In the recently decided case of Rockingham County Nursing Home v. Harnois (U.S. Dist. Ct., Mass., CA No. 11-11057-JGD, Jan. 10, 2014), a nursing home is found to be time-barred from bringing an action against the children of a long-time resident who had transferred her home, assessed at $332,100 in 2012, to an irrevocable trust.
In July 2006, Beatrice Harnois transferred her home in West Barnstable, Massachusetts, into a trust for the benefit of her three children. By 2008, she could no longer live on her own and moved to her son, Randolph's, house in New Hampshire. In April 2009, Ms. Harnois, then 88, moved to the Rockingham Nursing Home where she received high-quality care until her death in September 2013. Over those four and a half years the facility was paid nothing for her care and Ms. Harnois accrued a bill totaling $460,000.
At some point, Randolph and his brother, Rodney, filed for Medicaid coverage for their mother, which was denied for reasons not explained in this decision. Since the five-year penalty for transferring the house to the trust should have expired in 2011, we can guess that either the sons filed before the penalty period had expired or that New Hampshire Medicaid objected to the terms of the trust.
In June 2011, Rockingham brough suit against Rodney as the trust's trustee arguing that the conveyance in 2006 constituted a fraudulent transfer and that since the trust would be unjustly enriched if it were permitted to retain the house, the trust property should be held in constructive trust to pay Ms. Harnois' bill. This decision concerns only the first count of fraudulent conveyance.
Statute of Limitations
Under the Massachusetts fraudulent transfer law (Mass. Gen. Laws ch. 109A), a conveyance will be deemed fraudulent where the transfer was made "with actual intent to hinder, delay, or defraud any creditor" or the debtor "intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due."
The statute of limitiations provision of the statute requires that an action under its provisions be made "within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant".
Since this suit was brought more than four years after Ms. Harnois transferred her home to the trust and more than a year after she moved to the nursing home, the case centered on the meaning of the word "obligation" in the statute of limitations language. Rockingham argues that it refers to Ms. Harnois incurring its obligation for the services provided by the nursing home.
Unfortunately for the facility, the federal district court interprets "obligation" in the statute of limitations section as applying to an obligation the debtor might incur to another third party. As explained by the Court, "the plain language of the term . . . refers to the transaction that is being challenged as fraudulent, and not, as Rockingham argues, to the financial obligation for which the claimant is seeking compensation." For example, if Ms. Harnois had agreed to guarantee her daughter's mortgage, that might be considered a fraudulent transfer time-barred by the statute of limitations.
Moral of the Story
Many commentators have argued that transfers made for Medicaid (MassHealth) planning should be treated as fraudulent conveyances since they are intended to render the the senior eligible for Medicaid. However, this is the first case I'm aware of in Massachusetts testing this claim. We understand that nursing facilities need to be paid for the care they provide. Anyone who transfers assets to protect them should have a way to pay for care for the resulting five-year ineligibility period. We find, however, that nursing homes often are left holding the bag due to poor Medicaid planning, families dropping the ball on the application for benefits, or Medicaid denials based on faulty decisions by state Medicaid agencies.