With New Court Decision, Irrevocable Trusts are Alive and Well in Massachusetts

May 23rd, 2016 by beasleyferber

In 2009, the Massachusetts Appeals Court handed down the decision of Doherty v. Director of the Office of Medicaid, which upheld the denial of Medicaid benefits to someone who had prepared a trust. Since then, lawyers representing the state have been distorting what the Court actually held, and have challenged nearly every irrevocable trust that has come before them. Finally, the Case of Heyn v. Director of the Office of Medicaid, 89 Mass. App. Ct. 312, decided in April 2016, has brought rationality back to Medicaid Trust law in Massachusetts.

In the Heyn case, the Massachusetts Appeals Court reviewed an irrevocable income-only Medicaid trust which contained the Medicaid applicant’s home. The Court held that the trust complied with federal Medicaid trust law, i.e., that it was not a countable asset. In other words, the person could get Medicaid benefits, while the same time protecting her house. Here are the most important trust provisions that the court approved:

The trustee had the power to make distributions of assets to persons other than the grantor. Similarly, the grantor reserved a special power of appointment whereby she could distribute trust assets to her children. The Medicaid department argued that this made the trust a countable asset, because there was a possibility that the recipients of assets from the trust could return those assets to the grantor, or use them for the benefit of the grantor. The Court rejected this argument, because, “for purposes of computing countable assets, Medicaid does not consider assets held by other family members who might, by reason of love but without legal obligation, voluntarily contribute monies toward the grantor’s support.” In other words, if those persons chose to give the assets back to the grantor, that was their business, and it has nothing to do with Medicaid eligibility. In the trust at issue, the grantor also reserved the right to transfer trust assets to herself in exchange for assets of equivalent value. The Court had absolutely no problem with that power, concluding that it represented merely the selling of trust assets to the grantor.

Most of our clients use irrevocable Medicaid trusts to protect their house, and, in many cases, their lifetime of savings. By approving the Medicaid Trust, the Massachusetts Courts are allowing people to protect their hard-earned assets from loss to a prolonged nursing home stay. We applaud what the Massachusetts court has done, and now our clients in both New Hampshire and Massachusetts can rest assured that, if they so desire, they can protect their home and money and savings.

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