Your trust might be OK after all

There is a constant battle between Medicaid applicants and MassHealth that is “David-and-Goliath-Like”. The applicant wants to minimize the amount of assets included in their application so they can qualify for Medicaid Assistance and have their long-term care paid for by the government and MassHealth wants to include as many of the applicant’s assets as possible to limit the assistance provided to the applicant. Many of the debates between applicants and MassHealth involve the use by applicants of trusts. This battle over the use of a nominee trust was brought to the Massachusetts Supreme Judicial Court by Joellen Guilfoil as the personal representative of the estate of Dorothy E. Frank. (Joellen Guilfoil, personal representative vs. Secretary of the Executive Office of Health and Human Services)

As a background to the case, MassHealth governs the Medicaid program in Massachusetts. Medicaid eligibility is based upon the applicant’s countable assets. The value of the applicant’s countable assets cannot exceed $2,000.00. Countable assets are basically those assets of the applicant that are in their control and those assets given away by the applicant for less than fair market value during the 5 years preceding the date of their application. Many applicants will transfer assets to a trust in the hope of excluding them from their countable assets and therefore qualify for Medicaid benefits. In an effort to prevent this from happening, Congress has enacted the “any circumstances” rule. This rule is defined as “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”. If any circumstances are found, the assets are considered as being in control of the applicant and therefore a countable asset.

Dorothy Frank, the David of the case, created a nominee trust entitled “the Frank Family Realty Trust” on December 16, 1999. She was the trustee of the trust. She also named the beneficiaries of the trust. The beneficiaries were her five children as joint tenants with rights of survivorship and herself with a retained life estate. She then conveyed her Fitchburg home to the trust at the same time she created the Trust. Dorothy applied for long-term benefits from MassHealth, the Goliath, in 2017. The only potential countable assets she had were the Fitchburg home worth $109,000.00 and a credit union account worth less than $2,000.00. MassHealth denied her application ruling that the trust property was in her control and therefore a countable asset. Based upon the value of the credit union account, if the home was not a countable asset Frank would have qualified for Medicaid. A hearing was held next and the MassHealth denial was upheld. The Superior Court later upheld the decision of the hearing officer denying the application. Frank appealed the Superior Court decision and the SJC decided to take the case.

The SJC framed the issue presented to them fairly simply as, “whether the entire interest in a property transferred to a nominee trust is a countable asset in a MassHealth eligibility determination where the trustee retains a life estate in the real property”. The Court, in its discussion, focused on what a nominee trust is and what it is not. A nominee trust is usually created for the sole purpose of holding title to the property. The trustee has a minor role in the application of the trust and its assets. The Court stated that a Nominee Trust is not a “True Trusts”. True Trusts are either revocable or irrevocable trusts. A True Trust creates a fiduciary relationship requiring that the trustee act for the benefit of the beneficiary of the trust, a much greater role than the trustee of the nominee trust.

The Court stated that there are qualitative differences between nominee trusts and True Trusts. The initial difference it discussed was the limitation of the trustee powers.  Trustees iof a Nominee Trust are unable to act with respect to trust property without the direction of the beneficiaries. This limitation was included in the Frank Family Revocable Trust. This limitation creates a principal and agent relationship and not a fiduciary relationship. The central concept of the True Trust is the fiduciary relationship. The trustee of a True Trust may have broad powers it can undertake for the benefit of the beneficiaries without their input. There is a true delegation of power to the trustee.

The next level of review by the Court was whether the grantor of the nominee trust has the power to revoke the trust. If the grantor’s power to revoke does not exist then the beneficiaries become the vested owners of the property, if there is a power to revoke then beneficiary’s interest does not vest until after the grantor’s death. The beneficiaries of the Frank Family Revocable Trust and not the grantor of the Trust had the right to terminate the trust and therefore the property ownership was vested in the beneficiaries. Based upon these factors the SJC ruled that the Frank Family Realty Trust was a nominee trust and not a revocable or irrevocable trust. Therefore, once the property was conveyed by Dorothy Frank to the Trust the property was vested in the beneficiaries.

The Frank Family Revocable Trust does give the power to revoke the trust to any beneficiary. Dorothy was a beneficiary and the grantor, so why is she not able to revoke the trust and get the property back? If the Frank Family Revocable Trust was terminated all assets of the Trust must be distributed to the beneficiaries pursuant to the terms of the Trust. So even if Dorothy as one of the beneficiaries was to terminate the Trust each beneficiary would get their interest in the property subject to Dorothy’s life estate. So, the initial transfer of the property to the trust created an irrevocable gift to the beneficiaries subject to Dorothy’s life estate. MassHealth has long held that if an irrevocable gift was made by an applicant and the five-year look-back period has expired the property given is a non-countable asset, here the look back period had long since expired.

The next issue reviewed by the Court, was whether the life estate retained by Dorothy Frank would make her ineligible for Medicaid? The SJC ruled that it did not. The life estate gave her the right to use and occupy the property but not the right to sell it and distribute the proceeds of the sale. Therefore, this property was not a countable asset for Medicaid eligibility purposes and Dorothy’s application should be treated as such. Based upon this the SJC reversed the Judgment of the Superior Court. Confirming that yes David can occasionally take down Goliath.

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