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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, and 175 Derby Street, Unit 19, Hingham, Massachusetts. Brian has been named a Massachusetts Super Lawyer® in Boston Magazine in 2009-2018, 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 3-volume Estate Planning for the Aging or Incapacitated Client in Massachusetts. Brian's biographical website can be found at SouthShoreElderLaw.com

Nothing on this blog should be considered to be legal advice or tax advice.

Is a Home That Is Owned by an Irrevocable Trust Automatically a Countable Asset under Federal Medicaid Trust Law?

March 15, 2016

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.

Can Saving One Penny Cost Your Estate $33,200 in Massachusetts Estate Taxes?

January 4, 2016

If you are a Massachusetts resident, a difference in a mere one penny in your net worth at death can result in $33,200.00 in Massachusetts estate taxes. The Massachusetts estate tax kicks in on a taxable estate of $1,000,000.00, and the estate tax on an estate of exactly $1,000,000.00 is $33,200.00. If instead the decedent’s taxable estate is one penny less, or $99,999.99, the tax is zero. Due to the thoughtless way the Massachusetts estate tax law was implemented, if a decedent’s Massachusetts taxable estate is between $1,000,000.00 and 1,033,000.00, the persons inheriting from that estate actually inherit less than if the taxable estate had been $99,999.99.

This strange estate tax result is based on a 2002 reaction (or thoughtless overreaction) by the Massachusetts state legislature to the so-called Bush tax cuts that occurred in 2001. A few years earlier, the previous Massachusetts estate tax had been repealed because a study had found that the existence of the Massachusetts estate tax caused a net loss in overall tax receipts due to older persons changing their domicile to avoid the estate tax.

When the latest version of the Massachusetts estate tax was implemented, the 2001 Bush tax cuts were phasing out the amount of the federal estate tax that had been shared with the states (known as the sponge tax or the “credit for state death taxes”), and the Massachusetts state legislature then passed legislation that allowed Massachusetts to continue receiving the same amount of estate tax revenue. Instead of coming from the federal government, the estate tax is now payable directly to the Commonwealth of Massachusetts by the decedent’s estate.

The odd implementation of the Massachusetts estate tax is highlighted by the manner in which the tax is calculated. In order to figure out the current Massachusetts estate tax, a 1999 Form 706, the Federal Estate Tax Return, must be filed. A blank copy of the 1999 Form 706, along with instructions, can be found on the Estate Tax page on the Massachusetts Department of Revenue’s website. Preparation of the 1999 Form 706 must be done to determine how much the Commonwealth of Massachusetts would have received if the federal estate tax exemption were now $1,000,000.00 and the federal tax law had not changed in 2001 to eliminate the credit for state death taxes. When the 1999 Form 706 is completed, the amount that the Commonwealth of Massachusetts receives as the Massachusetts estate tax is found on line 15, the credit for state death taxes.

Some simple last-minute moves can often be made by Massachusetts residents (and non-residents) to minimize or avoid paying the Massachusetts estate tax on amounts over $999,999.99.  Where the federal estate and gift tax exemption is now $5,450,000.00 in 2016, it may be time for the Massachusetts state legislature to take a moment to think the Massachusetts estate tax through so that it becomes more fair or sensible.

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

November 6, 2015

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

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

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

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

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

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

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

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

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

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

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

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

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

November 4, 2015

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

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

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

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

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

What Are the 2016 Federal and Massachusetts Estate and Gift Tax Filing Figures?

October 27, 2015

The Internal Revenue Service has recently announced that in 2016 the federal estate tax exemption will rise from $5,430,000.00 to $5,450,000.00 per person. (Under current law, this figure is adjusted annually for inflation.) Married couples can get the benefit of two exemptions, so in 2016 the total federal estate tax exemption per couple can be $10,900,000.00. The top estate tax rate on amounts above the exemption is 40%.

Under a fairly new concept known as portability, the surviving spouse in some situations can use the unused exemption of the first spouse to die. Portability requires, in part, the timely filing of a federal estate tax return for the first spouse to die.  Unfortunately, the surviving spouse cannot use the deceased spouse’s unused exemption after a remarriage.

Few estates are expected to owe any federal estate tax in 2016, so the federal estate tax is no longer the biggest concern for many wealthy U.S. citizens who want to avoid taxes on wealth they leave behind to their heirs. The focus for many wealthy U.S. citizens has changed to minimizing capital gains taxes.

Although some state estate tax filing figures throughout the nation are being increased, there is no change planned for Massachusetts residents.  The Massachusetts estate tax still begins at a taxable estate of $1,000,000.00, with a minimum tax of $33,200.00.  Oddly enough, the tax is largely calculated through the preparation of a 1999 Federal Estate Tax Return, a  copy of which is on the Commonwealth’s website.  Persons who are not Massachusetts residents but own real estate in Massachusetts are affected by this tax, as well as an unrecorded Massachusetts estate tax lien that arises by operation of law.

The Internal Revenue Service has also announced that in 2016 the annual gift exclusion will remain $14,000.00 per recipient. The provision sets the highest amount that an individual can give on an unreportable tax-free basis, without affecting the gift-giver’s federal estate tax exemption, to any person who isn’t the gift-giver’s spouse, or to an unlimited number of persons.

Transfers or gifts between spouses are usually tax-free, but not always. Whether the gift is tax-free is based on whether the spouse who is receiving the gift is a U.S. citizen. A spouse who is a U.S. citizen can receive unlimited gifts, but a spouse who is not a U.S. citizen will be limited to receiving $148,000.00 in 2016.

Gifts made in excess of the $14,000.00 or $148,000.00 rules require the filing of a federal gift tax return, and make use of part or all of the gift-giver’s federal estate tax exemption.  There is no gift tax in Massachusetts, so there is no filing requirement regarding gifts with any Massachusetts governmental entity.

Does the Director of the Board of Hearings at the Office of Medicaid Realize (or Even Care) that the MassHealth Subpoena Regulation is Legally Invalid?

July 7, 2015

Under a MassHealth regulation governing fair hearings, 130 CMR 610.052 (B), a MassHealth appellant has the right to a subpoena, either requiring the attendance and testimony of a witness or the production of any evidence (including books, records, correspondence, or documents) relating to any matter in question at the hearing. According to this MassHealth Board of Hearings (“BOH”) regulation:  “Any party may submit to BOH a written request for the issuance of such subpoena. If, in its discretion and in accordance with 130 CMR 610.065(B), BOH allows such request, a subpoena will be issued within three business days of receipt of such request.”

The problem with that regulation, which was presumably reviewed and approved by lawyers representing the Office of Medicaid, is that it overrules Massachusetts law instead of interpreting it.  A regulation is supposed to be an interpretation of law wherever there is ambiguity or room for agency discretion.  The underlying Massachusetts law, Massachusetts General Laws, Chapter 30A, Section 12, from which this regulation is derived does not give the BOH even a hint of authority to decide whether a subpoena should be issued.  Rather, M.G.L. c. 30A, s.12 provides that “[a]ny party to an adjudicatory proceeding shall be entitled as of right to the issue of subpoenas in the name of the agency conducting the proceeding. The party … may make written application to the agency, which shall forthwith issue the subpoenas requested.” (emphasis added)  The regulation at 130 CMR 610.052 is derived from M.G.L. c. 30A, s.12 and cannot be interpreted to deprive the appellant of the right to a subpoena under Massachusetts law.

It is completely beyond my belief that all of the many lawyers at the Office of Medicaid and the BOH do not understand or care that they are regularly violating this subpoena law, but the ultimate blame has to be placed on the Director of the BOH, Kim Larkin, who is a lawyer and oversees the fair hearing process.  By law, under Massachusetts General Laws, Chapter 118E, Section 48, the BOH is supposed to be independent of the rest of the agency, but good luck trying to subpoena information from the other part of the agency.

I have had direct experience with the BOH in its consistent refusal to issue subpoenas. When challenging the Office of Medicaid’s failure in 2000-2001 to calculate the average daily cost of nursing home care (a critical figure in the imposition of a MassHealth ineligibility period due to disqualifying transfers of assets), I requested subpoenas regarding the process used to calculate the figure and the underlying data. The Director of the BOH, Kim Larkin, refused to issue any subpoena at that time. In 2014, in Appeal 1411682, where a trust amendment was being treated as a disqualifying transfer of assets, I wrote to the hearing officer for a subpoena to be issued to the Director of the Office of Medicaid (or her designee) for the underlying data used to calculate the average daily rate being posted. The subpoena was not issued by the hearing officer based on the flimsy excuse that it presumed the MassHealth representative would not be able to provide the requested information at the hearing, and that the Office of Medicaid was now put on notice that the issue could arise at the hearing; not so coincidentally, the MassHealth representatives at the hearing did not have the subpoenaed information, and the hearing officer did nothing at all about it.

In another 2014 appeal (Appeal 1409671), I requested a subpoena to the Director of the Office of Medicaid (or her designee) regarding similar trusts that had received approvals, and it was denied in large part because the hearing officer claimed that the information requested was irrelevant. The next day, at the fair hearing, the hearing officer acknowledged that the issue was a valid one to be pursued by the appellant, but then his excuse for refusing to issue the subpoena was that I had had a notary public issue my own subpoena after I had received his refusal to do so; thus, the hearing officer stated he did not have to do so because there already was one in existence. He then gave me 2 weeks to petition the Superior Court for an order requiring compliance with the terms of the subpoena that he himself could have simply issued after acknowledging that the issue being pursued was valid. It seems that the BOH hearing officers always have an excuse for not issuing a subpoena to the Director of the Office of Medicaid, and it therefore appears that the claimed independence of the BOH, which is a part of the Office of Medicaid, is lip service only.

When a subpoenae is directly issued to the Director of the Office of Medicaid (or her designee) by a notary public, as is permitted under M.G.L. c. 30A, s.12, lawyers representing the Office of Medicaid usually send back a form letter which states that a subpoena is only valid if issued by the BOH hearing officer, and that the Office of Medicaid will not comply with the subpoena.  Thus, it seems that these lawyers representing the Office of Medicaid either lack a basic understanding of how regulations cannot override laws, or are advising their client not to follow the law, which would seem to be unethical lawyering. It may also be unethical conduct for a hearing officer (who is a lawyer) not to issue a subpoena, where black letter law states that it must be done.

Under 130 C.M.R. 610.065(A)(4), the Board of Hearings has the duty “to ensure that all parties have a full opportunity to present their claims orally or in writing and to secure witnesses and evidence to establish their claims,” but it seems clear that the Office of Medicaid does not want its hearing officers to be required to issue subpoenas, and the hearing officers and the Director of BOH seem to bend over backwards to find excuses not to allow appellants to attain their right to a subpoena under M.G.L. c. 30A, s.12.  Unfortunately for the system of justice, the Director of the BOH does not seem to understand or care about these fundamental issues of due process and administrative law.

A Rebuttal to the Reckless Misrepresentation of Federal Medicaid Trust Law by the Office of Medicaid in Massachusetts

May 5, 2015

The Office of Medicaid now appears to take the position that all assets held in any Irrevocable Trust should be counted for MassHealth purposes, despite having regulations to the contrary.  The Office of Medicaid has developed a boilerplate written document that it adapts slightly to the terms of each trust it is attacking, and files this document at fair hearings.  The document has not been vetted or published in any official manner, has been withheld from public view, and may be best described as an essay, so it will be referred to herein as the “MassHealth Essay.”

The continual usage of the MassHealth Essay makes it akin to an illegal, unpublished regulation.  Among the more inventive claims in the MassHealth Essay are that the 1993 federal Medicaid trust law creates a presumption that all self-settled trusts are countable, that the intention of a settlor to have a trust be income-only is prohibited because the purposes for which a trust is established must be disregarded, that any trust can purchase an annuity and cause the principal to be paid to the income beneficiary, and that if a home is available for use by the settlor then it is per se a countable asset.

Copies of the MassHealth Essay as it has evolved can be found online at IrrevocableTrust.info, along with dozens of fair hearing decisions that have accepted or rejected the arguments of the Office of Medicaid.

Congress changed federal Medicaid trust law in 1985 and repaired it in 1993, but there have been no changes in this federal law since 1993. What the Office of Medicaid has done is distort the case of Doherty v. Commissioner, 74 Mass. App. Ct. 439 (2009), which was about a flawed trust, and apply its distortions to all trusts.  Where the basic arguments in the earlier versions of the MassHealth Essay were not given in advance to appellants or distributed to the elder law bar, the tactics of the Office of Medicaid led to some unwarranted fair hearing denials.  Even though M.G.L. c. 118E, s. 48 provides that the Director of the Board of Hearings “shall be responsible …for the training of referees,” it is unknown to the elder law bar whether such training has occurred regarding the details of federal Medicaid trust law, so hearing officers at the Board of Hearings may have been and may still be susceptible to being misled by the MassHealth Essay.

Now that the elder law bar has seen several copies of the MassHealth Essay, it is clear why the Office of Medicaid has shielded the MassHealth Essay from public release.  The Office of Medicaid has claimed in the MassHealth Essay that many irrevocable trusts were revocable, has continually cited a probate law that had been repealed many years earlier, has incorrectly cited federal Medicaid trust law, and has utilized many quotes from cases out of context.  Neither the details of the trust nor its funding details nor the actual case are provided to back up the applicability of many of the quotes in the MassHealth Essay.

The duty of candor to the tribunal applies to lawyers representing administrative agencies.  It is questionable as to whether the past and ongoing usage of the MassHealth Essay constitutes ethical conduct by the lawyers representing the Office of Medicaid.

History of Medicaid Trust Law Reflects That Debtor-Creditor Analysis Is the Proper Standard of Review for Self-Settled Irrevocable Trusts

Before 1985, a settlor could place the settlor’s assets in trust for the settlor and grant the trustee complete discretion to distribute principal back to the settlor.  The assets held in that type of trust were not counted as assets of the Medicaid applicant before 1985.  “As we have stated, prior to 1986 some irrevocable trusts simply allowed complete discretion in the trustee without any further specification.”  Cohen v. Comm’r of Div. of Med. Assistance, 423 Mass. 399, 409 (1996).  Such a trust, however, would not have been effective against a creditor under state debtor-creditor laws.  To eliminate this loophole in the law, Congress changed federal Medicaid law to allow states to implement their existing debtor-creditor laws against that type of trust. Many of the quotes erroneously relied upon by the Office of Medicaid in the MassHealth Essay were discussing these types of trusts, yet the Office of Medicaid chooses not to explain the context of the quotes.

In the Cohen case, Justice Charles Fried of the Supreme Judicial Court concluded that Congress was effectively implementing state debtor-creditor laws when it enacted Medicaid trust laws:  “We are confirmed in this reading by something akin to legislative history: a consideration of the source from which the legislative language appears to have been taken. … Restatement (Second) of Trusts s. 156 (1959) 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.” The plaintiffs suggest that this provision was a likely model for the Congressional enactment, and a comparison of the purpose and the language of the provision confirms their suggestion. Section 156 of the Restatement deals with a device, like the MQT, concocted for the purpose of having your cake and eating it too: the self-settled, spendthrift trust. 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. Like the MQT statute, s. 156 defeats this unappetizing maneuver by providing that, even if those assets are sought to be shielded by the discretion of a trustee, or if the trust simply declares assets unavailable to creditors, the full amount of the monies that the trustee could in his or her discretion “under the terms of the trust” pay to the grantor, is the amount available to the grantor and thus to his or her creditors. Not only the courts of this State, but those of many other jurisdictions have long followed this Restatement principle. See Ware v. Gulda, 331 Mass. 68 , 70 (1954); Merchants Nat’l Bank v. Morrissey, 329 Mass. 601 , 605 (1953). See also Scott, Trusts s. 156 n.1 (3d ed. 1967 & Supp. 1985) (compiling cases).”  Cohen at 413-415 (emphasis added).

What the Cohen holding means is that, for trust interpretation purposes, the MassHealth program stands in the same shoes as a creditor of the settlor.  Under Ware, a creditor could sue a self-settled trust and reach the maximum amount capable of distribution to the settlor, and under Cohen, the maximum amount capable of distribution to the settlor was treated as an available asset.  If a creditor could successfully sue the Irrevocable Trust for a debt of the settlor and reach the principal, then those are the circumstances under which the principal of the Irrevocable Trust would be treated as a countable asset under federal Medicaid law, and only to the extent that the creditor could do so.

Nursing homes are being placed in the middle by the recklessness of the Office of Medicaid on trust issues.  If a MassHealth application is denied due to the existence of the Irrevocable Trust, and if the nursing home could reach the Irrevocable Trust as a creditor of the denied MassHealth applicant under Massachusetts debtor-creditor laws, then the nursing home could eventually be made whole by suing the denied MassHealth applicant and the Irrevocable Trust.  Where, however, a creditor of the Appellant cannot reach the principal of the Irrevocable Trust and the trustee cannot be forced to pay the nursing home, then the nursing home would be left with no payment source if the MassHealth application and appeal are denied.  “If the settlor-beneficiary creates a remainder interest in another person, then the settlor-beneficiary’s creditors will not be able to reach the remainder interest if the trustee cannot reach the corpus for the settlor-beneficiary’s benefit.” In re Shurley, 115 F.3d 333 (5th Cir. 1997), citing G. Bogert & G. Bogert, Trusts and Trustees (2d rev. ed. 1992), § 223, at 453. “Where the settlor retains only a limited interest in a trust, the portion thereof not retained is afforded some protection even though it is self-settled. The settlor’s creditors can reach trust assets to the maximum extent that the trustee could distribute or apply such assets for the settlor-beneficiary’s benefit.”  Peter Spero, Asset Protection: Legal Planning, Strategies and Forms, 6.08[2] (Warren Gorham & Lamont, 2007), citing 2 A. Scott & W. Fratcher, The Law of Trusts (4th ed. 1987), §156.2, at 175.

The 1993 Federal Medicaid Trust Law Repaired Gaps in the 1985 Law

States were not specifically required to implement the 1985 federal Medicaid trust law, and the 1993 law required them to do so.  “In enacting the trust provisions of OBRA 1993, Congress provided a comprehensive system for dealing with the relationship between trusts and Medicaid eligibility. After limited success with the Medicaid Qualifying Trusts provisions enacted in 1986, Congress made a deliberate choice to expand the federal role in defining trusts and their effect on Medicaid eligibility. Evidence of this can be found throughout the Medicaid statute. For example, the current text of 42 U.S.C. § 1396a(a)(18) requires States to comply with “section 1396p of this title with respect to . . . treatment of certain trusts[.]”  Before OBRA 1993, the provision instructed States to “comply with the provisions of section 1396p of this title with respect to liens, adjustments and recoveries of medical assistance correctly paid, and transfers of assets[.]” 42 U.S.C. § 1396a(a)(18) (1992). It did not mention compliance with 1396p.” Lewis v. Alexander, 685 F.3d 325, 343 (3d Cir. 2012)

As explained in detail by the Supreme Judicial Court in the Cohen case, trusts where principal was overtly available for distribution, yet had various types of conditional limitations on trustee discretion, were not clearly covered in the 1985 law. The Cohen court explained that the 1993 law eliminated a settlor’s ability to utilize such conditional limitations in trusts, as Congress expanded the definitions to pull those trusts into the Medicaid application process as countable assets.  In discussing the Kokoska part of the case, the Cohen court stated that, apart from the special needs trust exceptions, the 1993 law was simply a correction of the gaps left in the 1985 law.  The Supreme Judicial Court concluded that the 1993 changes in federal Medicaid trust law repaired the gaps in the 1985 law and “resolves in favor of the Commonwealth all possibility of argument the issue presented in these cases.”  Cohen at 406.

Before 1993, a Medicaid applicant could place the principal residence into a revocable trust and preserve it, because the transfer was not deemed to be disqualifying, and the home was still deemed noncountable. The 1993 law also targeted this problem by treating a home in a revocable trust as a countable asset.

United States Court of Appeals Has Held in Case of Lewis v. Alexander that Federal Medicaid Law Does Not Direct that State Trust Laws Be Ignored

The Office of Medicaid claims in the MassHealth Essay that all Massachusetts trust laws should be ignored, but the United States Court of Appeals for the Third Circuit has already examined Congressional intent in the context of Medicaid trust laws and concluded otherwise.  “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.

There Is No Presumption in Federal Medicaid Trust Law About the Countability of Trusts

There is no presumption in federal Medicaid trust law about all trusts being countable assets, and nothing resembling such a point was made by the Office of Medicaid in the four major trust cases in which extensive briefs of law were filed at the appellate court level. No such argument was made in Cohen, Doherty, Lebow v. Comm’r of Div. of Med. Assistance, 433 Mass. 171 (2001) or Guerriero v. Commissioner of the Division of Medical Assistance, 433 Mass. 628 (2001), so the claim in the MassHealth Essay about there being a presumption that all trusts are countable assets is a new position that is not entitled to judicial deference.

The Office of Medicaid makes a reckless misrepresentation of law when it claims in the MassHealth Essay that all state trust law is to be ignored in the determination of eligibility for Medicaid benefits for long term care.  The federal Medicaid law at 42 USC 1396p(d)(2)(C) specifies only four aspects of state trust law that may be ignored in determining eligibility:

“(C) …this subsection shall apply without regard to—

(i) the purposes for which a trust is established,

(ii) whether the trustees have or exercise any discretion under the trust,

(iii) any restrictions on when or whether distributions may be made from the trust, or

(iv) any restrictions on the use of distributions from the trust.”

The Office of Medicaid misleads the hearing officer at a fair hearing by emphasizing the phrase “any circumstances” in the MassHealth Essay, when in fact these four circumstances in 42 USC 1396p(d)(2)(C) are the only circumstances addressed by the federal Medicaid trust law.  The trust must, as a precondition of countability, allow distributions to or for the settlor.  Having the principal of the trust initially available, but with an attempt to attach protective strings thereafter, is what was described in Cohen as “concocted for the purpose of having your cake and eating it too.”

The Office of Medicaid makes the specious claim in the MassHealth Essay that the settlor’s intentions in establishing an income-only trust should be ignored because 42 U.S.C. §1396p(d)(2)(C)(i) states that the purpose of the trust is to be ignored.  Under that reasoning, the very intention of income limitation would presumably be the legislatively prohibited purpose, despite the fact that the rest of the federal Medicaid trust law goes through the effort to distinguish between principal and income.

Since 1994, the State Medicaid Manual Has Provided Binding Guidance on What “Any Circumstances” Means under Federal Medicaid Trust Law

The State Medicaid Manual was described by the Supreme Judicial Court in footnote 10 of Cohen as “the Federal manual that provides interpretive guidance to the States.” Issued by the Centers for Medicare and Medicaid Services, it is binding on the States by contract, as 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.”

The portion of the State Medicaid Manual known as HCFA Transmittal 64 was issued in 1994 to provide guidance on the 1993 federal Medicaid law changes. The substance of the federal Medicaid trust law has not changed since then.

The “any circumstances” test in federal Medicaid trust law is limited to four aspects of state trust law, and the State Medicaid Manual at 3259.6 E. has long provided guidance to all states in describing the circumstances under which payments can or cannot be made:  “In determining whether payments can or cannot be made from a trust to or for an individual, take into account any restrictions on payments, such as use restrictions, exculpatory clauses, or limits on trustee discretion that may be included in the trust.  For example, if an irrevocable trust provides that the trustee can disburse only $1,000 to or for the individual out of a $20,000 trust, only the $1,000 is treated as a payment that could be made under the rules in subsection B.  The remaining $19,000 is treated as an amount which cannot, under any circumstances, be paid to or for the benefit of the individual.  On the other hand, if a trust contains $50,000 that the trustee can pay to the grantor only in the event that the grantor needs, for example, a heart transplant, this full amount is considered as payment that could be made under some circumstances, even though the likelihood of payment is remote.  Similarly, if a payment cannot be made until some point in the distant future, it is still payment that can be made under some circumstances.”

The Office of Medicaid Must Construe Federal Medicaid Law to Favor Applicants, and Cannot Be More Restrictive Than SSI

The MassHealth fact-finding process and trust law interpretation in the MassHealth application and appeal processes, as expressed in the MassHealth Essay, 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 Office of Medicaid cannot utilize a methodology that is more restrictive than that used by SSI.  See Lewis v. Alexander, 685 F.3d 325 (3d Cir. 2012) and 42 U.S.C. § 1396a(a)(10)(C)(i)(III).  A methodology is “considered to be ‘no more restrictive’ if, using the methodology, additional individuals may be eligible for medical assistance and no individuals who are otherwise eligible are made ineligible for such assistance.” 42 U.S.C. §1396a(r)(2)(B).

The arguments made by the Office of Medicaid regarding “any circumstances” are invalid because they are more restrictive than the directives in the POMS.  Section SI 01120.201D – Treatment of Trusts of the POMS reads, in relevant part:

“b.  Circumstance under which payment can or cannot be made

In determining whether payments can or cannot be made from a trust to or for the benefit of an individual (SI 01120.201F.1.), take into consideration any restrictions on payments.  Restrictions may include use restrictions, exculpatory clauses, or limits on the trustee’s discretion included in the trust. However, if a payment can be made to or for the benefit of the individual under any circumstance, no matter how unlikely or distant in the future, the general rule in SI 01120.201D.2.a. in this section applies (i.e., the portion of the trust that is attributable to the individual is a resource, provided no exception from SI 01120.203 applies).

  1. Examples

An irrevocable trust provides that the trustee can disburse $2,000 to, or for the benefit of, the individual out of a $20,000 trust. Only $2,000 is considered to be a resource under SI 01120.201D.2.a. in this section. The other $18,000 is considered to be an amount which cannot, under any circumstances, be paid to the individual and may be subject to the transfer of resources rule in SI 01120.201E in this section and SI 01150.100.

If a trust contains $50,000 that the trustee can pay to the beneficiary only in the event that he or she needs a heart transplant or on his or her 100th birthday, the entire $50,000 is considered to be a payment which could be made to the individual under some circumstance and is a resource.

An individual establishes an irrevocable trust with $10,000 of his assets. His parents contribute another $10,000 to the trust. The trust only permits distributions to, or for the benefit of, the individual from the portion of the trust contributed by his parents. The trust is not subject to the rules of this section. The portion of the trust contributed by the individual is subject to evaluation under the transfer of resources rules in SI 01150.100 (see also SI 01120.201E in this section). The portion of the trust contributed by his parents is subject to evaluation under SI 01120.200.”

The MassHealth or Medicaid fact-finding process and trust law interpretation cannot be more restrictive than that of SSI, but can be more liberal, in part due to the availability of waiver programs.  Thus, SSI eligibility workers are instructed in the POMS not to make Medicaid determinations, but such instructions due not affect the overriding federal law that the Medicaid fact-finding process and trust law interpretation cannot be more restrictive than SSI procedures.

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 the Office of Medicaid is legally bound by it.  The POMS contains no provision that self-settled irrevocable trusts are presumed to be countable.  The POMS contains no provision that directs or even hints that state trust law be ignored.  The POMS contains no provision that any amount of reserved control results in an income-only irrevocable trust being treated as available to the applicant.  The POMS contains no provision that a termination provision whereby a trustee can distribute assets to the remainderpersons results in an income-only irrevocable trust being treated as available to the applicant.  The POMS contains no provision that the possible investment by the trustee of an income-only irrevocable trust in annuities, life insurance or other investments renders the principal available to the settlor.  The POMS contains no provision that a life estate in an irrevocable trust or mere usage of a home renders the principal of the trust to be deemed available to the settlor.  The POMS contains no provision that the reservation of a limited power of appointment or special power of appointment in an income-only irrevocable trust renders the principal of the trust to be deemed available to the settlor. The POMS contains no provision that the reservation of a power of substitution of assets in an income-only irrevocable trust renders the principal of the trust to be deemed available to the settlor.  In short, the POMS contains no provision that directs or even hints that anything other than the right of a settlor or the settlor’s spouse to withdraw principal without consideration or the power of a trustee to distribute principal to the settlor or the settlor’s spouse matters in the review of an income-only irrevocable trust.

In Determining Whether the Principal of an Irrevocable Trust Is Countable for MassHealth Purposes, Control by the Settlor Over the Trust Is Not a Relevant Issue

In determining whether the principal of an Irrevocable Trust can be withdrawn by the settlor or given to the settlor by the trustee, or is in any way available to the settlor for Medicaid, MassHealth or SSI purposes, the fact that the settlor may reserve some rights or powers over the irrevocable trust is not a relevant factor.  If Congress had determined that any facet of a settlor’s control over an irrevocable trust should affect its countability, it would have specifically stated so in federal Medicaid and SSI trust laws, yet Congress chose not to do so.

Congress has long known that settlors can reserve different aspects of control over irrevocable trusts.  When passing the Internal Revenue Code of 1954, many years before passing the current Medicaid trust laws in 1985 and 1993, Congress had already dealt with control by settlors in the trust income taxation area with the so-called grantor trust rules. The provisions in Internal Revenue Code sections 671-679, the grantor trust rules, are very detailed, and indicate that Congress is aware that there are many varieties of trust provisions where settlors can reserve varying degrees of control over irrevocable trusts.

In proper statutory interpretation of federal laws, Congress is presumed to know about other laws it has passed.  If in the Medicaid context Congress had been concerned about trust control issues and wanted state Medicaid agencies to make a complicated review of irrevocable trusts, Congress could have simply pointed to the grantor trust rules.  When passing federal Medicaid trust laws, Congress did not indicate concern for control issues by making any type of cross-reference to the grantor trust rules, or inserting provisions directly in federal Medicaid trust law prohibiting any degree of control by the settlor.  When passing federal Medicaid trust laws, Congress simply allowed states to implement their own debtor-creditor laws.

Usage of a Home in an Irrevocable Trust Does Not Cause the Principal of the Trust to Be Countable

The Office of Medicaid often makes the argument that a life estate in a trust provides access to the principal of an Irrevocable Trust, and that mere usage of the home on a rent-free basis provides access to the principal of the Irrevocable Trust.  The Office of Medicaid makes that statement in a conclusory fashion, without explaining how that could possibly be.

Residing in a home owned by an Irrevocable Trust does not mean the principal was “available” to the Appellant as the term is used in 130 C.M.R. 520.023(C)(1)(d), which reads “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.”  The meaning of “available” as used throughout the federal Medicaid trust laws and MassHealth regulations does not mean physically available; rather, the term “available” refers to whether the trustee has discretion to distribute the trust principal under any circumstances to or on behalf of the Appellant.  Usage of the real estate in a trust is the equivalent of an income interest in the trust. The Office of Medicaid ignores that the usage of a home is the equivalent of receipt of the income generated from rental of the home while not living there.

Before January 1, 2014, the Office of Medicaid had an official, published position on what the term “available” meant in its trust regulations, but has apparently chosen not to have a definition any longer.  The Office of Medicaid’s arguments that the MassHealth applicant’s home is “available” when it is being used as a home are now based on a common usage of the word, yet before January 1, 2014, 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.”  Since January 1, 2014, the word “available” has no longer been defined anywhere in the MassHealth regulations.  The reckless manipulation of the MassHealth regulations by the Office of Medicaid as of January 1, 2014 has given its lawyers a modicum of legal and ethical cover to make arguments that they previously knew they could not make under federal Medicaid trust law and the prior-existing definition of “available” at 130 CMR 515.001.  After the Office of Medicaid had tactically stripped the definition of the term “available” from its regulations, it began to argue that, notwithstanding the overall intention and specific terms of the irrevocable trust, usage of the home in such a trust meant that it was “available,” using the wrong definition of the word, and per se a countable asset.  The proper context of the word “available,” especially where the opening paragraph in 130 CMR 520.023 states that the review process be limited to “any circumstances described in the terms of the trust,” and the title of 130 CMR 520.023(C)(1) reads “Portion Payable,” would focus on whether the principal or income of the Irrevocable Trust is distributable to or for the MassHealth applicant.  The word “available” as used in the federal Medicaid trust law is essentially the same as “distributable.”

The federal Medicaid trust law at 42 USC 1396p(d)(2)(B)(i) does not make reference to usage of principal as making the principal available; rather, it deals with actual payment from the trust:  “if there are any circumstances under which payment from the trust could be made to or for the benefit 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, and payments from that portion of the corpus or income.” (emphasis added)  To the extent that the use of the principal could be treated as a payment, it would be an income payment because the principal is not being consumed by the life tenant.  The reckless misinterpretation of 130 CMR 520.023(C)(1)(d) occurring in the MassHealth Essay is not based on what the trust states, but rather is based on what type of asset is owned by the trust.

If the MassHealth applicant’s home had been sold before the MassHealth application had been filed, and the proceeds had then been held in the Irrevocable Trust, none of the assets in the applicant’s Irrevocable Trust would be treated as countable under the MassHealth Essay’s strained reading of the MassHealth regulation.  Nowhere in federal Medicaid trust law or federal SSI trust law is such an illogical outcome permitted, and the MassHealth regulations do not make such an illogical outcome apparent. “Only if the legislative history compelled a different conclusion might we depart from the plain meaning of the statute. … The application of this canon of construction is especially appropriate where the statute is understood to elicit reliance by knowledgeable persons drafting documents in response to it.”  Cohen at 409.

The fact that the Office of Medicaid has only recently adopted its current position about irrevocable trusts shows that it agreed with the Cohen court’s view of the applicability of Restatement (Second) of Trusts s. 156 from the time the 1985 and 1993 laws were implemented in Massachusetts.  The long-standing position of the Office of Medicaid regarding irrevocable trusts was established in a legal memorandum dated 4/29/1992, entitled “Transfer and Trust Issues  Reconciliation of Department Policy,” where the standard of review, similar to Restatement (Second) of Trusts s. 156, was simply that a trust was “countable up to the limit of the trustee’s discretion to distribute it to the applicant.”

The Position of the Office of Medicaid in the Doherty Case Was That the Trust Must Be Read as a Whole, and the Trustee Had No Fiduciary Duties to the Remainderpersons

The Office of Medicaid now tends to argue in the MassHealth Essay that “the entire Trust instrument must be reviewed,” then proceeds to ignore specific provisions that show the intended unavailability of principal in the Irrevocable Trust.  The Office of Medicaid attempts to convince the hearing officer isolate phrases in the Irrevocable Trust out of context, as the MassHealth Essay often states:  “[t]hat there are provisions in the applicant’s trust that are at odds with each other does not change the analysis,” but under Massachusetts law phrases in trusts must not be read independently; rather, the entire trust must be read as a whole, and the Office of Medicaid pushed that very point in the Doherty case: “[A]s MassHealth strongly presses upon us, this clause may not be read in isolation; rather, it must be construed and qualified in light of the trust instrument as a whole.”  Doherty at 441.

The Office of Medicaid attempts to distort the Doherty holding, yet the correct legal position about trust interpretation was stated in its brief in that case.  In the September 28, 2007 brief entitled “Defendant’s Opposition to Plaintiff’s Motion for Judgment on the Pleadings” filed in Essex Superior Court by Carolann Mitchell, Assistant General Counsel of the Executive Office of Health and Human Services in the Doherty case, on page 12, the Office of Medicaid wrote:  “In reviewing contracts, the courts have found that a contract must be read in such a way that no part of the agreement is left meaningless.  See Starr v. Fordham, 420 Mass. 178, 190 (1995); see also S.D. Shaw & Sons, Inc. v. Joseph Rugo, Inc., 343 Mass. 635, 640 (1962). In other words, contracts must be construed to give “reasonable effect” to each provision contained therein.  See State Line Snacks Corp. v. Town of Wilbraham, 28 Mass. App. Ct. 717 (1990). …To allow the one sentence … to control the whole of this document would render the Settlor’s stated intent … completely meaningless.  Such an interpretation of this trust is … against the weight of the law.”

On that same page in the brief, the Office of Medicaid recognized and stressed the importance of fiduciary duties in trust analysis under Massachusetts trust law and federal Medicaid law; the Office of Medicaid took the position that the Trustee in the Doherty case had fiduciary duties, but not to the remainderpersons, but rather to the Settlor:  “The unambiguous language of Article II demonstrates the Trustees’ fiduciary duty runs to Muriel, and dictates that they can use all assets of the Irrevocable Trust for her care and benefit.”  The opposite is true in almost all Irrevocable Trusts, where the Trustee has fiduciary duties to the remainderpersons, and cannot distribute principal to or for the benefit of the settlor from the Irrevocable Trust without violating those duties.

The Office of Medicaid Has Recklessly or Obliviously Ignored Settled Massachusetts Case Law on Proper Interpretation of Trusts

Reading a trust as a whole has long been settled Massachusetts law.  “Trust instruments must be construed to give effect to the intention of the settlor as ascertained from the language of the whole instrument considered in the light of the attendant circumstances. Groden v. Kelley, 382 Mass. 333, 335 (1981).” Harrison v. Marcus, 396 Mass. 424, 429 (1985).  See also Schroeder v. Danielson, 37 Mass. App. Ct. 450, 453 (1994).  Overemphasis on one or two provisions of the trust instrument is not permissible under Massachusetts trust law. “One or two expressions in the trust deed must not be so construed as to impair or destroy the whole scheme of the trust, when another and more reasonable construction is possible.”  Shirk v. Walker, 298 Mass. 251, 261 (1937).  If two provisions of the trust are in apparent contradiction to each other when each is read in isolation, construction must be found that will allow meaning to both provisions to resolve the apparent contradiction, as it is presumed that all provisions in a trust were intended by the settlor to have meaning.  Watson v. Baker, 444 Mass. 487 (2005).

Even if a trust is ambiguous with respect to any particular issue or matter, such ambiguity would not cause the principal of a trust to be available to a MassHealth applicant.  It is well established that any matter relating to the rights created by a trust instrument is a question of law that turns on the Settlor’s intent as reflected in the words of the instrument. Steele v. Kelley, 46 Mass. App. Ct. 712, 731 (1999).  See also Harrison v. Marcus, 396 Mass. 424, 429 (1985); Atwood v. First Natl. Bank, 366 Mass. 519, 523-24 (1974); Berry v. Kyes, 304 Mass. 56, 59 (1939); 4 Scott, Trusts §§ 329A, 334.1 and 335 (Fratcher 4th ed. 1989). This rule of construction applies to the nature and extent of a Trustee’s discretion and to the issue of whether a trust can be terminated. “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).” Guerriero at 632.

In cases of ambiguity, the settlor’s intentions control the interpretation of a trust, and that is why testimony from the drafting attorney is relevant in a MassHealth appeal involving an Irrevocable Trust. “When 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. Pond v. Pond, 424 Mass. 894, 897 (1997). Berman v. Sandier, 379 Mass. 506, 510 (1980). Putnam v. Putnam, 366 Mass. 261, 266 (1974). If, read in the context of the entire document, a given word or phrase is ambiguous, we may accept and consider extrinsic evidence showing the circumstances known to the settlor when he or she executed the document.  Berman v. Sandler, supra. Putnam v. Putnam, supra at 266-267[8].”  Hillman v. Hillman, 433 Mass. 590, 593 (2001).

The Office of Medicaid Has Recklessly or Obliviously Ignored that Trustees Have Fiduciary Duties to the Remainderpersons, and Cannot Use Powers to Skew Beneficial Interests

The Office of Medicaid fails to explain why it recognizes the importance of a trustee’s fiduciary duties in MassHealth regulations at 130 CMR §515.001 and emphasized those fiduciary duties in its brief in the Doherty case, yet does not even bother to mention fiduciary duties of trustees in its MassHealth Essay.

As a fiduciary, a trustee has the dual duties of loyalty and impartiality under M.G.L. c. 203E, s. 802 and 803.  A trustee may not commit any act that would harm any beneficiary, waste any property, give principal or income to anyone not entitled thereto, or take any action that would be contrary to the settlor’s intent.  A trustee has “the burden of showing that he ha[s] discharged the duties of trustee with reasonable skill, prudence, and judgment.” Rugo v. Rugo, 325 Mass. 612, 617 (1950).  The Court in Guerriero made clear that an important consideration in its holding was that if the Trustee violated the Trustee’s duty to a beneficiary, the Trustee would be liable for a “breach of trust.”  Guerriero at 632.

In the MassHealth Essay, the Office of Medicaid ignores that it is the responsibility of the trustee to understand all provisions of the trust instrument and construe them so as to give meaning to all of them.  As the Court stated in Dana v. Gring, 374 Mass. 109, 116 (1977), it is a fundamental principle of Massachusetts law “to ascertain the intention of the testator from the whole instrument, attributing due weight to all its language  . . . and to give effect to that intent unless some positive rule of law forbids.”

Under the duty of impartiality, the trustee is bound to treat all beneficiaries equitably in accordance with the terms of the trust instrument construed as a whole.  See King v. Nazzaro, 78 Mass. App. Ct. 1128 (2011). Thus, a power that allows a trustee to make a particular type of investment is not authority to override the intentions of the Irrevocable Trust. “Even when there are broad discretionary powers, a trustee may not exercise his or her discretion so as to shift beneficial interests in the trust.” Fine v. Cohen, 35 Mass. App. Ct. 610, 617 (1993). The trustee of the Irrevocable Trust must manage the trust’s assets in manner that is fair to both the life income and remainder beneficiaries.   “[I]n the absence of instructions to the contrary [a trustee is bound] to administer his trust with an eye to the remainder interest” as well as to the interest of the life beneficiary. Blodgett v. Delaney, 201 F.2d 589, 593 (1st Cir. 1953).

The MassHealth Essay of the Office of Medicaid Has Intentionally or Obliviously Cited to a Repealed Law and Claimed that Irrevocable Trusts Are Revocable

Many copies of the MassHealth Essay have even gone so far as to cite a repealed Massachusetts probate law as though it were current law.  The Office of Medicaid’s cite in the MassHealth Essay to M.G.L. c. 203, § 25A evinces its lack of knowledge or truthfulness regarding trust law, where such law was repealed in 2008, and undercuts any of the Office of Medicaid’s claims for judicial deference, as this agency has shown by its own words that it lacks technical competence and specialized knowledge in the area of trust law.

The Office of Medicaid often routinely makes the claim that an Irrevocable Trust is revocable or arguably revocable in various situations that have nothing to do with revocability.  In recent fair hearings, Office of Medicaid has issued that label without further explanation when the trustee can make distributions to terminate the trust to persons other than the appellant or the appellant’s spouse, and once made the stunningly inventive claim that if none of the potential distributees were then living, the trustee could then make the terminating distributions to the settlor.  In one case, the Office of Medicaid has made the claim that if a trust protector could amend the trust, it is then revocable.

Nothing is ever presented by the Office of Medicaid to support its revocability argument.  Something that is revoked is recalled, retracted, reversed, rescinded, canceled, nullified or taken back.  An action that is not to the settlor and that is without the settlor’s involvement cannot possibly meet any definition of the word “revocable.”  The memorandum of the Office of Medicaid does not ever explain how these limited provisions held by someone other than the settlor can ever cause an Irrevocable Trust to be revocable.

The Office of Medicaid is not entitled to make up new definitions of common words and phrases.  “See Comey v. Hill, 387 Mass. 11, 15 (1982), quoting 2A Sands, Sutherland Statutory Construction s. 50.03, at 277-278 (4th ed. 1973) (“Words and phrases having well-defined meanings in the common law are interpreted to have the same meanings when used in statutes dealing with the same or similar subject matter as that with which they were associated at common law”).”  Cohen at 413-414.

The choice of the Office of Medicaid in the MassHealth Essay to attempt to cite a repealed law and claim that an Irrevocable Trust is revocable shows the extreme lengths to which it will now go to try to attack trusts through the fair hearing process, rather than go through the regulatory process that is open to the public and potentially be required to defend the regulations in a declaratory judgment action.  If the Office of Medicaid is truly unaware of the obvious difference between a power of revocation held by a settlor and a termination power held by a trustee or a limited power of amendment held by a trust protector, then all of its other statements of law, as well as its claims for deference, are necessarily called into question.

The Latest Positions of the Office of Medicaid on Trust Interpretation Are Not Entitled to Judicial Deference

These new positions of the Office of Medicaid regarding how a trust should be viewed or treated are not entitled to deference.  The Supreme Judicial Court, in Cohen, footnote 18, stated why it chose not to give deference to the MassHealth agency’s position in that case, and the same point applies here:  “The Commonwealth urges us to give deference to the division’s administrative interpretation of the statute. Although there is some merit to the argument, it is not served up in its most appetizing form in this case. … It is usually the initial not the changed interpretation of a statute that earns the kind of deference the Commonwealth would need here. See Barnett v. Weinberger, 818 F.2d 953, 960-961 n.74 (D.C. Cir. 1987), and cases cited (deference depends on consistency of interpretation).”

Every MassHealth Applicant and Appellant Is Entitled to Reasoned Consistency in Agency Decision-Making

The Office of Medicaid apparently believes it has no duty of consistency or disclosure, and it is apparent that the Office of Medicaid intends to repeat issuing the MassHealth Essay as long as the Board of Hearings allows such misbehavior to continue.  While agencies are not bound in perpetuity to repeat an error, they are not entitled to keep slinging the same thing against the wall and hoping it will eventually stick.  Unfortunately, the Office of Medicaid has access to and knowledge of what the facts were in the previous fair hearing decisions where its positions were rejected, but does not mention them or make the trusts available on a redacted basis. As its excuse for attacking all trusts without concern for previous rulings in fair hearing decisions, the Office of Medicaid tends to claim that all cases involving trusts have different facts. When trusts from previous fair hearing decisions are subpoenaed by the appellant, however, the Office of Medicaid chooses not to back up its easily-made claims, and refuses to honor any subpoena issued under M.G.L. c. 30A, s. 12.

A party is entitled to “reasoned consistency” in agency decision-making.  Boston Gas Co. v. Department of Pub. Utils., 367 Mass. 92, 104 (1975).  In Davila–Bardales v. Immigration and Naturalization Service, 27 F.3d 1 (1994) the First Circuit of the United States Court of Appeals stated that the law prohibits an agency “from adopting significantly inconsistent policies that result in the creation of conflicting lines of precedent governing the identical situation. …[T]he law demands a certain orderliness. ”  The MassHealth Essay of the Office of Medicaid cites only fair hearing and Superior Court decisions where appellants lost, but the Office of Medicaid has a duty to provide and explain decisions where appellants prevailed because it has a duty of administrative consistency. An administrative agency must respect its own precedent, and cannot change it arbitrarily and without explanation, from case to case. Mendez-Barrera v. Holder, 602 F.3d 21 (1st Cir. 2010). As a general matter, an agency cannot treat similarly situated entities differently unless it supports the disparate treatment with a reasoned explanation and substantial evidence in the record.  Lilliputian Systems, Inc. v. Pipeline and Hazardous Materials Safety Admin., 741 F.3d 1309 (D.C. Cir. 2014).

The Office of Medicaid appears to be claiming that it can continue ad infinitum to make eligibility determinations that are inconsistent with the results of its own administrative adjudicatory proceedings. In doing so, it seems to show confusion about its own agency structure.  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.” Thus, a hearing officer’s decision represents the final position of the Office of Medicaid, and that is why it is a violation of the duty of administrative consistency to continue to issue eligibility determinations that 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 Office of Medicaid is failing to fulfill the agency’s duties, where under 42 CFR 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.”

In MassHealth Trust Denial Cases, the Office of Medicaid Is Not Conducting Itself as an Administrative Agency Should Conduct Itself

Much of the MassHealth Essay of the Office of Medicaid is boilerplate, and it seems quite unlikely that any misleading quotes or misstatements of law are unintentional.  The quotes throughout the MassHealth Essay are selected primarily for how they sound out of context, do not represent thoughtful case analysis by the Office of Medicaid, and do not comply with the proper role of the agency.

The proper and ethical role of a government lawyer is to see that the law is followed, not simply to win. “Any ethical and procedural obligation of a private attorney to be fair to opponents and candid with the court is enforceable when the litigant is represented by an attorney for the government. As a United States Attorney General put it more than a hundred years ago, “in the performance of . . . his duty . . . he is not a counsel giving advice to the government as his client, but a public officer, acting judicially, under all the solemn responsibilities of conscience and legal obligations.” 6 Ops. Atty. Gen. Office and Duties of Attorney General 326, 334 (1854) (Caleb Cushing to the President).”  Zimmerman v. Schweiker, 575 F. Supp. 1436, 1440 (E.D.N.Y. 1983).  “[C]ounsel for the government, no less than their colleagues in the private sector, are bound by the same obligations to the court. There is, indeed, much to suggest that government counsel have a higher duty to uphold because their client is not only the agency they represent but also the public at large. Cf. MODEL CODE OF PROFESSIONAL RESPONSIBILITY EC 7-14 (1981) (“A government lawyer in a civil action . . . has the responsibility to seek justice and to develop a full and fair record, and he should not use his position or the economic power of the government to harass parties or to bring about unjust settlements or results.”).”  Gray Panthers v. Schweiker, 716 F.2d 23, 33 (D.C. Cir. 1983).  (emphasis added)

Unfortunately, the Office of Medicaid has been using its extreme distortion of the Doherty case (as well as its disavowal of its written position in that case) as an excuse to attack all irrevocable trusts, and ignores anything in the trust, as well as any case or any law or even any contrary fair hearing or Superior Court decision, that is favorable to any appellant.

The Office of Medicaid and Its Board of Hearings Are Complicit in Denials of Due Process to MassHealth Appellants

April 21, 2015

Under 130 C.M.R. 610.065(A)(4), the Board of Hearings has the duty “to ensure that all parties have a full opportunity to present their claims orally or in writing and to secure witnesses and evidence to establish their claims.”  Unfortunately, whenever a negative legal opinion is given to the MassHealth worker, it is tactically withheld from the appellant until the time of the fair hearing.  The appellant in such a situation is routinely provided with no information from the Office of Medicaid about any reason for the denial and cannot adequately prepare for a fair hearing.  Without knowing whether there is an issue of fact, or an issue of law, or a combination of factual and legal issues, about why the denial was issued, the appellant’s due process rights are violated and the appellant cannot adequately prepare for a fair hearing.

It is unfair for the Office of Medicaid to be allowed by its own Board of Hearings to maintain a secretive position.  The Board of Hearings, according to M.G.L. c. 118E, s. 48, is supposed to be “independent of all other subdivisions and personnel of the division,” yet requests by appellants for advance information about the denial are routinely rejected by hearing officers.

Due process, according to Armstrong v. Manzo, 380 U.S. 545, 552 (1965), “is an opportunity which must be granted at a meaningful time and in a meaningful manner.”  M.G.L. Chapter 30A, Section 10 states, in relevant part:  “In conducting adjudicatory proceedings … agencies shall afford all parties an opportunity for full and fair hearing.” (emphasis added)  M.G.L. Chapter 30A, Section 11(1) states:  “Reasonable notice of the hearing shall be accorded all parties and shall include statements of the time and place of the hearing. Parties shall have sufficient notice of the issues involved to afford them reasonable opportunity to prepare and present evidence and argument. If the issues cannot be fully stated in advance of the hearing, they shall be fully stated as soon as practicable. In all cases of delayed statement, or where subsequent amendment of the issues is necessary, sufficient time shall be allowed after full statement or amendment to afford all parties reasonable opportunity to prepare and present evidence and argument respecting the issues.” (emphasis added)

As was recently explained by the United States District Court for the District of Idaho in the case of K.W. v. Armstrong, 2014 WL 1247771 (March 24, 2014), where a class action was certified for due process violations similar to what the Office of Medicaid is now doing in Massachusetts, Medicaid requires that the notices “must contain . . . [t]he reasons for the intended action.” See 42 C.F.R. § 431.210(b). The notices must “detail[] the reasons for a proposed termination” sufficiently enough for a recipient to challenge both the application of the law to their factual circumstances and the “factual premises” of the state’s action. Goldberg v. Kelly, 397 U.S. 254, 267–268 (1970). The explanation in the notice itself must be more than a “general explanation” or “conclusory statement,” and must  provide  at  least  “a  brief  statement  of  [the  decision’s]  factual underpinnings.” Barnes v. Healy, 980 F.2d 572, 579 (9th Cir. 1992).  In other words, the law requires an explanation.  The applicant is entitled to know why the application was denied.  Goldberg recognized that without such an explanation, the right to challenge the change is substantially impaired, if not meaningless.  The lack of specificity runs afoul of due process because Goldberg requires a notice tailored to the individual. Goldberg at 267-68 (“[Due process] require that a recipient have timely and adequate notice detailing the reasons for a proposed termination . . . ”). The notice must give an applicant the opportunity to understand “the factual premise” of his or her “particular case.” Goldberg at 268.

In MassHealth appeals involving trusts, where the filing of the MassHealth Essay does not occur until the fair hearing has already begun, the applicant is left until that time to attempt to figure out why the denial was issued. This burden shifting is impermissible, as it is the Office of Medicaid’s duty to state initially the reasons for its action. Goldberg at 267-68.

As the elder law bar knows from dozens of recent appeals, it is not really the case that the issues cannot be fully stated by the Office of Medicaid prior to the date of the hearing; rather, not stating the issues prior to the hearing is a choice, done solely for tactical reasons. If the intentionally secretive position of the Office of Medicaid were disclosed to the appellant, then the appellant could determine how to prepare for the fair hearing, but the Office of Medicaid apparently does not want to allow the appellant to be able to prepare.  To be required to travel to and from a the fair hearing in order to learn why the denial was issued (as well as to sit in front of the hearing officer reading a lengthy, single-spaced memorandum) has been a common occurrence at many recent fair hearings, and would seem to be a foolish waste of everybody’s time.

Even though such an unappetizing maneuver has been the recent pattern and practice of the Office of Medicaid in dealing with fair hearings, familiarity with it does not make it right.  The intentional, routine, tactical nondisclosure by the Office of Medicaid until the time of the hearing denies the appellant the right to a full and fair hearing as required under M.G.L. Chapter 30A, Section 10.  The lawyer representing the Office of Medicaid can claim attorney-client privilege and state that it is up to the client as to whether or not to file the memorandum, and can claim that the appellant is therefore theoretically not entitled to it until it is placed into the fair hearing record, but, notwithstanding that transparent excuse, the Office of Medicaid has a legal duty to provide the appellant with the reasons for the denial and the appellant has the legal right to be able to prepare for the fair hearing.  The appellant has the right to present witnesses, but, without knowing about the reasons for the denial, cannot determine which witnesses should be brought to the fair hearing on factual matters.  The appellant has the right to hire expert witnesses on different types of legal issues, but does not know whether to do so, or what the legal issues or specific questions may be.  The appellant has the right to the issuance of subpoenas to compel testimony or the production of documentary evidence, but does not even know, until the hearing has begun, who was involved in the decision to issue the denial.

Federal Medicaid law at 42 U.S.C. §1396a(a)(19) requires that each state Medicaid program be administered “in a manner consistent with simplicity of administration and the best interests of the recipients,”  and M.G.L. Chapter 118E, Section 12 echoes such requirements.  To be in compliance with federal Medicaid law, the Commonwealth of Massachusetts was required under 42 U.S.C. s. 1396a(a)(3) to institute a fair hearing process.  Federal regulations at 42 C.F.R. Part 431, Subpart E describe the mandated fair hearing process; the regulation at 42 C.F.R. 431.205 provides that “[t]he hearing system must meet the due process standards set forth in Goldberg v. Kelly, 397 U.S. 254 (1970), and any additional standards specified in this subpart.”  The regulation at 42 C.F.R. 431.240 states that “[a]ll hearings must be conducted …[o]nly after adequate written notice of the hearing.” The regulation at 42 C.F.R. 431.210(b) requires that the denial notice must contain “[t]he reasons for the intended action.”  Echoing the federal law, the Massachusetts fair hearing regulation at 130 C.M.R. 610.026(A)(2) states the requirement that the denial notice must contain “[t]he reasons for the intended action.”  As part of the appellant’s due process rights, the Massachusetts fair hearing regulation at 130 C.M.R. 610.046 states that “[a]t least 10 days’ advance written notice will be mailed by the Board of Hearings to all parties involved to permit adequate preparation of the case.” (emphasis added)  The Massachusetts fair hearing regulation at 130 C.M.R. 610.050 states that “[t]he appellant and his or her appeal representative will have reasonable opportunity to examine the entire contents of the appellant’s case file, as well as all documents and records to be used by the MassHealth agency … at the hearing.” (emphasis added)

Any lawyer representing the Office of Medicaid, and not acting as a de facto member of the policy arm of the Office of Medicaid, would have an ethical duty to advise the client to follow all of these laws and regulations.  A lawyer cannot validly claim to be a lawyer representing the client for some purposes and not for others.

Where the Office of Medicaid is not choosing to follow the law, it is the duty of the Board of Hearings not to condone such illegal behavior, but rather to take affirmative steps to ensure that due process is afforded to all appellants.  Unfortunately, it appears that the Director of the Board of Hearings has passively condoned the actions of the Office of Medicaid and failed to provide appropriate training to hearing officers on these key issues of due process.

The Director of the Board of Hearings does seem to realize that what the lawyers at the Office of Medicaid are getting away with is wrong. In Appeal 1409508, a request for the position of the Office of Medicaid was made directly to her instead of to the hearing officer, and she emailed the hearing officer:  “If MassHealth is in possession of a legal memorandum that it will rely upon and submit to the hearing record it should be sent to appellant’s counsel to allow adequate preparation for the hearing.” Unfortunately, the due process problem is not solved by her suggestion, because the lawyer representing the Office of Medicaid can simply wait and submit the memorandum to the MassHealth worker on the date of the hearing. Thus, there is an appearance that the Director of the Board of Hearings cares about due process, but there has been no follow-up action from her to solve the ongoing problem.

Did the Office of Medicaid Intentionally Violate Federal Medicaid Trust Law When It Stripped the Definition of the Word “Available” from MassHealth Regulations?

April 13, 2015

Before January 1, 2014, the Office of Medicaid in Massachusetts had an official, published position on what the term “available” meant in its MassHealth regulations, but the Office of Medicaid has apparently chosen not to have a definition any longer.  Some hearing officers are now reviewing MassHealth trust regulations at fair hearings and ruling that some irrevocable trusts have countable assets due to the now-undefined word “available” in the MassHealth regulations.

The proper review of irrevocable trusts for whether they are countable assets is set forth in the federal Medicaid trust law at 42 USC § 1396p(d)(3)(B)(i), which 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.”  (emphasis added)  The Office of Medicaid is required to implement this federal law in Massachusetts, yet has chosen to make the regulation unclear. The regulation at 130 CMR 520.023(C), which contains the newly-undefined word “available” in (1)(d), reads, in its entirety:

“(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).

(2) Portion Not Payable. Any portion of the principal or income from the principal (such as interest) of an irrevocable trust that could not be paid under any circumstances to or for the benefit of the nursing-facility resident will be considered a transfer for less than fair-market value and treated in accordance with the transfer rules at 130 CMR 520.019(G).”

Before January 1, 2014, 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.” After the Office of Medicaid had intentionally stripped the definition of the term “available” from its regulations as of January 1, 2014, its lawyers began to argue at fair hearings that, notwithstanding the overall intention and specific terms of the irrevocable trust, simple usage of a home in an irrevocable trust meant that it was “available.” By deviously using the wrong definition of the word it had intentionally chosen no longer to define, at least one lawyer representing the Office of Medicaid is now claiming that if the home or former home of the MassHealth applicant is an asset of the trust, the home is automatically deemed to be a countable asset and no determination ever needs to made as to whether principal or income is distributable by the trustee to or for the MassHealth applicant.

The proper context of the word “available,” where the opening paragraph in 130 CMR 520.023 states that the review process be limited to “any circumstances described in the terms of the trust,” would focus on whether the principal or income of the irrevocable trust is distributable to or for the MassHealth applicant. Residing in the property does not mean the principal is “available” to the settlor of the trust as the term is used in 130 C.M.R. 520.023(C)(1)(d).  The meaning of “available” as used throughout the federal Medicaid trust laws and MassHealth regulations does not mean physically available; rather, the term “available” refers to whether the trustee has discretion to distribute the trust principal under any circumstances to or for the settlor.  The federal Medicaid trust law at 42 USC 1396p(d)(2)(B)(i) does not make reference to usage of principal as making the principal available; rather, it deals with actual payment from the trust:  “if there are any circumstances under which payment from the trust could be made to or for the benefit 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, and payments from that portion of the corpus or income.” (emphasis added)  To the extent that the usage of the home could be viewed as a payment, it would be an income payment because the principal of the trust is not being consumed by merely living there.

This manipulation of the MassHealth regulations as of January 1, 2014 by the Office of Medicaid has given its lawyers (who presumably had been involved in writing the new regulations) a modicum of legal and ethical cover to make arguments that they previously knew they could not make under federal Medicaid trust law and the prior-existing definition of “available” at 130 CMR 515.001.  Such manipulation of the MassHealth regulations is in violation of the federal Medicaid trust law that the Office of Medicaid is required to implement, but to at least some lawyers representing the Office of Medicaid, the ends apparently justify the means.  Even though M.G.L. c. 118E, s. 48 provides that the Director of the Board of Hearings “shall be responsible … for the training of referees,” it is unknown to the elder law bar whether such training has occurred regarding the details of federal Medicaid trust law, so hearing officers at the Board of Hearings may be susceptible to being misled.

The opening paragraph in 130 CMR 520.023, the MassHealth trust regulations, provides no intellectual guidance in determining what the word “available” is supposed to mean, in that it uses that word twice in the same sentence without providing any definition:  “Generally, resources held in a trust are considered available if under any circumstances described in the terms of the trust, any of the resources can be made available to the individual.”  Nevertheless, a key MassHealth regulation at 130 CMR 515.002(B) provides an overarching regulatory requirement: “These regulations are intended to conform to all applicable federal and state laws and will be interpreted accordingly.”  Further, in the MassHealth regulations at 130 CMR 520.021, entitled “Treatment of Trusts,” the MassHealth trust regulations themselves anticipate misinterpretation or their own overreach by stating:  “In the event that a portion of 130 CMR 520.021 through 520.024 conflicts with federal law, the federal law supersedes.”

Having received a misleading essay from Attorney Schelong, representing the Office of Medicaid, Hearing Officer Paul C. Moore still ruled in Fair Hearing Decision 1409671 that the irrevocable trust did not allow principal to be distributed to the MassHealth applicant, yet he felt constrained by 130 CMR 520.023(C)(1)(d) to rule that the applicant’s former home that was held by the trust was nevertheless a countable asset; Attorney Schelong had written: “given that the applicant was, and the spouse is living in the real estate held in the Trusts, the principal is actually available to the spouse and was being used for the benefit of the spouse and applicant.  130 CMR 520.023. MassHealth regulation 130 CMR 520.023(C)(l)(d) provides that “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.”  Since under the facts as well as the terms of the Trusts, the real estate is available, it is countable and not subject to exemptions related to real estate.”  Thus, there is no question that the Office of Medicaid is exploiting the fact that the definition of “available” no longer exists in its MassHealth regulations.

In Fair Hearing Decision 1407312, the Office of Medicaid took its sham definition act even further, with Attorney Schelong writing:  “There is no delineation in this regulation that the terms of a trust must provide that both the income and principal are available in order for the fair market value of the home to be countable.”  Hearing Officer Kenneth Brodzinski adopted that recklessly misleading position, then stretched the vagueness of the regulation at 130 CMR 520.023(C)(1)(d) into the absurd ruling that all of the irrevocable trust’s assets, not just the home, were countable, as all of the other assets of the trust could be sold and used to make repairs or improvements to the “available” home.

Does it make any sense that a particular type of trust investment would cause an irrevocable trust to fail under federal Medicaid trust law, even if nothing at all could be distributed to the settlor of the trust? Oddly enough, if the home of the MassHealth applicant in Fair Hearing Decision 1409671 or 1407312 had been sold before the MassHealth application was filed, and the proceeds were then held in the irrevocable trust, none of the assets in the irrevocable trust would have been treated as countable under this strained reading of this newly-vague MassHealth regulation. Perhaps, then, the new unwritten rule in dealing with this new, flawed regulatory interpretation should be:  if the MassHealth applicant’s home or former home is in an irrevocable trust, sell it (even if merely through a paperwork-only transaction) before filing a MassHealth application.

Any confusion about what the regulation at 130 CMR 520.023(C)(1)(d) means was caused by an intentional administrative action as of January 1, 2014 by the Office of Medicaid. Lawyers representing the Office of Medicaid cannot pretend that the definition of “available” never existed in MassHealth regulations, and they are bound by the duty of administrative consistency to follow the definition used before 2014, or explain why that particular definition does not apply. To be in charge of implementing federal Medicaid trust law yet pretend not to know what the word “available” is supposed to mean may well be unethical conduct on the part of lawyers at the Office of Medicaid.

Is the Term “Interested Person” Meant to Be Broadly Defined under Massachusetts Guardianship and Conservatorship Law?

April 9, 2015

In the case of Guardianship of B.V.G., decided on April 6, 2015, the Massachusetts Appeals Court took a look at the Massachusetts Uniform Probate Code (“MUPC”) to determine whether a grandfather was an interested person who had standing in the guardianship proceedings. The child’s father was objecting to the grandfather’s involvement in the guardianship case.

The term “interested person” in M.G. L. c. 190B, § 1-201(24), the general definition section of the MUPC, “includes heirs, devisees, children, spouses, creditors, beneficiaries, and any others having a property right in or claims against a trust estate or the estate of a decedent, ward, or protected person.  It also includes persons having priority for appointment as personal representative, and other fiduciaries representing interested persons.  The meaning as it relates to particular persons may vary from time to time and shall be determined according to the particular purposes of, and matter involved in, any proceeding.”

The Massachusetts Appeals Court ruled that the terms “interested person,” found in one part of the law, and “person interested in the welfare of the incapacitated person,” found elsewhere in the law, were equivalent.  The MUPC, according to the Court, favors “limited guardianships in order to maximize the liberty and autonomy of persons subject to guardianship,” and [a]llowing a broader class of individuals than those with economic interests to press for limitations on a guardianship furthers that goal.”  Thus, the phrase “interested person” is meant to broadly defined under Massachusetts guardianship and conservatorship law.

Do the Lawyers Representing the Office of Medicaid in Massachusetts Know What a Revocable Trust Is?

April 8, 2015

At Massachusetts fair hearings, the Office of Medicaid often routinely makes the claim that irrevocable trusts are revocable or arguably revocable in various situations that have nothing to do with revocability, as if the word “revocable” were meaningless. In past fair hearings, the Office of Medicaid has issued that label without further explanation when the trustee can make distributions to terminate the trust to persons other than the settlor or the settlor’s spouse. In one case, the Office of Medicaid has made the claim that if a trust protector (who was not the settlor of the trust) could make administrative amendments to the trust, it was then revocable.

The Office of Medicaid recently made the stunningly inventive claim that if the Trustee had the power to make distributions to the settlor’s children but none of them were alive, the trustee could then make the terminating distributions to the settlor. The fact that there was nothing in the trust that said so did not seem to matter to the lawyer at the Office of Medicaid. (See Fair Hearing Decision 1401521, page 9, footnote 1, where the hearing officer, Sara E. McGrath, rejected that claim: “I am not persuaded by the MassHealth argument that if the appellant has no children, the trustees’ discretionary power to distribute principal during appellant’s lifetime to her then living children somehow gives the trustees the power to distribute principal to the appellant.”

Unfortunately, nothing is ever presented by the Office of Medicaid to support its revocability arguments. It is hard to believe that the Office of Medicaid has not found that the definition of the term “revocable trust” can be found in the State Medicaid Manual, section 3259.1 A.5., which states: “Revocable Trust.– A revocable trust is a trust which can under State law be revoked by the grantor.” The definition of the word “revocable” can also be found in M.G.L. c. 203E, Section 103 as “a trust that is revocable by the settlor without the consent of the trustee or a person holding an adverse interest,” and the definition of the word “settlor” can be found there as “a person … who creates or contributes property to a trust.” M.G.L. c. 203E, Section 112(1) states that a “revocable trust” is a trust that is “revocable by the settlor until the time of the settlor’s death.”

Despite all of these definitions, on January 1, 2014, the Office of Medicaid put this definition into its regulations at 130 CMR 515.001: “Revocable Trust – a trust whose terms allow the grantor to take action to regain any of the property or funds in the trust.” Thus, the Office of Medicaid has apparently manipulated its regulations so that lawyers at the Office of Medicaid would have some degree of ethical protection that would allow them to make claims about irrevocable trusts being revocable or arguable revocable.

The Office of Medicaid is not entitled to make up new definitions of common words and phrases. “See Comey v. Hill, 387 Mass. 11, 15 (1982), quoting 2A Sands, Sutherland Statutory Construction s. 50.03, at 277-278 (4th ed. 1973) (“Words and phrases having well-defined meanings in the common law are interpreted to have the same meanings when used in statutes dealing with the same or similar subject matter as that with which they were associated at common law”).” Cohen v. Comm’r of Div. of Med. Assistance, 423 Mass. 399, 413-414 (1996).

The choice of the lawyers at the Office of Medicaid to attempt to claim that irrevocable trusts are revocable shows the extreme lengths to which they will now go to try to attack all trusts through the fair hearing process. If the Office of Medicaid is truly unaware of the obvious difference between a power of revocation held by a settlor and a termination power held by a trustee or a limited power of amendment held by a trust protector, then all of its other statements of law, as well as its claims for judicial deference, are necessarily called into question.

What Are the 2015 Federal Estate and Gift Tax Filing Figures?

November 14, 2014

The Internal Revenue Service has recently announced that in 2015 the federal estate tax exemption will rise from $5,340,000.00 to $5,430,000.00 per person. (Under current law, this figure is adjusted annually for inflation.) Married couples can get the benefit of two exemptions, so in 2015 the total federal estate tax exemption per couple can be $10,860,000.00. The top estate tax rate on amounts above the exemption is 40%.

Under a new concept known as portability, the surviving spouse in some situations can use the unused exemption of the first spouse to die. Portability requires, in part, the timely filing of a federal estate tax return for the first spouse to die.

Few estates are expected to owe any federal estate tax in 2014, so the federal estate tax is no longer the biggest concern for many wealthy U.S. citizens who want to avoid taxes on wealth they leave behind to their heirs. The focus for many Massachusetts residents has changed to minimizing capital gains taxes and the Massachusetts estate tax, which begins at a taxable estate of $1,000,000.00, with a minimum tax of $33,200.00.

The Internal Revenue Service has also announced that in 2015 the annual gift exclusion will remain $14,000.00 per recipient. The provision sets the highest amount that an individual can give on an unreportable tax-free basis, without affecting the gift-giver’s federal estate tax exemption, to any person who isn’t the gift-giver’s spouse, or to an unlimited number of persons.

Transfers or gifts between spouses are usually tax-free, but not always. Whether the gift is tax-free is based on whether the spouse who is receiving the gift is a U.S. citizen. A spouse who is a U.S. citizen can receive unlimited gifts, but a spouse who is not a U.S. citizen will be limited to receiving $147,000.00 in 2015.

Gifts made in excess of the $14,000.00 or $147,000.00 rules require the filing of a federal gift tax return, and make use of part or all of the gift-giver’s federal estate tax exemption.

Potential Annuity Purchases by the Trustee Do Not Provide the Settlor of an Income-Only Irrevocable Trust with Access to Principal

May 22, 2014

As noted in prior posts, many irrevocable trusts in Massachusetts are now under wrongful attack during the MassHealth application process by the Office of Medicaid. One of the more specious arguments brought forth by the Office of Medicaid has been that the Trustee could purchase an annuity and thereby provide the Settlor of the trust with access to principal. Unfortunately, the memorandum of the Office of Medicaid that is typically filed at MassHealth fair hearings betrays a fundamental ignorance of basic annuity principles and trust law. When a payment is received from an annuity, the portion of the payment that represents a return of principal is nontaxable, and reasonable accounting principles require the trustee to allocate the return of principal to the corpus or principal of the trust.

Section 103(a)(4) of the Uniform Principal and Income Act, as adopted in Massachusetts as M.G.L. c.203D, s. 3(a)(4), states that, in allocating receipts and disbursements to or between principal and income, a trustee “shall add a receipt or charge a disbursement to principal if the terms of the trust … do not provide a rule for allocating the receipt or disbursement to or between principal and income.”  Thus, the legal presumption in Massachusetts is that any amount received by a trustee is not income, but rather principal. In the absence of explicit contrary powers in the trust, the trustee has no power to deviate from generally accepted practices of fiduciary accounting when determining what is income and what is principal. See Restatement (Third) of Trusts §233, comment p.

Under the Massachusetts Principal and Income Act, “[i]f a payment is characterized as interest or a dividend or a payment made in lieu of interest or a dividend, a trustee shall allocate it to income. The trustee shall allocate to principal the balance of the payment and any other payment received in the same accounting period that is not characterized as interest, a dividend, or an equivalent payment.” G.L. c. 203D, § 18(a). The Massachusetts Principal and Income Act also provides that “[a]n amount received as interest, whether determined at a fixed, variable or floating rate on an obligation to pay money to the trustee, including an amount received as consideration for prepayment of principal, shall be allocated to income without any provision for amortization of premium.” G.L. c. 203D, § 15(a). Thus, annuity distributions cannot be treated solely as income under Massachusetts law, where most of such payments are a return of principal.

The memorandum of the Office of Medicaid typically points to Massachusetts law and states that trustees are specifically given the power to invest in annuities, but the Office of Medicaid’s cite to M.G.L. c. 203, § 25A, is pointless, as it was repealed in 2008.  That trustee power, however, is irrelevant to the question of whether the trustee has the discretion to distribute principal to the applicant. The Office of Medicaid cites regulations in support of its position that all payments from annuities are “income,” but if the irrevocable trust does not make reference to those regulations, it is instead governed by its express terms, common law and statutory authority, including the Massachusetts Principal and Income Act.

The Office of Medicaid completely ignores the Massachusetts Principal and Income Act in its memorandum of “law.”  The Office of Medicaid may not unilaterally impose its own definition of “income” from another context and create unintended definitions of terms and phrases within an irrevocable trust. Allowing any state agency to do so would wreak havoc on well-established trust doctrine, upset settled legal expectations of settlors, trustees and beneficiaries, and be in violation of the Massachusetts Principal and Income Act.

A Life Estate in an Irrevocable Trust Should Not Cause the Trust to Be a Countable Asset for MassHealth Purposes

May 18, 2014

In the misleading, unfair and unbalanced memorandum entered into the fair hearing record at MassHealth trust denial cases, the Office of Medicaid usually takes a legally invalid view of life estates that are contained within trusts. The Office of Medicaid makes the specious argument that a life estate in a trust provides access to the principal of the trust, but makes that statement in a conclusory fashion, without explaining how that could possibly be. The position of the Office of Medicaid is directly contrary to what the Supreme Judicial Court wrote in Cohen v. Comm’r of the Div. of Med. Assistance, 423 Mass 399 (1996), that the authority of a trustee to distribute income is not equivalent to the authority of a trustee to distribute principal to the Settlor.

A life estate is established when all of the remainder legal interest in a property is transferred to another, while the legal interest for life rights to use, occupy, or obtain income or profits from the property is retained. See 130 CMR 515.001. The life tenant does not own the principal, so the life tenant is without access to it, and it is not available to the life tenant.

A beneficiary who has the right to live in a house does not have the right to sell or mortgage that house, and the same applies whether the life estate is in the deed or in the trust. “[T]he mere fact that a transferee who is to receive the benefits of the property for life is called a “trustee” is not conclusive and a legal life estate may be found to have been created.” Bogert Hess, The Law of Trusts & Trustees (Third Edition), s. 27 @ 379. See also Schaefer v. Schaefer, 141 Ill. 337, 31 N.E. 136 (1892); Thompson v. Adams, 205 Ill. 552, 69 N.E. 1 (1903). A life estate holder within a trust cannot mortgage the life estate or any other part of the trust because the life tenant cannot give legal title, which is held by the trustee. Further, being trustee and taking principal when entitled to only an income interest is a breach of the trustee’s fiduciary duty.

If the life estate is contained in a deed and the property is sold, the life tenant is entitled to a portion of the net sale price, calculated under Medicaid law based on actuarial tables, but the liquidation value of the life estate is an inaccessible asset unless the remainderpersons choose to participate in the sale. If the life estate is a beneficial interest in a trust, the life tenant does not have any right to any of the sale proceeds, because the proceeds belong to the trust; the life tenant would then be entitled only to the income that could be generated by investing the sale proceeds.

The Massachusetts Legislature Has Prohibited MassHealth Estate Recovery Against Trusts, and Therefore Knows About But Has Not Prohibited Their Use

May 18, 2014

Under federal Medicaid law, one state option available since 1993 has been to make post-death claims for estate recovery against trusts. In 2004, the Massachusetts legislature voted overwhelmingly not to allow estate recovery against trusts. Thus, the governmental branch in charge of changing laws in Massachusetts has not legislatively expressed its concern about the use of irrevocable trusts to qualify for MassHealth.

Current MassHealth regulations require recovery from the probate estates of MassHealth members who received Medicaid while age 55 or over and those who, regardless of age, received Medicaid while institutionalized. All MassHealth expenses incurred for such members, with certain exception, are counted toward the total recovered amount. An exception from estate recovery is made in cases where recovery would cause hardship, and only partial recovery is required from the estate of members who had long-term care insurance policies that met the Massachusetts Division of Insurance requirements. Estate recovery is deferred while there is a surviving spouse or child who is blind, permanently and totally disabled, or under age 21.

In 2004, the Massachusetts legislature was presented with voting on the option, allowed to the states by federal Medicaid law since 1993, of allowing estate recovery against trusts. The bill it passed limited estate recovery to the probate estate, but was vetoed by Governor Romney. The Massachusetts legislature then voted to override the veto, unanimously in the House and with only one dissenting vote in the Senate. The existing law, M.G.L. c. 118E, s. 31(c), does not allow estate recovery against any trusts and shows that there is no Massachusetts legislative policy against trusts in the MassHealth context.

The Office of Medicaid Ignores that Trustees Have Fiduciary Duties to the Remainderpersons, and Cannot Use Powers to Skew Beneficial Interests

May 18, 2014

In the misleading, unfair and unbalanced memorandum entered into the fair hearing record at MassHealth trust denial cases, the Office of Medicaid usually takes a legally invalid view of Massachusetts trusts, and ignores the fiduciary duties of the trustee.

As a fiduciary, a trustee has the dual duties of loyalty and impartiality. See Johnson v. Witkowski, 30 Mass. App. Ct. 697, 705 (1997), and more generally, Demoulas v. Demoulas Super Markets, Inc., 424 Mass. 501, at 528-529 (1997) quoting Judge Cardozo in Meinhard v. Salmon, 249 N.Y. 458, 4630464 (1928) “(n)ot honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.” The duty of loyalty to the beneficiaries requires of the trustee that he or she act solely in accordance with the terms of the trust instrument construed so as to carry out the intent of the Settlor. Watson v. Baker, 444 Mass. 487, 491 (2005). Therefore, a trustee may not commit any act that would harm the interest of any beneficiary of the trust, that would waste any trust property, that would give trust property to anyone not entitled thereto, or that would otherwise be contrary to the intent of the Settlor in entrusting the Settlor’s property to the management of a trustee. See King v. Nazzaro, 78 Mass. App. Ct. 1128 (2011); Murphy v. Murphy, Docket No. 2004-3937-BLS2 (2006.) Therefore, if the trust provides that no distribution of principal shall be made to the Settlor, then the trustee is forbidden to do so. To do otherwise would do harm to the beneficial interests of the beneficiaries (or the other beneficiaries, if, for example, the Settlor is an income beneficiary of the trust), and it would be a breach of fiduciary duty. See Anderson v. Bean, 272 Mass. 432, 447-448 (1930).

The Office of Medicaid attempts to argue that the purpose of a trust may not be used as a limitation on trustee discretion to make a distribution of principal to the Settlor, but ignores that it is the responsibility of the trustee to understand all provisions of the trust instrument and construe them so as to give meaning and efficacy to all of them. As the Court stated in Dana v. Gring, 374 Mass. 109, 116 (1977), it is a fundamental principle of Massachusetts law “to ascertain the intention of the testator from the whole instrument, attributing due weight to all its language . . . and to give effect to that intent unless some positive rule of law forbids.”

Another duty of a trustee, the duty of impartiality as between and among the beneficiaries, requires that the trustee not favor one beneficiary over another; instead, the trustee is bound to treat all beneficiaries equitably in accordance with the terms of the trust construed as a whole. King v. Nazzaro, 78 Mass. App. Ct. 1128 (2011). Thus, a power that allows a trustee to make a particular type of investment is not authority to override the intentions of the trust. “Even when there are broad discretionary powers, a trustee may not exercise his or her discretion so as to shift beneficial interests in the trust.” Fine v. Cohen, 35 Mass.App.Ct. 610, 617 (1993). The trustee must balance risk and return in the trustee’s management of the trust estate so as to be fair to both the life income beneficiaries and the remainderpersons.

Trustee duties of loyalty and impartiality are at the very core and essence of what a trust is. A trust is a relationship wherein a trustee manages property for the benefit of others. The trustee is given powers to carry out his assigned duties in the context of the beneficial interests that are bestowed upon the income beneficiary or life tenant and remainderpersons of the trust. For every interest that a beneficiary has under a trust instrument, the trustee has a correlative duty to safeguard and provide that interest to the beneficiary. Thus, trustee powers are made available to the trustee only to the extent necessary to provide the trust beneficiaries with their rightful beneficial interests under the trust. If a beneficial interest is denied to a beneficiary, then the trustee has no authority or discretion to make it available to the beneficiary. The power to purchase annuities, life insurance or any other investment is granted to the trustee only to the extent that the exercise of that power will secure to the beneficiaries their respective beneficial interests. Such a power may not be used to divert one beneficiary’s interest to another beneficiary without breach of fiduciary duty. The conversion of principal to income, or vice versa, to redirect trust resources from one beneficiary to another is not allowed due to the trustee’s duty of impartiality.

MassHealth regulations do not require that the fiduciary duties of a trust be ignored; rather, the fiduciary duties of a trustee are specifically recognized in the definition of “trust” at 130 CMR §515.001: “a legal device satisfying the requirements of state law that places the legal control of property or funds with a trustee. It also includes, but is not limited to, any legal instrument, device, or arrangement that is similar to a trust, including transfers of property by a grantor to an individual or a legal entity with fiduciary obligations so that the property is held, managed, or administered for the benefit of the grantor or others. Such arrangements include, but are not limited to, escrow accounts, pension funds, and similar devices as managed by an individual or entity with fiduciary obligations.” (emphasis added).

History of Federal Medicaid Law Indicates the Term “Available” Is to Be Narrowly Construed When Determining Applicant’s Income

May 18, 2014

In State of Washington v. Bowen, 815 F. 2d 549 (9th Cir., 1987) the Court delved into the term “available” as utilized in the context of Medicaid law, 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 Latest Position of the Office of Medicaid on Trust Interpretation Is Not Entitled to Deference

May 18, 2014

Throughout the case of Doherty v. Commissioner, 74 Mass. App. Ct. 439 (2009), it was the official position of the Office of Medicaid that a trust must be read as a whole, but in recent cases, the Office of Medicaid has backed away from that correct legal position, because to do so necessitates an entirely different result from what it is trying to get away with in recent MassHealth trust denial cases. This new position of the Office of Medicaid regarding how a trust should be scrutinized is not entitled to deference. The Supreme Judicial Court, in Cohen v. Commissioner of the Division of Medical Assistance, 423 Mass. 299 (1996), footnote 18, stated why it chose not to give deference to the MassHealth agency’s position in that case, and the same point applies here: “The Commonwealth urges us to give deference to the division’s administrative interpretation of the statute. Although there is some merit to the argument, it is not served up in its most appetizing form in this case. … It is usually the initial not the changed interpretation of a statute that earns the kind of deference the Commonwealth would need here. See Barnett v. Weinberger, 818 F.2d 953, 960-961 n.74 (D.C. Cir. 1987), and cases cited (deference depends on consistency of interpretation).”

Trust Law Presumes that Principal Is Not Available to the Current Beneficiary

May 18, 2014

Charles E. Rounds, Jr. & Charles E. Rounds, III, in their 1768-page treatise on trust law, state that trustees are limited to paying only income to the Settlor unless distributions of principal are specifically authorized: “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. On the other hand, when the purpose of a trust is to “support” the current beneficiary, there may be implied authority in the trustee to invade principal, at least some courts have so held.” Loring and Rounds: A Trustee’s Handbook, (2013 Edition), §5.4.1.3 at 376-377.

Note that in Doherty v. Commissioner, 74 Mass. App. Ct. 439, 442 (2009), the court found the implicit authority to invade principal; the court wrote about language in the trust indicating an intent to administer the trust so as to address the Settlor’s changing life needs. “[E]mbedded in the trust’s governing recitation is not only an explicit assessment that public or other charitable benefits will likely be insufficient to provide Muriel the quality of life she might desire, but the corollary implicit direction for the trustees, in such case, to invade assets to make up that difference. Which is not to say that specific trust provisions do not confer this authority, but is rather simply to observe that the trust vehicle, considered as a whole, evidences Muriel’s expectation or intent that the trustees will invade trust assets when necessary to ensure Muriel’s comfort.” By way of contrast, in the irrevocable trust in many MassHealth trust denials there is no support intention expressed or even implied.

Trust law presupposes that the income beneficiary is entitled only to income, even if, for example, an annuity were to be purchased by the trustee for purposes of increasing the income of the trust above the rates provided at banks by certificates of deposit.

Trusts Must Always Be Read as a Whole, Even in MassHealth Trust Denial Cases

May 18, 2014

In most MassHealth trust denial cases, the Office of Medicaid now attempts to isolate phrases in the irrevocable trust out of context, but, under Massachusetts law, phrases in trusts must not be read independently; rather, phrases must be read as a whole, and the Office of Medicaid pushed that very point in the Massachusetts Appeals Court in Doherty v. Commissioner, 74 Mass. App. Ct. 439, 441 (2009): “[A]s MassHealth strongly presses upon us, this clause may not be read in isolation; rather, it must be construed and qualified in light of the trust instrument as a whole.” “Trust instruments must be construed to give effect to the intention of the settlor as ascertained from the language of the whole instrument considered in the light of the attendant circumstances. Groden v. Kelly, 382 Mass. 333, 335 (1981).” Harrison v. Marcus, 396 Mass. 424, 429 (1985). See also Schroeder v. Danielson, 37 Mass. App. Ct. 450, 453 (1994).

Overemphasis on one or two provisions of the trust is not permissible under Massachusetts trust law. “One or two expressions in the trust deed must not be so construed as to impair or destroy the whole scheme of the trust, when another and more reasonable construction is possible.” Shirk v. Walker, 298 Mass. 251, 261 (1937). If two provisions of the trust are in apparent contradiction to each other when each is read in isolation, construction must be found that will allow meaning to both provisions to resolve the apparent contradiction, as it is presumed that all provisions in a trust were intended by the Settlor to have meaning. Watson v. Baker, 444 Mass. 487, 491 (2005).

Even if a Trust is ambiguous with respect to any particular issue or matter, that ambiguity would not make the Trust assets countable resources. It is well established that any matter relating to the rights created by a trust is a question of law that turns on the Settlor’s intent as reflected in the words of the instrument. Steele v. Kelley, 46 Mass. App. Ct. 712, 731 (1999). See also Harrison v. Marcus, 396 Mass. 424, 429 (1985); Atwood v. First Natl. Bank, 366 Mass. 519, 523-24 (1974); Berry v. Kyes, 304 Mass. 56, 59 (1939); 4 Scott, Trusts §§ 329A, 334.1 and 335 (Fratcher 4th ed. 1989). This rule of construction applies to the nature and extent of a Trustee’s discretion and to the issue of whether a trust can be terminated. Guerriero v. Commissioner of the Division of Medical Assistance, 433 Mass. 628, 632 (2001) (Citing Restatement (Second) of Trusts § 164 (1959) (“… the nature and extent of a trustee’s discretion as to any issue is defined (1) by 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.”); West v. Third National Bank of Hampden County, 11 Mass. App. Ct. 577, 580 (1981); Steele v. Kelley at 731 (“[t]he issue of termination, like any other matter relating to rights created by a trust instrument, including the extent of a trustee’s discretion, initially is a question of law that turns on the settlor’s intention as reflected in the words of the instrument.”) The Court in Guerriero made clear that an important consideration was that if the Trustee violated the Trustee’s duty to a beneficiary, the Trustee would be liable for a “breach of trust.” Guerriero at 632.

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