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

November 4, 2015

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

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

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

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

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

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