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Court Says Irrevocable Trust Countable Due to “Use and Occupancy” Right

By Sarah Foster

In a concerning new decision, Nadeau v. Thorn, a Superior Court judge finds that MassHealth correctly deemed the property in an irrevocable trust as a countable asset due to the fact that the irrevocable trust contained a right to “use and occupy” any property contained in the trust.

On March 27, 2001, Mr. and Mrs. Nadeau created an irrevocable trust and transferred theirnursing_home_resident1.jpg Webster home into it. The irrevocable trust contained a provision that provided the Nadeaus with “the right to use and occupy any residence that may from time to time be held in trust hereunder”. The Nadeaas continued to live at their Webster home until April 1, 2014, when for health reasons Mr. Nadeau moved to the Webster Manor Healthcare Center. His application for MassHealth benefits was subsequently denied because the Webster home was deemed a countable asset even though it had been transferred into the irrevocable trust well beyond the five-year look-back period. Mr. Nadeau appealed the decision to the MassHealth Board of Hearings. The Board affirmed MassHealth’s decision and denied Mr. Nadeau’s appeal.

On further appeal, the Superior Court upholds MassHealth’s denial stating it is obliged to give the administrative agency significant deference due to the administrative agency’s better understanding of MassHealth’s “complex statutory and regulatory framework”. The Superior Court holds that because there was no clear error in MassHealth’s interpretation of the relevant regulations that the decision should stand.

Specifically, the Court uses the language at 130 Code Mass. Regs. 520.023(C)(1)(d) which states that “the home or former home of a nursing-facility resident or spouse held in an irrevocable trust that is available according to the terms of the trust is a countable asset” in support of their decision. That line, however, cannot be read in isolation and must be read as part of the subsection as a whole and as part of the regulations as a whole. The subsection in which the above line is found is entitled “Portion Payable” and the meaning of the term “available” as used throughout the Code of Massachusetts Regulations does not mean physically available; rather it refers to whether the trustee has discretion to distribute the trust principal under any circumstances to or on behalf of the applicant. Therefore, as numerous other Board of Hearings decisions have confirmed, because the right of an applicant to use and occupy a property owned by the trust does not translate into the ability of the trustee to distribute any legal interest in the property to the applicant, the right to use and occupy alone does not make an asset countable. (The Court also erroneously refers to the Doherty case as holding that the “home was available because applicant retained the right to reside there during her lifetime” when in reality the Doherty holding was based on a number of factors including a provision by which the trustee could terminate the trust and distribute the principal to the beneficiaries of the trust. The Doherty decision deems the entire trust countable because the “beneficiaries” class included the applicant and therefore principal was payable to the applicant.)

Finally, the Court argues that even if the above argument is true and payment is a requirement (the applicant in this case made the same or similar argument in his appeal), that the Health Care Financing Administration (“HCFA”), an agency charged with interpretation of Medicare and Medicaid statutes, has issued a guideline called “Transmittal 64″ which defined “payment” broadly as: “any disbursal from the corpus of the trust or from income generated by the trust which benefits the party receiving it. A payment may include actual cash, as well as noncash or property disbursements, such as the right to use and occupy real property.” The Court further stated that pursuant to a decision in 2004, Gillmore v. Ill. Dep’t of Human Servs., Transmittal 64 is entitled to deference by the courts “as long as it is consistent with the plain language and purposes of the statute and if [it is] consistent with prior administrative views”.

However, in this case, Transmittal 64 is clearly inconsistent with the plain language and purposes of the relevant regulations. The regulations at issue clearly lay out the circumstances under which assets are countable. The governing statute states that “if there are any circumstances under which payment from the Irrevocable Trust could be made to or for the benefit of the individual, the portion of the corpus from which, or the income on the corpus from which, payment to an individual could be made, shall be considered resources available to the individual” 42 U.S.C. §1396p(d)(3)(B)(1). The purpose of this regulation is clear: that if there are any circumstances under which principal can be paid to the applicant, that money should be used to pay for the cost of nursing home care. A right to use and occupy a property cannot accomplish this goal. Unlike a life estate interest, even if the real estate in this case was sold, the holder of the use and occupancy right would be entitled to no portion of the proceeds. This is why, as countless MassHealth Board of Hearings Decisions have confirmed, simply deriving a benefit from an asset does not equate to a circumstance in which the asset is countable. There must be circumstances under which the principal can be paid to the applicant (and then used by the applicant to pay for care). Any other interpretation of the term payment with regards to the MassHealth regulations would be completely inconsistent with the purposes of the statute.

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