After more than half a decade of uncertainly and speculation surrounding irrevocable income only trusts in the MassHealth context, the highest court in Massachusetts has decided to weigh in on the debate in deciding to review the Nadeau and Daley cases.  Hopefully a decision from the Supreme Judicial Court (SJC) sometime next spring will finally provide elder law attorneys and their clients with more defined guidelines as to what provisions these trusts may include in order to protect trust assets from liability for long-term care costs.

While the Heyn decision issued by the Massachusetts Appeals Court back in May 2016 marked the first precedential victory for irrevocable trusts since the 1990s, it left many questions unanswered.  Most notable was the question of whether language in a trust that explicitly gave the grantor (the creator of the trust) the right to use and occupy the home owned by the irrevocable trust made the property “countable” for the purpose of qualifying for MassHealth/Medicaid benefits in a nursing home.  As the property transferred into an irrevocable trust in the MassHealth planning context is often the grantor/MassHealth applicant’s primary residence, the right to use and occupy the home was beneficial to the grantor for many reasons including tax, mortgage and general notions of control and protection.  MassHealth has taken the position that an explicit right to use and occupy the property gives the grantor a level of control that makes the value of the asset “available” to the grantor.  The result of this “availability” is that the trust assets are deemed “countable” to the grantor which means the trust prevents the applicant from obtaining benefits since the assets exceed the MassHealth financial limit.  Alternatively, the property may be able to be returned to the applicant so that the state can place a lien the property and recoup the value of the benefits provided upon the applicant’s death.  This is the primary provision the SJC will review under the Nadeau and Daley trusts and it affects many, many seniors across the state.

While the two cases before the SJC are similar in that they both present the “use and occupancy” issue, they are different in ways that some elder law attorneys believe may yield a bizarre result. The Daley case deals with a life estate deed and an irrevocable income only trust while the Nadeau case focuses primarily on the use and occupancy provisions contained within the trust itself.  The Daley case also raises procedural and constitutional issues such as the inconsistency of administrative hearing decisions and other due process concerns.  In any case, the SJC has decided to hear both cases together and the decision will certainly provide more clarity on the use of irrevocable trusts in the future as well as how existing trusts will fare should the grantor apply for MassHealth benefits.

Stay tuned on the irrevocable trust saga as it continues to unfold over the coming year!

Pamela B. Greenfield