What is happening?
There has been a concerning trend with MassHealth’s treatment of irrevocable trusts. What was once a reliable asset protection strategy has now become a minefield of adverse and unlawful MassHealth decisions that result in benefit ineligibility.
In a nutshell, MassHealth caseworkers and hearing officers are denying applicants eligibility by interpreting many irrevocable trusts as countable assets. For example, MassHealth may deny a trust because the grantor retained the right to income, a special power of appointment, the right to substitute property, or because the grantor is also a trustee.
Consider the following hypothetical: John was in his mid-seventies when he transferred his home into an irrevocable trust, naming his daughter as trustee and his three children as beneficiaries. The trust allows John to reside in the home for the rest of his life. John also retains a special power of appointment in the trust to amend the beneficiaries. He has no right to sell or mortgage the home.
This trust meets IRS grantor trust regulations, meaning the children will receive a step-up in basis after John passes away. Transferring the home into the trust also starts the MassHealth five-year look-back period. So, as long as John does not require long-term nursing home care within five years, the home is protected. Or is it?
What does this mean for MassHealth applicants?
John, now in his eighties, needs long-term care and has applied for MassHealth benefits. He funded his irrevocable trust ten years ago, well beyond the five-year look-back period. However, MassHealth has denied John eligibility, claiming the house in the trust is a countable asset. MassHealth determined that the right to live in the house owned by the trust is essentially the same as owning it outright. According to the caseworker, John can only obtain eligibility if the house is returned to him free from the trust, allowing MassHealth to place a lien on it. John can appeal, but if he does not prevail, the house will be exposed to estate recovery and his estate plan will essentially be void.
Generally, a transfer into an irrevocable trust is disqualifying and starts the five-year clock for MassHealth eligibility. MassHealth has specific guidelines for treating assets in an irrevocable trust as non-countable. However, it is clear that MassHealth has taken an aggressive stance on certain trusts, ignoring the irrevocable transfer and simply counting the trust asset as an available resource, regardless of how long ago the trust was funded.
The critical issue is that MassHealth caseworkers are denying irrevocable trusts that are legally sound and in compliance with the regulations governing non-countable assets. A trust that consistently passed review just a few years ago is now being challenged by the MassHealth administration. This uncertainty leaves potential applicants and their advocates concerned, to say the least.
What should an applicant do?
First, applicants for MassHealth should seek experienced legal advice regarding estate planning and asset protection strategies. It is critical that a trust be drafted properly to comply with regulations while also addressing the shifting policy landscape.
Second, a trust should be reviewed periodically to ensure it remains compliant with current laws and policies. In addition, existing trusts must be administered appropriately according to the trust provisions and trust law.
Finally, if MassHealth has issued a denial based on its interpretation of a trust, it is essential that the applicant exercise their right to appeal.
If you or your loved one has been denied MassHealth eligibility because of a trust, the right attorney with experience in estate planning and MassHealth benefits can represent you at a fair hearing and, if necessary, in Superior Court. MassHealth may be attacking valid trusts, but we, as elder and disability attorneys, will vigorously advocate to protect your benefits and stand up to an agency that is encroaching on the rights of MassHealth applicants.