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

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

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

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

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

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

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

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

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

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

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

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

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