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 during 2009-2023, 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 best-selling Elder and Disability Law in Massachusetts, where he is the co-author of the "Trusts in the MassHealth Context" and "Taxation of Trusts" chapters. Brian also has a webinar series on his youtube channel, https://www.youtube.com/@elderlawwebinar6980.Brian's biographical website, including a webinar registration link and information for new clients, can be found at SouthShoreElderLaw.com
Nothing on this blog should be considered to be legal advice or tax advice.
Does “Imputed Driving Value” Somehow Make an Irrevocable Trust a Countable Asset for MassHealth Purposes?
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.
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
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?
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?
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
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
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
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 Hyman Darling, Gina Barry and Todd Ratner
Second Affidavit of Pam Greenfield
Affidavit of Stephanie Konarski
Affidavit of Laura McDowell-May
Second Affidavit of Jane Sullivan
Affidavit of Kristina Vickstrom
Using Reserved Special Powers of Appointment in Deeds and/or Irrevocable Trusts in MassHealth Planning
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 (“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.)
Note that, as mentioned in Ajemian, Massachusetts 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.
An impatient trust beneficiary in 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?
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 0307174, Appeal 0402108, Appeal 0607185, Appeal 0711322, Appeal 1007332, Appeal 1216920, Appeal 1412045, Appeal 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.
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.
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.
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
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.
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.
For years, the Office of Medicaid has not been implementing federal Medicaid trust law correctly, and has stretched for legal arguments to make against irrevocable trusts. One of those arguments has been that a power to substitute assets (i.e., the power to reacquire trust assets by substituting assets of an equivalent value) is a way for the settlor of the trust to take the assets back, even though such a power is merely an option to purchase the assets at fair market value. The Agency ignores the fact that purchasing an asset for its fair market value means that the settlor achieves no profit from the transaction; the settlor and the trust merely end up with different assets of the same amount. In the decision of Heyn v. Director of the Office of Medicaid, 89 Mass. App. Ct. 312 (2016), the Massachusetts Appeals Court confirmed that point and criticized the Office of Medicaid for attempting to treat a power to substitute assets as a reason for treating an irrevocable trust as countable:
Even less persuasive is the hearing officer’s other rationale, which rested on the grantor’s reserved power to direct a transfer of assets out of trust in exchange for other assets of equivalent value. Such an exchange would be equivalent to a sale of trust assets, with the grantor in the role of purchaser and the proceeds of the sale nonetheless retained by the trust as principal. Such a transfer would not effect any distribution or diminution of trust principal, any more than a sale of trust assets to unrelated third parties, followed by a reinvestment of sale proceeds by the trust.
Thus, given all of the fair hearing decisions that had also concluded that the settlor of the trust could not benefit financially from such a power (see https://irrevocabletrust.info/category/fair-hearing-decisions/approval-at-fair-hearing/issue-power-to-substitute-assets/), for many of us it seemed that the issue could fairly be seen as settled.
Unfortunately, and as an Officer of the Court it pains me to be making this point, when we’re dealing with the Office of Medicaid, we may not always be dealing with lawyers who actually care about the law. In a January 20, 2017 fair hearing memo in MassHealth Appeal 1615211, Attorney Katherine “Katy” Schelong, representing the Agency, cited the Heyn decision for the exact opposite proposition, and, in an act that seems breathtakingly dishonest, she intentionally left out the above quote from the case and claimed that language in Heyn supports the position that a power to substitute assets held by the settlor of the trust is a valid reason for treating an irrevocable trust as countable:
[U]nder Paragraph B of the Second Article, the applicant reserved the personal right, irrespective of the Trustee and its discretion, to reacquire Trust assets by substituting assets of an equivalent value. This is an “any circumstance” under the Irrevocable Trust where the principal is available for the benefit of the applicant, by the applicant herself. 130 CMR 520.023(C)(l)(a). In a Medicaid eligibility determination, it is irrelevant whether the applicant needs to, wants to, or is able to exercise this authority. The fact that under the terms of the Trust such any such option exists renders the principal available and countable, which several Courts have acknowledged: “Under the post-1993 version of the statute, for purposes of determining eligibility for Medicaid benefits, “countable assets” include any portion of the trust principal that could “under any circumstances” be paid “to or for [the] benefit [of]” Roche. 7 Doherty, supra. Such circumstances need not have occurred, or even be imminent, in order for the principal to be treated as “countable assets”; it is enough that the amount could be made available to Roche under any circumstances. See Lebow, supra at 177-178, 740 N.E.2d 978.” Heyn v. Director of the Office of Medicaid, 48 N.E.3d 480, 483-484 (April 15, 2016).
See page 5 of MassHealth’s dishonest memo. How does an Agency lawyer validly cite Heyn for that point even though the Court completely and unambiguously ruled the exact opposite elsewhere in its opinion? It is as baffling as it is dishonest.
This is the problem that the elder law bar have been having when dealing with some of the Agency’s lawyers. Pseudologists such as Schelong, claiming they are lawyers representing the Agency during the fair hearing process but never actually attending any hearing, advise the MassHealth worker to issue a denial, but then, in an act that seems like only partial or convenient representation, do not advise the worker to give the reasons for the denial. These lawyers claim that their advice to issue the denial is protected by attorney-client privilege, but in actuality the MassHealth workers (who are at the very bottom of the administrative structure) are just doing what they are told to do by the Agency’s lawyers. We elder law attorneys then have to trudge to the fair hearing for no other purpose than to receive the reasons for the denial, because the worker does not provide the reasons for the denial despite our requests. (In what other area of law — other than, perhaps, national security — can it be considered proper for the appellant to not be given the detailed reasons for the legal proceeding until the time scheduled for the proceeding to begin?) The reasons are finally provided at the fair hearing via a lengthy memorandum prepared by the Agency’s lawyer, and often held by the MassHealth representative and kept outside of the appellant’s file. These memoranda are riddled with quotes such as the above one from Heyn that intentionally take cases out of context.
The complete misrepresentation of the Heyn case, while shocking in its own right, is what Schelong does in her memoranda on a regular basis. Her written works, never to my knowledge submitted to or published in any peer-reviewed journal, are misleading quote-fests, and she tries to hide these memoranda from public consumption by adding a confidentiality notice (as well as the MassHealth applicant’s Social Security number) so that they will be shielded from public records requests. (When I receive any of her memoranda, I post them at https://irrevocabletrust.info/category/fair-hearing-process/masshealth-memo-available/ .)
Note that Schelong and her ilk couldn’t take these steps without explicit or implicit approval from Chief MassHealth Counsel Sharon Boyle. It seems that, in her office, the ends justify the means. See this 2009 Schelong email to a MassHealth worker, instructing the worker to destroy Schelong’s memorandum that was already in the applicant’s file. The lawyers in the hierarchy above Schelong and Boyle in the Executive Office of Health and Human Services apparently approve of or condone such action, or are blissfully ignorant of this misbehavior. As citizens who pay their salaries, we should expect more integrity from all of them than we seem to be getting.
In a Suffolk Superior Court case where my client is challenging the Office of Medicaid’s ludicrous legal position that a home in an irrevocable trust is always a countable asset if it is “available” (which to the agency now means you can use it), I pointed out that the definition of that word was removed from the MassHealth regulation at 130 CMR 515.001 on January 1, 2014. Before then, the word “available” was defined as “a resource that is countable under Title XIX of the Social Security Act.” To my great dismay, a lawyer from the Office of the Attorney General who is defending the agency’s actions in this case performed her own independent “research” and “reviewed the official regulations” back to 1998 and reported in her brief to the Court that the word “available” was never defined in MassHealth regulations.
Apparently, the lawyer from the Office of the Attorney General was so independent in her research that she never ran her research findings by her actual client. If she had done so, the Office of Medicaid would probably have been forced to inform her that MassHealth regulatory changes are attached to Eligibility Letters, and that Eligibility Letters dating back to 2002 can be found on the MassHealth part of mass.gov, the official website of the Commonwealth of Massachusetts. Thus, the definition of the word “available” before January 1, 2014 can be easily found online, attached to official MassHealth documents.
Let’s first look at Eligibility Letter 195 in 2010. On page 6, there is the definition that the Attorney General’s lawyer supposedly was looking for elsewhere but could not find: “Available – a resource that is countable under Title XIX of the Social Security Act.” That definition is on the first page of 515.001. This Eligibility Letter also tells us where to find the last change to the page that this definition is on. Moving back to page 1 of the Eligibility Letter, under Manual Upkeep, in the Insert column, look for 515.001 (1 of 8); looking across the row, it tells us that the last time that page was changed was in E.L. (Eligibility Letter) 147.
Now let’s look at Eligibility Letter 147 in 2006. On page 3, there it is again: “Available – a resource that is countable under Title XIX of the Social Security Act.” On page 2, under Manual Upkeep, in the Insert column, look for 515.001 (1 of 8); looking across the row, it tells us that the last time it was changed was in E.L. (Eligibility Letter) 95.
Now let’s look at Eligibility Letter 95 in 2002. On page 17, once again, we find the definition that the Office of the Attorney General claims never existed: “Available – a resource that is countable under Title XIX of the Social Security Act.” On page 2, under Manual Upkeep, in the Insert column, look for 515.001 (1 of 8); looking across the row, it tells us that the last time it was changed was in E.L. (Eligibility Letter) 72, which we cannot find on the MassHealth part of mass.gov, as the Eligibility Letter must have been issued before 2002.
The Plymouth Law Library has assisted me in looking further backwards. Here is what I was informed via email, with pre-2002 research into whether available was and wasn’t in MassHealth regulations attached to the email:
The method for tracing back regulations used by the Trial Court law libraries is to use the annual cumulative table of changes and then pull the specific Mass. Registers containing the appropriate amendments. Because Plymouth only has the former CMR pages going back to 2009, I contacted the Hampshire Law Library for assistance. The staff member determined that the word “available” first appeared in 130 CMR 515.001 as of Oct. 1, 1999. If you look at the filing sheet under the section called “Summary of Regulation,” it says the Division became aware of the need for revisions pursuant to the Omnibus Budget Reconciliation Act of 1993 so apparently it took the agency several years to realize the necessary changes required under the federal law.
Attached to this email is the filing sheet from Mass. Register 877 and 130 CMR 515.001 (page 771 dated 9/3/99) showing that the word “available” was not included under the list of definitions. After those three pages is the filing sheet from Mass. Register 879 and 130 CMR 515.001 (page 771 dated 10/1/99) which does include the definition for “available.”
Earlier research by the Plymouth Law Library into the definition of available since 2000 had also shown that the word “available” was defined until the end of 2013.
Why is the definition of “available” in 130 CMR 515.001 important? Because it proves that from October 1, 1999, when the agency first implemented the 1993 federal Medicaid trust law, until January 1, 2014, when the definition disappeared from MassHealth regulations, the official position of the agency was that a home in a trust was available if it was countable. The agency in this case is trying to get away with arguing the exact opposite, that a home in a trust is countable if it is available, and is arguing that the word means something completely different than how it has been interpreted by the agency in the past.
How is it that the research done by the Office of the Attorney General found that the word “available” was never in the “official version of regulations,” while the agency itself has copies of its own official publications on its part of the Massachusetts governmental website, showing the word defined? Why is that the Office of the Attorney General strangely did not confirm its research findings with the agency itself? It is indeed troubling that the Office of the Attorney General, the highest legal arm of Massachusetts government, cannot be counted on to be thorough in its legal research process.
The Case of Heyn v. Director of the Office of Medicaid Brings Much of Medicaid Trust Law in Massachusetts Back to Reality
Since the time that the Massachusetts Appeals Court handed down the decision of Doherty v. Director of the Office of Medicaid, 74 Mass.App.Ct. 439 (2009), lawyers representing the Office of Medicaid have been engaging in distortions of what was actually decided there. In Heyn v. Director of the Office of Medicaid, decided April 15, 2016, the Massachusetts Appeals Court clarified its decision in Doherty, and laid waste to a great deal of the Office of Medicaid’s legal distortions.
Everlenna Roche, the deceased settlor of the trust in question in the Heyn case, had filed a MassHealth application and been denied. A fair hearing was requested, and the Hearing Officer assigned to the case, Thomas J. Goode, ruled in Fair Hearing Decision 1306280 that there were circumstances where the assets of the trust could be made available to her. On appeal to the Superior Court under Massachusetts General Laws, Chapter 30A, Judge William F. Sullivan upheld the hearing decision. In Heyn, the Massachusetts Appeals Court reversed those decisions and approved the trust and the MassHealth application.
Judge Sullivan and Hearing Officer Goode are emblematic of the frustrations that many Massachusetts elder law attorneys have had in recent years with MassHealth applications and appeals involving trusts, as their decisions have been inconsistent. A mere six days before affirming the decision in Fair Hearing Decision 1306280, Judge Sullivan had taken the exact opposite position in approving a similar trust in the Superior Court appeal of O’Leary v. Thorn, a case that was not appealed afterwards by the Office of Medicaid. Hearing Officer Goode, who had been the hearing officer in Fair Hearing Decision 0608458 (which was the fair hearing decision underlying the Doherty case), for years had apparently not seen an irrevocable trust he didn’t disapprove of, with his buying into the Office of Medicaid’s unsupportable claim that federal Medicaid trust law created a presumption that trusts were countable assets, then suddenly on December 4, 2014 reversed course in Fair Hearing Decision 1404746, and later issued Fair Hearing Decision 1509625, becoming a staunch intellectual critic of many of the anti-trust positions taken by the lawyers at the Office of Medicaid. Unfortunately, because of the inconsistent decisions rendered by them, as well as by other fair hearing officers and Superior Court judges, Massachusetts elder law attorneys had been left with uncertainty on the outcome of any case involving a trust.
The Heyn case should bring a great deal of logic and law back to the MassHealth application and appeal processes. In Heyn, the Massachusetts Appeals Court reviewed an irrevocable income-only trust and found it to be acceptable under federal Medicaid trust law. Several arguments against the trust had been raised by the Office of Medicaid at the fair hearing, and they were shot down by the court. Let’s review these issues not in order of importance, but rather in the order in which they present themselves in the Court’s opinion:
(1) In the “Background” provided by the Court, it is specifically stated that the trust owned “her former residence, held by the trust.” Where the hearing officer had specifically rejected the arguments of the Office of Medicaid regarding the home being “available” under 130 CMR 520.023(C)(1)(d), perhaps the Office of Medicaid now may be estopped from continuing to raise that issue, which is not in accordance with law anyway; see Is a Home That Is Owned by an Irrevocable Trust Automatically a Countable Asset under Federal Medicaid Trust Law?
(2) The Doherty case was about a particular trust, and did not change Massachusetts Medicaid trust law. The Massachusetts Appeals Court specifically stated in its decision that “it is settled that, properly structured, such trusts may be used to place assets beyond the settlor’s reach and without adverse effect on the settlor’s Medicaid eligibility.”
(3) Under the 1993 federal Medicaid trust law, “countable assets” include any portion of the trust principal that could “under any circumstances” be paid to or for the benefit of the settlor of the trust. The proper standard of review is “assessing whether the trust would allow distribution of principal.”
(4) The trustee had the power to make distributions of assets from the trust to persons other than the settlor, and the Court had no problem with that power and did not even choose to comment on it specifically. The Court did implicitly render a comment in another context that “a provision making trust principal available to persons other than the grantor does not by its nature make it available to the grantor.” Thus, a provision in an irrevocable income-only trust that allows distributions to persons other than the settlor or the settlor’s spouse has been approved by the Massachusetts Appeals Court.
(5) The settlor had reserved a special or limited power of appointment, the “power, exercisable at any time or from time to time, by written instrument during the Grantor’s lifetime or by the Grantor’s will or any codicil thereto, to appoint any part or all of the principal or income of this Trust to any one or more of the Grantor’s issue.” The Court had no problem with that power, concluding that “a provision making trust principal available to persons other than the grantor does not by its nature make it available to the grantor, any more than if the grantor had gifted the same property to such a person when she created the trust, rather than placing it in trust.” Thus, a provision in an irrevocable trust wherein the settlor reserves a special or limited power of appointment, exercisable either during lifetime or by will, has been approved by the Massachusetts Appeals Court.
(6) The hearing officer had concluded that the irrevocable trust was countable because there was a possibility that the recipients of assets from the trust could return those assets to or use them for the settlor. The Court shot down that type of analysis, because “for 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.” Thus, the Office of Medicaid is precluded from presuming collusive activities between the settlor and other trust beneficiaries, and is limited to a one-step analysis when reviewing any trust provision.
(7) The trustee had the power to make allocations between principal and income. The Court had no problem with that power because the trustee’s authority was constrained by “reasonable accounting principles and practice and state law.” Thus, the argument often made by lawyers at the Office of Medicaid that state law doesn’t matter in reviewing a trust under Medicaid law was eviscerated.
(8) The settlor had reserved a so-called power of substitution, entitling the settlor to require the trustee to “transfer any trust assets in exchange for assets of equivalent value,” exercisable by the settlor “solely in a nonfiduciary capacity.” The Court had absolutely no problem with that power, concluding that “[s]uch an exchange would be equivalent to a sale of trust assets, with the grantor in the role of purchaser and the proceeds of the sale nonetheless retained by the trust as principal. Such a transfer would not effect any distribution or diminution of trust principal, any more than a sale of trust assets to unrelated third parties, followed by a reinvestment of sale proceeds by the trust.” Thus, a power of substitution is viewed by the Massachusetts Appeals Court as an option to purchase at fair market value, not a prohibited power to receive assets from the trust.
(9) Central to the case was that the Office of Medicaid had argued, and the Hearing Officer and Superior Court judge had concluded, that the trustee could purchase an annuity, and treat all of the payments, including the return of principal, as income distributable to the settlor. The Court confirmed the major points made in Potential Annuity Purchases by the Trustee Do Not Provide the Settlor of an Income-Only Irrevocable Trust with Access to Principal. The Court shot down the Office of Medicaid’s annuity argument, stating that “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.” The Court re-emphasized the point by stating that “[t]he 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.” Further, this conclusion by the Massachusetts Appeals Court was made by utilizing Massachusetts law, further eviscerating the argument often made by lawyers at the Office of Medicaid that state law doesn’t matter in reviewing a trust under Medicaid law.
(10) The Court appears to have concluded its decision by attempting to minimize the continued usage of the Doherty case as a reason for issuing denials in MassHealth applications involving irrevocable trusts, as the Court explained Doherty: “[P]ursuant to the terms of the trust there are no circumstances under which the trustee may distribute trust principal to Roche. The case is in that respect in contrast to Doherty, supra, in which Art. XXII of the trust expressly authorized the trustee “in its sole discretion” and notwithstanding “anything contained in this Trust Agreement” to the contrary, to “pay over and distribute the entire principal of [the] Trust fund to the beneficiaries thereof [including the Medicaid applicant], free of all trusts.”” Thus, the Massachusetts Appeals Court clarified the narrow rationale for its decision in Doherty, and highlighted that, for the trust’s assets to be deemed countable assets, there must be a direct path of the trust assets from the trust to the settlor.
(11) In footnote 10, the Court includes the following quote from the trust: “The Grantor intends that this trust be a grantor trust for federal income tax purposes and all provisions of this trust shall be construed so as to effectuate this intent.” Thus, where the Massachusetts Appeals Court did not otherwise mention this provision in its decision, the Court has implicitly approved it, so the intention that an irrevocable trust be a grantor trust for federal income tax purposes is legally a non-issue when reviewing an irrevocable trust for Medicaid purposes.
Until we actually see how the lawyers representing the Office of Medicaid react to the Heyn decision, optimism should be temporarily tempered, but the Massachusetts Appeals Court appears to have left them little room for continued distortions about the Doherty case and how to apply federal Medicaid trust law when reviewing irrevocable trusts.
Is a Home That Is Owned by an Irrevocable Trust Automatically a Countable Asset under Federal Medicaid Trust Law?
I am representing the Plaintiff in the Suffolk Superior Court case appealing Fair Hearing Decision 1409671, where the narrow issue is whether a home is “available” in the absence of a life estate or a trust provision allowing usage of the home. The following is a revised and expanded version of my memorandum on my motion for judgment on the pleadings. It is posted here for the benefit of Massachusetts elder law attorneys facing similar MassHealth trust denials.
Under the leading Massachusetts case regarding interpretation of federal Medicaid trust law, Cohen v. Division of Medical Assistance, 423 Mass. 399 (1996), the Supreme Judicial Court (“SJC”) held that the essence of federal Medicaid trust law was whether a creditor could reach the settlor-applicant’s interest in the trust, as Congress had implemented “Restatement (Second) of Trusts s. 156 (1959), which provides: “Where the Settlor is a Beneficiary . . . (2) Where a person creates for his own benefit a trust for support or a discretionary trust, his transferee or creditors can reach the maximum amount which the trustee under the terms of the trust could pay to him or apply for his benefit. … Under such a trust, a grantor puts his assets in a trust of which he is the beneficiary, giving his trustee discretion to pay out monies to gratify his needs but limiting that discretion so that the trustee may not pay the grantor’s debts. Thus, the grantor hopes to put the trust assets beyond the reach of his or her creditors.” Cohen at 414. The Cohen court described a successful self-settled, spendthrift trust as putting the trust assets beyond the reach of the settlor’s creditors, then proceeded to find that the four trusts in the Cohen case had not done so. Cohen had also concluded that “a trust might be written to deprive the trustee of any discretion (for instance allowing the payment only of income).” Cohen at 418.
Attorney Steven Weiss, who serves as a bankruptcy trustee, had submitted at the fair hearing an unrebutted expert witness affidavit detailing that a bankruptcy trustee could not gain access to the assets of the trust for the benefit of the Plaintiff’s creditors, and the Hearing Officer accordingly found that the trust assets consisting of bank accounts could not be distributed to or for the benefit of the settlor or the settlor’s spouse; see pages 20-23 of the Fair Hearing Decision. The Hearing Officer approved the appeal as to the bank accounts held in the trust, yet issued a partial denial of the appeal in part due to the Plaintiff’s home being a trust asset, based on unwarranted deference to a newly-minted regulatory interpretation suggested by the Office of Medicaid that was contrary to many years of contrary interpretation by the agency.
Because the income-only irrevocable trusts in this case have already been approved by the Hearing Officer, the primary issue to be decided by the Court is whether the Plaintiff’s one-half of the Plaintiff’s former home, owned not by him but by an irrevocable trust he had established and funded more than five (5) years prior to the date of the MassHealth application, is somehow “available” to him even though the Hearing Officer found that the assets of the trust cannot be distributed to him. The questions for this Court are what is “available” supposed to mean in the MassHealth regulation at 130 CMR 520.023(C)(1)(d) and should a declaratory judgment be issued to clarify what the regulation means or doesn’t mean.
Note the peculiarity and arbitrariness that if the Plaintiff’s home had been sold a day before the MassHealth application, the proceeds thereof could have been added to the bank accounts, and the Plaintiff’s MassHealth appeal would have been approved in full. Nowhere in federal Medicaid trust law or federal Supplemental Security Income (“SSI”) law, which also must be followed by the Office of Medicaid, is the countability of an irrevocable trust evaluated based upon the details of its investment portfolio. The regulatory interpretation in this case was arbitrary and capricious and an error of law because if the Plaintiff’s trust had owned anything other than his home, then none of the assets in the Plaintiff’s irrevocable trust would have been treated as countable under the primary holding in the Hearing Decision.
(I) The MassHealth Regulation at 130 CMR 520.023(C)(1)(d), as Newly Interpreted by the Office of Medicaid, Is an Invalid Expression of Federal Medicaid Trust Law
The treatment of trusts funded by the MassHealth applicant under federal Medicaid law is found at 42 U.S.C. § 1396p(d). The proper review of such irrevocable trusts for countability is set forth in federal Medicaid trust law at 42 U.S.C. § 1396p(d)(3)(B)(i), which simply states:
In the case of an irrevocable trust, if there are any circumstances under which payment from the trust could be made to or on behalf of the individual, the portion of the corpus from which, or the income on the corpus from which, payment to the individual could be made shall be considered resources available to the individual.
Thus, being “available” under federal Medicaid trust law means that the Trustee can make a payment to or for the settlor under the terms of the trust, which would allow a creditor of the settlor to reach the assets under state debtor-creditor law, as the SJC had concluded in Cohen. “[I]f, in any circumstances any amount of money might be paid to a beneficiary, the maximum of such amount is deemed to be available to the beneficiary.” Cohen at 406-407. Any other analysis of federal Medicaid trust law would allow the MassHealth program, the MassHealth applicant and the applicant’s irrevocable trust to have no financial liability to the nursing home, and would mean that Congress irrationally chose to leave the nursing home (which under other federal laws cannot easily discharge nonpaying residents) without any potential payment source.
The regulation at issue in this case is 130 CMR 520.023(C):
(C) Irrevocable Trusts.
(1) Portion Payable.
(a) 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.
(b) Payments from the income or from the principal of an irrevocable trust made to or for the benefit of the individual are countable income.
(c) Payments from the income or from the principal of an irrevocable trust made to another and not to or for the benefit of the nursing-facility resident are considered transfers of resources for less than fair‑market value and are treated in accordance with the transfer rules at 130 CMR 520.019(G).
(d) 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. Where the home or former home is an asset of the trust, it is not subject to the exemptions of 130 CMR 520.007(G)(2) or 520.007(G)(8).
The reason for this Suffolk Superior Court appeal is that (d) in this regulation was misinterpreted by the Hearing Officer after it was recklessly misrepresented by the Office of Medicaid. Under (a), (b) and (c) the analysis was correctly determined as to whether a payment can be made to or for the settlor. Following a changed regulatory interpretation of (d) urged on the Hearing Officer by the Office of Medicaid but not disclosed to him as being a new interpretation, he ruled that, even though the Plaintiff had reserved no right to use the home either in the trust or in the deed funding the trust, the Plaintiff’s home was “available,” and therefore countable, due to its mere usage as the Plaintiff’s home. The Office of Medicaid argued below that if the settlor of the trust can or does use the home, then it is “available,” and therefore per se countable, yet the regulation and its interpretation are not in accordance with federal Medicaid trust law or the Office of Medicaid’s long history of implementing the law correctly.
Before January 1, 2014, the Office of Medicaid had an official, published position on what the term “available” meant, as 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 an asset was considered available if it was countable, and not the other way around, as the Hearing Officer was urged to decide here. Since January 1, 2014, the word “available” has no longer been defined anywhere in the MassHealth regulations, and the Office of Medicaid chose not to disclose the pre-2014 definition of the word “available” to the Hearing Officer, nor the agency’s long history of treating a MassHealth applicant’s home as available only when the trust principal was payable to or for the applicant. By choosing not to present such pertinent information to the Hearing Officer, the Office of Medicaid violated its duties of administrative consistency and candor to the tribunal.
To my knowledge, there are no fair hearing decisions prior to 2014 wherein the Office of Medicaid had made its “available” argument, as the Office of Medicaid could not make that argument while that word’s definition remained in the MassHealth regulations. In the case of Doherty v. Commissioner, 74 Mass. App. Ct. 439 (2009), which is known to have involved the appellant’s home held in the trust (as the Massachusetts Appeals Court specifically mentions the appellant’s right to live there), there is no mention whatsoever in the briefs filed at any level by or on behalf of the Office of Medicaid about Muriel Doherty’s home being a countable asset due to her living there and it therefore being “available” and per se countable.
The MassHealth regulation at 130 CMR 520.023(C)(1)(d) itself does not support the interpretation given to it by the Office of Medicaid or the Hearing Officer, where after the word “available” comes the phrase “according to the terms of the trust.” Mere usage of the home by the Plaintiff did not occur “according to the terms of the trust,” and there was no such finding by the Hearing Officer. In addition, the opening paragraph in 130 CMR 520.023 states the general requirement that the circumstances under which an irrevocable trust is considered available be “described in the terms of the trust,” but the Hearing Officer made no such finding, focusing only on whether the Plaintiff had been living there as a factual matter. Moreover, the MassHealth regulation at 130 CMR 520.023(C)(1) contemplates only whether a payment could be made from the trust, as the title of the applicable portion of the regulation informatively states “Portion Payable.” (emphasis added). “The statute asks only what the maximum amount of funds available to the beneficiary are in any circumstances pursuant to the exercise of the trustee’s discretion.” Cohen at 424.
To the extent that the usage of the home could be viewed as a payment from an irrevocable income-only trust, it would be an income payment because the principal is not being consumed or even accessible by merely living there. A person with a limited lifetime interest in real estate is not considered under Massachusetts law to have access to principal. See Spring v. Hollander, 261 Mass. 373 (1927), where the SJC held that upon a sale of real estate a life tenant is entitled to income only, and principal is not available to the life tenant.
Massachusetts law is controlling as to the nature of the Plaintiff’s beneficial interests, as the United States Court of Appeals for the Third Circuit has already examined Congressional intent in the context of federal Medicaid trust laws and concluded that state law matters in the analysis:
‘Congress rigorously dictates what assets shall count and what assets shall not count toward Medicaid eligibility. State law obviously plays a role in determining ownership, property rights, and similar matters.” Lewis v. Alexander, 685 F.3d 325, 334 (3d Cir. 2012). “Trusts are, of course, required to abide by a State’s general law of trusts.” Lewis at 335, footnote 15. “[T]here 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 at 343.
Moreover, Massachusetts law is controlling as to the nature of the Plaintiff’s beneficial interests because in Guerriero v. Commissioner of the Division of Medical Assistance, 433 Mass. 628, 632 (2001), the SJC has already ruled that Massachusetts trust law is controlling in a determination of whether a distribution of assets can be made to the settlor of a trust:
In a written trust, the nature and extent of a trustee’s discretion as to any issue is defined by (1) the terms of the trust instrument and (2) in the absence of any provision in the terms of the trust, by the rules governing the duties and powers of the trustee. Restatement (Second) of Trusts s. 164 (1959) [Note 4]. If the trustee violates any duty to a beneficiary, the trustee will be liable for “breach of trust.” Restatement (Second) of Trusts, supra at s. 201 [Note 5]. Accordingly, the question is whether the “irrevocable waiver” completely deprived the trustee of any discretion to distribute trust principal [Note 6] to Guerriero, evaluating the trustee’s discretion in light of his duties imposed by the written trust instrument and his relationship to the parties of the trust.
Thus, the SJC has held that, in applying federal Medicaid trust law, Massachusetts trust law must first be reviewed to determine the settlor’s interests, and if a distribution cannot be made to the settlor, then, as the Court found in Guerriero, the trust’s assets cannot be treated as countable assets for MassHealth purposes.
In addition to the foregoing, a renowned legal treatise on trust law states that principal is not distributable without written specificity in the trust: “Nowadays, it is default law that the current beneficiary of a trust is entitled to the net trust accounting income. It is also default law that a trust is income only, i.e., the current beneficiary is not entitled to principal, unless the governing instrument indicates that the settlor intended otherwise. Thus, a trust for the “benefit” of C, remainder to D is normally income only absent additional language suggesting the contrary. Without such additional language, the trustee would have no power to invade principal for the income beneficiary.” Charles E. Rounds, Jr. and Charles E. Rounds, III, Loring and Rounds: A Trustee’s Handbook (2013 Edition), §5.4.1.3 at 376-377.
(II) The Office of Medicaid Has Long Taken the Position that Whether a Trust is Countable Is Based on Whether It is Distributable
The long-standing position of the Division of Medicaid Assistance, now known as the Office of Medicaid, regarding irrevocable trusts was established in a legal policy statement dated 4/29/1992, entitled “Transfer and Trust Issues Reconciliation of Department Policy” where on page 3 the standard of review, similar to Restatement (Second) of Trusts s. 156 as described in Cohen, was simply that a trust was “countable up to the limit of the trustee’s discretion to distribute it to the applicant.” The Plaintiff knows of no other official position statement by the agency.
Note that Question 2, parts (a) and (b), on pages 2-3 of that 4/29/1992 position statement, addresses the issue of whether a home transferred to a trust should remain noncountable, and provides the reasoning behind the promulgation of 130 CMR 520.023(C)(1)(d). The rationale for including (d) in the regulation, as made clear by its second sentence, is to cause the settlor’s home to lose its noncountable status when it is transferred to a trust. A home is usually considered to be a noncountable asset if it is in the MassHealth applicant’s name, and the Commonwealth is not disadvantaged by its being noncountable because after death there is an estate recovery claim against it for reimbursement by the Commonwealth for MassHealth benefits paid. If, however, the home were in a trust yet still considered to be noncountable despite being distributable to the applicant, the transfer of the home to the trust would avoid a post-death estate recovery claim against it for reimbursement by the Commonwealth simply due to its avoiding probate. Thus, the reason for adding (d) to 130 CMR 520.023(C)(1) was to avoid this incongruous result, and the Office of Medicaid appears to have forgotten why it promulgated the regulation in the first place.
Although the federal Medicaid law was legislatively made tighter in 1993, the SJC in Cohen reviewed the 1993 law and did not find a different Congressional intention than in the 1985 law. The Office of Medicaid agrees, as it represented to Suffolk Superior Court that Congressional intention for the 1993 federal Medicaid trust law was the same as for the 1985 law. See pages 1 and 10 of the Office of Medicaid’s opposition to the motion for judgment on the pleadings in the Suffolk Superior Court case of Gerson v. Medicaid Board of Hearings, SUCV2012-2635-C, where the Office of Medicaid acknowledged:
The 1993 Amendment made certain clarifications, but did not change the purpose of the statute. See Cohen at 406-07.
Thus, the purpose of federal Medicaid trust law, found by the SJC in Cohen to be the implementation of state debtor-creditor law against trusts, remained intact under the 1993 law, and if a principal payment cannot be made to or for the Plaintiff then the assets of the trust in this case are not countable assets.
(III) History of Federal Medicaid Law Indicates “Available” Is to Be Narrowly Construed
Under 42 U.S.C. §1396a(a), “[a] state plan for medical assistance must” … “(17)(B) provide for taking into account only such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant or recipient” and “(17)(C) provide for reasonable evaluation of any such income or resources.”
In State of Washington v. Bowen, 815 F. 2d 549 (9th Cir., 1987) the Court delved into the term “available,” and determined that the term must be narrowly construed:
As used in public assistance statutes, the term “available” typically functions as a restrictive term defining a subcategory of “income.” See, e.g., Heckler v. Turner, 470 U.S. 184, 200, 105 S.Ct. 1138, 1147, 83 L.Ed.2d 138 (1985); Gray Panthers, 453 U.S. at 48, 101 S.Ct. at 2642; Schrader v. Idaho Dept. of Health and Welfare, 768 F.2d 1107, 1110 (9th Cir.1985); Young v. Schweiker, 680 F.2d 680, 682 (9th Cir.1982). The legislative history of the Medicaid statute also indicates that “available” should be read as a limiting term. The Senate report accompanying the Medicaid legislation provided: States [are required] to take into account only such income and resources as … are actually available to the applicant or recipient…. States [are] not [to] assume the availability of income which may not, in fact, be available or overevaluate income and resources which are available. S.Rep. No. 404, 89th Cong., 1st Sess. 78 (1965), reprinted in 1965 U.S. Code Cong. & Ad. News pp. 1943, 2018.
The Connecticut Supreme Court has analyzed the availability principle in federal law, and concluded:
[U]nder applicable federal law, only assets actually available to a medical assistance recipient may be considered by the state in determining eligibility for public assistance programs such as title XIX [Medicaid] … A state may not, in administering the eligibility requirements of its public assistance program pursuant to title XIX … presume the availability of assets not actually available.” Zeoli v. Commissioner of Social Services, 179 Conn. 83, 94 (1979).
The case of Reinholdt v. N.D. Department of Human Services, 2009 ND 17, 760 N.W.2d 101 (2009), cited by the Office of Medicaid below, is instructive on the level of inquiry needed to determine whether the home in the Plaintiff’s trust was actually available to him:
Determining whether an asset is ‘actually available’ for purposes of Medicaid eligibility is largely a fact-specific inquiry depending on the circumstances of each case. … [i]f an applicant has a colorable legal action to obtain assets through reasonable legal means, the assets are available. The ‘actually available’ requirement must be interpreted reasonably, and the focus is on the applicant’s actual and practical ability to make an asset available as a matter of fact, not legal fiction. (emphasis added)
The unrebutted expert witness affidavit by Attorney Steven Weiss that is part of the record established that even a bankruptcy trustee stepping into the trustee’s shoes would have no actual or practical ability to make the principal of the trust available to make payment to or for the Plaintiff or his creditors.
(IV) Since 1994, the State Medicaid Manual Has Supported the Plaintiff’s Position, and the Office of Medicaid Is Required to Follow SSI Law in Its Eligibility Determinations
In 1994, the Health Care Financing Administration, now known as the Centers for Medicare and Medicaid Services, issued HCFA Transmittal Letter 64, which eventually became part of the State Medicaid Manual, which is binding on the States by contract. 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.”
In section 3259.6 D. of the State Medicaid Manual, states are instructed to apply SSI law and principles in their Medicaid eligibility determinations involving trusts:
1. Payments Made From Revocable Or Irrevocable Trusts to or on Behalf of Individual.–Payments are considered to be made to the individual when any amount from the trust, including an amount from the corpus or income produced by the corpus, is paid directly to the individual or to someone acting on his/her behalf, e.g., a guardian or legal representative.
…
NOTE: A payment to or for the benefit of the individual is counted under this provision only if such a payment is ordinarily counted as income under the SSI program. (emphasis added)
In violation of this section of the State Medicaid Manual, the Office of Medicaid never made any eligibility determination that usage of the Plaintiff’s home caused it to be treated as income under the SSI program, and the Hearing Officer never made any such finding.
The Office of Medicaid violates federal law whenever it utilizes any eligibility methodology that is more restrictive than that used by the SSI program:
In determining income and resource eligibility for Medicaid, states may not employ a methodology which renders an individual ineligible for Medicaid where that individual would be eligible for SSI. See 42 U.S.C. § 1396a(r)(2)(A)(i). In addition, states must use reasonable standards for determining eligibility which only take into account income and resources which are available to the recipient and which would not be disregarded in determining eligibility for SSI. 42 U.S.C. § 1396a(a)(17). For SSI purposes, if an individual has no authority to liquidate a property right, it is not considered an “available resource.” 20 C.F.R. § 416.1201(a)(1). Social Security Administration guidance further explains that a trust is an “available resource” only if the beneficiary has the legal authority to compel the use of trust assets for her own support and maintenance. See Social Security Administration, Program Operating Manual System (“POMS”) § S01120.200(D)(2).” Brown v. Day, 434 F. Supp. 2d 1035, 1037-38 (D. Kan. 2006).
See also Lewis v. Alexander, 685 F.3d 325 (3d Cir. 2012), 42 U.S.C. § 1396a(r)(2), 42 U.S.C. § 1396a(a)(10)(C)(i)(III), 42 C.F.R. § 435.601, and Fair Hearing Decision 1102569, where the Office of Medicaid has already conceded that it is bound by the doctrine of SSI comparability.
There is no section in SSI law, SSI regulations or the Program Operations Manual System (“POMS”) of the Social Security Administration that would result in the Plaintiff’s home in an irrevocable trust being deemed countable based on its usage, and the Hearing Officer made no such finding or even considered SSI law. Under the SSI program, if an individual’s home is in a trust of which the individual is a beneficiary and the individual uses it, it does not count as in-kind support and maintenance income. Further, a home or former home held in an irrevocable trust is not considered a resource under SSI law and regulations. The term “resources” is defined for SSI purposes at 416 C.F.R. 1201 as “cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance.” The SSI regulation further provides:
If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual (or spouse).” 20 C.F.R. § 416.1201(a)(1).
Further, the U.S District Court for the District of Connecticut, in recently determining whether trusts were countable assets for Medicaid purposes, reviewed the POMS to determine how SSI law properly applies to trusts and found:
[T]he POMS details the three elements required for something to be considered a resource: an ownership interest; the right, authority, or power to convert it to cash; and the legal right to use it for one’s support and maintenance. See, e.g., POMS § SI 01120.010, POMS § SI 01110.100B.1, POMS § SI 01110.100B.3; POMS § SI 01110.115A; POMS § SI 01120.200D. If any one of these elements is missing from an asset, the SSA will not consider it to be a resource for purposes of determining eligibility for SSI. Simonsen v. Bremby, 2015 U.S. Dist. LEXIS 171099 (2015)
Thus, where there was no finding by the Hearing Officer that the Plaintiff’s home could be sold and the proceeds distributable to him or for his benefit, or that the home could be given to or taken by the Plaintiff from the trust without consideration, the Hearing Decision and the Office of Medicaid’s regulatory interpretation of 130 CMR 520.023(C)(1)(d) are in violation of federal law due to being more restrictive than SSI law and federal law interpretation in the POMS.
(V) The Board of Hearings, in Rendering the Final Decision of the Office of Medicaid, Has Issued Inconsistent Decisions Regarding What “Available” Means in 130 CMR 520.023(C)(1)(d), and the Office of Medicaid Therefore Fails to Engage in Administrative Consistency
The Plaintiff is entitled as a matter of law to reasoned consistency in agency decision-making by the Office of Medicaid. “A party to a proceeding before an agency has a right to expect and obtain reasoned consistency in the agency’s decisions.” Boston Gas Co. v. Dep’t of Pub. Utilities, 367 Mass. 92, 104 (1975). Unfortunately, decisions in cases involving irrevocable trusts can often depend on who the hearing officer is that was assigned to the case.
In Fair Hearing Decision 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.
In Fair Hearing Decision 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:
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. … MassHealth interprets the word “available” under 520.023(C)(l)(d) to include the equitable title retained under the life estate interest that allowed Appellant and the spouse the right to use the property during their lifetime. The MassHealth position implies that by retaining a life estate interest in the former home under a trust the former … home becomes countable. However, regulation 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. … As I have found that there are no such circumstances under the terms of the Trust that allow the sale of the former home such that the proceeds, i.e., Trust principal, could be paid to Appellant or the spouse to be used for the benefit of the applicant/individual, the former home is not countable.
The Board of Hearings is a part of the Office of Medicaid, and under M.G.L. c. 118E, s. 48, “[t]he decision of the referee shall be the decision of the division,” yet the Office of Medicaid chose not to bring the fair hearing decisions in Appeal 1402188 or Appeal 1404746 to the attention of the Hearing Officer, in violation of its duties of administrative consistency and candor to the tribunal. It is a violation of the duty of administrative consistency to continue to issue eligibility determinations that both ignore and are inconsistent with the previous fair hearing decisions of the agency. Under the doctrine of offensive issue preclusion, also known as offensive collateral estoppel, the Office of Medicaid is prohibited from continuing to bring up issues where its position had already been ruled against. Bellermann v. Fitchburg Gas and Electric Light Company, 470 Mass. 43, 60 (2014) “The principles of claim preclusion and issue preclusion … apply both to administrative boards and to courts.” Lopes v. Board of Appeals of Fairhaven, 27 Mass. App. Ct. 754, 755 (1989) “Courts routinely apply collateral estoppel to issues resolved by agencies.” Kenneth Culp Davis and Richard J. Pierce, Jr., Administrative Law Treatise 13.4 at 260 (1994).
In addition, the Office of the Attorney General, which often ends up defending fair hearing decisions rendered by the Board of Hearings of the Office of Medicaid, has taken the position that agencies have the duty of administrative consistency, which requires disclosures and explanations of contrary decisions:
In cases in which a board is departing from longstanding precedent, the board must explain its rationale carefully. Although not bound in a strict sense by stare decisis, boards and administrative tribunals are under a special duty to explain themselves where they depart from an established line of decisions.” Manual for Conducting Administrative Adjudicatory Proceedings, Office of the Attorney General of the Commonwealth of Massachusetts (Robert L. Quinan, Jr., Editor), p. 64 (2012)
The Office of Medicaid is failing to fulfill the agency’s duties, where under 42 C.F.R. 435.901, “[t]he Medicaid agency’s standards and methods for determining eligibility must be consistent with the objectives of the program and with the rights of individuals under the United States Constitution, the Social Security Act, title VI of the Civil Rights Act of 1964, section 504 of the Rehabilitation Act of 1973, and all other relevant provisions of Federal and State laws.” The Office of Medicaid has a duty under all of these laws to treat all MassHealth applicants fairly and consistently, yet makes no attempt to reconcile its fair hearing decisions and Superior Court decisions on similar facts and issues.
The Director of the Office of Medicaid had the right to order rehearings in Appeals 1402188 and 1404746, but did not do so, and let those decisions stand. Thus, where a fair hearing is the final decision of the agency on a particular legal issue or set of facts, and where the agency has a duty of administrative consistency, it is a violation of the Plaintiff’s rights, including Equal Protection under both the United States and Massachusetts Constitutions, to receive a different result than the appellants in those cases on the issue of the interpretation of the word “available” in MassHealth trust regulations. In addition, there may be more hearing decisions that are unknown to the Plaintiff on the issue of whether a home being lived in by a MassHealth applicant is “available,” and the Office of Medicaid has a duty to disclose those fair hearing decisions to the Court and explain any similarities or differences therein.
(VI) The Office of Medicaid Has Violated Its Duties of Administrative Consistency and Candor, and Is Entitled to No Deference
The doctrine of administrative consistency required the Office of Medicaid to disclose to the Hearing Officer its inconsistent treatment of the regulation in question, and to explain its disparate treatment of MassHealth applicants.
The law demands a certain orderliness. If an administrative agency decides to depart significantly from its own precedent, it must confront the issue squarely and explain why the departure is reasonable. … [T]he prospect of a government agency treating virtually identical legal issues differently in different cases, without any semblance of a plausible explanation, raises precisely the kinds of concerns about arbitrary agency action that the consistency doctrine addresses. Davila–Bardales v. Immigration and Naturalization Service, 27 F.3d 1, 5 (1st Cir. 1994)
Under Rule 3.3 of the Massachusetts Rules of Professional Conduct, the lawyers representing the Office of Medicaid have a duty not to make any false statement of fact or law and to correct false statements all the way through to the end of the case. They also have the duty to disclose legal authority that is directly adverse to the Office of Medicaid’s position, if not disclosed by opposing counsel. The current rule states, in relevant part:
Rules of Professional Conduct Rule 3.3: Candor Toward the Tribunal
(a) A lawyer shall not knowingly:
(1) make a false statement of fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer;
(2) fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel….
(c) The duties stated in paragraphs (a) and (b) continue to the conclusion of the proceeding including all appeals …
The comment section under Rule 3.3 of the Massachusetts Rules of Professional Conduct spells out what is now expected of lawyers practicing in Massachusetts:
Legal Argument
[4] Legal argument based on a knowingly false representation of law constitutes dishonesty toward the tribunal. A lawyer is not required to make a disinterested exposition of the law, but must recognize the existence of pertinent legal authorities. Furthermore, as stated in paragraph (a)(2), an advocate has a duty to disclose directly adverse authority in the controlling jurisdiction that has not been disclosed by the opposing party. The underlying concept is that legal argument is a discussion seeking to determine the legal premises properly applicable to the case. (emphasis added)
The Office of Medicaid cannot withhold pertinent information, some of which is readily available to or known only by the agency itself, and it is not permissible for a state governmental agency to decide for tribunals what is and isn’t pertinent. The Hearing Officer was supposed to have all relevant facts and law in front of him when making his decision, as the discovery of truth is the primary function of the legal system:
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). (emphasis added).
Under M.G.L. c. 118E, s. 48, a fair hearing decision is the agency’s decision. The many years of MassHealth determinations and fair hearing decisions that ran counter to this one should have been disclosed to the Hearing Officer, and the change in position should have been disclosed and explained. If the agency had treated the applicable regulation, as well as previous versions thereof, completely differently for the previous twenty (20) years or more, how would it not have been pertinent for the Hearing Officer to know about the agency’s previous positions when the agency claims that it is entitled to deference? “It is usually the initial not the changed interpretation of a statute that earns … deference.” Cohen v. Commissioner of the Division of Medical Assistance, 423 Mass. 299 (1996), footnote 18. “The common sense behind this stance is powerful: Inconsistency suggests an arbitrary or unsure interpreter upon whom the regulated cannot rely.” Richard W. Murphy, “Judicial Deference, Agency Commitment, and Force of Law,” 66 Ohio State Law Journal 1013, 1015 (2005).
Unfortunately, the lawyer who represented the Office of Medicaid at the fair hearing did not bring one fair hearing or Superior Court decision to the attention of the Hearing Officer unless it fit into her argument against the trusts. No adverse decisions were argued about or differentiated. The Office of Medicaid, in fulfillment of its duties of administrative consistency and candor to the tribunal, must produce, explain and synthesize all fair hearing decisions approving trusts wherein an “available home” argument had been made by the Office of Medicaid.
(VII) Previous Written Positions of the Office of the Attorney General in Appellate Court Cases Support the Plaintiff’s Position
The major Massachusetts appellate court cases through the time of this fair hearing had been Cohen in 1996, Lebow v. Commissioner of the Division of Medical Assistance, 433 Mass. 171 (2000), Guerriero in 2001 and Doherty in 2009, and the briefs filed in those cases by the Office of the Attorney General support the Plaintiff’s contention that the principal of a trust is only countable when a payment from principal can be made to or for the settlor of the trust. In all references in those briefs as to whether an asset in a trust is ‘available,” the context is whether the asset is distributable by the Trustee to the settlor-applicant, but what is even more revealing is what does not appear; in none of the briefs is there even a hint that usage of a home makes it “available” and therefore a countable asset.
The brief of the Office of the Attorney General in Doherty is especially telling, in that the new “available home” argument was not made anywhere in that brief. The reported Doherty case specifically mentions that the settlor had the right to live in her home, yet nowhere in the Doherty brief is an issue raised as to the home being “available” based on its usage. The Office of the Attorney General conceded on pages 8-9 of its brief that the 1993 law merely tightened the 1985 law regarding trustee discretion.
(VIII) This Court’s Review of the Regulation at 130 CMR 520.023(C)(1)(d) Is De Novo
The issues of law presented by the Plaintiff in this case are subject to de novo review by this Court. “Where an agency determination involves a question of law, it is subject to de novo judicial review.” Flemings v. Contributory Retirement Appeal Board, 431 Mass. 374,375 (2000).
The case cited in Cohen for the proposition that deference is not applicable when an agency takes new positions was Barnett v. Weinberger, 818 F.2d 953 (D.C. Cir. 1987), where the proper roles and duties of the Office of Medicaid and this Court reviewing its actions were elucidated:
It is well established that the prestige of a statutory construction by an agency depends crucially upon whether it was promulgated contemporaneously with enactment of the statute and has been adhered to consistently over time. … In addition to these difficulties, we are mindful that an administrative interpretation is not of itself dispositive of an issue of statutory construction. Rather, its force depends upon other factors, including the thoroughness and validity of its reasoning, and its compatibility with the general purposes that motivated enactment of the legislation interpreted. … We emphasize, as the Supreme Court and this court often have, that “statutory construction ultimately is a judicial function.” While an agency’s interpretation of any statute it administers must be fully and respectfully considered, its reading ultimately prevails, if at all, only by virtue of the persuasive power it exerts. Deference to interpretative agency promulgations should not lapse into mere ” ‘judicial inertia,’ ” and we would neglect a fundamental responsibility were we to ” ‘stand aside and rubber-stamp [our] affirmance of administrative decisions that [we] deem inconsistent with a statutory mandate or that frustrates the congressional policy underlying a statute.’ ” Barnett v. Weinberger, 818 F.2d 953, 960-963 (D.C. Cir. 1987).
Further, mere deference to whatever decision was made by the Office of Medicaid is not what is envisioned by M.G.L. c. 30A, as the SJC has held:
We have observed … that G. L. c. 30A, s. 11 (8), requires the decision of the department to “be accompanied by a statement of reasons . . . including determination of each issue of fact or law necessary to the decision.” … A purpose of that statutory provision is to require the department to give a ” ‘guide to its reasons’ so that this court may ‘exercise . . . [its] function of appellate review.” ” Hamilton v. Department of Pub. Utils., 346 Mass. 130 , 137 (1963), quoting Leen v. Assessors of Boston, 345 Mass. 494 , 502 (1963). Massachusetts Institute of Technology v. Department of Public Utilities, 425 Mass. 856, 868 (1997)
The Hearing Officer gave deference to positions in a memorandum filed during the fair hearing by a lawyer representing the Office of Medicaid, who withheld pertinent information and did not fulfill her duty of candor to the tribunal. If this Court were simply to defer to the Hearing Officer, then the Office of Medicaid would have received double deference without any scrutiny of the actual federal Medicaid and SSI trust law it is supposed to be implementing or its violations of the doctrine of administrative consistency and the duty of candor. Thus, it is the proper role of this Court to strike down, without deference due to unexplained inconsistency and violation of federal laws, the illegality and arbitrariness of the Office of Medicaid’s position that when the settlor’s former home is owned by an irrevocable trust and lived in by the settlor, the usage of the home causes it to be a countable asset even where the trust allows no distributions of principal to or for the settlor. For the sake of judicial economy, a declaratory judgment should be issued to clarify what 130 CMR 520.023(C)(1)(d) means and what it does not mean.
(IX) A New Wrinkle Emerges: A Misinterpreted Sentence in the State Medicaid Manual
The Office of Medicaid has recently begun pointing out that the State Medicaid Manual states, at 3259.1 A.6.:
Payment.–For purposes of this section 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. A payment may include actual cash, as well as noncash or property disbursements, such as the right to use and occupy real property.
Note that this section of the State Medicaid Manual contemplates that a payment could be either income or principal, and that usage of the Plaintiff’s home could be treated as a payment. The new position of the Office of Medicaid (apparently not even yet developed at the time of the Plaintiff’s fair hearing) appears to be that mere usage of a home transferred to a trust is per se a payment of principal, but note the logical fallacy of the Office of Medicaid’s reading of those two sentences of the State Medicaid Manual. The first sentence specifies that a payment could be from principal, or in the alternative it could be from income. The second sentence is not specific, and does not mention principal or income. To reduce the Office of Medicaid’s illogical reading of those two sentences into mathematical terms, where a Payment is X, Principal is A and Income is B, the Office of Medicaid claims that if X = A or B, then X = A.
Also note that in this case the Office of Medicaid did not even have the legal right to live in the home under the terms of the deed or trust, so the payment would have to be implied from conduct, which inquiry is not suggested or authorized under the State Medicaid Manual or SSI law.
Even though it has always been the duty of the Office of Medicaid to scrutinize its own fair hearing decisions for consistencies and inconsistencies and report them to this Court as inherent to the doctrine of administrative consistency, the agency has chosen not to do so. The Plaintiff has expended a significant amount of time reviewing some of the 2015 fair hearing decisions, and while all relevant decisions may not have been found, only one fair hearing decision appears to have been issued in 2015 that specifically discussed the Office of Medicaid’s cite to State Medicaid Manual 3259.1 A.6. and whether a home in a trust is per se a countable asset. In Fair Hearing Decision 1509625, dated November 2, 2015, Hearing Officer Thomas J. Goode analyzed the new position of the Office of Medicaid in the context of an applicant who had actually reserved the right to live in the home (unlike in this case, where no such right was reserved) and soundly rejected the Office of Medicaid’s legal argument as a matter of law:
Assuming the right to occupy the property is properly considered a disbursal, and is therefore a payment dated to the Trust’s inception, the value of the payment would be limited to the value of the right to occupy the property, i.e., Appellant’s equitable interest that she reserved. However, characterizing the right to occupy as a payment to Appellant does not vest in the Trustee the discretion or requirement to make legal title to the property available to Appellant. Moreover, as Appellant is an income only beneficiary, and cannot receive payments from principal, it follows that characterizing the right to occupy the former residence as a payment would result in an income payment and not a payment from principal. … As a practical matter, the presumption here is that the proceeds could be paid to the individual/applicant free of Trust to pay for the cost of nursing facility care. The availability of an equitable interest only cannot accomplish this goal.
It appears that the issue of whether a home in a trust is “available” and per se countable under section 3259.1 A.6. of the State Medicaid Manual has been ruled upon negatively by Hearing Officer Thomas J. Goode, and where the Director of the Office of Medicaid chose not to order a rehearing on this narrow issue of law and therefore acquiesced to the hearing decision, this legal issue already appears to be settled.
(X) Conclusion
Upon approval of the Plaintiff’s Superior Court appeal, the MassHealth benefits that were applied for would be paid directly to the nursing home, but upon denial of this appeal, if the nursing home cannot reach the assets of the trust as a creditor (as already determined by both the Hearing Officer and the bankruptcy law specialist who served as the Plaintiff’s expert witness), then the nursing home would be left without any payment source. Any arguments made by the Office of Medicaid that Congress intended that such a result be possible when passing the 1985 and 1993 federal Medicaid trust laws should be met with extreme skepticism.
Massachusetts Estate Planning, Probate & Elder Law 