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Another Trust Bites the Dust, or Why You Should Review Your Plan Periodically

By Harry S. Margolis

In Estate of Robertson v. Tsai (Worcester Sup. Ct., Docket No. 13-01390-C, Dec. 30, 2015), the Worcester Superior Court upholds another MassHealth rejection of an income-only trust, but the trust at issue is different from most current trusts.

The Trust’s Achilles Heel

Thomas and Christina Robertson created their trust back in 1990. The trust had provisions that were popular back then that provided that principal would be available to the Robertsons for 30 months — the transfer penalty period then in force — and that after the passage of that time, only income could be distributed to them. The actual provision read as follows:

The trustees shall have discretion to pay the Grantors or on their behalf so much of the principal of the Trust as is necessary to provide for their health, including payment for nursing home care and home health care, for a period of time ending thirty months after the most recent date that the Trustees received Trust property from the Grantors. After that date, the Trustees shall have no discretion to invade principal on behalf of the Grantors. (Emphasis added.)

Unfortunately for her case, in March 2009, Mrs. Robertson added $14,000 to the trust. At the first administrative hearing, the hearing officer ruled that this contribution made all the trust funds — not just the new funds — available for 30 months, until September 2011. After a rehearing, a second hearing officer ruled that the ability to fund the trust at any time rendered the trust funds permanently available and countable against the MassHealth asset limits, making Mrs. Robertson ineligible. A straightforward reading of the trust language leads to the conclusion that even the addition of as little as $1.00 would give the trustees discretion to make principal distributions to Mrs. Robertson for the subsequent 30 months.

The Holding

The Superior Court here agrees, stating:

[U]nder the Robertson Family Trust here, there was a course of action — Ms. Robertson’s addition of property to the trust — that would restore the trustee’s discretion to make distributions of principal to her, even if that circumstance never in fact occurred. For this reason, the trustees were also never permanently divested of discretion, making the entire principal of the trust countable. The Court does not base its decision about MassHealth’s interpretation on whether the trustees had discretion to pay the plaintiff from the principal at a particular moment in time, but rather if there is any state of affairs, at any time during the operation of the trust, that would permit the trustee to distribute trust assets to the grantor. If so, those assets are countable in calculating the grantor’s Medicaid eligibility.

The Moral

While many lawyers used the language of this trust or similar language back in 1990, it fell by the wayside many years (or even decades) ago. This case illustrates the need for clients to review their estate plans periodically — every five to ten years — since laws, circumstances and government interpretations of its laws and regulations often change.

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