MARY E. DALEY, personal representative, vs. SECRETARY OF THE EXECUTIVE OFFICE OF HEALTH AND HUMAN SERVICES & another; LIONEL C. NADEAU vs. DIRECTOR OF THE OFFICE OF MEDICAID.
SJC-12200; SJC-12201
Supreme Judicial Court of Massachusetts
May 30, 2017
477 Mass. 188 (2017)
GANTS, C.J.
Worcester. January 5, 2017. - May 30, 2017. Present: GANTS, C.J., LENK, HINES, GAZIANO, LOWY, & BUDD, JJ.
This court concluded that neither the grant in an irrevocable trust of a right of use and occupancy in a primary residence deeded to that trust, nor the retention of a life estate in a primary residence after deeding it to such a trust, makes the equity in the home owned by the trust a countable asset for the purpose of determining an applicant‘s eligibility for long-term care benefits under the Federal Medicaid Act; therefore, this court vacated the judgments in two cases that relied on a finding that the home was a countable asset but remanded each matter for further findings regarding other possible sources of countable assets contained in the trust at issue in each matter. [199-205]
CIVIL ACTION commenced in the Superior Court Department on February 11, 2015.
The case wаs heard by Dennis J. Curran, J., on a motion for judgment on the pleadings.
The Supreme Judicial Court granted an application for direct appellate review.
CIVIL ACTION commenced in the Superior Court Department on December 23, 2014.
The case was heard by Shannon Frison, J., on a motion for judgment on the pleadings.
The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.
Lisa Neeley (Patrick Tinsley also present) for Lionel C. Nadeau.
Brian E. Barreira (Nicholas G. Kaltsas also present) for Mary E. Daley.
Ronald M. Landsman, of Maryland, for National Academy of Elder Law Attorneys, Inc.
Elizabeth Kaplan & Julie E. Green, Assistant Attorneys General, for Director of the Office of Medicaid & another.
1Of the estate of James Daley.
2Director of the Office of Medicaid.
Leo J. Cushing & Thomas J. McIntyre, for Real Estate Bar Associаtion for Massachusetts, Inc., amicus curiae, submitted a brief.
GANTS, C.J. These two cases require this court to navigate the labyrinth of controlling statutes and regulations to determine whether applicants are eligible for long-term care benefits under the Federal Medicaid Act (act) where they created an irrevocable trust and deeded their primary asset — their home — to that trust but retained the right to reside in and enjoy the use of the home for the rest of their life. The Director of the Massachusetts Office of Medicaid (MassHealth) determined that the applicants in these two cases were not eligible for long-term care benefits because their retention of a right to continue to live in their homes made the equity in their homes a “countable” asset whose value exceeded the asset eligibility limitation under the act. The applicаnts unsuccessfully challenged MassHealth‘s determinations in the Superior Court pursuant to
Background. The act, enacted in 1965 as Title XIX of the Social Security Act,
Participating Statеs are required to cover the costs of care for the “categorically needy,” which the act defines as those individuals who are unable to cover the costs of their basic needs and who already receive or are eligible for certain forms of public assistance. See Roach v. Morse, 440 F.3d 53, 59 (2d Cir. 2006). States have the option to cover the costs of care for the “medically needy,” Haley v. Commissioner of Pub. Welfare, 394 Mass. 466, 467-468 (1985), which the act defines as people who have income and resources to cover the costs of their basic needs but not their necessary medical care. See
Medicaid has become one of the largest programs in the Federal budget as well as a major expenditure for State governments, which must finance a significant portion of Medicaid benefits on their own. See R. Rudowitz, Kaiser Commission on Medicaid and the Uninsured, Mediсaid Financing: The Basics (Dec. 2016) (Medicaid is third largest domestic program in Federal budget, exceeded only by Medicare and Social Security); Massachusetts Medicaid Policy Institute & Massachusetts Budget and Policy Center, Understanding the Actual Cost of MassHealth to the State (Nov. 2014) (reporting net cost of MassHealth and health reform programs as twenty-three per cent of State budget). As of 2015, the Medicaid program provided health and long-term care coverage to nearly 70 million low-income Americans, including, among many others, poor senior citizens who are also covered by Medicare. See Kaiser Family Foundation, Medicaid at 50 (2015), http://kff.org/medicaid/report/medicaid-at-50 [https://perma.cc/TK7Q-72KR].
In order to qualify for Medicaid in Massachusetts, MassHealth requires that “[t]he total value of countable assets owned by or available to” an individual applicant not exceed $2,000.
Through “Medicaid planning,” individuals attempt to transfer or otherwise dispose of their assets long before they need long-term care so that, when the need arises, they may satisfy the asset limit and qualify for Medicaid benefits. In essence, the purpose of Medicaid planning is to enable persons whose assets would otherwise render them ineligible for long-term care benefits to become eligible for Medicaid benefits by transferring to their children or other loved ones the assets they would otherwise use to pay for long-term care, shifting to the taxpayers the burden of paying for that care. See generally Cohen, 423 Mass. at 402-403. As a report of the House of Representatives‘s committee on energy and commerce declared in 1985, “When affluent individuals use Medicaid qualifying trusts and similar ‘techniques’ to qualify for the program, they are diverting scarce Federal and State resources from low-income elderly and disabled individuals, and poor women and children.” H.R. Rep. No. 265, 99th Cong., 1st Sess., pt. 1, at 72 (1985), quoted in Cohen, supra at 404.
Congress has imposed two substantial constraints on such Medicaid planning. The first is the so-called “look-back” rule,
Second, where an applicant has created an irrevocable trust and transferred assets to that 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 (I) to or for the benefit of the individual, shall be considered income of the individual, and (II) for any other purpose, shall be considered a transfer of assets by the individual.”
Under the “any circumstances” test, where the grantor of the irrevocable trust gives the trustee any “leeway to respond to emergency and unexpected circumstances,” the total amount available to be paid to address such circumstances is counted as fully available to the grantor, even if the trust provisions otherwise limit the trustee‘s discretion to pay for long-term care. See id. at 418-420. Consequently, where the terms of an irrevocable trust give the trustee discretion to pay both income and principal to the grantor for various purposes, but limit that discretion in an attempt to assure the grantor‘s eligibility for public assistance despite the considerable resources otherwise available to the grantor, the full amount of the trust, bоth principal and income, is the amount deemed available for purposes of determining Medicaid eligibility. Id. at 421-422.
The “any circumstances” test is qualified by an important caveat: if the amounts that may be paid to the Medicaid applicant come only from the income of the trust, those income payments do not render the principal of the trust available as an asset; rather, they are treated as income that may affect the amount of Medicaid benefits to be received but not the applicant‘s eligibility for such benefits. See Guerriero v. Commissioner of the Div. of Med. Assistance, 433 Mass. 628, 632 n.6 (2001);
The application of this labyrinth of statutes аnd regulations is best understood by examples. If a married couple without any savings forgoes Medicaid planning and continues jointly to own in fee simple a single family home, then when one spouse needs long-term care and applies for MassHealth benefits, the applicant‘s primary residence is not a countable asset for MassHealth eligibility purposes, so long as its value does not exceed an annually adjusted limit (currently $828,000). See
If a married couple who owns no primary residence but has substantial liquid assets engages in Medicaid planning, they could create an irrevocable trust and transfer all of their assets to that trust. If, under the terms of the trust, the trustee were authorized to pay them only income from the trust and could not under any circumstance pay them a penny of principal, and if the transfer to the trust complied with the “look-back” rule because it occurred more than five years before either spouse applied to MassHealth for long-term care benefits, the applicant would be eligible for such benefits because the assets of the trust would not be countable as his or her assets. See Cohen, 423 Mass. at 419-420 (where trust is written to deprive trustee of any discretion to pay principal and allows payment only of income, principal will not be counted as assets for Medicaid purposes); Heyn, 89 Mass. App. Ct. at 314 (where properly structured, irrevocable trust may be used to place assets beyond grantor‘s reach and permit grantor to be eligible for Medicaid benefits).
In essence, a wealthy person may decide five years in advance of applying for Medicaid to either give away all of his or her assets to the children or transfer them to an irrevocable trust with the children as beneficiaries, reserving only the receipt of income, and therefore become someone with less than $2,000 in assets who is eligible for Medicaid benefits. The inclusion of the primary residence among the assets transferred to the irrevocable trust allows the grantor to avoid the estate recovery claim against his or her primary residence that would occur had the grantor obtained Medicaid long-term care benefits and continued to own the home until it was transferred to his or her heirs as part of the probate estate.
Although the transfer of assets to an irrevocable trust through Medicaid planning offers substantial benefits to the grantor, it also
The risks of Medicaid planning are highlighted by these two cases, where the plaintiffs challenge the determinations by MassHealth that their primary residence was a countable asset that rendered them ineligible to receive Medicaid long-term care benefits because they had transferred ownership of the home to an irrevocable trust but retained the ability to reside in their home for the balance of their life. A key difference between these two cases is the property interest that was trаnsferred to the irrevocable trust: in one, the home was transferred in fee simple but the terms of the trust granted the settlors the right of use and occupancy for their lifetimes; in the other, the settlors retained a life estate in the home and transferred only the remainder interest to the irrevocable trust. We look now to the terms of the irrevocable trust at issue in each case and to the MassHealth determinations.
Nadeau Trust. On March 27, 2001, plaintiff Lionel C. Nadeau and his wife (collectively, Nadeaus) deeded their primary resi-
Thirteen years later, and after the passing of his wife, Nadeau was admitted to a skilled nursing facility and applied for MassHealth long-term care benefits. At the time, the assessed value of the residence held by the Nadeau Trust was $173,700, and Nadeau, then eighty-nine years old, had only $168.15 in cash assets. MassHealth denied Nadeau‘s application based on its finding that the home remained a “countable asset,” placing Nadeau above the $2,000 asset limit for long-term care eligibility. MassHealth determined that he needed to spend down $171,868.15 of his assets in order to qualify for the requested benefits.
Daley Trust. On December 19, 2007, Mary E. Daley and her husband (collectively, Daleys) deeded their primary residence in Worcester to their children as trustees of an irrevocable trust (Daley Trust) in return for consideration of less than one hundred dollars, but retained a life estate in thе property. Under the terms of the trust, the trustees are to pay to Daley or her husband “so much of the net income of the Trust as either Donor shall request in writing,” but “[t]he Trustee[s] shall have no authority or discretion to distribute principal of the Trust to or for the benefit of either Donor.” However, as with the Nadeau Trust, the trustee may pay principal as needed to satisfy any tax obligation arising from the payment of income to the Daleys.
In both cases, the MassHealth determination was appealed to a MassHealth hearing officer, who upheld the determination by finding that, because the applicant retained the ability to reside in the home, the home is “available” to the applicant and must be deemed a countable asset under
“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 [Code Mass. Regs. §] 520.007(G)(2) or (G)(8).”10
The hearing officers also found that the provision in the trusts that permit the trustee to pay the grantors’ tax obligations arising from the payment of trust income does not render the entirety of the trust principal available under the “any circumstances” test. They specifically did not reach the issue of how much of the principal could be paid in that circumstance and therefore become countable, declaring that, if eligibility were to rest on that determina-
Discussion. The Medicaid program in Massachusetts was established “pursuant to and in conformity with the provisions of” the act.
Under Federal law, “[f]or purposes of determining an individual‘s eligibility for, or amount of, benefits under a State plan under [the act] ... the rules specified in paragraph (3) shall apply to a trust established by such an individual.”
The plaintiffs contend that
“For purposes of this section a payment from a trust is a 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.”
State Medicaid Manual, HCFA Pub. No. 45-3, Transmittal 64 § 3259.1.A.8 (Nov. 1994).
The Manual is comprised of the various transmittals issued by HCFA and, later, by CMS. The transmittals contained in the Manual do not carry the force of regulations and are not entitled to the deference that we give to regulations that reflect an agency‘s interpretation of a statute it is obliged to enforce. See Chevron, U.S.A., Inc. v. Natural Resources Defense Counsel, Inc., 467 U.S. 837, 845 (1984); Springfield v. Department of Telecomm. & Cable, 457 Mass. 562, 567-568 (2010). However, we consider such guidance carefully for its persuasive power. See Wos v. E.M.A. ex rel. Johnson, 568 U.S. 627, 643 (2013) (interpretations contained in policy statements, agency manuals, and enforcement guidelines lack force of regulations and “do not warrant Chevron-style deference,” but are ‘entitled to respect’ in proportion to their ‘power to persuade‘” [citations omitted]); Atlanticare Med. Ctr. v. Commissioner of the Div. of Med. Assistance, 439 Mass. 1, 9 & n.12 (2003).
We conclude that HCFA Transmittal 64 accurately interprets the meaning of “payment from the trust” in
To illustrate with an example, if a grantor transfers to an irrevocable trust ownership of a condominium unit and the trustee decides to rent the unit to a third person and pay the rental income to the grantor, there is a payment of rental income from the trust to the grantor. If the grantor instead exercises his or her right of use and occupancy under the terms of the trust, and decides to reside in the unit or permit a family member to reside there without the payment of rent, the fair market value of the rent that otherwise would have been earned and treated as actual trust income is deemed paid to the grantor under Transmittal 64.
This payment, however, is not a payment from the corpus of the trust; the grantors do not have the power through their right of use and occupancy to sell the property under any circumstances. It is instead a payment from the “income on the corpus.” Such payments, whether actually received as rental income or imputed as the fair market rental value of the grantors’ occupancy of the home, may be countable as income of the grantors, but the value of the home is not thereby countable as their asset.12 Such payments, therefore, do not affect an applicant‘s eligibility for
The MassHealth regulation,
As the United States Supreme Court has declared, “the principle of actual availability ... has served primarily to prevent the States from conjuring fictional sources оf income and resources by imputing financial support from persons who have no obligation to furnish it or by overvaluing assets in a manner that attributes nonexistent resources to recipients.” Heckler v. Turner, 470 U.S. 184, 200 (1985). The “any circumstances” test for trusts requires an additional layer of analysis, but it does not depart from this fundamental purpose. See Guerriero, 433 Mass. at 634 (trust assets not available to applicant where trustee did not have “any legal discretion” to pay any part of trust principal to her). By declaring the equity in a home owned by an irrevocable trust to be actually available to an applicant where the trustee has no power to sell the home and distribute the proceeds to the applicant under any circumstance, Massachusetts is effectively “conjuring [a] fictional” resource (the applicant‘s home) by “imputing
Because the MassHealth determination that Nadeau was ineligible to receive Medicaid long-term care benefits rests solely on the availability of his home as a resource, we vacate the judgment affirming this finding and remand the matter to MassHealth to evaluate two other possible sources of countable assets. As earlier discussed, the terms of the Nadeau Trust permit the equity in the Nadeau home to be paid at the Nadeaus’ direction or for their benefit during their lifetimes in two circumstances.
First, the Nadeaus may “appoint ... all or any part of the trust property ... to any one or more charitable or non-profit organizations” over which they have no controlling interest. Had Nadeau received care at a nursing home operated by a nonprofit organization, hе could have used the assets of the trust, including his home, to pay the nonprofit organization for his care. Because approximately one-fourth of the nursing homes in Massachusetts are operated by nonprofit organizations,13 albeit not the nursing home where he received care, it is appropriate for MassHealth to consider whether this possibility fits within the “any circumstances” test.
Second, because the trust is intended to be construed as a “grantors trust” under the Internal Revenue Code,
Our analysis is different for the Daley Trust because, in contrast with the Nadeau Trust, the Daley Trust did not own the home in fee simple; the Daleys retained a life estate and deeded only the remainder interest in their home to the trust. Their continued residence in the home, therefore, cannot be deemed putative income received from the trust through a right of use and occupancy, because the trust has no property interest in the home during the Daleys’ lifetime. Instead, the life estate is an asset of the Daleys that can be sold, mortgaged, or leased. See Hershman-
Conclusion. We reverse the judgments in both cases, and remand to MassHealth for further proceedings consistent with this opinion.
So ordered.