Planning for Life

D'Agostino Wins MassHealth Trust Case

Posted by Harry S. Margolis on June 10, 2019

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By Harry S. Margolis

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The MassHealth Board of Appeals recently decided a case involving real estate held by a trust in favor of Patricia D'Agostino's client, a current nursing home resident who had sought coverage beginning in December 2017. The trust had been created by the client's now-deceased husband back in 1995 and held two vacation rental properties.

The Trust in Question

At issue were two provisions in the trust. The first gave the client the right to use and occupy the vacation properties and to receive the net rental income. The second permitted the dissolution of the trust upon agreement of all the beneficiaries and the sale of the trust property with the proceeds being paid to the beneficiaries listed on "the then current schedule of beneficiaries," the couple's children.

In denying the client's initial application for benefits, MassHealth reasoned that she was the sole beneficiary during her life, that the children were only contingent beneficiaries upon her death, and that therefore she would receive the proceeds of the sale of the trust properties during her life, making them available to her and rendering her ineligible for benefits.

The Legal Standard

Citing court decisions, the Board of Hearings Officer succinctly and surely describes the "any circumstances" test for determining whether trust property may be considered available to the applicant for benefits as follows:

The "any circumstances" test allows MassHealth to review a trust to determine whether "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." [Cite omitted.] This test is applied without regard to whether the circumstances have occurred, "it is enough that the amount could be made available to [the donor] under any circumstances." [Cite omitted.]

However, if under "any circumstances," payment may be only made from income, then MassHealth may only count the amount of income that could be distributable and it must treat the distributions as income received. [Cite omitted.]

The Holding

In this case, the Hearing Officer finds that the applicant does not have a 100% beneficial interest in the trust, as MassHealth argues, just a life interest until her death:

The clear language of the trust does not pass the [husband's] interest to the appellant; rather it creates a revocable trust during the spouse's lifetime, and then creates a new lifetime interest for the appellant with a remainder interest vested in the children upon the settlor's death."

The Hearing Officer also rejects MassHealth's second argument that the surviving wife "used trust resources in a manner indicative of ownership," finding:

Here, the trust is simply paying expenses out of income before making "net" distributions to the appellant. Because the expenses exceed the income, the net distribution is negative, causing the appellant to make contributions back into the trust to cover its expenses.

The Remand

While finding the trust assets unavailable to the nursing home resident, the Hearing Officer remands the case to determine what income she must contribute from the trust towards her cost of care and to evaluate whether any non-permissible transfers have been made. While the trust is not generating income in excess of its expenses, the Hearing Officer says that MassHealth may impute "the fair market rental value" of the property and remands the case for this determination.

Topics: trusts, MassHealth, vacation house

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