Almost All Irrevocable Trusts Are Now Under Wrongful Attack During the MassHealth Application Process

Many irrevocable trusts in Massachusetts are now under wrongful attack during the MassHealth application process by the Office of Medicaid. In most cases, the application filed on behalf of the Settlor of the trust should be approved because the irrevocable trust in question does not constitute countable or available assets. In most cases, the irrevocable trust at issue allows for the Settlor to receive income only, and Medicaid law allows such trusts.

Even the method of attack of the irrevocable trusts is wrongful. In dozens of denied MassHealth applications in the past few years, the MassHealth applicant received no reason for the denial until the fair hearing has actually begun, and a misleading “confidential” memorandum is only then introduced into the record by the MassHealth eligibility worker. The memorandum prepared by Ms. Schelong, a lawyer representing the Office of Medicaid, attacks specific provisions of the irrevocable trust, but the arguments of the Office of Medicaid usually reflect an distorted misinterpretation of the irrevocable trust and an intentional misrepresentation of Massachusetts trust law.

Even though federal Medicaid law at 42 U.S.C. §1396a(a)(19) requires that each state Medicaid program be administered “in a manner consistent with simplicity of administration and the best interests of the recipients,” the Office of Medicaid now appears to take the position that all assets held in any trust, regardless of when the transfers into trust were made and regardless of the trust terms, should be counted for MassHealth purposes. This policy position is evidenced by the procedure of having the MassHealth eligibility workers submit every trust to the legal department of the Office of Medicaid, and invariably a vague denial is made, with the reasons being hidden until the fair hearing has begun. Despite writing that Medicaid is “a statutory program and not a program in equity,” the Office of Medicaid usually bases part of its reason for counting the assets of the irrevocable trust as countable assets on social policies surrounding the Medicaid laws. The Office of Medicaid usually cites the Lebow case for the principle that individuals must not deplete assets in order to qualify for MassHealth, but the statement that the Office of Medicaid relies on from that case is simply dicta. The federal Medicaid law does not make such a gross overgeneralization and does allow individuals to do as they wish with their assets during their lifetime, albeit with restrictions.

The law in general allows individuals to do as they wish with their property while alive and does not impose restrictions on an individual’s property rights. The transfer of assets is a right of every property owner that is free from governmental intrusion, so long as tax and governmental benefit laws are not violated. The Internal Revenue Service has set forth guidelines for giving funds within limits, and if the limits are exceeded, the gifts are reportable and possibly taxable. The Medicaid law provides strict rules for asset transfers prior to applying for Medicaid, and so long as individuals do not violate those rules, the Office of Medicaid cannot deny benefits based on one lawyer’s view of social policy. See 130 CMR 520.019. The federal Medicaid law was crafted by Congress with knowledge that some persons transfer assets in order to qualify for Medicaid, and was meant to balance an individual’s property rights with governmental interests regarding the steps that people can use to qualify for MassHealth.

The Office of Medicaid incorrectly contends that courts disfavor the use of irrevocable trusts by MassHealth applicants despite the Supreme Judicial Court of Massachusetts having specifically recognized the viability of so-called income-only trusts. Throughout the misleading memorandum the Office of Medicaid ignores that fundamental public policy can be found most directly in laws and corresponding regulations, all of which permit income-only trusts.

The misleading memorandum of the Office of Medicaid throws out quotes from cases in rapid succession without providing the proper context (or, in many cases, any context at all) for the quotes. In an effort to draw parallels between the irrevocable trust under attack with each of the trusts that were involved in the cases of Cohen v. Comm’r of the Div. of Med. Assistance, 423 Mass 399 (1996), Lebow v. Comm’r of Div. of Med. Assistance, 433 Mass. 171 (2001) and Doherty v. Commissioner, 74 Mass. App. Ct. 439 (2009), the Office of Medicaid misconstrues those important decisions. The Office of Medicaid usually cites the Lebow decision as standing for the proposition that “the common law and general trust laws and principals cannot be used to circumvent the Medicaid statute,” arguing that the standard trust law should be ignored if its application would render the MassHealth applicant eligible for MassHealth benefits, but anybody who actually reads the case would see that such a holding is nowhere to be found in the Lebow decision. Further, Doherty does not stand for the prohibition against the use of irrevocable trusts to shelter assets, as the Court makes the point that the decision was limited to the facts in that case and concludes: “we have no doubt that self-settled, irrevocable trusts may, if so structured, so insulate trust assets that those assets will be deemed unavailable.” Doherty at 442.

No statutory or case law provides that all trust law is to be ignored in the determination of eligibility for Medicaid benefits for long term care, so the position of the office of Medicaid that Massachusetts trust law should be ignored should itself be ignored. “An incorrect interpretation of a statute by an administrative agency is not entitled to deference.” Kszepka’s Case, 408 Mass. 843, 847 (1990). The case language usually quoted (out of context) by the Office of Medicaid does not mean that trusts may not be used effectively to protect assets. Federal Medicaid law (42 USC §1396p(d)) and Massachusetts MassHealth regulations (130 CMR 520.021-520.024) address the treatment of trusts in the Medicaid arena, and they do not come even close to stating that all trusts are presumed Medicaid ineligible or that all trust law is to be ignored. In fact, the Third Circuit Court of Appeals has already examined Congressional intent in the context of Medicaid trust laws and concluded that “there is no reason to believe [Congress] abrogated States’ general laws of trusts. … After all, Congress did not pass a federal body of trust law, estate law, or property law when enacting Medicaid. It relied and continues to rely on state laws governing such issues.” Lewis v. Alexander, 685 F.3d 325, 347 (3d Cir. 2012).

In the basic part of its misleading memorandum attacking trusts, the Office of Medicaid intentionally fails to mention what the Lewis court wrote about Medicaid trust law, and tries to mislead the hearing officer into believing otherwise.