In Fournier v. Secretary of the Executive Office of Health and Human Services, the Supreme Judicial Court Has Eliminated Most of the MassHealth Agency’s Convoluted Arguments Against Irrevocable Trusts

On July 23, 2021, in Fournier v. Secretary of the Executive Office of Health & Human Services, Supreme Judicial Court of Massachusetts (“SJC”) docket number SJC-13059, the SJC ruled that a limited power of appointment (“LPA”), also known as a special power of appointment, in an income-only irrevocable trust does not cause the trust to be treated as a countable asset for MassHealth purposes. In so doing, the SJC explained how a trust is to be properly scrutinized by the MassHealth agency from this point forward and thereby debunked many of the MassHealth lawyers’ favorite conspiracy theories in their decade-long battle against irrevocable, income-only trusts.

As the SJC notes in its opinion, the Fournier case picked up where the case of Daley v. Secretary of the Executive Office of Health and Human Services, 477 Mass. 188 (2017) had left off. When the SJC was in the process of writing its opinion in the Daley case, it spotted a provision in the Nadeau trust that had not been brought up by any of the parties. This provision, an LPA, allowed the settlor of the trust (who was the MassHealth applicant) to “appoint” — or give — trust property to non-profit entities, and the SJC surmised that it could be used collusively to pay for care at a non-profit nursing home. As the SJC correctly points out in this decision, the proper interpretation of a trust is an issue of law, so the SJC could have requested briefs from the parties (especially where it had received a motion for reconsideration on this very issue) and could have ruled right then and there in Daley as to whether an LPA in a trust was problematic for MassHealth purposes. Instead, the SJC took the lazy route and, with inartful language, remanded the issue to the MassHealth agency, causing years of litigation for many MassHealth applicants during which the MassHealth agency lawyers falsely claimed that the SJC had actually ruled against the LPA in the Nadeau trust.

Following many fair hearings and legal briefs by several lawyers on this issue in several MassHealth fair hearings, the Fournier case reached the SJC, which has now ruled that an LPA cannot be abused to benefit the settlor of the trust. Thus, the needless ruckus caused by the SJC in Daley was finally resolved by the SJC, which ruled definitively against the MassHealth agency’s misguided, ill-researched arguments against trusts, by simply stating:

In short, for trust principal to be considered countable under the “any circumstances” test, the terms of the trust must give the applicant a direct path to reach or benefit from the trust principal.

It sounds as though the SJC could be fed up with the MassHealth lawyers’ antics; this sentence has extreme significance because it shuts down almost all of the conspiracy theories advanced by MassHealth lawyers about theoretical collusion involving two-step transfers from trusts and the later usage of the transferred funds for the settlor.

The SJC also shut down the ludicrous arguments by MassHealth lawyers that the agency was somehow authorized to ignore fundamental tenets of Massachusetts trust and property law:

MassHealth’s hypothesized appointment is not permitted under established principles of trust and property law. … MassHealth argues that “[S]tate law principles do not necessarily control the [F]ederal law analysis of Medicaid eligibility.” To the extent MassHealth’s contention is that State trust and property law do not factor into our analysis, this argument is misguided. We routinely have looked to established principles of trust and property law for guidance when applying the Federal “any circumstances” test for Medicaid eligibility. See, e.g., Guilfoil, 486 Mass. at 800 (applying principles of property law to conclude that “the retention by an applicant of a life estate in his or her primary residence [held in trust] does render the property a countable asset” for Medicaid eligibility determination); Guerriero, 433 Mass. at 632-633, citing Restatement (Second) of Trusts (1959) (“there were no remaining circumstances in which the trustee retained discretion to pay out principal to” settlor for purposes of determining settlor’s eligibility for MassHealth benefits). Because the Medicaid program is, by design, a partnership between the Federal and State governments, “Congress did not pass a [F]ederal body of trust law, estate law, or property law when enacting Medicaid. It relied and continues to rely on [S]tate laws governing” the operation of trusts for purposes of determining an applicant’s eligibility for Medicaid benefits. Lewis v. Alexander, 685 F.3d 325, 347 (3d Cir. 2012), cert. denied, 568 U.S. 1123 (2013).

Although the SJC did not need further grounds to rule against the MassHealth agency, it took pains to point out that the fiduciary duties of the trustee of the trust must be respected by the agency:

In addition, we conclude that the terms of the Misiaszek trust do not permit Misiaszek to exercise her limited power of appointment for her benefit because doing so would require the trustee to violate her fiduciary duties. … [T]he trustee is required by the Massachusetts Uniform Trust Code to “administer the trust solely in the interests of the beneficiaries.” G. L. c. 203E, § 802 (a). See G. L. c. 203E, § 801 (“Upon acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries” [emphasis added]). “If the trustee violates any duty to a beneficiary, the trustee will be liable for ‘breach of trust.'” Guerriero, 433 Mass. at 632, citing Restatement (Second) of Trusts § 201 (1959). Because an appointment of the trust principal to a nonprofit or charitable nursing home as payment for Misiaszek’s care would be solely for Misiaszek’s benefit, and Misiaszek herself is an impermissible appointee, the trustee would not be able to effectuate the appointment without exposing herself to civil liability for violating her fiduciary duties to Misiaszek’s children. These concerns further underscore our conclusion that the plain terms of the Misiaszek trust neither intend for nor permit Misiaszek to exercise her limited power of appointment for her benefit as contemplated by MassHealth.

While the Fournier decision is probably not surprising to anybody who has researched the law on powers of appointment, it is important to note that the SJC cited cases and Restatements of Law involving special powers of appointment that had not been reserved, but rather had been given to the powerholder by somebody else. Thus, the significance of Fournier is that, instead of carving out an exception for public policy and governmental benefit purposes, the SJC applied the existing law to LPAs that had been reserved by the settlor of the trust.

The additional significance of this case is that the SJC has informed the MassHealth agency, as well as the courts below and fair hearing officers at the agency, how to properly interpret a trust within the context of federal Medicaid trust law. This is a welcomed decision which will prevent MassHealth lawyers from concocting all sorts of ways that trusts might not pass muster. My favorite still is the one where they argued the trust failed to protect the assets because the assets could be given from the trust to the children, who could then buy an expensive sports car and let the MassHealth applicant “profit” from the driving experience. See Does “Imputed Driving Value” Somehow Make an Irrevocable Trust a Countable Asset for MassHealth Purposes?

An SJC decision is binding on the entire system of justice in Massachusetts. From now on, MassHealth agency lawyers, MassHealth fair hearing officers, Superior Court judges and Massachusetts Appeals Court judges have now all been instructed that before an irrevocable trust can be struck down as not protecting assets in it on a MassHealth application, (A) Massachusetts probate, property and trust law needs to be considered, not just the federal Medicaid trust law, (B) a trust has to be read as a whole, with the settlor’s intentions being considered, (C) for a trust to be problematic, there has to be a “direct path” of the trust’s assets to or for the benefit of the settlor, and (D) the trustee’s fiduciary duties and liability to the remainderpersons of the trust must be treated seriously in determining whether a direct path of the assets actually exists for the benefit of the settlor.

Moving forward in Massachusetts, the detailed holding in the Fournier case should severely limit future litigation about irrevocable, income-only trusts in the MassHealth context. There is a case now pending and temporarily stayed in the Massachusetts Appeals Court where the MassHealth agency had raised issues regarding the collusive usage of LPAs with family members to find a way to benefit the settlor of the trust, and it would seem that the SJC’s sharp, unambiguous language in Fournier about LPAs and fiduciary duties of trustees would dispose of those arguments. In other cases, there are other arguments still being made by MassHealth agency lawyers about the trustee potentially entering into all sorts of investment schemes and letting the settlor benefit from them even though the trust forbids giving principal to or for the settlor; many of these arguments concoct a direct path of the assets of the trust to the settlor by arguing that investments can be made by the trustee to make principal directly available, but these arguments also presume that the trustee can get away with these schemes without fiduciary liability, which the SJC just highlighted in Fournier as an issue to be seriously considered. Let’s hope those arguments don’t continue to waste the time of elder law attorneys and we don’t need to have the SJC spank the MassHealth agency again in the future like the agency has gotten spanked four times in Massachusetts appellate courts about its positions against trusts since 2016 in Heyn v. Director of the Office of Medicaid, 89 Mass. App. Ct. 312 (2016), then in Daley v. Secretary of the Executive Office of Health and Human Services, 477 Mass. 188 (2017), then in Guilfoil v. Secretary of the Executive Office of Health and Human Services, 486 Mass. 788 (2021), then again in 2021 in this case. In all of these cases the briefs were written and oral arguments were made not by lawyers in the MassHealth agency, but rather by lawyers in the Office of the Attorney General of Massachusetts, so let’s hope the AG’s Office has also learned a lesson here about parroting the MassHealth agency’s frivolous arguments about trusts.