Fournier v. Sec'y of the Exec. Office of Health & Human Servs.

488 Mass. 43

170 N.E.3d 1159

Patricia A. FOURNIER, personal representative,¹

v.SECRETARY OF the EXECUTIVE OFFICE OF HEALTH AND HUMAN SERVICES.

SJC-13059

Supreme Judicial Court of Massachusetts, Worcester.

Argued April 7, 2021.

Decided July 23, 2021.

Julie E. Green, Assistant Attorney General, for the defendant.

Lisa M. Neeley for the plaintiff.

Patricia Keane Martin, Wellesley, Clarence D. Richardson, Jr., & C. Alex Hahn, for Massachusetts Chapter of the National Academy of Elder Law Attorneys, amicus curiae, submitted a brief.

Martin W. Healy, Boston, Thomas J. Carey, Jr., Ryan P. McManus, Boston, & Paul M. Cathcart, for Massachusetts Bar Association, amicus curiae, submitted a brief.

Present: Budd, C.J., Gaziano, Lowy, Cypher, Kafker, Wendlandt, & Georges, JJ.

GEORGES, J.

Four years ago, in Daley v. Secretary of the Exec. Office of Health & Human Servs., 477 Mass. 188, 203, 74 N.E.3d 1269 (2017), we raised -- but did not answer -- the question whether a trust settlor's reservation of a limited power of appointment to appoint trust principal to a nonprofit or charitable entity over which the settlor has no control, contained within an irrevocable trust established by the settlor, could render the assets held in the trust "countable" for purposes of determining the settlor-applicant's eligibility for Medicaid long-term care benefits. Specifically, we instructed MassHealth² to consider, in the first instance, whether there were "any circumstances," see 42 U.S.C. § 1396p(d)(3)(B)(i), in which the settlor-applicant could use his limited power of appointment to appoint the trust principal to a nonprofit or charitable nursing home for the purpose of paying for his care. Daley, supra.

This case picks up where Daley left off. While both were living, the plaintiff, Emily Misiaszek,³ and her husband created an irrevocable trust, the corpus of which includes their home. The terms of the trust grant Misiaszek, during her lifetime, a limited power of appointment to appoint all or any portion of the trust principal to a nonprofit or charitable organization over which she has no controlling interest. After Misiaszek applied for and was denied MassHealth long-term care benefits, the Massachusetts Office of Medicaid's board of hearings (board) affirmed MassHealth's determination that the home was a countable asset, concluding that Misiaszek ostensibly could use her limited power of appointment to appoint portions of the home's equity, included as part of the trust principal, to the nonprofit nursing home where she resided as payment for her care. Misiaszek then sought judicial review of the board's decision, and a Superior Court judge reversed the board's ineligibility determination.

We conclude that under the terms of her trust, Misiaszek's limited power of appointment does not allow her, in any circumstance, to appoint the trust principal for her benefit, and thus the trust principal is not "countable" for purposes of determining her eligibility for MassHealth benefits. Accordingly, we affirm the judgment of the Superior Court and remand the case for further proceedings consistent with this opinion.⁴

Background. We first provide an overview of the Medicaid framework and our decision in Daley, both of which provide important context for our analysis. We then summarize the relevant facts and procedural posture of this case.

1. Medicaid framework. "Medicaid is a cooperative Federal and State program that ‘provides medical assistance to low income persons based on financial need.’ " Guilfoil v. Secretary of the Exec. Office of Health & Human Servs., 486 Mass. 788, 789, 162 N.E.3d 627 (2021), quoting Rudow v. Commissioner of the Div. of Med. Assistance, 429 Mass. 218, 221-222, 707 N.E.2d 339 (1999). As we have noted previously, the Medicaid eligibility requirements "often [require] applicants to ‘spend down’ or otherwise deplete their resources to qualify for Medicaid long-term care benefits when they enter a nursing home." Daley, 477 Mass. at 192, 74 N.E.3d 1269. Through the practice known as "Medicaid planning," however, individuals with "significant resources devise strategies to appear impoverished in order to qualify for Medicaid benefits." Lebow v. Commissioner of the Div. of Med. Assistance, 433 Mass. 171, 172, 740 N.E.2d 978 (2001). "One such strategy is to transfer assets into an inter vivos trust, whereby funds appear to be out of the individual's control, yet generally are administered by a family member or loved one." Id.

To limit the practice of Medicaid planning and to preserve scarce public resources, Congress in 1993 amended the act to include what is known as the "any circumstances" test, which applies when determining an applicant's eligibility for Medicaid benefits. See Cohen v. Commissioner of the Div. of Med. Assistance, 423 Mass. 399, 405-406, 668 N.E.2d 769 (1996), cert. denied sub nom. Kokoska v. Bullen, 519 U.S. 1057, 117 S.Ct. 687, 136 L.Ed.2d 611 (1997). With respect to an irrevocable trust, the act provides that "if there are any circumstances under which payment from the 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 the individual could be made shall be considered resources available to the individual." 42 U.S.C. § 1396p(d)(3)(B)(i).⁵ MassHealth has promulgated a regulation that implements the "any circumstances" test. See 130 Code Mass. Regs. § 520.023(C)(1)(a) (2014) ("Any portion of the principal or income from the principal ... of an irrevocable trust that could be paid under any circumstances to or for the benefit of the individual is a countable asset"); 130 Code Mass. Regs. § 520.023(C)(1)(d) (2014) ("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 essence, "[t]he effect of the [‘any circumstances’] test is that if the trustee is afforded even a ‘peppercorn of discretion’ to make payment of principal to the applicant, or if the trust allows such payment based on certain conditions, then the entire amount that the applicant could receive under ‘any state of affairs’ is the amount counted for Medicaid eligibility." Daley, 477 Mass. at 193, 74 N.E.3d 1269, citing Cohen, 423 Mass. at 413, 668 N.E.2d 769. Importantly, though, we have stressed that "the principle of actual availability ... has served primarily to prevent the States from conjuring fictional sources of income and resources by imputing financial support from persons who have no obligation to furnish it or by overvaluing assets in a manner that attributes nonexistent resources to recipients." Daley, supra at 202, 74 N.E.3d 1269, quoting Heckler v. Turner, 470 U.S. 184, 200, 105 S.Ct. 1138, 84 L.Ed.2d 138 (1985). See Heyn v. Director of the Office of Medicaid, 89 Mass. App. Ct. 312, 314, 48 N.E.3d 480 (2016) ("The resulting law reflects a compromise, with ... strict requirements governing the extent to which assets must be made unavailable to the settlor in order to avoid being treated as ‘countable assets’ for purposes of Medicaid eligibility. Nonetheless, it is settled that, properly structured, [irrevocable] trusts may be used to place assets beyond the settlor's reach and without adverse effect on the settlor's Medicaid eligibility").

In short, for trust principal to be considered countable under the "any circumstances" test, the terms of the trust must give the applicant a direct path to reach or benefit from the trust principal.⁶

2. Daley. In Daley, 477 Mass. at 189, 74 N.E.3d 1269, we considered the MassHealth eligibility of two individuals who had established irrevocable trusts. As relevant here, one of those plaintiffs, Lionel Nadeau, together with his wife, deeded their home to an irrevocable trust (Nadeau trust) in return for nominal consideration and named their daughter as sole trustee. Id. at 196-197, 74 N.E.3d 1269. Save for two exceptions, the terms of the Nadeau trust required the trustee to hold the principal until the termination of the trust, which was to occur either upon Nadeau's death or when the trustee, in her sole discretion, determined that the trust should be terminated. Id. at 197, 74 N.E.3d 1269. One of the exceptions granted Nadeau a limited power of appointment, which permitted him, as the settlor of the trust, to appoint the trust principal to a nonprofit or charitable organization over which he had no controlling interest. Id. The terms of the Nadeau trust also granted Nadeau "the right to use and occupy any residence that may from time to time be held" by the trust. Id.

The question before us in Daley was whether Nadeau's retention of the right to reside in and enjoy the use of the home held in trust rendered the home a "countable" asset under the act's and MassHealth's "any circumstances" test, such that MassHealth could consider the full value of the trust principal in determining Nadeau's eligibility for MassHealth benefits. Id. at 189, 74 N.E.3d 1269. We answered the question in the negative, concluding that the right of a settlor of an irrevocable trust to reside in a home held in trust as one of the trust assets is equivalent to a distribution of income of the trust, and not the principal, because the trustee had neither the obligation nor the power to sell the home and furnish the proceeds to Nadeau in any circumstance. Id. at 202-203, 74 N.E.3d 1269. Thus, MassHealth's decision to count the home's equity as part of its eligibility determination for Nadeau amounted to " ‘conjuring [a] fictional’ resource (the applicant's home) by ‘imputing financial support’ from a person who has no authority to furnish it (the trustee)." Id., quoting Heckler, 470 U.S. at 200, 105 S.Ct. 1138.

In our remand instructions to MassHealth, we suggested it was "appropriate for MassHealth to consider," in the first instance, whether it was possible for Nadeau to use his limited power of...