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Court Allows Reformation of Special Needs Trust to Prevent Medicaid Reimbursement
After the state sought reimbursement from a first-party special needs trust (SNT), the Massachusetts Court of Appeals finds a clear mistake in the trust document and orders reformation of the trust to remove a payback provision as it applies to assets transferred to the trust after the settlor’s death. In the Matter of the Valerie D. Pecce Supplemental Needs Trust(Mass. App. Ct., No. 19-P-591, March 31, 2021).
Albert Pecce established a trust in 2001 for the benefit of his daughter, Valerie, who was disabled. The trust’s main purpose was to supplement available government assistance programs for Valerie, who was already receiving Medicaid benefits through MassHealth. The trust provided that it was established under 42 U.S.C. §1396p(d)(4)(A) as a special needs trust. It included a provision that, upon Valerie’s death, MassHealth was to be reimbursed for all medical assistance provided to her during her lifetime.
Mr. Pecce transferred $200,000 to the trust when it was established. Valerie did not transfer her funds to the trust at any time. Mr. Pecce also executed a will providing that, upon his death, all of his assets would go to the trust. Mr. Pecce died in 2007 and his substantial assets poured over into the trust. Gino DiGiacomo then succeeded Mr. Pecce as trustee.
Upon Valerie’s death in 2015, MassHealth sought reimbursement. Mr. DiGiacomo refused to pay and filed a petition seeking to reform the trust by removing the MassHealth reimbursement provision. He argued that Mr. Pecce mistakenly formed a first-party SNT and that the trust should have been formed as a third-party SNT pursuant to 42 U.S.C. 1396p(c)(2)(B)(iv), which would not have required a MassHealth payback provision.
The trial court declined to reform the trust. It agreed that the trust was improperly designated as a first-party SNT but found that Mr. Pecce did intend the Medicaid payback provision to ensure his own Medicaid eligibility. Absent such a provision, any transfer by Mr. Pecce to the trust would have caused him to lose Medicaid eligibility for three years. The court also removed Mr. DiGiacomo as trustee, in part for refusing to reimburse MassHealth. Mr. DiGiacomo appealed.
The Massachusetts Court of Appeals holds that the trust was not a first-party SNT because Valerie did not contribute any of her assets to it and that Mr. Pecce did intend the Medicaid reimbursement during his lifetime in order to preserve his Medicaid eligibility. However, upon his death, Mr. Pecce had no need for Medicaid eligibility and, therefore, there was no need for the payback provision to apply to transfers made after his death, specifically the assets transferred to the trust as a result of the pour-over clause of his will. The court remands the case and orders that the trust document be reformed to prevent the payback provision from applying to assets transferred to the trust after Mr. Pecce’s death. The court also vacates the removal of Mr. DiGiacomo as personal representative and trustee.
For a blog post by Harry Margolis on the ruling, click here.
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Court Allows Reformation of Special Needs Trust to Prevent Medicaid Reimbursement
After the state sought reimbursement from a first-party special needs trust (SNT), the Massachusetts Court of Appeals finds a clear mistake in the trust document and orders reformation of the trust to remove a payback provision as it applies to assets transferred to the trust after the settlor’s death. In the Matter of the Valerie D. Pecce Supplemental Needs Trust(Mass. App. Ct., No. 19-P-591, March 31, 2021).
Albert Pecce established a trust in 2001 for the benefit of his daughter, Valerie, who was disabled. The trust’s main purpose was to supplement available government assistance programs for Valerie, who was already receiving Medicaid benefits through MassHealth. The trust provided that it was established under 42 U.S.C. §1396p(d)(4)(A) as a special needs trust. It included a provision that, upon Valerie’s death, MassHealth was to be reimbursed for all medical assistance provided to her during her lifetime.
Mr. Pecce transferred $200,000 to the trust when it was established. Valerie did not transfer her funds to the trust at any time. Mr. Pecce also executed a will providing that, upon his death, all of his assets would go to the trust. Mr. Pecce died in 2007 and his substantial assets poured over into the trust. Gino DiGiacomo then succeeded Mr. Pecce as trustee.
Upon Valerie’s death in 2015, MassHealth sought reimbursement. Mr. DiGiacomo refused to pay and filed a petition seeking to reform the trust by removing the MassHealth reimbursement provision. He argued that Mr. Pecce mistakenly formed a first-party SNT and that the trust should have been formed as a third-party SNT pursuant to 42 U.S.C. 1396p(c)(2)(B)(iv), which would not have required a MassHealth payback provision.
The trial court declined to reform the trust. It agreed that the trust was improperly designated as a first-party SNT but found that Mr. Pecce did intend the Medicaid payback provision to ensure his own Medicaid eligibility. Absent such a provision, any transfer by Mr. Pecce to the trust would have caused him to lose Medicaid eligibility for three years. The court also removed Mr. DiGiacomo as trustee, in part for refusing to reimburse MassHealth. Mr. DiGiacomo appealed.
The Massachusetts Court of Appeals holds that the trust was not a first-party SNT because Valerie did not contribute any of her assets to it and that Mr. Pecce did intend the Medicaid reimbursement during his lifetime in order to preserve his Medicaid eligibility. However, upon his death, Mr. Pecce had no need for Medicaid eligibility and, therefore, there was no need for the payback provision to apply to transfers made after his death, specifically the assets transferred to the trust as a result of the pour-over clause of his will. The court remands the case and orders that the trust document be reformed to prevent the payback provision from applying to assets transferred to the trust after Mr. Pecce’s death. The court also vacates the removal of Mr. DiGiacomo as personal representative and trustee.
For a blog post by Harry Margolis on the ruling, click here.
Court Allows Reformation of Special Needs Trust to Prevent Medicaid Reimbursement
<p>After the state sought reimbursement from a first-party special needs trust (SNT), the Massachusetts Court of Appeals finds a clear mistake in the trust document and orders reformation of the trust to remove a payback provision as it applies to assets transferred to the trust after the settlor’s death. <a href="https://www.mass.gov/files/documents/2021/03/31/k19P0591.pdf" target="_blank"><em>In the Matter of the Valerie D. Pecce Supplemental Needs Trust</em> </a>(Mass. App. Ct., No. 19-P-591, March 31, 2021).</p>
<p>Albert Pecce established a trust in 2001 for the benefit of his daughter, Valerie, who was disabled. The trust’s main purpose was to supplement available government assistance programs for Valerie, who was already receiving Medicaid benefits through MassHealth. The trust provided that it was established under 42 U.S.C. §1396p(d)(4)(A) as a special needs trust. It included a provision that, upon Valerie’s death, MassHealth was to be reimbursed for all medical assistance provided to her during her lifetime.</p>
<p>Mr. Pecce transferred $200,000 to the trust when it was established. Valerie did not transfer her funds to the trust at any time. Mr. Pecce also executed a will providing that, upon his death, all of his assets would go to the trust. Mr. Pecce died in 2007 and his substantial assets poured over into the trust. Gino DiGiacomo then succeeded Mr. Pecce as trustee. </p>
<p>Upon Valerie’s death in 2015, MassHealth sought reimbursement. Mr. DiGiacomo refused to pay and filed a petition seeking to reform the trust by removing the MassHealth reimbursement provision. He argued that Mr. Pecce mistakenly formed a first-party SNT and that the trust should have been formed as a third-party SNT pursuant to 42 U.S.C. 1396p(c)(2)(B)(iv), which would not have required a MassHealth payback provision.</p>
<p>The trial court declined to reform the trust. It agreed that the trust was improperly designated as a first-party SNT but found that Mr. Pecce did intend the Medicaid payback provision to ensure his own Medicaid eligibility. Absent such a provision, any transfer by Mr. Pecce to the trust would have caused him to lose Medicaid eligibility for three years. The court also removed Mr. DiGiacomo as trustee, in part for refusing to reimburse MassHealth. Mr. DiGiacomo appealed.</p>
<p>The Massachusetts Court of Appeals holds that the trust was not a first-party SNT because Valerie did not contribute any of her assets to it and that Mr. Pecce did intend the Medicaid reimbursement during his lifetime in order to preserve his Medicaid eligibility. However, upon his death, Mr. Pecce had no need for Medicaid eligibility and, therefore, there was no need for the payback provision to apply to transfers made after his death, specifically the assets transferred to the trust as a result of the pour-over clause of his will. The court remands the case and orders that the trust document be reformed to prevent the payback provision from applying to assets transferred to the trust after Mr. Pecce’s death. The court also vacates the removal of Mr. DiGiacomo as personal representative and trustee.</p>
<p>For the full text of this decision, <a href="https://www.mass.gov/files/documents/2021/03/31/k19P0591.pdf" target="_blank">click here</a>.</p>
<p>For a blog post by Harry Margolis on the ruling, <a href="https://www.margolis.com/our-blog/trust-may-be-reformed-to-avoid-masshealth-payback" target="_blank">click here</a>.</p>
<p> </p>
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