The opinion
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SJC-12200
SJC-12205
MARY E. DALEY, personal representative,1 vs. SECRETARY OF THE
EXECUTIVE OFFICE OF HEALTH AND HUMAN SERVICES & another.2
LIONEL C. NADEAU vs. DIRECTOR OF THE OFFICE OF MEDICAID.
Worcester. January 5, 2017. - May 30, 2017.
Present: Gants, C.J., Lenk, Hines, Gaziano, Lowy, & Budd, JJ.
Medicaid. Trust, Irrevocable trust. Real Property, Life
estate, Ownership.
Civil action commenced in the Superior Court Department on
February 11, 2015.
The case was 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.
1
Of the estate of James Daley.
2
Director of the Office of Medicaid.
2
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 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.
Patricia Keane Martin, for National Academy of Elder Law
Attorneys (Massachusetts Chapter), was present but did not
argue.
Leo J. Cushing & Thomas J. McIntyre, for Real Estate Bar
Association 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 applicants
unsuccessfully challenged MassHealth's determinations in the
3
Superior Court pursuant to G. L. c. 30A, § 14. We granted Mary
E. Daley's application for direct appellate review and
transferred Lionel C. Nadeau's appeal to this court on our own
motion. We conclude that neither the grant in an irrevocable
trust of a right of use and occupancy in a primary residence to
an applicant nor the retention by an applicant of a life estate
in his or her primary residence makes the equity in the home
owned by the trust a countable asset for the purpose of
determining Medicaid eligibility for long-term care benefits.
We therefore vacate the judgments that rely on such a finding
and remand the matters to MassHealth for findings regarding two
other possible sources of countable assets contained in the
trusts.3
Background. The act, enacted in 1965 as Title XIX of the
Social Security Act, 42 U.S.C. §§ 1396 et seq., created a
cooperative State and Federal program to provide medical
assistance to individuals who cannot afford to pay for their own
medical costs. See Arkansas Dep't of Health & Human Servs. v.
Ahlborn, 547 U.S. 268, 275 (2006). The general administration
of Medicaid is entrusted to the United States Secretary of
3
We acknowledge the amicus brief submitted by the National
Academy of Elder Law Attorneys, Inc., in both cases; the amicus
brief submitted by the Real Estate Bar Association for
Massachusetts, Inc., in Mary E. Daley's case; and the amicus
brief submitted by the National Academy of Elder Law Attorneys
(Massachusetts Chapter) in Lionel C. Nadeau's case.
4
Health and Human Services, who in turn exercises authority
through the Centers for Medicare and Medicaid Services (CMS).
Id.4 Although the Medicaid program is voluntary for States,
participating States must comply with certain requirements
imposed by the act and regulations promulgated by the Secretary
through CMS. See Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498,
502 (1990). Massachusetts has opted to participate in Medicaid
via the establishment of a State Medicaid program known as
MassHealth. See G. L. c. 118E, § 9 (establishing program of
medical assistance "pursuant to and in conformity with the
provisions of Title XIX").
Participating States 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
4
Until 2001, the Centers for Medicare and Medicaid Services
were known as the Health Care Financing Administration. See
Centers for Medicare & Medicaid Services Statement of
Organization, Functions and Delegations of Authority, and
Reorganization Order, 66 Fed. Reg. 35,437-03 (2001).
5
basic needs but not their necessary medical care. See 42 U.S.C.
§ 1396a(a)(10)(C).
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, Medicaid 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].
The demand for Medicaid long-term care benefits, which
cover nursing home care as well as other forms of personal long-
term care services, has grown steadily as a result of our
country's aging population and the expense of paying privately
for nursing homes or other long-term care. See Cohen v.
6
Commissioner of the Div. of Med. Assistance, 423 Mass. 399, 402
(1996), cert. denied sub nom. Kokoska v. Bullen, 519 U.S. 1057
(1997). See also Bernstein, With Medicaid, Long-Term Care of
Elderly Looms as a Rising Cost, N.Y. Times, Sep. 6, 2012,
http://www.nytimes.com/2012/09/07/health/policy/long-term-care-
looms-as-rising-medicaid-cost.html [https://perma.cc/2JB6-L6NM]
(describing Medicaid as "the only safety net for millions of
middle-class people whose needs for long-term care, at home or
in a nursing home, outlast their resources"). A recent survey
estimated that the median annual cost of nursing home care for a
senior in a semiprivate room in Massachusetts was more than
$128,000. See Genworth 2015 Cost of Care Survey, Massachusetts,
https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate
/cost-of-care/118928MA_040115_gnw.pdf [https://perma.cc/2RNC-
6P5G]. Private long-term care insurance can cost more than
$3,000 annually. See AARP, Understanding Long-Term Care
Insurance (May 2016), http://www.aarp.org/health/health-
insurance/info-06-2012/understanding-long-term-care-insurance
.html [https://perma.cc/56MK-DYZ2]. Because many individuals
cannot afford these expenses, Medicaid pays for the care of two-
thirds of people in nursing homes in the United States. See
Zernike, Goodnough, & Belluck, In Health Bill's Defeat, Medicaid
Comes of Age, N.Y. Times, Mar. 27, 2017. See also E.L. Reaves &
M. Musumeci, Kaiser Commission on Medicaid and the Uninsured,
7
Medicaid and Long-Term Services and Supports: A Primer (Dec.
2015), http://kff.org/medicaid/report/medicaid-and-long-term-
services-and-supports-a-primer [https://perma.cc/KJZ5-5WJR].
The cost of Medicaid's long-term care benefit is expected to
rise by fifty per cent over the next decade, and State and
Federal officials are reportedly "scrambling to control
spending." Gorman & Feder Ostrov, Long-Term Care Is an
Immediate Problem -- For the Government, Kaiser Health News,
Aug. 1, 2016, http://khn.org/news/long-term-care-is-an-
immediate-problem-for-the-government [https://perma.cc/N9V9-
5QKE].
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. 130 Code Mass. Regs. § 520.003(A)(1) (2014).5 For a
5
This asset limit is not codified in Title XIX of the
Social Security Act, 42 U.S.C. §§ 1396 et seq. Instead, Federal
law and guidance from Federal regulators generally instruct the
State Medicaid programs that their treatment of applicants'
resources in determining eligibility may not be more restrictive
than the methodology that would be employed under the Federal
supplemental security income (SSI) program. See 42 U.S.C.
§ 1396a(a)(10)(C)(i); State Medicaid Manual, Health Care
Financing Administration Pub. No. 45-3, Transmittal 64
§ 3257.B.4 (Nov. 1994). But see Mistrick v. Division of Med.
Assistance & Health Servs., 154 N.J. 158, 174-175 (1998)
(specific Congressional legislation regarding Medicaid
eligibility supersedes general rule that State Medicaid
eligibility rules may be "no more restrictive" than SSI). The
asset limit for SSI beneficiaries is $2,000. See 42 U.S.C.
§ 1382(a).
8
couple living together, the limit is $3,000. 130 Code Mass.
Regs. § 520.003(A)(2) (2014). This asset limit often requires
applicants to "spend down" or otherwise deplete their resources
to qualify for Medicaid long-term care benefits when they enter
a nursing home. See Lebow v. Commissioner of the Div. of Med.
Assistance, 433 Mass. 171, 172 (2001).6
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
6
As we discuss later in this opinion, an applicant's
principal residence is generally not considered to be a
countable asset in the eligibility determination and thus an
applicant does not have to sell his or her home in order to
qualify for Medicaid long-term care benefits. See 20 C.F.R.
§ 416.1212(b); 130 Code Mass. Regs. §§ 520.007(G)(3), 520.008(A)
(2014).
9
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,
which imposes a penalty for any asset transfer for less than
fair market value made by an individual within five years of the
individual's application for Medicaid benefits. See 42 U.S.C.
§ 1396p(c)(1)(B)(i). See generally D. Westfall, G.P. Mair, J.R.
Buckles, N.M. Oliveira, & W. Murieko, Estate Planning Law &
Taxation § 13.05 (2017) (Westfall). In its present form, the
"look-back" rule provides that, if such a transfer occurs, the
applicant is ineligible for Medicaid benefits for a period of
time determined by dividing the value of the transfer by the
average monthly cost of the nursing home facility. See 42
U.S.C. § 1396p(c)(1)(E). Thus, if an applicant transfers
$100,000 in assets during the look-back period, in a State where
the average monthly cost of a nursing home is $10,000, the
applicant will be ineligible for Medicaid benefits for ten
months. See Westfall, supra.
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
10
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." 42 U.S.C. § 1396p(d)(3)(B)(i). This
is commonly referred to as the "any circumstances" test. See
Heyn v. Director of the Office of Medicaid, 89 Mass. App. Ct.
312, 315 & n.7 (2016).7 The effect of the test is that if the
trustee is afforded even a "peppercorn of discretion" to make
payment of principal to the applicant, or if the trust allows
such payment based on certain conditions, then the entire amount
that the applicant could receive under "any state of affairs" is
the amount counted for Medicaid eligibility. See Cohen, 423
Mass. at 413.8
7
The cognate Massachusetts regulation 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." 130 Code Mass. Regs. § 520.023(C)(1)(a)
(2014).
8
To illustrate the operation of this rule, Federal
regulators provide the example of a trust containing $50,000 in
principal under which payment of principal may be made to the
Medicaid applicant only in the event that the applicant requires
a heart transplant. Because it is possible the applicant could
11
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, both 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
require 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." See State Medicaid
Manual, Health Care Financing Administration Pub. No. 45-3,
Transmittal 64 § 3259.6(E) (Nov. 1994).
12
applicant's eligibility for such benefits. See Guerriero v.
Commissioner of the Div. of Med. Assistance, 433 Mass. 628, 632
n.6 (2001); 130 Code Mass. Regs. § 520.026 (2013). See also
J.A. Bloom & S.M. Cohen, Nursing Home MassHealth Eligibility, in
Estate Planning for the Aging or Incapacitated Client in
Massachusetts § 26.3.2 (Mass. Cont. Legal Educ. 4th ed. 2012 &
Supp. 2015) (explaining general rule that anyone whose income is
less than monthly cost of his or her nursing home may be
eligible for MassHealth).
The application of this labyrinth of statutes and
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 130
Code Mass. Regs. § 520.008(A) (2013); 130 Code Mass. Regs.
§ 520.007(G)(3) (2014). See also 20 C.F.R. § 416.1212(b) (SSI
regulation).9 Thus, the spouse may be admitted to a nursing home
and be covered by MassHealth without having to sell the home.
9
If the applicant's spouse, child under the age of twenty-
one, disabled child, or caretaker child, among others, remains
living in the home, the value of the home will not be counted
even if it exceeds the limit. 130 Code Mass. Regs.
§ 520.007(G)(8)(b) (2013).
13
However, Federal law requires that MassHealth must attempt to
reclaim the costs of long-term care benefits provided to such an
applicant from the applicant's estate after his or her death.
42 U.S.C. § 1396p(a), (b). See 130 Code Mass. Regs.
§ 515.011(A) (2014). As a result, where the house is the only
asset in the applicant's estate and is sold by the estate after
both spouses have died, the children will be able to inherit
only the proceeds of the sale that exceed the amount of the
MassHealth recovery claim.
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
14
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 poses considerable risks. Having been stripped
of all assets, the grantor may be unable to pay unforeseen
nonmedical expenses, and may need to look to children or other
relatives for payment. If the grantor were to require nursing
home care sooner than expected, he or she would face a
significant penalty under the look-back rule. See A.K. Dayton,
J.A. Garber, R.A. Mead, & M.M. Wood, Advising the Elderly Client
15
§ 29.82 (2016) ("planning only for Medicaid eligibility severely
restricts planning options for other goals, and often the
adverse impact of Medicaid planning outweighs the benefit if the
client is advised thoroughly . . . [and] consideration should be
given to . . . possible loss of autonomy, pride, and dignity"
involved in process). If the grantor of the irrevocable trust
leaves open even a "peppercorn" of discretion for the trustee to
pay the grantor from the principal of the trust under any
circumstance, the entire principal of the trust will be deemed
available to the applicant and therefore will be treated as a
"countable asset," making the applicant ineligible for Medicaid
benefits. Where the grantor transfers his or her primary
residence to the irrevocable trust, the value of the home, which
would not be a countable asset if he or she were to continue to
own it (provided its value does not exceed $828,000), would
become a countable asset if it were found to be among the
"resources available to the individual" under 42 U.S.C.
§ 1396p(d)(3). And if the terms of the trust were to bar the
trustee from paying the grantor's nursing home expenses, the
grantor might have no ability to pay for long-term care.
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
16
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 transferred 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
residence in Webster to an irrevocable trust (Nadeau Trust) in
return for nominal consideration, naming their daughter as sole
trustee. Under the terms of the trust, the trustee may pay to
the Nadeaus, or on their behalf, whatever income she determines
in her sole discretion to be necessary for their "care and well-
being." The trustee, apart from two exceptions, must hold the
principal until the termination of the trust, which shall occur
upon the death of the Nadeaus or when the trustee, in her sole
discretion, determines that the trust should be terminated. The
first exception is that the Nadeaus may appoint "all or any part
of the trust property then on hand to any one or more charitable
17
or non-profit organizations over which [they] have no
controlling interest." The second is that the trustee may
distribute principal to the Nadeaus "to the extent that the
income of the trust generates a tax liability" so that they may
pay that tax liability. As earlier mentioned, the terms of the
trust grant the Nadeaus "the right to use and occupy any
residence that may from time to time be held" by the trust.
Upon termination of the trust, the "trustee shall . . . [p]ay
the remaining principal and undistributed income in equal shares
to [the Nadeaus'] children."
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
18
(Daley Trust) in return for consideration of less than one
hundred dollars, but retained a life estate in the 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.
Six years later, Daley's husband was admitted to a skilled
nursing home; he applied for MassHealth long-term care benefits
on February 21, 2014. At the time, he was eighty-seven years
old, he had $18,176 in a bank account, and the principal of the
Daley Trust had a value of $150,943. Daley was still living in
the home. MassHealth denied her husband's application because
it found that the trust principal was countable. While Daley
was permitted a spousal resource allowance of $117,240, the
value of the residence still placed her husband about $50,000
over the $2,000 eligibility limit.
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
19
must be deemed a countable asset under 130 Code Mass. Regs.
§ 520.023(C)(1)(d), which provides:
"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 determination, the matter would have to be
remanded to MassHealth to make such findings.
10
The exemptions in these two provisions apply only to
"real estate owned by the individual and the spouse." 130 Code
Mass. Regs. § 520.007(G)(1). Under 130 Code Mass. Regs.
§ 520.007(G)(2), the value of real estate is exempt as a
countable asset for nine months after the date of notice by
MassHealth provided that the applicant executes an agreement
within thirty days of the date of notice to sell the property at
fair market value. Under 130 Code Mass. Regs. § 520.007(G)(8),
where an applicant moves out of his or her home with no intent
to return in order to enter a medical institution where
placement is expected to continue for at least thirty days, the
home becomes a countable asset unless a spouse, a child who is
less than twenty-one years of age, a child who is blind or
permanently and totally disabled, or other designated relatives
reside in the home.
20
Discussion. The Medicaid program in Massachusetts was
established "pursuant to and in conformity with the provisions
of" the act. G. L. c. 118E, § 9. If a person meets the Federal
financial eligibility requirements for Medicaid, MassHealth may
not deny the person long-term care benefits. Id. ("[P]rovided
that such persons meet the financial eligibility requirements of
[the act], . . . long-term care services shall be available to
otherwise eligible persons whose income and resources are
insufficient to meet the costs of their medical care as
determined by the financial eligibility requirements of the
program"). See Cruz v. Commissioner of Pub. Welfare, 395 Mass.
107, 113 (1985) ("The language of this section clearly indicates
that the Legislature intended the [Medicaid] benefits program to
comply with the Federal statutory and regulatory scheme"
[citation omitted]). "When there is a conflict between State
and Federal regulations, the Legislature intended that
[MassHealth] comply with the Federal rule." Cruz, supra.
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." 42 U.S.C. § 1396p(d)(1). "[T]he rules specified
in paragraph (3)" provide that "if there are any circumstances
under which payment from the trust could be made to or for the
21
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." 42 U.S.C. § 1396p(d)(3). Therefore, the
issue we must decide is whether 130 Code Mass. Regs.
§ 520.023(C)(1)(d), which MassHealth interprets to mean that the
equity in a home that is part of the corpus of an irrevocable
trust is a countable asset where the grantor of the trust
retains the authority to reside in or otherwise enjoy the use of
the home, is consistent with 42 U.S.C. § 1396p(d)(3).
The plaintiffs contend that § 1396p(d)(3) makes an asset in
the corpus of an irrevocable trust countable only where there
are circumstances in which principal from the trust might be
paid to them or for their benefit. They contend that, because
they can only reside in the home but not reach any of the equity
in the home under the trust, the equity should not be countable
as an asset because it may not be paid to them. MassHealth
argues that interpretive guidance from the Health Care Financing
Administration (HCFA)11 in its State Medicaid Manual (Manual),
which provides instruction to State officials in applying the
provisions of Federal Medicaid law, indicates that a right to
use and occupancy can be a form of "payment" to a Medicaid
11
See note 4, supra.
22
applicant. Transmittal 64, issued in November, 1994, includes a
section entitled "Treatment of Trusts," which states:
"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, 133 S. Ct. 1391, 1402
(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).
23
We conclude that HCFA Transmittal 64 accurately interprets
the meaning of "payment from the trust" in 42 U.S.C.
§ 1396p(d)(3). We also conclude that MassHealth has
misinterpreted the meaning of these words in both the statute
and the transmittal. Section 1396p(d)(3) recognizes that a
"payment from the trust" may be made from the "corpus" of the
trust or from "income on the corpus." Where a home is
transferred to a trust, the home becomes another asset of the
trust. Like any other asset, a home adds to the corpus of the
trust, in that it may be sold for its fair market value; a home
also increases the trust's capacity to generate income, in that
rent may be collected for its use and occupancy. Where the
trustee retains the discretion to pay income produced from the
corpus to the grantors, as in the Nadeau and Daley Trusts, the
trustee may pay any rental income earned from any real estate in
the corpus of the trust to the grantors. Where the terms of the
trust, as in the Nadeau Trust, grant a right of use and
occupancy to the grantors for their lifetime, the grantors
receive from the trust the right to receive any income that may
be generated from the rental of the home, as well as the right
to forgo that rental income by residing in the home themselves.
See Hinckley v. Clarkson, 331 Mass. 453, 454-455 (1954) (right
of use and occupancy grants "right to the income of the property
[for] life," but not right to "alienate or consume" property).
24
See also Langlois v. Langlois, 326 Mass. 85, 87-88 (1950). HCFA
Transmittal 64 accurately recognizes that, where a trust grants
the use or occupancy of a home to the grantors, it is
effectively making a payment to the grantors in the amount of
the fair rental value of that property.
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
25
as their asset.12 Such payments, therefore, do not affect an
applicant's eligibility for Medicaid long-term care benefits,
but they may affect how much the applicant is required to
contribute to the payment for that care. Just as the payment of
income from the liquid assets of an irrevocable trust does not
make those assets "available to the individual" under
§ 1396p(d)(3) and therefore countable assets for purposes of
Medicaid eligibility, the payment of what is essentially rental
income from real estate owned by the trust does not make the
equity in that real estate a countable asset.
The MassHealth regulation, 130 Code Mass. Regs.
§ 520.023(C)(1)(d), accurately interprets § 1396p(d)(3) in
providing, "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." There is no doubt that, where the terms of the trust
grant the trustee the discretion in any circumstance to sell the
grantors' home and distribute to them the proceeds, the home is
12
Under the Massachusetts regulations implementing the
Federal Medicaid act, countable income includes income to which
an applicant, a person already receiving Medicaid benefits, or a
spouse "would be entitled whether or not actually received when
failure to receive such income results from [their] action or
inaction." See 130 Code Mass. Regs. § 520.009(A)(4) (2014).
"In determining whether or not failure to receive such income is
reasonably considered to result from such action or inaction,
the MassHealth agency will consider the specific circumstances
involved." Id.
26
a countable asset for Medicaid eligibility. Where MassHealth
errs is in interpreting its regulation to mean that a home "is
available according to the terms of the trust" simply because
the terms of the trust give the grantors the right of use and
occupancy of the home. Such a right is not a circumstance that
would give the trustee the discretion to sell the home and
distribute the proceeds to the applicant, and therefore is not a
circumstance that may render the home a countable asset.
As the United States Supreme Court has declared, "the
principle of actual availability . . . has served primarily to
prevent the States from conjuring fictional sources of 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]
27
fictional" resource (the applicant's home) by "imputing
financial support" from a person who has no authority to furnish
it (the trustee).
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, he 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
13
See MatchNursingHomes.org, Massachusetts Nursing Homes
and Resources, http://matchnursinghomes.org/state/ma-nursing-
homes [https://perma.cc/G7CS-2G3B] (citing 2011 data).
28
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, 26 U.S.C.
§ 677(a), with all income distributed to the grantors taxable to
them, the trustee may pay any tax liability arising from such
distributions from the corpus of the trust. MassHealth may
determine that this portion of the corpus is a countable asset
under the "any circumstances" test and may ascertain, under
§ 1396p(d)(3), the size of the "portion of the corpus from which
. . . payment to the individual could be made" in this
circumstance.
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-Tcherepnin v. Tcherepnin, 452 Mass. 77, 88 n.20
(2008), quoting H.J. Alperin & L.D. Shubow, Summary of Basic Law
§ 17.5, at 586 (3d ed. 1996) ("[a] life estate is alienable by
29
the life tenant, and he can accordingly convey his estate to a
third person, or mortgage it, or lease it for a term of years").
Moreover, when the underlying property itself is sold, the life
tenant has a right to a portion of the sale proceeds, pursuant
to an actuarial evaluation of the life estate. See J.A. Bloom &
H.S. Margolis, Elder Law § 12:3 (2016). Although we do not
decide the question, it appears that MassHealth does not
consider a life estate in an applicant's primary residence to be
a countable asset for Medicaid eligibility purposes.14,15 Where
the irrevocable trust does not own the life estate in the
14
In Heyn v. Director of the Office of Medicaid, 89 Mass.
App. Ct. 312, 313 n.3 (2016), MassHealth declared in its brief
that it is "a correct statement of law" that retention of a life
estate in a primary residence does not make an individual
ineligible for Medicaid benefits.
15
We note that 42 U.S.C. § 1396p(b)(4)(B) gives States the
option to expand their estate-recovery procedures for Medicaid
expenses to include assets beyond those within the individual's
probate estate, including "any other real and personal property
and other assets in which the individual had any legal title or
interest at the time of death . . . , including such assets
conveyed to a survivor, heir, or assign of the deceased
individual through joint tenancy, tenancy in common,
survivorship, life estate, living trust, or other arrangement."
Massachusetts has not chosen to expand its estate recovery
provisions in this fashion. See G. L. c. 118E, § 31 (c). In
States that have exercised this option under § 1396p(b)(4)(B)
and increased the scope of estate recovery, the remainder
interest in life estates retained by Medicaid beneficiaries are
ultimately subject to recovery after the beneficiary's death.
See, e.g., Matter of the Estate of Peterson v. Peterson, 157
Idaho 827, 836 (2014) ("When assets of a Medicaid recipient are
conveyed to a survivor, heir or assign by the termination of a
'life estate,' the assets remain part of the recipient's
'estate' pursuant to 42 U.S.C. § 1396p[b][4][B] and Idaho Code
section 56–218[4][b]").
30
applicant's primary residence, the continued use of the home by
the applicant pursuant to his or her life estate interest does
not make the remainder interest in the property owned by the
trust available to the applicant. Therefore, we vacate the
judgment affirming the finding that the equity in the Daleys'
home is available to them and is accordingly a countable asset
for purposes of Medicaid eligibility. Because the Daley Trust,
like the Nadeau Trust, is intended to be construed as a
"grantors trust" and the trustee may pay any tax liability
arising from income distributions to the grantors from the
corpus of the trust, we remand the matter to MassHealth to
determine whether this portion of the corpus is a countable
asset under the "any circumstances" test and to ascertain under
§ 1396p(d)(3)(B)(i) the size of the "portion of the corpus from
which . . . payment to the individual could be made" in this
circumstance.
Conclusion. We reverse the judgments in both cases, and
remand to MassHealth for further proceedings consistent with
this opinion.
So ordered.