Even a trust written more than 20 years ago might not protect
your assets if you should require nursing home benefits
today.
On March 28, 1989, "John Smith" (a pseudonym) had a trust document
drafted naming himself as the trustee. He signed the document and
acknowledged $10 placed into the trust. More funds were added to
the trust over the years. The right to amend the trust is his
alone, and is not shared with any other person, his guardian or his
attorney-in-fact.
Upon his death, any funds in the trust were to be set aside as a
separate trust, termed the residuary trust. His wife, "Sally," and
his son "Larry" (from a previous marriage) were named successor
trustees. If Sally survived him, any funds in the trust were to be
paid to her on at least a quarterly basis during her
lifetime.
Additionally, the trustee had the option to pay such sums from
principal as deemed necessary to maintain her health and comfort,
considering her income from all sources known to the trustee. Upon
Sally's death, his son, as successor trustee, would become the sole
trustee.
John Smith died outside the five-year lookback period. His wife,
Sally, became incapacitated and entered a nursing home on Aug.18,
2010. Her daughter and power of attorney "Mary Smith," who was not
a residual beneficiary of the trust,
applied to MassHealth to obtain payment for nursing home services.
On Sept. 1, 2010, MassHealth denied the application due to excess
assets, most of which was the principal remaining in the trust. The
MassHealth agency declared the trust to be a Medicaid qualifying
trust and countable as an asset (semantically speaking, a Medicaid
qualifying trust should be called a Medicaid disqualifying
trust).
This case was referred to me on Sept. 14, 2010, and I informed
Mary, the power of attorney, to fax a request for a hearing to the
local MassHealth office based on the denial notice. Practice note:
This applies to hardship requests. Regular appeals are sent to the
Board of Hearings office in Quincy.
While a denied applicant has 30 days to request a fair hearing
under normal circumstances, a request for hardship appeal must be
submitted within 15 days of the date of the denial. The denied
applicant has 30 days to request a fair hearing based on the denial
of a hardship application. However, hardship applications are
routinely denied by the agency.
I filed a request for a fair hearing with the Board of Hearings
based on Sally's lack of access to trust principal. This is to
follow procedural time limits, since the hardship issue wouldn't be
answered prior to the 9/30/2010 deadline for filing a regular
appeal based on the 9/1/2010 notice. If I didn't prevail at the
regular appeal, I would have the opportunity to appeal the hardship
issue, and by that time, the nursing home may have sent out a
notice to discharge (a requirement of a hardship appeal) to my
client, Sally.
The hearing was held on Dec. 10, 2010. The MEC didn't act on the
hardship appeal, since they maintained a decision would not be made
on a hardship appeal until the other appeal issue had been
decided.
My argument is based on lack of access to the trust principal, not
upon the countable status of the trust.
Larry Smith, the trustee, hired a law firm experienced in trust
litigation to defend his position of not paying any trust principal
on Sally's behalf. I had several conversations with the attorney
involved, and he sent two letters stating the trustee's position.
Both letters were entered into evidence at the Dec. 10
hearing.
At the hearing, we provided evidence that Sally has no funds to
mount a legal action to gain access to trust principal. The trustee
has access to trust funds to defend against an action and has made
it clear that he will defend the trust. From the questions asked by
the hearing office, it was clear that the hearing officer
understood Sally's dilemma of having no means to bring an action
against the trustee.
Yet on March 11, 2011, the hearing officer made a decision against
my client based upon Cohen V. Commissioner of the Division of
Medical Assistance, 423 Mass. 399, 413 1996).
I contacted the MassHealth representative by telephone to
determine what action was necessary to have the hardship appeal
acted upon now that we had an appeal decision. Unable to get a
definitive answer, I sent the representative a letter requesting a
decision to preserve my client's rights. I subsequently received a
denial of the hardship request and have filed a request for an
appeal.
Meanwhile, the nursing home engaged an attorney to explore the
feasibility of bringing an action against the trustee since the
facility was owed a substantial amount of money. The nursing home
issued a notice of discharge, which I appealed. At the hearing on
June 17, 2011, I introduced evidence preventing the nursing home
from discharging my client.
To avoid a nightmare scenario such as this, proposed legislation
(House Bill 2086 and Senate Bill 0490) have been introduced to
establish criteria to be used by MassHealth to determine whether a
penalty for a transfer of assets would constitute an undue hardship
to an applicant. On July 19, 2011, I testified in favor of the
above bills in front of the Massachusetts Joint House-Senate
Committee on Health Care Financing.
One of the current requirements for a hardship waiver is that the
nursing home must issue a discharge notice. Since I blocked the
nursing home from discharging my client at one appeal hearing prior
to the hearing on the hardship issue, does this mean we will lose
the hardship appeal because there is no pending discharge action by
the nursing home? Will the nursing home have to issue another
discharge action which I will appeal to protect my client? The
current regulations cause harm to the elderly residents of
Massachusetts.
This legislation would create a rebuttable presumption
establishing that the applicant would be granted a waiver of the
ineligibility period if certain criteria are met. The criteria in
the legislation specify that the denial of MassHealth would create
a risk of serious harm to the individual, that the assets are
irretrievable from the recipient and that there is no affordable
alternative care available for the individual. If the individual
meets all of the criteria, a waiver will be granted unless the
agency presents convincing evidence to the contrary. Hopefully,
this will level the playing field and applicants will no longer be
punished for situations beyond their control.
The above case material is from a seminar I gave on behalf of the
Massachusetts Bar Association's Probate Section Council in Boston
this past April to other attorneys as a fact pattern. The names
have been changed, as this is an ongoing case. First the above case
was presented, followed by suggested trust language to prevent this
nightmare case in the future.
This type of trust language was fine when it was written, but the
law changed. A properly drafted irrevocable trust will still
protect your assets if completed more than five years prior to a
person entering a nursing home, but attorneys have to keep up with
changes in the law and revise their trust language to best advise
their clients. If your client has an existing trust, please check
the language carefully.
Al Gordon is an attorney specializing in the areas of
elder law, estate planning and disability law. He is also a member
of the MBA's Probate Law Section Council.