the MassHealth agency cannot attribute nonexistent resources (such as the intrinsic value of driving an expensive sports car) to MassHealth applicants:

“As the United States Supreme Court has declared, “the principle of actual availability . . . has served primarily to prevent the States from conjuring fictional sources of income and resources by imputing financial support from persons who have no obligation to furnish it or by overvaluing assets in a manner that attributes nonexistent resources to recipients.” Heckler v. Turner, 470 U.S. 184, 200 (1985). The “any circumstances” test for trusts requires an additional layer of analysis, but it does not depart from this fundamental purpose. See Guerriero, 433 Mass. at 634 (trust assets not available to applicant where trustee did not have “any legal discretion” to pay any part of trust principal to her).” Daley at 202.

Unfortunately, our legal system has degenerated to the point where we now have Massachusetts government lawyers driving to and from fair hearings to advance this “imputed driving value” gamesmanship, then expending their taxpayer-funded time in writing briefs about it, then there are taxpayer-funded hearing officers who have to conduct the administrative hearings and then write extensive fair hearing decisions; then, if a hearing officer somehow buys into this argument and upholds the MassHealth denial, the case ends up in Superior Court where a taxpayer-funded Assistant Attorney General will defend the decision with an extensive brief and oral arguments in front of a taxpayer-funded Superior Court justice. We the taxpayers are paying for this drivel, and during all of this time the nursing home is not getting paid for its services.

This new “imputed driving value” argument is about as frivolous as any legal argument can be, but I may soon regret sarcastically suggesting the “imputed recliner” argument, because the MassHealth lawyers just might see fit to use it.

An Analysis of the Newly-Discovered “Law Review Form for Trusts” Utilized by MassHealth Lawyers

September 13, 2019

The newly-discovered “Law Review Form for Trusts” that is apparently utilized by MassHealth lawyers in their war on trusts gives us insight into what types of provisions in irrevocable trusts they deem attackable. It also shows us how unwilling they are to respect the law as ruled on by Massachusetts appellate courts. Let’s analyze what the MassHealth lawyers are telling us in their form, and look at their recent actions. (By the way, the abbreviation “A/S” used throughout the checklist apparently means Applicant/Spouse.)

____ The Trust is revocable. 130 CMR 520.023(C) or 130 CMR 520.022(A).

This checklist item may seem innocuous, but MassHealth lawyers have long taken positions that indicate they don’t seem to know or care what the word revocable means. See When Is a Trust Considered “Revocable” under Massachusetts Law, and Is It Unethical for a Governmental Lawyer Representing a State Agency to Misrepresent This Basic Information at a Fair Hearing? and also see Do the Lawyers Representing the Office of Medicaid in Massachusetts Know What a Revocable Trust Is?

Recently, MassHealth lawyers have been arguing that every nominee trust is a revocable trust, in part because a typical nominee trust states that “[a]ny trustee may without impropriety become a beneficiary hereunder” and also states that any beneficiary can cause termination of the trust. Apparently, in the minds of the MassHealth lawyers the termination of a trust by distributions to the beneficiaries somehow makes it revocable by the grantor, who may not even have any beneficial interest. Under this flawed analysis, the vested owners of any nominee trust could make any MassHealth applicant a beneficiary at any time, and that something already owned by somebody else is a countable asset because it can be given back to the MassHealth applicant, but under the analysis in Heyn v. Director of the Office of Medicaid, 89 Mass. App. Ct. 312 (2016), which was not appealed by the agency and is binding on the agency, the MassHealth agency cannot make that stretch: “[F]or 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.” Heyn at 318-319.

The Trust is irrevocable but there are circumstances under which Trust principal could be paid to, or for the benefit of A/S, including the following:

____ Under Section _____, Trust principal can be paid to or for the benefit of the A/S. 130 CMR 520.023(C) or 130 CM R 520.022(B)

The focus on this checklist item is on the phrase “for the benefit of.” Great creativity is exercised by MassHealth lawyers to concoct ways through which distributions can be made for the benefit of the MassHealth applicant, but Hearing Officer Susan Burgess-Cox recently blasted these lawyers for doing so; see page 6 of the fair hearing posted at https://irrevocabletrust.files.wordpress.com/2019/07/fair-hearing-decision-1901927-1.pdf.

The ruling in Daley v. Secretary of the Executive Office of Health and Human Services,  477 Mass. 188 (2017) states that the Trustee must have the legal authority to make a distribution, and is binding on the agency: “As the United States Supreme Court has declared, “the principle of actual availability . . . has served primarily to prevent the States from conjuring fictional sources of income and resources by imputing financial support from persons who have no obligation to furnish it or by overvaluing assets in a manner that attributes nonexistent resources to recipients.” Heckler v. Turner, 470 U.S. 184, 200 (1985). The “any circumstances” test for trusts requires an additional layer of analysis, but it does not depart from this fundamental purpose. See Guerriero, 433 Mass. at 634 (trust assets not available to applicant where trustee did not have “any legal discretion” to pay any part of trust principal to her).”

The Trust is irrevocable but there are circumstances under which Trust principal could be paid to, or for the benefit of, A/S including the following:

____ Under Section _____, the A/S can appoint direct payment of Trust principal to anyone on any conditions. 130 CMR 520.023(C) or 130 CMR 520.022(B)

This seems to be the two-step type of distribution already dismissed in the case of Heyn. As already mentioned above:  “[F]or 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.” Heyn at 318-319.

The Trust is irrevocable but there are circumstances under which Trust principal could be paid to, or for the benefit of A/S, including the following:

____ Under Section _____, the A/S can appoint direct payment of Trust principal to charitable or nonprofit organizations including nursing facilities to pay for their care. 130 CMR 520.023(C) or 130 CMR 520.022(8)

____ Under Section _____, the A/S can add charitable or nonprofit organizations including nursing facilities to pay for their care. 130 CMR 520.023(C) or 130 CMR 520.022(B)

These two denial reasons come from the remand issue in the Nadeau portion of the case of Daley, with the basic argument being that if you have the power to make a gift from the trust to charitable or non-profit organizations, then you can collude with a non-profit nursing home to apply the gift to your nursing home bill. MassHealth lawyers keep referring to the issue as having been ruled on in Daley, when there would have been no need for a remand if the SJC had actually ruled on the issue; during the Daley case, the Office of the Attorney General (representing the MassHealth agency) even wrote a letter to the SJC stating that the issue needed to be remanded so it could be ruled on by the agency before there was a judicial determination. On remand, the hearing officer approved the MassHealth application for Nadeau, and since that time numerous hearing decisions have reached the same conclusion. See the fair hearings posted at https://irrevocabletrust.info/category/fair-hearing-decisions/approval-at-fair-hearing/issue-power-of-appointment-to-charity/

The Trust is irrevocable but there are circumstances under which Trust principal could be paid to, or for the benefit of A/S, including the following:

____ Under Section _____, the A/S can serve as Trustee and receive Trustee compensation. 130 CMR 520.023(C) or 130 CMR 520.022(B)

This issue has not been ruled on by an appellate court in Massachusetts, but there are several reasons that it should not be problematic. First, there would have to be actual services for which the Trustee would need to issue an invoice, and it would not be reasonable for a Trustee to charge unlimited fees to drain a trust.

Second, if there ever were any such Trustee compensation, it would constitute taxable wages, and be “earned income,” falling under 130 CMR 520.009(C), a regulation that the MassHealth lawyers fail to mention in their legal briefs filed during fair hearings. To be compensated for services is not the same as being a beneficiary. If the grantor of a trust were an electrician and were hired to do some re-wiring at a house owned by the trust, that compensation would similarly be earned income, not a distribution of principal from the trust.

Third, federal Medicaid trust law defers to state law for trust interpretation. Under federal Medicaid trust law, whether a payment from a trust can be made is determined under state law. There are many reported Massachusetts cases where a beneficiary has served as a Trustee or a co-Trustee, and there is no Massachusetts case where compensation to a Trustee was even argued to be a potential asset. One might think that such an argument would have been made in a heated divorce if any lawyer thought the argument was not frivolous, or one might think a Chapter 7 Bankruptcy Trustee, whose role is to reel in as many assets as possible into the debtor’s estate for the benefit of creditors, would also have made such an argument if that lawyer thought the argument was not frivolous, but no such case exists.

Fourth, the MassHealth agency cannot utilize a methodology that is more restrictive than that used by SSI. See Lewis v. Alexander, 685 F.3d 325 (3d Cir. 2012), 42 U.S.C. § 1396a(r)(2) and 42 U.S.C. § 1396a(a)(10)(C)(i)(III). The MassHealth fact-finding process and trust law interpretation in this case is more restrictive than Supplemental Security Income (SSI) Program procedures and federal law interpretation in the Program Operations Manual System (“POMS”) of the Social Security Administration. The POMS contains extensive sections regarding trusts that are meant to give guidance on how trusts should be treated for SSI (and, concomitantly, Medicaid or MassHealth) purposes, and there is not even the slightest hint anywhere in the POMS that potential Trustee compensation should be treated as a countable asset of the grantor.

Several hearing officer have reached the conclusion that the Trustee compensation issue was not a reason to treat a trust as a countable asset. https://irrevocabletrust.info/category/fair-hearing-decisions/approval-at-fair-hearing/issue-trustee-compensation/ In fact, in one fair hearing, the MassHealth lawyer even waived the argument after the agency had raised it on the MassHealth denial notice. See the fair hearing posted at https://irrevocabletrust.files.wordpress.com/2019/07/fair-hearing-decision-1900215-1905447.pdf  Where the MassHealth agency’s lawyer intentionally waived the issue there, it seems to be a violation of due process, administrative consistency and basic fairness for the agency to try to enforce that same position against other MassHealth applicants.

The Trust is irrevocable but there are circumstances under which Trust principal could be paid to, or for the benefit of A/S, including the following:

____ Under Section _____, the Trustee can use Trust principal to buy annuity, life insurance, long-term care insurance or other similar products for the benefit of the A/S. 130 CMR 520.023(C) or 130 CMR 520.022(B)

To the extent that annuities are mentioned here, and that was the very issue already ruled against in the case of Heyn v. Director of the Office of Medicaid, 89 Mass. App. Ct. 312 (2016), it does not appear that MassHealth lawyers have any respect for case law. “The analysis misapprehends the nature of annuity payments. Annuity payments are comprised of distinct constituent parts. One part is a return of a portion of the principal investment in the annuity itself; the other part is a portion of the investment income earned on the principal investment. … Out of each annuity payment, only the investment income portion would be available for distribution to the grantor from the trust; that portion of each payment representing a return of capital would be required by the trust instrument to be retained in the trust. The 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. In all events, the trust principal is preserved in the trust, and is not available for distribution to the grantor under the governing provisions of the trust. … In particular, 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. See also Restatement (Third) of Trusts § 110 (2011).” Heyn at 317-318.

The Trust is irrevocable but there are circumstances under which Trust principal could be paid to, or for the benefit of, A/S including the following:

____ Under Section _____, the Trustee can lend Trust principal to the A/S without adequate interest or security, 130 CMR 520.023(C) or 130 CMR520.022(B)

If the Trustee can make a loan, the Trustee has a fiduciary duty to make sure it can and will be repaid. The MassHealth lawyers are apparently arguing that if a Trustee can make a loan, the Trustee is presumed to have the legal authority to potentially cause great damage to the trust by giving money to the grantor and calling it a loan, yet there is nothing in Medicaid trust law that says Trustees can be presumed to act in foolish ways.

____ The Trust principal has been paid to, or for the benefit of, A/S. 130 CMR 520.023(C) or 130 CMR 520.022(B)

The foolish MassHealth argument often made in this regard is that if a Trustee messes up and makes an incorrect distribution to or for the MassHealth applicant, which would mean that the Trustee would incur liability to the trust beneficiaries for breach of fiduciary duty, the Trustee must continue doing so and incur further liability. This argument has already been shot down at fair hearings. See the fair hearings posted at https://irrevocabletrust.info/category/fair-hearing-decisions/approval-at-fair-hearing/issue-prior-breach-of-fiduciary-duty/

We will eventually come to a point, if we are not already there, where the continuation of many of these legal arguments is unethical governmental lawyering.

Are Lawyers Who Represent the MassHealth Agency Complicit in Hiding Secret Trust Regulations?

August 7, 2019

The attacks by MassHealth lawyers on irrevocable trusts in recent years have been relentless, yet the united elder law bar has fought back most of the more agonizingly repetitive challenges. The MassHealth lawyers seem to make the same legal arguments over and over at fair hearings in the hope that some hearing officer will eventually buy into the argument, then they hope a Superior Court judge (most of whom were trial lawyers who barely know anything about MassHealth or trust law) will rubberstamp the fair hearing decision. The MassHealth lawyers tend to cite the cases they win, and ignore the ones they lost.

Where MassHealth lawyers claim that fair hearing decisions and Superior Court decisions have no precedential value, they seem to believe they can continue to make the same arguments at future hearings and not even mention those decisions where they were on the losing end. Those actions may well be unethical, as under M.G.L. c. 118E, s. 48, a fair hearing decision is the agency’s final decision, and a MassHealth lawyer cannot withhold that information at future hearings:

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).

We now have found that the MassHealth lawyers have systematized their trust denial system, and have boiled down their main trust attacks into a checklist. Attached is the Law Review Form for Trusts that MassHealth eligibility workers apparently send to MassHealth lawyers during MassHealth applications and redeterminations to obtain directions on whether a trust should be treated as a countable asset. As you can see, there are some specific issues on the checklist that the MassHealth lawyers don’t seem to want to let go of despite their countless losses (many of which are available at http://www.irrevocabletrust.info).

The existence of this Law Review Form for Trusts suggests that the MassHealth agency has an unpublished intention on going after trusts that have those particular characteristics. That means there effectively are illegal, unwritten trust regulations, and the lawyers through their usage of this Law Review Form for Trusts are therefore complicit in violating Massachusetts General Laws, Chapter 30A, which requires that an agency go through a transparent process in issuing regulations.  If the positions in this Law Review Form for Trusts were in regulation form, as they should be, citizens could challenge them through a declaratory judgment under Massachusetts General Laws, Chapter 30A, Section 7, but where the lawyers are hiding these de facto regulations behind the specious claim of “attorney-client privilege,” many citizens are forced to fight the agency on a case-by-case basis and don’t even have any way to know whether the same argument was struck down in earlier cases.

At some point (if not now), it may be unethical for MassHealth lawyers to continue to “advise” the MassHealth eligibility workers to deny MassHealth applicants through the usage of the Law Review Form for Trusts checklist instead of having the agency officially revise MassHealth regulations to give the agency’s official position to the public on these issues found in the checklist.

 

Does the Lifetime Lien Placed on Real Estate by the MassHealth Agency Terminate Upon the MassHealth Recipient’s Death?

January 28, 2019

Federal Medicaid law allows states to place a lien on real estate that is not sold during the Medicaid application process. The state Medicaid agency has the right to recoup what it spent on the Medicaid recipient if the real estate is sold during the Medicaid recipient’s lifetime, and that is the point of the lien. Even if a person applying for MassHealth in Massachusetts has a less than full ownership interest, such as a life estate, the MassHealth agency can place a lien on that ownership interest, with the understanding that, under Section (d) of Massachusetts General Laws, Chapter 118E, Section 31, the agency can collect what is owed to it as of the date of sale. After the MassHealth recipient’s death, however, the provisions of Sections (b) and (c) apply, and the agency is required to file an estate recovery claim against the decedent’s probate estate in order to collect this debt. The actual procedures for making the estate recovery claim are laid out in great detail in Massachusetts General Laws, Chapter 118E, Section 32, and no reference is even made to the lifetime lien.

It is my understanding that the MassHealth agency has recently claimed in court cases that the lien survives the Medicaid recipient’s death, but has glossed over the distinction between the lifetime lien and the post-death creditor claim which is filed against the deceased Medicaid recipient’s probate estate.

The MassHealth agency, which is part of the Executive Office of Health and Human Services of the Commonwealth of Massachusetts, is required to implement federal Medicaid law, and is answerable to the federal government under the funding scheme of Medicaid known as cooperative federalism. The federal agency that directly oversees the MassHealth agency in the federal-state structure, the Centers for Medicare and Medicaid Services, is a part of the U.S. Department of Health and Human Services. As the “single state agency” designated to deal with the federal government, the MassHealth agency is charged with ensuring that all federal laws that govern the Medicaid program are followed. The state agency cannot do anything that is contrary to the directions it has received from the federal government, and cannot take any actions that go beyond the Massachusetts laws that have implemented federal Medicaid law. Thus, in determining whether the lifetime lien survives the death of the Medicaid recipient, we need to look first and foremost at federal law, regulations and guidance, followed by state law establishing the MassHealth agency’s powers and duties, followed last by MassHealth regulations.

In memoranda of law filed at fair hearings, the MassHealth agency has often acknowledged its proper role in the federal-state hierarchy. For example, in the MassHealth memorandum filed in Appeal 1408932, the agency wrote:

[T]he Agency is bound by federal Medicaid law and its sub-regulatory guidance reflected in MassHealth regulations, and relevant Medicaid case law. Medicaid is a statutory program and not a program in equity. See generally Nissan Motor Corp. v. Comm ‘r of Revenue, 407 Mass. 153, 162 (1990) (there is no equity where a statute expresses a clear rule of law) … The state Medicaid statute and regulations are to be construed as showing a primary intent that the MassHealth agency comply with federal law in order to receive federal financial reimbursement. Youville Hospital v. Commonwealth, 416 Mass. 142, 146 (1993); Cruz v. Commissioner of Public Welfare, 395 Mass. 107, 112 (1985); see also G.L. c. 118E, § 11; 130 CMR 515.002(B). The MassHealth regulations themselves make this point. “These regulations are intended to conform to all applicable federal and state laws and will be interpreted accordingly.” 130 CMR 515.002(B). See also 130 CMR 520.018; 130 CMR 520.021. In particular, federal law provides that the federal agency administering Medicaid can deny some of the federal funding to a state if the state commits eligibility errors that exceed a specified threshold. 42 U.S.C. §1396b(u). As the single state agency, MassHealth is charged with ensuring that all federal and state laws that govern the Medicaid program are followed. See generally … G.L. c. 6A, § 16 (designating the Agency as the state Medicaid entity charged with developing policies and programs to implement shared federal-state program); G.L. c. 118E, §§ 1, 2, 7(g), 7(h).

Before reviewing federal and state law on the issue of whether a lifetime lien terminates upon the MassHealth recipient’s death, it is important to note that the U.S. Department of Health and Human Services commissioned and published a 2005 report entitled Medicaid Liens and Estate Recovery in Massachusetts. Here is some of what the 2005 federal report found about our Massachusetts lifetime lien and estate recovery laws and procedures:

Passage of the Tax Equity and Fiscal Responsibility Act (TEFRA 1982) gave states the option of placing a TEFRA or pre-death lien on the real property of permanently institutionalized Medicaid recipients to prevent them from giving away a home in which they no longer reside before the equity in that home can be used to offset long-term care expenses paid on their behalf. In Massachusetts, TEFRA liens are referred to as living liens because they cannot be placed on the property of a MassHealth member once he or she has died. They give the State authority to recover Medicaid payments for a member’s long-term care expenses if his or her property is sold while the member is alive. … The lien gives the State authority to recover Medicaid payments that have been made if the property is sold while the member is alive.

It is important to note that, although Medicaid gives states authority to place post-death liens, in Massachusetts a lien is only filed while the member is still alive. A lien is never placed on any kind of property – real or personal – once the member has died. After the member’s death, the Estate Recovery Unit will recover MassHealth costs from the member’s probate estate. A probate estate includes property that a person possesses at the time of death and that descends to the heirs (with or without a will) subject to the payment of debts and claims. The probate estate may include real property on which a living lien was filed. However, the lien is no longer valid after the member’s death and must be released upon the request of the administrator/executor.

Massachusetts uses the living lien to prevent MassHealth members from giving away the home in which they no longer reside before its equity can be used to offset long-term care expenses paid on their behalf.

Upon payment, both the claim and any living lien that had been placed on the member’s real property are released. If there was a living lien on the member’s real property, the Estate Recovery Unit must release it after they have received notification of the member’s death and a copy of the death certificate. Generally the lien and the Notice of Claim are released at the same time. If an attorney representing the member’s estate requests release of the lien prior to settlement of the estate, the Estate Recovery Unit releases it, since a living lien is no longer valid when the member is deceased. However, in the absence of such a request, the lien is not released until the Estate Recovery Unit determines whether the member’s estate will be probated. If the estate is not probated within 1 year after the member’s death, the Estate Recovery Unit will forward a request to probate the estate to the Public Administrator in the county where the deceased member lived.

Since the time of the 2005 report, there was one change in federal estate recovery law, where estate recovery against annuities became mandatory rather than a state option, but otherwise there have been no federal Medicaid changes affecting estate recovery. If this report was not brought to the attention of the judges that the MassHealth agency was arguing before in recent cases, that seems like a significant omission, especially where the agency has the twin duties of candor to tribunals and administrative consistency, and this was a federal report not only about what Massachusetts law is but also how Massachusetts has implemented the federal law.

The MassHealth agency cannot go beyond what the Massachusetts legislature has specifically authorized the agency to do. Where there are specific provisions in Massachusetts General Laws, Chapter 118E, Sections 31 and 32 governing estate recovery, the agency is limited to these provisions of law. One provision in Section 31 explains that the point of the lifetime lien is to allow recovery during the MassHealth recipient’s lifetime, and no provision anywhere states that the lien is meant to survive the MassHealth recipient’s death. In fact, Section (f) of Massachusetts General Laws, Chapter 190B, Section 3-803 (part of the Massachusetts Uniform Probate Code), the most recent Massachusetts legislation that makes reference to estate recovery, may make the point even clearer that the estate recovery claim against the probate estate is the exclusive method for estate recovery by the MassHealth agency after a MassHealth recipient’s death:

If a deceased received medical assistance under chapter 118E when such deceased was 55 years of age or older or while an inpatient in a nursing facility or other medical institution, section 32 of chapter 118E shall govern the notice to be given to the division of medical assistance and such division’s claim for recovery under section 31 of said chapter 118E if the division so chooses.

The lifetime lien on real estate of a MassHealth recipient is the creature of a narrowly-drawn statute with a narrow purpose, and where there are specific provisions detailing what the agency must do after the MassHealth recipient’s death, the MassHealth agency has no authority to enforce the lien unless such action is taken during MassHealth recipient’s lifetime.

Update on the Maas/Hirvi Litigation, Requiring the MassHealth Agency to Issue Proper Denial Notices and Act with Reasonable Promptness

January 25, 2019

At this time last year, when a MassHealth application included a trust, the application was usually denied, yet the applicant was not provided with any clue as to the reasons why until the administrative fair hearing appeal had actually begun. Obviously, without knowing what was supposedly wrong with the trust, the denied MassHealth applicant was unable to prepare for the hearing. The MassHealth eligibility worker who had issued the denial would often state that the reasons were protected by attorney-client privilege until the time of the hearing. At the hearing, the secret was unleashed; either a MassHealth lawyer would appear to argue or a pre-prepared memorandum written by a lawyer would be entered by the MassHealth eligibility worker into the hearing record. Despite protests from the elder law bar, the Director of the Board of Hearings and all of the hearing officers allowed this unfair process to take place. In some cases, the hearing officer just closed the record on the day of the hearing.

On January 16, 2018, I filed a lawsuit against the MassHealth agency to attempt to obtain judicial action to stop some of its intentional due process failures, then on February 6, 2018, I filed an amended complaint that added a class action count. On March 16, 2018, Attorney Nicholas Kaltsas filed a similar lawsuit that was quickly consolidated with my case. On June 22, 2018, Justice Douglas Wilkins of the Suffolk Superior Court issued a Declaratory Judgment that the denial notices issued by the MassHealth agency in trust cases did not comply with the federal Medicaid law requirement at 42 C.F.R. § 431.210 to provide “a clear statement of the specific reasons” for the denial.

They fail … to give any “reason” – let alone a clear statement of a specific reason — for the most essential determination of all: why the Office deemed the asset (trust) countable. Even less does the Office’s notice give a “clear statement” or “specific reasons” for counting a trust’s assets as the applicant’s assets for Medicaid purposes. Stating what, but not why, falls short of 42 C.F.R. § 431.210 requirements. Without the notice required by the regulation, an applicant lacks the information required “to permit adequate preparation of the case.” 130 Code Mass. Regs. 610.046(A).

42 C.F.R. § 431.210 specifically applies to the notice that the agency must give the applicant “[a]t at the time the agency denies an individual’s claim for eligibility, benefits or services …” 42 C.F.R. § 431.206(c)(2). Notice given at a later time falls outside that clear command. Moreover, 42 C.F.R. § 431.210 requires that the notice itself contain the clear statement of the specific reasons for agency action. Information provided outside the notice, at a much later time, violates that command.

For one thing, a clear statement of specific reasons promotes the statutory requirement that Medicaid applications be handled “with reasonable promptness.” 42 U.S.C. § 1396a(a)(8). See G.L. c. 118E, § 48 (“the referee shall render and issue a decision without forty-five days after the date of filing of said appeal”). It reduces the prospect of delays and continuances attributable to the applicant’s efforts to learn the Office’s specific reasons. 42 C.F.R. § 431.210(b). These kinds of time-consuming efforts are precisely what the Office suggests in response to uncertainties inherent in an inadequate notice. Def. Mem. at 12-13 (suggesting clarification of the issues through prehearing conference, pre-hearing briefing or keeping the record open, all of which take time), citing 130 Code Mass. Regs. § 610.065(B)(3), (11). Since the agency knows (or should know) the reasons for its staff’s decision, delay caused by the Office’s proposal to give notice through subsequent iterative processes is not “reasonable.” The subsequent cure argument assumes that delay caused by delay in learning the agency’s reasons, is of no consequence under Medicaid law. That is not so. Unnecessary delay – ­attributable to efforts to discover what the agency already knows — is exactly what the law seeks to avoid. See 42 U.S.C. § 1396a(a)(8); G.L. c. 118E, § 48.

While delay in itself is an incurable detriment, the financial, resource and psychic burden placed upon the applicant — and any family members or others who may be devoting their own limited time and resources to help the applicant — during the delay are also problematic and irreparable. A clear and specific statement of reasons allows the applicant to save time and expense researching, investigating and preparing for arguments upon which the agency might have, but did not, rely. Self-represented persons undoubtedly benefit from an ability to focus upon and understand what actually led to the agency’s decision, not to mention the reduction in anxiety that uncertainty can cause. Applicants represented by counsel may save significant resources. Moneys spent trying to discern the agency’s reasons cannot be recovered by suing the agency. In any case, focus upon the agency’s real and stated reasons allows a better opportunity to prepare, without wasting money or diluting the applicant’s efforts. That is why 130 Code Mass. Regs. 610.046(A) requires sufficient notice “to permit adequate preparation of the case.”

Ironically, the Office will actually save resources if a clear statement of specific reasons actually convinces the applicant or counsel that the denial was correct. In such cases, there is no need to request a fair hearing and expend agency resources on an unnecessary appeal. Only if the initial determination is wrong or debatable would public resources be expended on an administrative hearing if the initial notice is sufficient. Giving adequate notice that will avoid protective appeals, filed to preserve rights until the Office’s reasons are known, thus operates “in a manner consistent with simplicity of administration and the best interests of the recipients.” 42 U.S.C. § 1396a(a)(l9); 42 C.F.R. 435.902; G.L. c. 118E, § 12.

The Court DECLARES that, in cases where the defendants count trust assets for Medicaid eligibility purposes, the defendants’ standard notices of denial of eligibility violate 42 C.F .R. § 431.210(b) by failing to provide a clear statement of the specific reasons supporting the intended action.

Justice Wilkins left the door open to expand the Declaratory Judgment in the future to non-trust issues, writing on page 15:

The court … exercises its discretion to declare the parties’ rights only with respect to notices that treat trusts as countable assets for MassHealth purposes. That is not to say that the Office’s obligation to provide a clear statement of specific reasons is limited to the trust situation. Obviously, it is not. The Office may well adopt a solution for trusts that affects other contexts as well. If not, the court may need to consider a broader declaration.

Justice Wilkins denied our motion for a class action against the agency. He laid out in his decision that just about all of the grounds had been met, but felt that the Declaratory Judgment should take care of the issue moving forward. He slammed the agency for its ongoing tactics against MassHealth applicants and its illegal inconsistency, writing:

[T]he regulations prevent the agency from using its superior knowledge to the detriment of the citizen. Having reviewed the application at the staff level, the Office undoubtedly knows the clear and specific reasons why it denied the application. There is no reason why it should withhold this information, except for unfair tactical advantage. Whether intentional or not, this tactic also operates as leverage in forcing a vulnerable applicant to negotiate a quick resolution even if the Office is in the wrong. The regulation prevents the government from disadvantaging its citizens in these ways. It also serves the interest of transparency. The regulation dictates that the Office, as a government agency supported by public funds and serving the Commonwealth’s citizens, must not proceed in secret or with indecipherable code, but owes a fair explanation of its decisions to the applicants whose lives it affects, often at a time when the applicant is in a very vulnerable position.

[T]he regulation provides discipline, structures agency decision making and promotes compliance with the law. It is easy to deny an application with an opaque explanation and leave matters for an appeal. On the other hand, to give a clear and specific statement of reasons, the staff must review the application with some care. In many contexts, the courts have acknowledged the discipline that a statement of reasons imposes upon decision-making, which ensures adherence to the law and checks arbitrariness. See generally Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 48-49 (1983) and cases cited. McDonough, Administrative Law and Procedure, 38 Mass. Practice Series,§ 10.37, pp. 607-608 (2016 Ed.) (“In addition to facilitating and effectuating the function of judicial review, a statement of reasons constitutes a substantial check upon the misuse of agency power because a final decision based upon a statement of reasons is far less likely than otherwise to be the product of arbitrary, capricious or unreasonable agency consideration.”). That goal is particularly important in a trust assets case like this one, where “Medicaid law is ‘almost unintelligible to the uninitiated,'” and the Office has taken many inconsistent and sometimes contradictory positions on treatment of trusts for purposes of calculating assets under the Medicaid laws. The regulation leaves less room for hidden inconsistency and whim by requiring the Office to state its reasons for denying an application clearly and specifically.

In case they are of interest or help to someone, here are the Plaintiffs’ brief  along with Exhibits A-F and Exhibits H-N and Exhibits O-P. Exhibit G contained affidavits from many elder law attorneys, and I again thank all of them for their support. In addition, here is the MassHealth agency’s brief, written and filed by the Office of the Attorney General.

As should have been expected after the Declaratory Judgment was issued, the MassHealth agency’s lawyers who had concocted this rigged process in the first place then proceeded to do the absolute bare minimum to take care of the due process problems for which Justice Wilkins had severely criticized them. The agency did absolutely nothing to provide better and more informative denial notices on non-trust issues such as disqualifying transfers and missing verifications. (As we had pointed out to Justice Wilkins, my office has been told by MassHealth eligibility workers, who are the MassHealth agency employees who actually issue the denial notices, that they are provided with no space at all to provide the denied MassHealth applicant with any specifics about the reasons for the denial.) In the only non-trust lawsuit that I know of that was filed after the Maas/Hirvi Declaratory Judgment, the agency quickly backed down and issued a new denial notice providing the reasons for the denial to Attorney Kaltsas in a missing verifications case, so the Declaratory Judgment issued by Justice Wilkins may well have broad applicability.

In trust cases, the agency now provides an extra notice that provides reasons, but the notices almost always seem to state that the denial was issued for reasons that “include but are not limited to” the stated reasons. It was the agency’s attitude immediately after the Declaratory Judgment that the agency did not need to provide all of the reasons for the denial on the denial notice, and that the agency could even get away with providing only one reason. This Clarification of the Declaratory Judgment requested by Attorney Kaltsas and issued by Justice Wilkins on October 11, 2018 took care of that excuse for the agency’s new attempts to deny due process to MassHealth applicants; he wrote:

Because the Office must set forth “a clear statement of the specific reasons supporting the intended action,” a violation of both the regulation and this court’s declaration has occurred if the Office only provides an incomplete statement, but not all of the “reasons” “supporting the intended action.” The plain meaning of the phrase, “the specific reasons” – in the plural – is inclusive. It does not mean “some of the reasons.” Where more than one reason exists, providing a single reason squarely violates the regulatory choice to use the plural. While it might technically be possible to argue that providing two reasons satisfies the use of the plural even if three or more reasons exist, the defendants wisely do not make such an argument. That construction would non-sensical. There is no linguistic or regulatory-policy reason to construe the regulation as imposing an “at least two reasons” minimum. Indeed, withholding any of the “reasons supporting the intended action” would squarely defeat the regulatory purposes, discussed on pp. 8-12 of the June Order. The only reasonable interpretation of the regulation’s plain language is that the Office’s notice of denial must include each of the “specific reasons supporting the intended action,” at least when based upon including of trust assets.

Clarification of this point is particularly important, because there appears to be some residual confusion. In particular, the defendants … assert that “once MassHealth identifies in its denial notice a single circumstance (or circumstances) under which trust assets may be payable to or for the benefit of the applicant, it has explained why the assets are countable.” One reason may well be enough to support a denial. But if that is the reason why the Office includes the “but not limited to” language in the notice, then it is a non-sequitur. The fact that the Office’s notice identifies “a single circumstance (or circumstances)” warranting denial does not mean that it has given a “statement of the specific reasons supporting the intended action” if it also relies upon unstated reasons to support its denial (Emphasis added). Supplying one or two reasons among many is not the same as stating “the reasons.” The defendants do not explain how their “single circumstance” argument can be squared with the use of the plural. If a reason “support[s] the intended action” it must be included in the notice. The court so clarifies the Declaration.

At this point, it seems that all MassHealth denials involving trusts are receiving the extra notice that provides reasons for the denial, yet the game-playing against Massachusetts citizens by MassHealth lawyers continue. Even though Justice Wilkins had cited “the statutory requirement that Medicaid applications be handled “with reasonable promptness.” 42 U.S.C. § 1396a(a)(8),” and had pointed out that “[u]nnecessary delay­ … is exactly what the law seeks to avoid,” the MassHealth lawyers now appear at the fair hearing to make their arguments, then request a month or so to write their brief (which then means that the appellant’s lawyer needs time after finally seeing it to file a written response). Where the agency is required to provide all of the reasons for the denial on the denial notice, there seems to be no good reason for the MassHealth lawyer to be unprepared at the time of the fair hearing, and intentionally creating procedural delays seems unreasonable.

As I see it, if the Board of Hearings is actually independent and doing its job, these MassHealth lawyers should not be allowed to get away with creating a new procedure that is not part of the law or regulations, and every appellant should appear at the fair hearing with the appellant’s written memorandum in response to the reasons provided on the denial notice, then demand that the record be closed on that day. After all, having MassHealth lawyers behave that way intentionally slows down the hearing process, and they and the Board of Hearings undoubtedly are aware of the requirement not only in the fourth paragraph of Massachusetts General Laws, Chapter 118E, Section 48, but also in the Board of Hearings’ own regulation at 130 CMR 610.015(D)(1)(a), that a written decision be issued within forty-five (45) days after the Board of Hearings receives the denied MassHealth applicant’s request for a fair hearing.

If the Board of Hearings cares about being independent and prompt, it will reject the MassHealth lawyers’ latest scheme to stretch out the fair hearing appeal process when trusts are involved. That, however, may be wishful thinking, since if the Board of Hearings were actually independent and fulfilling its proper role, the Maas and Hirvi cases would not have even been needed for MassHealth appellants to receive due process.

Update on Spousal Refusal for MassHealth Purposes

June 4, 2018

Having recommended the idea of spousal refusal more and more, I researched the topic again the last time I was at the Board of Hearing searching for new trust decisions.  I have found three more fair hearing decisions regarding spousal refusal:  1709521, 1713783 and 1800448. In all three cases, the spouse at home refused to cooperate financially with the MassHealth application of the institutionalized spouse, and was allowed to keep assets without even having to disclose them. (Other fair hearing decisions on this issue can be seen at Must Both Spouses Always Cooperate When There Is a MassHealth Application for One of Them?)

Spousal refusal may in some cases be a better move than purchasing a single premium immediate annuity, especially where there is a chance that Congress will change the federal Medicaid law that allows such annuity payouts to belong completely to the community spouse and instead begin treating one-half of the annuity as the institutionalized spouse’s income.

Ongoing Due Process Violations by the Office of Medicaid Are Highlighted in the Affidavits of Dozens of Lawyers

May 30, 2018

In a Suffolk Superior Court case that I filed in January, 2018, which later was consolidated with a similar case filed Attorney Nicholas G. Kaltsas in March of 2018, we have attempted to stop ongoing due process violations by the Office of Medicaid, which is part of the Executive Office of Health and Human Services. To show the Court that we are not alone in our concerns about what the agency has been doing for years, we asked for help from the elder law bar, and we thank the following persons (almost all of whom are Massachusetts lawyers) for the following affidavits, all of which have been filed with the Court.

Affidavit of Edward Adamsky

Affidavit of Matthew Albanese

Affidavit of Paula Almgren

Affidavit of Michael Baker

Affidavit of Carol Barton

Affidavit of Michelle Beneski

Affidavit of Rebecca Benson

Affidavit of Margot Birke

Affidavit of Jeffrey Bloom

Affidavit of Cynthia Bourget

Affidavit of Elaine Breslow

Affidavit of Lucy Budman

Affidavit of Joe Cataldo

Affidavit of Steve Cohen

Affidavit of Patrick Curley

Affidavit of Hyman Darling, Gina Barry and Todd Ratner

Affidavit of Nicholas Daviau

Affidavit of Kate Downes

Affidavit of Judy Flynn

Affidavit of Bob Ford

Affidavit of Andrew Gallant

Affidavit of Pam Greenfield

Second Affidavit of Pam Greenfield

Affidavit of Annette Hines

Affidavit of Karen Johnson

Affidavit of Ron Kearns

Affidavit of Carol Klyman

Affidavit of Stephanie Konarski

Affidavit of Tenney Lantz

Affidavit of Alexis Levitt

Affidavit of Holly Lewis

Affidavit of Tim Loff

Affidavit of Laura McDowell-May

Affidavit of Dennis McHugh

Affidavit of Alex Moschella

Affidavit of Tom Mullen

Affidavit of Phil Murphy

Affidavit of Kathy Nealon

Affidavit of Tim Nealon

Affidavit of Erin Shea

Affidavit of Paul Silvia

Affidavit of Fran Small

Affidavit of Susan Smith

Affidavit of William Stephan

Affidavit of Jane Sullivan

Second Affidavit of Jane Sullivan

Affidavit of Cathleen Summers

Affidavit of Ron Surabian

Affidavit of Dan Surprenant

Affidavit of Paul Thornhill

Affidavit of Laura Traiger

Affidavit of Stephanie Tymula

Affidavit of Mark Veglia

Affidavit of Kristina Vickstrom

Affidavit of Jackie Voss Lees

Affidavit of John Welch

Second Affidavit of John Welch

Affidavit of Mark Worthington

Affidavit of Vivian Youngberg

Affidavit of Liane Zeitz

Using Reserved Special Powers of Appointment in Deeds and/or Irrevocable Trusts in MassHealth Planning

November 28, 2017

Due to their concerns about possible impact of nursing home costs on their assets, many aging clients feel under pressure to make transfers of their assets earlier than may otherwise be advisable. One relatively simple way to make such a transfer more palatable to a client is to suggest that the client reserve a non-general power of appointment, also known as a limited or special power of appointment (“SPA”), in a deed or irrevocable trust.

What is an SPA?

An SPA is a power which allows someone at a later date to alter the disposition planned under the original instrument of conveyance. This power can be reserved by the client in the original instrument making the transfer, or granted to somebody else. In 2017, the Massachusetts Appeals Court ruled that such a SPA in a deed is a valid transfer; see Reservation of Special Power of Appointment in Deed Is Approved by Massachusetts Appeals Court in 2017 Case of Skye v. Hession. 

By use of the SPA, each remainderperson (the persons inheriting the remainder of an irrevocable trust, or the persons to whom real estate was deeded) would have a vested remainder subject to divestment.  If the SPA is never exercised, however, the property will eventually be owned by the persons or entities (and in the proportions) originally planned.

The possible alternate recipients of the property named or described in the SPA can be any person or entity, but for tax and MassHealth reasons, the SPA should exclude the client, the client’s creditors, the client’s estate, and the creditors of the client’s estate. (If the SPA limits the appointment power to a group, under settled law the power automatically excludes the client’s creditors, the client’s estate, and the creditors of the client’s estate.) A power which includes any of this group could be treated as a general power of appointment under Internal Revenue Code sections 2041 and 2514 and saddle the holder of the power with unintended MassHealth consequences. For MassHealth purposes, the client’s spouse should also be excluded.

Why does a reserved SPA work in MassHealth planning?

Two key elements in MassHealth planning are that the property not be reachable by a creditor (such as the state MassHealth program), either (1) during the client’s lifetime or (2) after the client’s death. A transfer which is subject to a reserved SPA can meet both of these tests. As long as the property is vested, albeit defeasibly, in entities or persons other than the client and the client’s spouse, and as long as neither of them have any power to revest the property in themselves, the property should be deemed transferred for purposes of beginning the running of the MassHealth disqualification period. If nursing home care is not needed during the MassHealth disqualification period, the property is protected in case the need for nursing home care should subsequently arise (unless, of course, federal Medicaid laws change retroactively, an occurrence which is always a risk in MassHealth planning).

Since the MassHealth disqualification period would begin to run upon the original transfer, any later exercise of the SPA should not cause any additional period of MassHealth disqualification.

Tax benefits of reserved SPA to the client

The control afforded by the SPA has tax ramifications. Internal Revenue Code section 2038 will treat the transferred assets as if they had not been transferred, and the full fair market value of the assets as of the client’s date of death will be includible in the client’s federal gross estate. If the assets had appreciated in value during the time of the client’s ownership, this result will often be advantageous to the transferees, as Internal Revenue Code section 1014 then gives each asset a “stepped-up basis.” This means that the value at which each asset is includible in the client’s federal gross estate will then become the asset’s new basis (i.e., the figure above which federal capital gains taxes would later be assessed upon a sale of the asset).

The SPA prevents a completed gift from being made for gift tax and capital gains tax purposes.  Under Treasury Regulation Section 25.2511-2(b), the funding of an irrevocable trust or deeding of real estate with an SPA would be considered an incomplete gift.

In an irrevocable trust, a reserved SPA which allows the client and/or the client’s spouse to make lifetime gifts out of the trust fund invokes the grantor trust rules (found in Internal Revenue Code sections 671 through 679). Upon a future sale of the home, the use of the client’s $250,000.00 capital gains exclusion under Internal Revenue Code section 121 may thus be preserved. Since a gifting aspect of the SPA may be required in order to activate the grantor trust rules as to principal, the client could reserve an SPA which allows him to make unlimited lifetime gifts to charitable organizations. Under this approach the client should not be deemed to have even indirect access to the trust fund, but be leery of the Supreme Judicial Court’s shockingly ignorant comment in the 2017 Daley case about a power of appointment that allowed gifts to nonprofit organizations. Because the SJC’s dicta will undoubtedly be considered to be an educated comment (although the issue had not been briefed or even mentioned by the parties), it may be advisable in drafting to take pains to specify that the powerholder cannot make a gift to pay a debt; somehow the SJC justices did not seem to consider that basic concept  when issuing its kneejerk comment.

It should be noted here that, despite the opinion of one legal commentator, an SPA in a deed does not necessarily allow the transferor to make full use of the transferor’s $250,000.00 capital gains exclusion under Internal Revenue Code section 121. If the transferor wishes to move in the future to a smaller, less expensive home, the drafting lawyer should consider placing the home into an irrevocable grantor trust in order to preserve this exclusion.

Example of use of reserved SPA in a deed

Consider the following use of a reserved SPA in a deed: “John Smith hereby grants to his daughters, Mary Smith, Jeanne Smith, and Cheryl Jones, as joint tenants with right of survivorship, the following premises……John Smith reserves the power, exercisable as often as he may choose, by an instrument recorded at this registry of deeds during his lifetime, to appoint these premises, outright or upon trusts, conditions or limitations, to any one or more of his issue or their then current or surviving spouses.”

If Mary, Jeanne or Cheryl are sued, file for bankruptcy, file for divorce, marry a man for whom John feels little affection, become disabled or incompetent, have a falling out with John, or undergo some other change in circumstances or character, John can eliminate the daughter’s interest, can set it up in trust for the daughter and/or her husband, widower or issue, or can make it subject to a right of first refusal.

The SPA may also be of great utility if a daughter predeceases John. By exercising the SPA he could eliminate her interest and the need for probate of her estate. If in the absence of the exercise of the SPA he were to inherit her share of the home, however, a new MassHealth disqualification period may thus begin to run. If this gift had been made to the daughters as tenants in common, upon a daughter’s death John could be revested with the daughter’s share, and an exercise of the SPA could thus begin the running of a new MassHealth disqualification period.

In the above example of a gift to Mary, Jeanne or Cheryl as joint tenants with a reserved SPA in John, the deed could be recorded and the running of the MassHealth disqualification period could begin without time being spent in reviewing or altering the estate plans of John’s daughters. Upon a daughter’s death where the daughters hold title as joint tenants, and upon John’s later exercise of his SPA, he would not begin the running of a new MassHealth disqualification period because he would not have inherited any interest. (If his testamentary wish were per stirpes, however, the possibility of his later becoming incompetent to exercise the SPA makes this maneuver risky, even if it were meant to be temporary.)

Example of use of reserved SPA in an irrevocable trust

Consider the following use of a reserved SPA in an irrevocable trust: “John Smith reserves the power, exercisable during his lifetime as often as he may choose, to appoint any part or all of the principal and income of the trust fund, outright or upon trusts, conditions, or limitations, to any one or more of his issue or their then current or surviving spouses, or to charitable organizations.”

Much of the above discussion regarding deeds also applies here, except that in a trust the remainder interest would not become vested until John’s death, so that a per stirpes testamentary disposition can be initially established without concern for any daughter’s estate plan, or lack thereof.

Should an SPA have self-destructing language?

A future complication could be caused by use of a simple SPA, for a meticulous conveyancing lawyer may require proof that the SPA was not exercised by will. In such a case the transferor’s will may have to be probated, perhaps solely for this reason. This complication can be eliminated by language in the deed or trust which causes a conclusion presumption of the failure to exercise the power by will or codicil if notice of the establishment of probate proceedings is not recorded in the chain of title within a certain time frame after the transferor’s death.

Is the insertion of a life estate and/or an SPA in a deed a better overall move than the establishment of an irrevocable trust?

Irrevocable trusts have for a few years now been under attack from lawyers at the Office of Medicaid, and as one elder law attorney once said to me, no client wants to be a test case. The inclusion of an irrevocable trust in a MassHealth application right now is practically a guaranteed denial, and the outcome of the fair hearing appeal is often based on which hearing officer is assigned to your case.  See www.irrevocabletrust.info for over 200 recent fair hearing appeals regarding irrevocable trusts, with the Office of Medicaid Board of Hearing’s appalling lack of knowledge of trust law and utter disregard for administrative consistency being the main points one can take from a close reading of the hearing decisions.

The combination of a life estate and a SPA usually has the same estate tax result as an irrevocable trust, with a step-up in basis received by the remainderpersons, but does not have the same capital gains tax result upon a lifetime sale, where an irrevocable trust would often not be subject to capital gains taxes but the remainderpersons would be subject to them. These lifetime capital gains tax issues, centralized management and the fiduciary duties of a trustee may be the main advantages of an irrevocable trust, but other issues may be of greater importance to the client.

The nonexistence of fiduciary duties on the part of the remainderpersons in a deed with a life estate and/or SPA would prevent the deed from being treated as a trust under Medicaid law. Further, an SPA reserved by the client should not be subject to a lifetime lien or post-death estate recovery because it is not a property interest.  (See Restatement 3rd Property (Wills and Donative Transfers) §22.1 Comment a (“a nongeneral power of appointment is not an ownership-equivalent power.” Also, see Restatement 2nd (Donative Transfers) 13.6, Comment b (“Where a non-general power has been created, the donee is not in the position of an owner either as a matter of common law doctrine or the practicalities of the situation.) )  Still, proposed regulations issued but he Office of Medicaid in November of 2016 treated a deed with both a life estate and an SPA as a trust, so it is probably best for long-term planning purposes not to have both of them in the same deed.

Besides the capital gains tax ramifications for a sale during the client’s lifetime, there are significant reasons that an irrevocable trust may not be the better move. An irrevocable trust is set in stone, whereas persons to whom the real estate is transferred could choose to adapt to changing circumstances.  For example, an irrevocable trust could not ever participate in a reverse annuity mortgage due to the prohibition of principal to its settlor, but the remainderpersons in a deed could someday choose to expose their own established personal financial interests in order to obtain such a mortgage. In addition, for the first 5 years after a transfer, a life estate or an SPA would actually be better than an irrevocable trust, because the remainderpersons could choose to transfer the real estate back to the client and cure the disqualifying transfer, whereas the funding of an irrevocable trust would doom the client to the consequences of waiting 5 years and a day before applying for MassHealth.

Under the Rule 1.4(b) of the Massachusetts Rules of Professional Conduct, a “lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”  Under Rule 1.0(f), the term “informed consent” is defined as “the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”  The recommendation of an irrevocable trust to a client when there are other, simpler ways to accomplish the client’s primary goals may fall short of that standard.

In the 2017 Case of Ajemian v. Yahoo! Inc., the Supreme Judicial Court of Massachusetts Wastes Everybody’s Time Ruling that an Estate May, Possibly, Have Legal Access to the Decedent’s Email Account

October 18, 2017

In the 2017 case of Ajemian v. Yahoo!, Inc.  the Supreme Judicial Court of Massachusetts (“SJC”) has decided that federal law does not prohibit an internet service provider from voluntarily disclosing the contents of a decedent’s e-mail account to the Personal Representative of the decedent’s estate.

Unfortunately, the SJC chose to sidestep the issue of whether the Terms of Service agreement (i.e., that take-it-or-leave-it agreement we all have to accept when opening an email account) could by itself allow an internet service provider to prevent an estate from having access to a decedent’s email account. The SJC remanded the issue back down to the Probate Court. That means the SJC wrote a lot of words but accomplished very little, and the successful plaintiffs in Ajemian have to continue to spend funds in the Probate Court litigating the sidestepped issue. There is a lot of time and expense put into a case before it gets to the SJC, and it is a shame when the SJC chooses to do the bare minimum.

In an ironic dissent to the remand, Chief Justice Ralph Gants (who a few months ago had chosen to sidestep a simple issue in the case of Daley v. Secretary of the Executive Office of Health and Human Services and had forced the issue to be remanded) all of a sudden became concerned about fairness to litigants opposing large, well-funded entities, writing:

“Not only is the remand unnecessary, but it also is unfair to the plaintiffs. The additional cost of further litigation is … a heavy financial burden. … The plaintiffs should not have to spend a penny more.”

Less than five months earlier, it had apparently been acceptable to Chief Justice Gants in Daley when a large state agency was shown to be abusing its authority and treating MassHealth applicants unfairly; he never said one word about that issue in his written opinion. (It is now almost five months after remands were ordered by the SJC, and the agency has taken no steps to advance the remanded cases.) Hopefully, the litigants in Ajemian will have their issues resolved in the court below and not have to go back up to the SJC, but I predict that the case will be brought back up there; the SJC made the choice to waste everybody’s time writing a partial decision when the sidestepped, remanded issue was already briefed and in front of the Court; you can read all of the briefs at http://ma-appellatecourts.org/display_docket.php?src=party&dno=SJC-12237. (Contrast those actions, ignoring a briefed issue in Ajemian, with the SJC’s actions in Daley, where it wrote about issues that hadn’t even been briefed or argued.  It is perhaps time for the SJC to have a new leader who can wrangle some intellectual and procedural consistency out of this Court.)

Note that, as mentioned in AjemianMassachusetts General Laws, Chapter 190B, Section 3-709 could allow the Personal Representative of an estate to have access to the decedent’s assets, but also note that the law begins with “[e]xcept as otherwise provided by a decedent’s will.”  Thus, it is possible that a decedent’s will could deny access to email accounts and other such digital assets.  If you have something in your online history that you don’t want to be seen after you are gone, you may want to add a provision into your will that not only denies access to the account but also directs the destruction of the email account or other digital assets.

When Can the Trustee of a Revocable Trust in Massachusetts Make Distributions to the Beneficiaries without Incurring Personal Liability to the Deceased Settlor’s Creditors?

October 13, 2017

An impatient trust beneficiary is one of my cases began demanding distributions from the decedent’s revocable trust within a month of the settlor’s death. The Trustee has no problem making the earliest possible distributions, as long as the Trustee can have no personal liability for doing so. Other than unpaid income tax liabilities of the decedent, the only major problem that should be of concern to the Trustee could be a lawsuit against the trust by one of the decedent’s creditors.  Thus, the question is when, under current Massachusetts law, can a Trustee end up being personally liable to then-unknown creditors after making distributions to the beneficiaries of the trust.

The Massachusetts Uniform Trust Code (“MUTC”), which took effect in 2012, allows creditor claims against revocable trusts; see (a)(3) in Massachusetts General Laws, Chapter 203E, Section 505. The MUTC is otherwise silent about what that means.  The Massachusetts Uniform Probate Code, at Massachusetts General Laws, Chapter 190B, Section 3-803, states in (a) that creditors are out of luck unless they file a lawsuit against an estate within one year of the decedent’s death; and states in (b) that a Trustee is treated the same as the estate’s Personal Representative. Thus, a revocable trust is treated the same as an estate, which has a period for creditor claims of one year after the decedent’s death, and the Trustee of a revocable trust therefore can, without being liable to unknown creditors, safely make distributions twelve months and a day after the settlor’s death. Note, however, that this analysis applies only to normal creditors, not the decedent’s unpaid income tax liabilities, for which the Trustee would remain personally liable.

Must Both Spouses Always Cooperate When There Is a MassHealth Application for One of Them?

October 4, 2017

Under Massachusetts law, it is clear that spouses are financially responsible for each other’s necessaries, which would include nursing home care. Under Massachusetts General Laws, Chapter 209, Section 1, “both spouses shall be liable jointly or severally for debts incurred on account of necessaries furnished to either spouse.” In fact, one wife found out the hard way when she applied for MassHealth too late for her husband and wound up getting successfully sued by the nursing home for the $45,243.24 that was still owed for her husband’s care; see Are You Personally Responsible for Your Spouse’s Nursing Home Bills in Massachusetts?

When the community (i.e., at home) spouse cooperates with a timely MassHealth application, the community spouse has financial options to preserve assets and income.  One such option (although it should never be the first and only choice that is considered) is the purchase of a single-premium, irrevocable, nonassignable annuity with excess assets (i.e., those assets — other than the principal residence — in excess of the community spouse resource allowance, which is currently $120,900.00 during 2017).

Cooperation with the institutionalized spouse’s MassHealth application is not always in the best interests of the community spouse. What if the community spouse had maintained separate assets from the institutionalized spouse under a prenuptial agreement?  What if the spouses had been legally separated but had not ever filed for divorce?  What if the community spouse does not want to buy an annuity for financial or health reasons?  What if the community spouse has made recent gifts or established a trust and wants to prevent those matters from being considered for the institutionalized spouse’s MassHealth application?  Fortunately for those community  spouses, a process known as “spousal refusal” is an option for a community spouse who does not want to cooperate with the MassHealth application.

There have been nine fair hearing decisions that I have recently found at the Massachusetts Office of Medicaid’s Board of Hearings on the issue of spousal refusal: Appeal 0307174Appeal 0402108Appeal 0607185Appeal 0711322Appeal 1007332Appeal 1216920Appeal 1412045Appeal 1600586 and Appeal 1601683.  Based on a thorough review of those fair hearing decisions and the current MassHealth regulation at 130 CMR 517.011, it appears that the community spouse must put into writing the refusal to cooperate, then, if the institutionalized spouse is not proved to be incompetent, an assignment by the institutionalized spouse must be made of spousal support rights to the MassHealth agency, which under Massachusetts General Laws, Chapter 118E, Section 1 is the Executive Office of Health and Human Services.  At that point, the community spouse’s assets and income are not considered as part of the application.

Spousal refusal is authorized by federal Medicaid law at 42 U.S.C. s. 1396r-5(c)(3), and is done throughout the nation. The risk of spousal refusal is that the state Medicaid agency could file a lawsuit against the community spouse for support of the institutionalized spouse (and the community spouse then could end up in a much worse position than if an immediate annuity had been purchased), but to my knowledge such a lawsuit has never occurred anywhere.

In the 2017 Case of Daley v. Secretary of the Executive Office of Health and Human Services, the Supreme Judicial Court of Massachusetts Rules That a Home May Be Effectively Deeded to an Irrevocable Trust under Federal Medicaid Law

September 27, 2017

On May 30, 2017, the Supreme Judicial Court of Massachusetts (“SJC”) issued its opinion in the case of Mary E. Daley v. Secretary of the Executive Office of Health and Human Services, 477 Mass. 188 (2017).  We filed a petition for rehearing (which is essentially a motion for reconsideration) on some of the language in the opinion, and the Office of the Attorney General issued a weak response, but unfortunately the Court chose to let every word of its opinion stand.

The basic part of the decision was easy for the Court. The Court ruled that a person’s home in an irrevocable trust must be treated the same as any other asset.  According to the Court, the right to live in the home does not cause the principal of the trust to be a countable asset for MassHealth purposes, and is merely the equivalent of having the right to the income generated from renting it out.

The Court sidestepped the issue as to whether it is problematic to have a right to be reimbursed from trust principal for taxes that under federal income tax law had rebounded from the trust back to the settlor’s personal tax returns.  Under federal income tax law, a trust can be irrevocable yet have certain sentences that cause the income and capital gains of the trust to be taxable not to the trust, but rather to the settlor. This type of trust, known for many decades by the IRS and tax practitioners as a grantor trust, but embarrassingly referred to by the SJC twice in its opinion as a “grantors trust,” is commonly drafted for Medicaid planning purposes. The SJC remanded this tax issue (which, even though we had briefed it, had not been decided below) back to the agency for its consideration, which essentially means further litigation.

The Court had on its own initiative consolidated our Daley case with the Nadeau case, and in Nadeau the Court commented on something that had gone unmentioned by the agency in its briefs at the fair hearing, in Superior Court and at the SJC.  It is indeed an oddity for any court to comment on an unmentioned and unbriefed issue without requesting briefs, and it is a travesty when the court blurts out something ignorantly. Here, the Court noticed a provision in the Nadeau trust known as a power of appointment, and the power allowed gifts to be made to nonprofit organizations.  The Court then “reasoned” that this power to make gifts could possibly be used to make payment of the powerholder’s nursing home bills whenever staying in a nursing home that is run as a nonprofit organization.  In this dicta, the court did not even bother to try explaining how having a power to make a gift could equate with having the gift applied to your debt, especially where the recipient of the gift would have to act collusively and in violation of fiduciary duties for the gift to be applied to the debt.  The petition for rehearing accurately spelled out the longstanding law about powers of appointment, but the court chose not to edit its written decision, even leaving in its new phrase “grantors trust” as an embarrassment for the ages.

As could be expected from the Office of Medicaid’s recent antics, the agency is already misstating what the SJC’s decision said, so the litigation over irrevocable trusts will continue in Massachusetts. Anybody who already has an irrevocable trust should immediately have it reviewed by an elder law attorney in light of this new SJC decision, and any trust (or deed) that mentions non-profit organizations, tax reimbursement or the right to use and occupancy of the home may need to be changed.

Reservation of Special Power of Appointment in Deed Is Approved by Massachusetts Appeals Court in 2017 Case of Skye v. Hession

May 1, 2017

A special power of appointment is an estate planning technique whereby someone reserves or is given a limited power to make a change to who ultimately inherits and under what circumstances. (For more information in the elder law context, see Using Reserved Special Powers of Appointment in Medicaid Planning.)  In Skye v. Hession, the Massachusetts Appeals Court held that the reservation and later exercise of a special power of appointment in a deed was valid.

There is not a lot of complex analysis in the decision.  The original owner of the real estate had wanted to transfer the real estate so that it would not be owned by her for MassHealth purposes in case of a long-term stay in a nursing home, but wanted to keep the right to change the shares received by her family. The person whose share was later reduced by the original owner’s will objected to the allowance of the will and filed a separate declaratory judgment action to have the right to make the change declared null and void.

This type of real estate transfer has been done in Massachusetts for decades, and it had not been challenged before.  The Court acknowledged that there was tension between moving the real estate out of the owner’s name and reserving the power to change who ultimately received it. The Court ruled that, because the owner had also reserved a life estate, the interests created by the deed were not “present possessory estates” but rather “remainder interests” which were “circumscribed by the reserved power of appointment,” and therefore what the persons received in the original deed were “fees simple defeasible.” Putting it in non-legalese, the Court ruled that a person can deed away real estate yet keep the right to change who will later receive it.

For Medicaid purposes, a deed with a reserved special power of appointment removes ownership from the original owner and does not allow the owner to take it back in any way, and thereby preserves the real estate in case of a long-term nursing home stay after the five-year lookback period.  In some states, elder law attorneys can go further, and the deed, known as a Ladybird deed or a deed with enhanced powers or an enhanced life estate, can reserve the right to sell the real estate or take it back. In Massachusetts, the most that can be reserved is a special power of appointment, as MassHealth regulations at 130 CMR 520.019(I)(1) treat a Ladybird deed as a revocable trust, which means that the real estate is therefore a countable asset for MassHealth purposes. (Note that a simple change in regulations in other states could do the same to all Ladybird deeds, as the owner who records a Ladybird deed never really gives up anything.)

Back in the early 1990’s, I had proposed a reserved special power of appointment in a deed as a valid Medicaid planning tool in articles published nationally (See, e.g., “Despite Medicaid Transfer Restrictions, the Home May Still Be Kept in the Family,” Estate Planning, March/April 1990; “Using Reserved Special Powers of Appointment in Medicaid Planning,” The ElderLaw Report, October 1990; and “Using Special Powers of Appointment in Medicaid Planning,” NAELA Quarterly, Spring 1992.)  The benefit of reserving such a power has always been that the person signing the deed can later adjust the deed based on changes in family dynamics, but in recent years there have been national legal developments causing a reserved special power of appointment in a deed to perhaps be preferable to a reserved life estate for tax purposes.  Both of these techniques under current law allow the recipients to obtain a step-up in basis for capital gains tax purposes upon the original owner’s death, but if Congress returns us to the modified carryover basis rules, which were federal tax law back in 2010, a reserved special power of appointment may allow maneuvering to achieve the desired step-up in basis. (See Which Powers of Appointment Are Eligible for a Step-up in Basis in 2010 under the Modified Carryover Basis Rules? and the blog posts linked therein.)

I would not be surprised if Skye v. Hession is appealed to the Supreme Judicial Court (“SJC”) on an application for Further Appellate Review.  There weren’t many Massachusetts cases cited by the Massachusetts Appeals Court, but four of them were ancient (1825, 1829, 1838 and 1847), and in footnote 9, the Court declined to identify the type of defeasible fee in these remainder interests, which suggests that a deeper review of the transaction could be conducted if the SJC takes the case.  Ultimately, however, I think the case of Queler v. Skowron, 438 Mass. 304 (2002) will be controlling.  The Queler holding approved the equivalent of a general power of appointment (which is an even greater reservation by the original owner than a special power of appointment).  There were separate lots in the Queler deed, and the grantor of an attempted condominium reserved the right to take some of the lots back, then did so later, and the SJC approved the grantor’s retrieval of those lots. The SJC in Queler did not find that the reserved right to change the ownership was repugnant to the original grant, as was unsuccessfully argued by the disaffected party in Skye v. Hession.

Unfortunately, the case of Skye v. Hession deals only with the facts in that case, wherein the owner had also reserved a life estate in the deed. The question that this case seems to keep open is whether, for a reserved special power of appointment to have validity, a life estate is also needed in the deed so that the recipients only receive remainder interests. Where the Court in footnote 7 referred to a recipient’s interest in such a deed as a “present conditional ownership interest,” it seems likely that the same legal result would occur without the life estate in the deed.

Supreme Judicial Court of Massachusetts Explains How to Properly Interpret Massachusetts Irrevocable Trusts in 2017 Case of Ferri v. Powell-Ferri

April 30, 2017

In Ferri v. Powell-Ferri, 476 Mass. 651 (2017), the Supreme Judicial Court of Massachusetts (“SJC”) had been asked to answer questions of Massachusetts trust law by the Connecticut Supreme Court.  While the Connecticut case was a divorce case, the questions involved how to properly interpret a Massachusetts irrevocable trust under Massachusetts law.  This case is particularly helpful for Massachusetts elder law attorneys who regularly have to confront unreasonable positions on trust interpretation taken by the Office of Medicaid, and later defended in court with further unreasonable positions by the Office of the Attorney General, which is required to defend the agency in appellate court matters.

The lawyers’ briefs can be found at http://ma-appellatecourts.org/search_number.php?dno=SJC-12070&get=Search , and the oral arguments can be seen at http://www.suffolk.edu/sjc/archive/2016/SJC_12070.html.

This decision has lots of helpful info for Massachusetts elder law attorneys sprinkled throughout. Here are some quotes from the case with my comments below:

SJC:  “The interpretation of a written trust is a matter of law to be resolved by the court.”

An agency is entitled to deference on issues of fact, but not on issues of law, so the Office of Medicaid’s trust interpretation claims should not receive any judicial deference. (Unfortunately, some Superior Court judges do not seem to handle their interpretation role appropriately; some merely defer to the agency on all issues, even though trust interpretation is not an issue of fact.

SJC:  “The rules of construction of a contract apply similarly to trusts; where the language of a trust is clear, we look only to that plain language. …In deciding whether there is ambiguity, “the court must first examine the language of the contract by itself, independent of extrinsic evidence concerning the drafting history or the intention of the parties.” … If a court concludes that such ambiguity exists, “[w]hen interpreting trust language, … we do not read words in isolation and out of context.  Rather we strive to discern the settlor’s intent from the trust instrument as a whole and from the circumstances known to the settlor at the time the instrument was executed.” “

Trusts must be read as a whole.  If there is any possibility of ambiguity, then extrinsic evidence of intent must be considered.

SJC:  “[E]xtrinsic evidence may be admitted when a contract is ambiguous on its face or as applied to the subject matter.  The initial ambiguity must exist, however. … [E]xtrinsic evidence cannot be used to contradict or change the written terms, but only to remove or to explain the existing uncertainty or ambiguity.”

If the trust has no ambiguity in its terms, it must be honored.  If a Trustee incorrectly administers the trust, that action may not affect the trust’s validity.

SJC:  “In determining the meaning of a contractual provision, the court will prefer an interpretation ‘which gives a reasonable, lawful and effective meaning to all manifestations of intention, rather than one which leaves a part of those manifestations unreasonable, unlawful or [of] no effect'”

A power of the Trustee to distribute principal from an irrevocable income-only trust cannot be imputed based on an isolated view of some of the trust’s terms.  A prohibition against distributing principal cannot be overridden by a mere investment power.

SJC:  “It is one of the fundamental characteristics of trusts that the full and exclusive legal title is vested in the trustee”

The grantor/donor/settlor of the trust does not have legal title to the assets owned by the trust.  Thus, partial control does not allow the grantor/donor/settlor to obtain legal title to the trust’s assets.

SJC:  “The statements in the settlor’s affidavit further support the settlor’s evident intention ….  Because the intent of the settlor is “paramount,” Morse, 466 Mass. at 98, and the settlor’s affidavit evidences the settlor’s intent at the time of execution, the settlor’s affidavit should be considered. … We also cited the Restatement (Third) of Property as further support for the use of postexecution affidavits as affirmative evidence.  See id.; Restatement (Third) of Property:  Wills and Other Donative Transfers § 10.2 & comment g (2003) (“In seeking to determine the donor’s intention, all relevant evidence, whether direct or circumstantial, may be considered, including the text of the donative document and relevant extrinsic evidence”).  See also Loring & Rounds, supra at Introduction (“In the case of an irrevocable inter vivos trust, the settlor’s intentions at the time of funding are what determine its terms.  That having been said, postfunding statements of the settlor might be admissible to clarify what those intentions were” [emphasis in original; footnote omitted]).  Indeed, this court has allowed the reformation of a trust instrument to conform to the settlor’s intent, and has permitted the introduction of an affidavit by the drafter to show that the language of the instrument was inconsistent with the intent of the settlor.  See Walker v. Walker, 433 Mass. 581, 587 (2001).”

An affidavit of intentions by the grantor/donor/settlor of the trust, as well as the lawyer who drafted it, will be respected by the court. Perhaps elder law attorneys should have all of their clients with irrevocable income-only trusts prepare and execute these affidavits now on all major trust issues being raised by the Office of Medicaid.  Perhaps the upcoming decision by the SJC in the Daley and Nadeau cases will change the agency’s overall position about these trusts, but, given the extreme positions and tactics that have been taken by the agency, I am skeptical that anything written by the SJC will stop the Office of Medicaid from taking unreasonable positions against trusts.

 

Update on Daley and Nadeau SJC Cases

April 13, 2017

I’m getting lots of calls and emails about the status of our SJC case, so here’s a quick update.

Given the slim chance of getting the Supreme Judicial Court to take a case on Direct Appellate Review, my co-counsel, Nick Kaltsas, and I were surprised when the Daley case was accepted by the SJC on October 19, 2016.  The Court chose to pull the Nadeau case up from the Massachusetts Appeals Court to be heard along with our case.  The Daley and Nadeau cases were then argued at the Supreme Judicial Court in Boston on January 5, 2017.  The briefs can be found here:  http://www.ma-appellatecourts.org/display_docket.php?dno=SJC-12200 and http://www.ma-appellatecourts.org/display_docket.php?dno=SJC-12205

The SJC has an internal goal of getting decisions out within 130 days of oral argument, so if the Court is on track we may well have a decision by May 15, 2017.

The oral arguments can be seen here: http://www.suffolk.edu/sjc/archive/2017/SJC_12200.html.  What I found troubling about the oral arguments is that we went first and had no opportunity under the Court’s rules to save time for rebuttal.  The Assistant Attorneys General representing the agency, being asked questions that should have been anticipated, and knowing that we wouldn’t have a chance to respond, then started making extreme statements that they didn’t even dare make in their briefs. They had no serious answer to the repeated questions from the SJC justices on how the nursing homes would get paid, so, backed into a corner, they claimed that an irrevocable trust is “no real trust,” that the agency’s interpretation of the 1993 federal Medicaid trust law is not new, and that all trusts allow people to have their cake and eat it too. If you ever harbored the illusion that the Office of the Attorney General cares more about the law than winning a case, I suggest you watch the video.

Hopefully, the SJC will soon put an end to the Office of Medicaid’s flimsy excuses for repeated denials of MassHealth applicants who have legitimate irrevocable trusts.

When Is a Trust Considered “Revocable” under Massachusetts Law, and Is It Unethical for a Governmental Lawyer Representing a State Agency to Misrepresent This Basic Information at a Fair Hearing?

April 3, 2017

Under current law, Massachusetts General Laws, Chapter 203E, Section 602, a trust is presumed to be revocable and amendable “[u]nless the terms of a trust expressly provide that the trust is irrevocable.”  This law is part of the Massachusetts Uniform Trust Code, which took effect on July 8, 2012.  Under Section 64 of the enactment of the Massachusetts Uniform Trust Code, “Subsection (a) of section 602 of chapter 203E of the General Laws shall not apply to trust instruments executed before the effective date of this act.”  Thus, the current presumption that a trust is revocable does not apply to trusts executed before July 8, 2012.  (This presumption and its effective date were elucidated clearly and unambiguously by Courtney J. Maloney, Esq. and Professor Charles E. Rounds, Jr. on pages 27 and 31 in their December 2014 Massachusetts Law Review article entitled The Massachusetts Uniform Trust Code: Context, Content, and Critique.)

Before July 8, 2012, the presumption about a trust was exactly the opposite; a trust was presumed to be irrevocable unless it stated that it was intended to be revocable.  See, for example, Phelps v. State Street Trust Company, 330 Mass. 511 (1953), where the Supreme Judicial Court wrote:  “The law of Massachusetts is plain that a valid trust, once created, cannot be revoked or altered except by the exercise of a reserved power to do so, which must be exercised in strict conformity to its terms.”

Unfortunately, it appears that this law was intentionally or negligently misrepresented at a recent fair hearing by Attorney Katherine M. “Katy” Schelong.  See Appeal 1609134, where the hearing officer ruled that the new presumption of revocability in the law applied to a trust established on July 16, 1999, rendering all of its assets countable.  That is exactly what Schelong’s memorandum had argued, as she had quoted from the new law twice (on pages 1 and 8) but had not bothered to mention its effective date.  Thus, Schelong’s misrepresentation of law was not a minor one, was repeated for effect and had a direct result on the outcome of the case.

There have been hundreds of fair hearings regarding trusts in the past few years, and in many of them Schelong had made all sorts of nonsensical revocability arguments about the trusts she was attacking (see Do the Lawyers Representing the Office of Medicaid in Massachusetts Know What a Revocable Trust Is?), so it is beyond me why an experienced hearing officer would not have known about these presumptions of law.  Perhaps the hearing officer’s lack of basic knowledge about trust law is due to the failure of the Director of the Board of Hearings to provide proper training, as she is required to do under Massachusetts General Laws, Chapter 118E, Section 48.

Still, the failure of the Director of the Board of Hearings to do her job effectively does not mean that a governmental lawyer representing a state agency should feel emboldened to see if she can get away with misstating the law.  It is surprising that this lawyer would not have been shamed into stopping such tactics by her colleagues at the Office of Medicaid and the Office of the Attorney General, so perhaps the misrepresentation problem runs much deeper.

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