Recent SJC Ruling Provides Senior-Friendly Interpretation of Medicaid Trust Rules

In two recent cases, the Supreme Judicial Court has unanimously ruled against MassHealth in its interpretation of the Medicaid trust rules for using irrevocable trusts in obtaining eligibility for long-term care benefits. These rulings provide clarity for the drafting of irrevocable trusts and comfort for elders and their families as they make financial decisions about future care.

Irrevocable trusts are commonly used as a planning tool to both help elders qualify for benefits from MassHealth in case they need future nursing home care, and to protect their assets. In order for trust assets not to be counted in determining eligibility for the elder, the trust must meet four basic principles: (1) it must be irrevocable, meaning that it cannot be unwound; (2) under no circumstances can principal be returned to the elder; (3) the elder cannot be the trustee; and (4) the transfer of assets to the trust must occur at least five years prior to date on which the elder applies for MassHealth benefits.

Frequently elders transfer their homes to such irrevocable trusts. For years, drafters have included language in these irrevocable trusts giving the elder the right to “use and occupy” a home that was transferred to a trust during his or her life. This avoids the possibility that a trustee could remove the elder from the home. A variation of this “use and occupancy” provision is that the elder signs a deed retaining a “life estate” in his or home and transfers the remainder interest in the property into the trust. Either of these techniques gives the elder the right to live in his or her home for the rest of the elder’s life.

Contrary to its own regulations, MassHealth recently took the position that the right to use and occupy a home in an irrevocable trust or the retention of a life estate, with the remainder interest held by an irrevocable trust, made the equity in the home a countable asset for purposes of determining eligibility for nursing home benefits.

The Supreme Judicial Court, in a unanimous and sharply worded decision, stated that “neither the grant in an irrevocable trust of a right of use and occupancy in a primary residence to an applicant nor the retention by an applicant of a life estate in his or her primary residence makes the equity in the home owned by the trust a countable asset for purposes of determining Medicaid eligibility for long-term care benefits.” Daley v. Secretary of the Executive Office of Health and Human Services, et al.; Mass., No. SJC-12200 (2017); Nadeau v. Director of the Office of Medicaid; Mass., No. SJC-12205 (2017).

The decision by the Supreme Judicial Court in these consolidated cases both provides clarity for elder law attorneys in preparing irrevocable trusts and comfort for elders making planning decisions for their long-term care. Elders considering the transfer of their home to an irrevocable trust should consult with an experienced elder law attorney for additional guidance.

Michael Stankavish is a lawyer and owner of North Shore Elder Law and Estate Planning. He can be reached through www.nselep.com