For over twenty years, irrevocable trusts have been used by clients to protect assets in anticipation of long term care costs.   In recent years, MassHealth (Massachusetts’ Medicaid program) began aggressively attacking these trusts by changing the way the agency determined whether trusts should be treated as so called “countable assets.”   Trusts which had previously been approved by MassHealth were now being attacked resulting in the program denying eligibility to nursing home residents.  MassHealth’s change in policy has resulted in unnecessary financial and emotional stress for everyone involved.

Elder law attorneys pushed back and fortunately the tide has begun to turn.  Pabian & Russell’s elder law group recently scored a big win on a trust case before the MassHealth Board of Hearings.  The applicant had transferred his home to an irrevocable trust in 2010.  Two years later, in November of 2012, the applicant exercised a special power of appointment over the trust property in favor of his two children.  MassHealth denied the client’s nursing home benefit application, asserting that the trust was countable and that the exercise of the power of appointment was an impermissible gift.

Massachusetts case law interprets federal statutes and MassHealth regulations to hold that trust principal is deemed countable if it could “under any circumstances” be paid to or for the applicant. The trust terms stated very clearly that no distributions were to be made on behalf of the applicant.  MassHealth, however, argued that the following three provisions in the trust made trust funds available to the applicant: 1) the special power of appointment; 2) the power to make unsecured loans; and 3) the power to make distributions to charities.

MassHealth argued that the special power of appointment allowed the applicant to condition a payment of principal to his descendants with the requirement that it be returned back to him or used for his benefit.  Pabian & Russell convinced the hearing officer to reject this argument, noting that the trust expressly prohibited the applicant from appointing assets to himself.  Pabian & Russell cited a recent Appeals Court decision Heyn v. Director of the Office of Medicaid, and as result, the hearing officer agreed that MassHealth’s argument “involve[s] an applicant not only make an arrangement outside of the Trust, which the Heyn Court rejected, but it would be in violation of the specific trust terms prohibiting [applicant] from appointing Trust principal to himself.”  Furthermore, the hearing officer rejected MassHealth’s argument that the power of appointment was not subject to fiduciary obligations or that it resulted in a gift.

MassHealth also attempted to twist the trust language stating that the principal could be paid to or for the benefit of the applicant through the trust’s broad power to make loans.  The trust terms did, in fact, allow loans to the applicant.  Pabian & Russell however, pointed to the obligation of the applicant to pay adequate interest on the loan, as well as the general duty of a trustee to make unsecured loans only based on a person’s creditworthiness.

Finally, MassHealth made a convoluted argument that the power allowing the trustee to add a charitable organization – such as paying for a non-profit nursing home – as beneficiary made the trust assets countable.  The hearing officer was unconvinced, noting that nothing would legally require the nursing home to use the funds they received as a beneficiary toward the applicant’s nursing home bill.

The hearing officer rejected the three arguments brought by MassHealth, which was great news for the client, establishing eligibility for nursing home benefits retroactively for more than twelve months.  Although the case was ultimately successful, MassHealth’s continued challenge of proper estate planning burdens applicants and their families both financially and emotionally as they are forced to fight for their coverage over an undetermined amount of time.  MassHealth continues to aggressively put up obstacles to eligibility.  Consequently, it is more important than ever to have Pabian & Russell in your corner to craft the right plan and then to defend it when the Commonwealth does not fairly apply the law.

If you have any questions related to this topic and how it may affect you, our Estate Planning Department may be able to help. To reach one of our Estate Planning attorneys please call our office at 617-951-3100.