Two recent cases illustrate the parameters of when and how assets held in an irrevocable trust may render an applicant ineligible for Medicaid.
Medicaid, administered in Massachusetts as MassHealth, makes funds available to low income individuals and those who furnish services to them, including paying for nursing home care. To ensure that benefits go to those truly in need and not to those with access to sufficient assets, individuals 65 or older applying for benefits may not have more than $2,000 in countable assets.
However, a prospective applicant may place his or her assets in an irrevocable trust so that those assets will provide for his or her comfort and well-being, maybe even leaving something to pass to his or her heirs upon their death, while simultaneously creating eligibility for MassHealth. In an attempt to limit abuse of these trusts by applicants who can afford their own care, MassHealth regulations strictly govern how such trusts must be drafted, funded and administered. One such regulation, as interpreted by the courts, provides that, if there is “any state of affairs, at any time during the operation of the trust, that would permit the trustee to distribute assets to the grantor, those assets will count in calculating the grantor’s Medicaid eligibility.” It is not the act of distribution, but the mere possibility of distribution under any circumstance, that renders assets countable.
In Estate of Robertson v. Tsai, the Superior Court upheld MassHealth’s determination that $580,793 held in an irrevocable trust was available to an applicant where the Trustee had the “discretion to pay the [applicant] so much of the principal of the Trust as is necessary to provide for [the applicant’s] nursing home care for a period of time ending thirty months after the most recent date that the Trustees received Trust property from the [applicant].” The Court reasoned that, theoretically, anytime the applicant contributed any amount to the Trust, the Trustee would thereafter be authorized to distribute any amount of principal to the applicant, even if this circumstance never in fact occurred. Consequently, the applicant’s available assets exceeded the $2,000 limitation and the applicant was ineligible for MassHealth.
Compare with the result in Heyn v. Director of the Office of Medicaid, in which the Appeals Court held that the Trustee’s ability to purchase an annuity payable to the applicant did not constitute a prohibited ability to distribute trust principle to the applicant. The trust at issue required the Trustee to pay income for life to the applicant, but never trust principal. The trust also provided that the Trustee could, with respect to certain income to the trust, “determine, in accordance with reasonable accounting principles and practice and state law, what shall be chargeable to” trust principal and income (“Article 8”). When the applicant sought MassHealth benefits, MassHealth determined that the Trustee could purchase an annuity with trust principal and, under Article 8, apportion the annuity payments as income payable to the applicant, in effect rendering trust principal an asset available to the applicant. The Court disagreed, pointing out that annuity payments, under Federal tax law and regulations, comprise two distinct components: investment income and a return of principal. Moreover, under Massachusetts law, the return-of-principle portion of an annuity payment shall be allocated to the trust principal. Consequently, the Court held that Article 8 did not permit the Trustee to make the trust principal available to the applicant, and the applicant was therefore not ineligible for MassHealth due to the trust.
