Doherty v. Director of the Office of Medicaid

In Doherty v. Director of the Office of Medicaid, Case No. 08-P-939 (App. Ct. June 18, 2009), the Appeals Court was faced with the question of whether assets held in an irrevocable trust are unavailable to the beneficiary such that she is eligible for public benefits.

In 2000, Muriel amended and restated an existing family trust, declaring the trust to be irrevocable and herself to be the sole settlor. She also removed herself as trustee and directed the successor trustees to distribute the trust income to her. She specified, however, that under no circumstances were the trustees to make distributions of principal to her. In 2005, Muriel then entered a nursing home and, six months later, applied for MassHealth (Medicaid) benefits. MassHealth's task under the statutory-regulatory scheme was to determine whether any portion of the principal held in the trust could "under any circumstances" be paid to or for Muriel's benefit. If yes, then she would be ineligible for Medicaid benefits until the principal was exhausted by paying for her care.

MassHealth determined that the principal of the trust could in fact be paid to Muriel, despite the express language of the trust that distributions of principal could not be made to her under any circumstances, because other provisions of the trust gave the trustees discretion to make principal distributions notwithstanding any provision to the contrary and the trust had to be read and inspected in its entirety.

The Court agreed, holding as follows: "[T]he trust vehicle, considered as a whole, evidences Muriel's expectation or intent that the trustees will invade trust assets when necessary to ensure Muriel's comfort. In this light, we cannot say that MassHealth's determination -- that the whole of the trust corpus constitutes a 'countable asset' for the purpose of determining Muriel's Medicaid eligibility -- is as a matter of law infirm." The Court explained that the trust allows the trustees a degree of discretionary authority that would, if sanctioned, permit Muriel to enjoy the trust's assets, preserve them for her heirs, and also receive public assistance, thereby allowing her to "have her cake and eat it too."

The court did not indicate that the principal in self-settled irrevocable trusts would always be considered an available resource for Mass Health purposes. Rather, the court stated that the terms of the trust would have to be analyzed in each case to determine whether the principal would be countable. In Muriel's case, the Trust contained several provisions whereby Muriel retained a scope of powers beyond what is advisable when drafting irrevocable trusts for long term care planning purposes. This undoubtedly influenced the Court's decision.