423 Mass. 425 | Mass. | 1996
Lead Opinion
The Federal statute and the Commonwealth’s regulations at issue in this case require the Department of
I
As we stated in the four related cases we decided today, see Cohen v. Commissioner of the Div. of Medical Assistance, ante 399 (1996), the Medicaid program was instituted as a cooperative Federal and State program to provide health services at government expense to persons unable to afford them. The legislation and regulations we consider in this case are a response to a device by which persons with substantial assets seek to take advantage of the Medicaid program by impoverishing or seeming to impoverish themselves. The device at issue in this case is the practice whereby persons facing the large expense of institutionalization — most commonly in nursing homes in the final years of life — dispose of their assets, often at the last possible moment; so that they appear to be indigent and thus qualify for public assistance. In response to such transfers, in 1982 the Congress added § 1396p(c) to the legislation governing the Medicaid program. See Pub. L. 97-248, 96 Stat. 371 (1982).
“The period of ineligibility shall begin with the month in which the assets were transferred. The number of months in such period shall be equal to the lesser of the following: (1) the number of months that result when the total value of the assets transferred, divided by the average monthly cost of private nursing facility care in the Commonwealth at the time of the application, as determined by the Division, have elapsed; or (2) 30 months.”
130 Code Mass. Regs. § 505.125 (D). The ineligibility period essentially requires the applicant to spend down the transferred assets.
According to the uncontested facts as found by the Superior Court judge and the department, the plaintiffs husband, Harold Canter, established a freely revocable and amendable trust on July 14, 1988, the principal of which was a United States Treasury note with a face value of $250,000. Article Five of the trust provided that, if the plaintiff were alive when Mr. Canter died, the principal was to be placed in three trusts to be created at his death of which the plaintiff was a beneficiary. In November, 1990, the plaintiff and her husband were
II
The department asserts that the plaintiff is properly ineligible for Medicaid assistance for the full thirty-month period after her husband amended his trust to remove her as a contingent beneficiary of the trust. The argument proceeds in four steps: First, the beneficiary of a contingent remainder in a revocable trust has an “interest in an asset,” as required by the regulations.. See 130 Code Mass. Regs. § 505.125(A)(2). As the department puts it in its brief, “[t]he holder of a beneficiary interest of a trust, albeit a revocable trust, has a greater right or interest to the trust asset than one who does not possess a beneficiary interest in that asset at all.” Second, the husband’s amendment of the trust instrument to substitute remainder interests in his son and other family members in place of his wife, constituted a transfer of the wife’s interest, described in step one of the argument. Third, this transfer, which was entirely gratuitous, was for less than fair market value. Therefore, Fourth, the full value of the trust assets at the time of this transfer is countable against the plaintiff for the purposes of calculating her period of ineligibility for Medicaid institutionalization benefits. See 130 Code Mass. Regs. § 505.125(D) (calculation of ineligibility period).
The department’s argument is deficient both in logic and practicality. It is true that the contingent remainderman’s interest in a revocable trust is greater than that of the random stranger, as the first step posits. One would place some value on the likelihood of contingent interest vesting, but would not conclude that that interest would vest in a random stranger. That being so, the third step also has some plausibility because the interest was transferred for nothing. But it is a non sequitur then to argue, as the fourth step does, that the full
It is no surprise that the department can offer no cases in this or any jurisdiction to support its conclusion,
Finally, the department’s construction puts a considerable strain on the. text of the regulations. The department’s regulations speak in terms of assets and define two types of countable assets: “accessible,” see 130 Code Mass. Regs. § 505.100 and § 505.150 (defining “inaccessible assets” as assets to which one has “no legal access”); and “available.” See .§ 505.450 (“When spouses reside together . . . assets ... of both spousés are considered mutually available”). See also § 505.160(J) (measuring assets in a Medicaid qualifying trust that are “deemed available”). Here, the corpus of the
Ill
Although we are not convinced by the department’s basis for denial, which it urged successfully before the Superior Court and repeats here, we nevertheless are concerned that allowing Canter’s position to prevail might seriously undermine the policy of the Federal statute and our regulations. Accordingly we consider an argument neither advanced by the department nor addressed by the Superior Court judge. See Wellesley College v. Attorney Gen., 313 Mass. 722, 731 (1943) (where law uncertain and public interest involved, court considered matter not presented properly). See also Ptyor v. Holiday Inns, Inc., 401 Mass. 506, 509-510 (1988) (collecting cases where court has considered issues not presented properly). Common sense suggests that what Mr. Canter did was to transfer — or arrange for the transfer of — a considerable asset at his death for less than fair market value. It might thus be correct to treat that transfer as one that causes the thirty-month ineligibility period in 130 Code Mass. Regs. § 505.125(D) to start to run. By placing the Treasury note in a revocable trust, Mr. Canter did not part with his ownership of the corpus. See Kirby v. Assessors of Medford, 350 Mass. 386, 390 (1966); Estate of Sanford, supra at 42-45. Accordingly, tax law does not consider the act of
We are aware that it may be possible to argue pursuant to this reasoning that the disposition of assets pursuant to a will or a life insurance policy might also be considered a transfer of an asset at death. But there are important distinctions. The law does not treat the disposition of assets pursuant to a trust in the same manner it treats assets disposed of by will. A trust that provides for the disposition of assets at the settlor’s death is neither invalid as a testamentary disposition nor subject to the Statute of Wills although the trust provides for a disposition at death and is revocable during the settlor’s life. See Sullivan v. Burkin, 390 Mass. 864, 868 (1984). Under the earlier inheritance tax statutes, it was possible to avoid an inheritance tax by disposing of assets pursuant to a revocable, inter vivas trust even if the settlor retained a beneficial interest in the corpus and a right to revoke the trust. See 1A A. Scott, Trusts § 57.5, at 187 (4th ed. 1987). Today, the inheritance tax statutes are drawn broadly to include all dispositions taking effect at death even if the distribution occurs pursuant to a trust. I.R.C. §§ 2035-2038 (1994). G. L. c. 65, §§ 1, 3 (1994 ed.). See Estate of Sanford, supra at 42-46;
Thus both testamentary dispositions and life insurance proceeds may require distinct treatment. We note that the regulations do in fact make some distinct provisions for insurance policies. See 130 Code Mass. Regs. § 505.160(F) (1995). We also recognize that there may be a reticence, rooted in tradition, about tampering with testamentary dispositions. The device we have before us here is entitled to no such indulgence. Accordingly we are disinclined to indicate in any way how these two alternative regimes should be treated. Nor are we prepared to rule definitively that at the settlor’s death the dispositive provisions of a revocable trust constituted a transfer for the purposes of the regulations. There are too many possible entailments of such a decision that we cannot anticipate, much less judge, in the absence of consideration by an expert agency and briefing by the parties. But neither are we inclined to approve definitively the use. of a device so mimical to the policy of the statute. We therefore direct that judgment shall be entered in the Superior Court remanding the matter to the department for further consideration and
So ordered.
Congress has amended 42 U.S.C. § 1396p a number of times since 1982. For the purposes of this case, the statute reads as follows:
“(c) Taking into account certain transfers of assets.
“(1) In order to meet the requirements of this subsection . . . the State plan must provide for a period of ineligibility for nursing facility services ... in the case of an institutionalized individual . . . who, or whose spouse, at any time during or after the 30-month period immediately before the date the individual becomes an institutionalized individual. . . or, if the individual is not so entitled, the date the individual applies for such assistance while an institutionalized individual disposed of resources for less than fair*427 market value. The period of ineligibility shall begin with the month in which such resources were transferred and the number of months in such period shall be equal to the lesser of —
“(A) 30 months, or
“(B)(i) the total uncompensated value of the resources so transferred, divided by (ii) the average cost, to a private patient at the time of the application, of nursing facility services in the State or, at State option, in the community in which the individual is institutionalized.”
42 U.S.C. § 1396p(c)(l) (1988 & Supp. IV 1992).
At the time the department denied benefits to the plaintiff, the regulations appeared at 106 Code Mass. Regs. § 505.000 (1991). In 1993, when the responsibility for the program was transferred to the Division of Medical Assistance, the regulations were codified at 130 Code Mass. Regs. § 505.000 (1995).
“Asset” is defined in the regulations as “holdings of value that include, but are not necessarily limited to, cash, bank deposits, securities, real estate, cash value of life insurance, automobiles, boats and trailers, and any other real or personal property.” 130 Code Mass. Regs. § 501.500 (1996).
“Filing Unit” is defined as “all individuals whose assets and income must be considered in the determination of the financial eligibility of the assistance unit. An individual may be in more than one filing unit but in only one MA assistance unit.” Id. See also 130 Code Mass. Regs. § 505.500 (defining “Assistance Unit”); § 505.180 (B) (1996) (“couple’s current total countable assets, regardless of the form of ownership” are considered when determining eligibility of institutionalized spouse); § 505.450 (A) (1995) (each spouse has financial responsibility for the other).
The department suggests that the value of the plaintiffs transferred interest is close to if not equal to the full value of the corpus because Mr. Canter was close to death, and there is no indication in the record that Mr. Canter intended to deplete the trust before his death. But these are not the only considerations a prudent purchaser of such an interest would consider. A prudent purchaser would examine the Medicaid rules, including the trust and transfer rules, and consider the influence of these rules on the settlor. To ignore the impact of these rules, as the department does, would be to assume the conclusion of their argument: that the transfer will be ineffective. Once one realizes this, the complexity and indeterminacy of the assessment of value becomes clear and the department’s suggestion at oral argument that we remand the case for a determination of value all the more inappropriate.
The plaintiff does somewhat better. A Superior Court judge in O’Neil vs. Department of Public Welfare, Middlesex Superior Court No. 91-8798-B (Dec. 14, 1992), declined to apply an earlier, although similar, ineligibility provision to disqualify an applicant for general relief. The nature of the trust, of the applicant’s interest, and of the various steps taken to create eligibility in that case were analogous to but not the same as those in issue here.
It may be trac that her defeasible, contingent interest in the corpus was accessible to her prior to the transfer, in the sense that perhaps she might have sold it at a deep discount from its value if vested. See note 5, supra. But see Clarke v. Fay, 205 Mass. 228, 237 (1910) (contingent, although not defeasible, interest so remote that court would not require its sale for the benefit of creditors). But, as we have discussed, this interest is not one which she could have readily converted into any determinate amount of cash to provide for her support.
When the settlor transfers funds to an irrevocable trust, the settlor may give up legal and equitable control over these assets such that the placing of assets in this trust could constitute a transfer at that moment. See, e.g., Steward v. Commissioner of Corps. & Taxation, 348 Mass. 15, 18 (1964).
The importance of the broadening of the estate tax laws has diminished because in 1976 Congress integrated the estate and gift taxes. There remain a number of differences, however, in the treatment of trusts and estates afforded by tax law. See D.F. Bicker, Living Trusts: Forms and Practice § 8.05 [2] (MB 1996).
In the four related cases we decided today, Cohen v. Commissioner of the Div. of Medical Assistance, ante 399, (1996), we also arrived at a conclusion by a route not urged by the prevailing party, but in those cases we came to the same conclusion as several Superior Court judges and courts in other jurisdictions, while the issue in this case is considered for the first time.
Dissenting Opinion
(dissenting in part, with whom Abrams, J., joins). I see no need in this case to assess the logic or the practicality of the department’s argument. Harold Canter, knowing that his death was imminent, and that his wife, who resided with him in the nursing home and who was certain to receive the substantial asset in the trust, made a purposeful transfer of the asset with the intent to sequester it from the department in connection with his wife’s nursing home expenses. The transfer, therefore, expressly sought to have those expenses assumed by the public through the Medicaid program. Under the department’s regulation that considers assets of spouses who live together “mutually available,” there has been a transfer of an asset or an interest in an asset (differentiation between these terms is not of any real significance in this case) in violation of Medicaid requirements. The department acted properly in rejecting Helen Canter’s application for Medicaid benefits. As a result, I would not impose the case again on the overburdened department and Superior Court, but would simply affirm the judgment in favor of the department.