Tag Archives: irrevocable trusts

Lawyers at the Office of Medicaid Attempt to Mislead Hearing Officers and Judges about Federal Medicaid Trust Law

by: Brian E. Barreira, Esq.

The Office of Medicaid makes a willful, reckless misrepresentation of law to the extent that it suggests that all state trust law is to be ignored in the determination of eligibility for Medicaid benefits for long term care.  Current federal Medicaid law (42 USC §1396p(d)) and Massachusetts MassHealth regulations (130 CMR 520.021-520.024) address the treatment of trusts in the Medicaid arena, and they do not state or even imply that all state trust laws or the common law of trusts are to be ignored.

Under the 1985 changes in federal Medicaid trust law, a door had been left open whereby a provision could be placed in the trust limiting trustee discretion in some circumstances; the 1993 federal Medicaid law at 42 USC 1396p(d)(2)(C) corrected that problem, and specifies four (and only four) aspects of state trust law (often referred to by the Defendant as the “common law of  trusts”) that may be ignored in determining an applicant’s Medicaid eligibility:

“(i) the purposes for which a trust is established,

(ii) whether the trustees have or exercise any discretion under the trust,

(iii) any restrictions on when or whether distributions may be made from the trust, or

(iv) any restrictions on the use of distributions from the trust.”

These 1993 changes in federal Medicaid trust law ended the tactical usage of shifting trustee discretion to obtain Medicaid coverage. The 1985 Congressional intention of authorizing scrutiny of irrevocable trusts under state debtor-creditor laws remained unchanged when the 1993 changes were made, and there have been no further changes in federal Medicaid trust law since that time.

Other than these four exceptions in 42 USC 1396p(d)(2)(C), all Massachusetts trust law applies to an Irrevocable Trust in a MassHealth application.  The United States Court of Appeals for the Third Circuit has already examined Congressional intent in this context, and concluded:  “Congress rigorously dictates what assets shall count and what assets shall not count toward Medicaid eligibility.  State law obviously plays a role in determining ownership, property rights, and similar matters.” Lewis v. Alexander, 685 F.3d 325, 334 (3d Cir. 2012) “[T]here is no reason to believe [Congress] abrogated States’ general laws of trusts.  … After all, Congress did not pass a federal body of trust law, estate law, or property law when enacting Medicaid.  It relied and continues to rely on state laws governing such issues.” Lewis at 343.

The Office of Medicaid continually attempts to mislead hearing officers at MassHealth fair hearings and judges in Superior Court appeals by emphasizing yet decontextualizing the phrase “any circumstances” in the 1993 federal Medicaid trust law, when in fact since 1993 these four circumstances in 42 USC 1396p(d)(2)(C) have been the only “circumstances” addressed by the federal Medicaid trust law wherein state trust law is to be ignored.


Doherty Case Should Cause Some Concern about Irrevocable Medicaid Trusts in Massachusetts

by: Brian E. Barreira, Esq.

In Doherty v. Director of the Office of Medicaid, the Massachusetts Appeals Court rendered a 2009 decision that could be viewed as an assault on irrevocable, income-only trusts in Massachusetts that were designed for MassHealth (i.e., Medicaid) purposes. The decision may simply have been about the facts of a poorly-drafted trust.

A lot of discussion has occurred among Massachusetts elder law attorneys about this case. While the decision appears to be justified based on the details of the trust, what is troubling is that the language in the decision was not as concise as one would expect from an appellate court. It is difficult to read the case and see exactly why the court made its decision, but perhaps the court simply didn’t see sufficient reason to overturn the decisions made below in the Superior Court and at the MassHealth fair hearing level.

The trust in Doherty had some fatal flaws. The person who established it had the authority to make decisions as to what constituted principal and income, and had the right to terminate the trust and make distributions to the “beneficiaries” (which was an undefined term). It appeared that the person who established the trust could be given the assets from the trust, and Medicaid would then be correct in treating the assets of the trust as countable assets, but because the court was not specific about what was wrong with this trust under Medicaid law, any trust under which too much control is reserved could eventually be under attack under Doherty’s poorly-written decision.

Fortunately, in the months since the Doherty decision was handed down, it does not appear that the case is being stretched by MassHealth lawyers to apply to other irrevocable trusts. Still, to be conservative, I have been suggesting to my clients who have established irrevocable trusts that a thorough review is necessary, and, in some cases, we have been releasing some of the powers and rights that were reserved when the trust was originally established. It may also be a good idea for the older person who established the trust to step down as trustee.

New MassHealth developments are reported by elder law attorneys through listservs to each other on a daily basis. We learn about new positions taken by MassHealth lawyers before those problems ever are in reported court cases, and change our strategies. Because of Doherty, irrevocable trusts should often be reevaluated. My suggestion to all persons who have established irrevocable trusts for Medicaid or long-term care planning purposes is that you have your irrevocable trust reviewed every 2 years.