The principal of a pre-OBRA-93 irrevocable trust to which the settlor waived all rights should not be counted among her assets for Medicaid eligibility purposes. Guerriero v. Commissioner of the Division of Medical Assistance (Mass. Sup. Jud. Ct., SJC-08194, April 3, 2001).
On June 18, 1987, Jeannette Guerriero established an irrevocable, inter vivos trust, naming herself and her children as beneficiaries. The trustee may pay income or principal to Mrs. Guerriero or her children as the trustee "deems necessary or advisable." The trust terms also bar the settlor from changing or revoking the trust in any way. On February 4, 1991, Mrs. Guerriero waived all rights to the trust principal. On May 15, 1998, Mrs. Guerriero applied for Medicaid benefits. The Division of Medical Assistance counted the assets in the trust and denied her application.
Citing 42 U.S.C. § 1396p(d)(3)(B)(ii), as enacted in 1993, the Superior Court overturned the Division's decision, concluding that Mrs. Guerriero''s waiver deprived the trustee of any discretion to pay trust principal to her. The Division appealed, and Massachusetts' Supreme Judicial Court granted an application for direct appellate review. The Division contended that Mrs. Guerriero''s waiver should be disregarded because the trust instrument does not authorize her to relinquish her interest in the trust assets and because the waiver is a mere limitation on trustee discretion analogous to the limitations the Supreme Judicial Court reviewed in Cohen v. Commissioner of the Div. of Med. Assistance, 423 Mass. 399, 405-406 & n.13 (1996), where trust instruments contained provisions limiting the trustee''s discretion to make payments to an amount less than would disqualify the beneficiary for Medicaid benefits.
The Supreme Judicial Court affirms the judgment of the Superior Court, does so on different grounds. The Division's contention that the trust instrument does not authorize Mrs. Guerriero to relinquish her interest in the trust assets ignores her dual role as settlor and as beneficiary, the court holds. "When Guerriero signed her 'irrevocable waiver,' " the court writes, “she effectively transferred her interest back to the trust for the benefit of the remaining beneficiaries. Once the trustee of the trust had knowledge of Guerriero''s 'irrevocable waiver,' the trustee was deprived of any legal discretion to pay trust principal to Guerriero." The court also finds Cohen inapplicable because rather than limiting the trustee's discretion, Mrs. Guerriero's waiver deprived the trustee of any legal discretion to pay Mrs. Guerriero any part of the trust principal.
The court also concludes that the trial court's reliance on 42 U.S.C. § 1396p(d)(3)(B)(ii) (1993) was in error because this section applies only prospectively, and the trust was established in June 1987. The court rules that the trust is subject to review under the earlier 42 U.S.C. § 1396a(k) (1988). "The fact that there was no provision in this statute prior to 1993 addressing such a disposal of trust assets,” the court writes, “does not mean that such a transfer was not a legitimate means of disposing of trust assets prior to that time."
For the full-text of this decision, go to: https://masscases.com/cases/sjc/433/433mass628.html
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