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Recent Supreme Court Irrevocable Income Only Trusts

In December 2015 at the Lawrence Superior Court two cases were decided that cast a dark cloud over anyone who has placed their home in an Irrevocable Trust. The Judges sided with MassHealth (Medicaid in Massachusetts) that everyone who has placed their residence in an irrevocable trust and continued to live in that residence makes the home a countable asset.  It is not protected.

It doesn’t matter what the trust says. It doesn’t matter if the senior retained absolutely no rights in the trust. What matters is whether the senior(s) continued to live there. If they did the home is countable and not protected.

On one side you are faced with regulation CMR500.023(C)(1)(d)that deals with trusts and more specifically, deals with the residence or former residence. In as vague as possible way it says that if the trust property is available, it is countable. You won’t find a definition in the Regulations, because it was recently deleted. Buried deep in the Social Security regulations they found in HCFA Transmittal #64 language that said  living rent free in a home is the equivalent of receiving a payment. So, if you have your home in a trust, you living there is the equivalent of receiving a payment, that means the trust is available and therefore countable.

On the other side is the Cohen case. This court said that there is no doubt that a properly drafted trust can shield assets, protecting them from nursing home costs. The Court said that the true test of the trust is the “any circumstances test”. That is, is there any circumstance that Principal could be paid to the Grantor? And in terms of payments they were focused on actual payments from the trust, not imaginary ones. Over the past year many hearings on the issue have taken place and many have won

When it comes to hearings it goes like this. You have been denied MassHealth because they say your trust is countable. You have 30 days to appeal this decision and in due course an administrative hearing will take place at a MassHealth Enrollment Center. Generally it is the hearings officer, a MassHealth Representative and your attorney. Occasionally I bring witnesses in to testify. These Trust cases have been winning by an overwhelming proportion at the administrative level. Most do not agree with the position that MassHealth has taken and rule against MassHealth. So if you have one of these trusts, all is not lost.

Should you lose your hearing the next step is to appeal to the Superior Court. The problem with Superior Court is that each decision is not binding on other Superior Court Judges. As one lawyer told me, she had two hearings on one day, in front of two different Superior Court Judges. Each case involved an identical trust and she won one case and lost one case. There needs to be clarity and uniformity in how the law is applied.

Having lost in Superior Court, the next appeal normally is at the Massachusetts Appeals Court. Now you are at the level where the Appeals Court decision becomes binding on all Superior Courts. This is where the Nadeau case was appealed to but in the case of Nadeau, their attorney sought and received direct review by the Massachusetts Supreme Court. While they were at it they grabbed the Doherty also and heared them both together.

Nadeau and Doherty are very similar in that their trusts were about the same. The difference is that in Doherty, when they deeded the property to the trust, they reserved alife estate in the deed and transferred a remainder interest to the trust. In Nadeau, they transferred their entire interest to the trust and did not retain a life estate, but the trust had language giving them the right to live in their home for the rest of their lives. No matter which way you do it, when the last of the Grantors dies, the property passes through the trust, generally to the children.

Trusts not involving the home or former home have not been affected and have protected the money, stock or investments. That’s not to say that MassHealth’s legal department will agree with you. They routinely deny people with trusts that are fine. I think they are hoping someone will just throw up their hands and give up. Even though they have lost over and over on certain arguments, they continue to keep trying.