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Tuesday, July 25, 2017

Massachusetts Supreme Judicial Court makes important ruling on medicaid benefits and irrevocable trusts

One of the biggest questions clients face when considering utilizing Trusts for their various assets is whether to use a Revocable or Irrevocable Trust.  It is a complicated question with no easy answer that will apply to every single client.  Some clients will prefer the added protection of the Irrevocable Trust while others like the flexibility that is allowed by a Revocable Trust.

In recent months, the Massachusetts Supreme Judicial Court made a ruling on two important cases involving MassHealth (the state agency which administers benefits in Massachusetts) and Irrevocable Trusts. 

For many years, MassHealth would fight against the long-held notion that a home that was held in an Irrevocable Trust could not be held as a countable asset.  In the Court's May 30, 2017 ruling on the cases of Mary E. Daley v. Secretary of the Executive Office of Health and Human Services and Lionel C. Nadeau v. Director of the Office of Medicaid, the Court reiterated that Irrevocable Income-Only Trusts are an acceptable tool for long-term care planning.   

In Nadeau, the family deed their residence to an irrevocable trust, but could not get long-term care Medicaid benefits for skilled nursing, because (according to Medicaid) Mr. Nadeau had kept "the right to use and occupy" the property.  Medicaid applied the same analysis in the Daley matter.

The long standing tradition of utilizing an Irrevocable Trust in Massachusetts was to maximize the protections that Revocable Trusts did not offer.  Under federal and state Medicaid law, a home that is held in an irrevocable trust will be considered an asset if the homeowner retains payment of principal of the asset under “any circumstances.”  Under federal and state Medicaid law, the grantor is permitted to take income, but not principal.  This is an often confusing standard for homeowners and one that has led many down difficulty legal battles.

That is why the Daley and Nadeau cases are such important turning stones.  The Supreme Judicial Court ruled that Medicaid applicants are freely able to put their homes into an irrevocable trust and continue to live in them without the asset counting against their eligibility.

The court’s ruling is a major victory for seniors who work hard to arrange their assets in a way that keeps them eligible for long-term care.  The Court ruled that "neither the grant in an irrevocable trust of a right of use and occupancy in a primary residence deeded to that trust, nor the retention of a life estate in a primary residence after deeding it to such a trust, makes the equity in the home owned by the trust a countable asset for the purpose of determining an applicant's eligibility for long-term care benefits under the Federal Medicaid Act; therefore, this court vacated the judgments in two cases that relied on a finding that the home was a countable asset but remanded each matter for further findings regarding other possible sources of countable assets contained in the trust at issue in each matter.”  Daley, 477 Mass. 188, 199-205 (2017).

While this sounds very encouraging for the homeowner who utilizes an irrevocable trust, this matter has not come to a concrete conclusion as of yet.  The Massachusetts Supreme Judicial Court also remanded the Daley and Nadeau cases to determine if the trustee’s ability to distribute trust principal to the grantors to pay income taxes means that a portion of the trust would still be a countable asset. 

The bottom line is that irrevocable trusts are potentially very useful tools in the estate planning process, but needs careful consideration that is based on each individual client's goals.  Consultation with an estate planning attorney is therefore highly recommended.

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