An important Massachusetts Appeals Court decision has caught the eye of the elder law community. The case is significant because it involved the interpretation of a type of trust commonly used as part of Medicaid planning strategy. The case, Doherty v. Office of Medicaid, involved a Medicaid applicant who had created a trust to protect her home from future nursing home costs. The Court ruled that based on the terms and provisions contained in her particular trust, the trust was not able to protect her assets. (The applicant was not a client of this Office).
The trust at issue was an irrevocable trust, meaning that once it was created, it could not be amended or revoked. The idea behind the use of the trust was to be able to fund the trust with assets, such as her home, and thereby remove the asset from being susceptible to pay for nursing home costs.
To carry out this plan, the applicant put her home into the trust more than five years before she applied for Medicaid financial assistance. She did this because Medicaid penalizes transfers of assets for less than fair market value that are made within five years of application for benefits. In other words, if a person gives away an asset, they must wait five years and a day before applying for Medicaid benefits.
The Court made reference to a number of different provisions of her trust in reaching their decision that the trust did not protect her assets from nursing home costs. While attorneys have always been cautious about including certain trust language, this case highlights specific provisions that the Court found troublesome, especially when read in conjunction with one another. One particularly problematic provision allowed the Trustee of the trust the discretion to close the trust and distribute the assets to the beneficiaries. Where the applicant was one of the beneficiaries, the Court reasoned that she could potentially have access to the trust assets, and therefore, the assets counted for purposes of determining her Medicaid eligibility.
Based on the language of the trust the Court found that the home in the trust was a countable resource, thereby putting the applicant over the asset limit of $2,000, and making her ineligible for Medicaid benefits to pay for her nursing home care. It is important to emphasize that the Court ruled on this particular trust and the language it contained, and did not rule against all such trusts.
Future Planning with Irrevocable Trusts
In deciding whether to create an irrevocable trust, it is important to remember that the trust cannot be changed and that assets put into the trust cannot be returned to you. While there are some provisions that provide for some limited future flexibility, those same provisions may test the effectiveness of the trust for Medicaid purposes. Transferring assets out of your control should not be undertaken without consideration of your future financial needs and consultation with an attorney. For example, if you put your home in such a trust, you may impair your ability to access your home's equity in the future. For example, you may develop the need for private home care necessary in order that you can remain living in your own home, rather than a nursing home facility. Also, by putting assets in such a trust, you may also lose other benefits of owning your home in your own name.
Aside from the issue of such a trust, individuals and couples should always consider having an appropriate estate plan in place. The plan may help preserve assets for a surviving spouse. It can serve many vital functions, including the avoidance of guardianship or conservatorship, in the event an individual is unable to act for themselves due to a disability or incompetency.
If you have questions about a current trust, or whether this type of trust is appropriate for your circumstances, you should consult with an attorney who practices in the field of elder law.
Please note that this article does not address any particular legal circumstance, but merely provides general information. The information contained in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail to the author at Anthony@gemmalawoffice.com, or visit www.gemmalawoffice.com.
