Cohen v. Commissioner of Div. of Medical Assistance

• Decision Date: 02 August 1996
• Citation: 423 Mass. 399,668 N.E.2d 769
• Parties: , 51 Soc.Sec.Rep.Ser. 492, Medicare & Medicaid Guide P 44,551 Mary COHEN v. COMMISSIONER OF the DIVISION OF MEDICAL ASSISTANCE. Lillian I. WALKER v. COMMISSIONER OF the DIVISION OF MEDICAL ASSISTANCE. Sydney A. COMINS & another, 1 executors, v. COMMISSIONER OF the DIVISION OF MEDICAL ASSISTANCE. John KOKOSKA, guardian, 2 v. COMMISSIONER OF the DIVISION OF MEDICAL ASSISTANCE. 3
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 769

668 N.E.2d 769

423 Mass. 399, 51 Soc.Sec.Rep.Ser. 492,

Medicare & Medicaid Guide P 44,551

Mary COHEN v. COMMISSIONER OF the DIVISION OF MEDICAL ASSISTANCE.

Lillian I. WALKER v. COMMISSIONER OF the DIVISION OF MEDICAL ASSISTANCE.

Sydney A. COMINS & another, ¹ executors, v. COMMISSIONER OF the DIVISION OF MEDICAL ASSISTANCE.

John KOKOSKA, guardian, ² v. COMMISSIONER OF the DIVISION OF MEDICAL ASSISTANCE.

³

Supreme Judicial Court of Massachusetts, Suffolk Barnstable, and Middlesex.

Argued May 8, 1996.

Decided August 2, 1996.

Raymond H. Young, Boston (Robert O. Berger, with him) for John Kokoska.

Robert M. Bonin, Boston (Mardic Marashian, with him) for Sydney A. Comins & another.

Pamela E. Terry, Mashpee, for Lillian Walker.

Donald N. Freedman, Newtonville (Marcia J. Glickman, Newton, with him) for Mary Cohen.

Judy A. Levenson, Assistant Attorney General, for Commissioner of the Division of Medical Assistance.

Before LIACOS, C.J., and ABRAMS, GREANEY and FRIED, JJ.

FRIED, Justice.

These four cases raise a common issue in the administration of the Medicaid program that has recurred in virtually identical form throughout the United States. In the four cases before us, the Division of Medical Assistance (division) denied the plaintiffs' eligibility for Medicaid benefits because it deemed that the plaintiffs had available to them sufficient resources of their own. In three of the cases a Superior Court judge affirmed the division's determinations, and in the fourth a Superior Court judge reported the case to the Appeals Court. ⁴ We begin by discussing the common issue, and then apply our conclusion to the several cases in turn. ⁵

I

A

The Medicaid program was established in 1965 as Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., to provide health care to needy persons. The program which makes funds available to individuals and those who furnish services to them, is administered by the States, but the State programs must comply with Federal statutes and regulations in order to qualify for the Federal funds which pay for a significant part of the program. See Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 2680, 65 L.Ed.2d 784 (1980); Haley v. Commissioner of Pub. Welfare, 394 Mass. 466, 467-468, 476 N.E.2d 572 (1985). The issue presented in these cases arises from the wish of persons with some means, perhaps even considerable means, to preserve their assets in the face of the large medical expenses faced particularly by elderly persons. While the Medicare program, 42 U.S.C. §§ 1395 et seq. (1994), is designed to provide medical insurance for elderly and disabled persons generally, the coverage of that program is not complete. Supplemental private insurance is expensive and rarely comprehensive, and certain expenses--particularly long-term institutional care--confront especially elderly individuals and their families with expenses that are likely to deplete their resources entirely. See generally Gordon, How to Protect Your Life Savings from Catastrophic Illness and Nursing Homes (1990). Many of those same expenses, though perhaps on a less generous scale, are covered for the indigent by Medicaid. See Harris, supra at 301-302, 100 S.Ct. at 2679-2680.

In response, attorneys and financial advisers hit upon the device of having a person place his or her assets in trust so that those assets would provide for that person's comfort and well being, maybe even leaving something over to pass on his or her death, while creating eligibility for public assistance. See H.R.Rep. No. 265, 99th Cong., 1st Sess., pt. 1, at 71-72 (1985) (Committee on Energy and Commerce). The theory behind this maneuver was that, because the assets are in trust, they do not count as the grantor's assets and thus do not raise the grantor above the level of indigency needed to qualify for public assistance. ⁶ Courts in this State and elsewhere had ruled in various contexts that, if an individual settled assets in an irrevocable trust and the disposition of those assets was at the discretion of a trustee, no beneficiary of the trust would have a right to call for them, and so the assets could not be considered available to the beneficiary. See Randolph v. Roberts, 346 Mass. 578, 579-580, 195 N.E.2d 72 (1964) (creditor denied access to assets of testamentary; spendthrift trust to reimburse itself for beneficiary's welfare disability charges); Pemberton v. Pemberton, 9 Mass.App.Ct. 9, 19-20, 411 N.E.2d 1305 (1980) (court cannot compel trustee to expend assets of spendthrift trust created by father to satisfy husband's arrearages and continuing support orders); Zeoli v. Commissioner of Social Servs., 179 Conn. 83, 425 A.2d 553 (1979) (parent settled assets in trust for child; court holds assets not available to child for Medicaid purposes); Tidrow v. Director, Missouri State Div. of Family Servs., 688 S.W.2d 9 (Mo.Ct.App.1985) (same) ⁷; Hoelzer v. Blum, 93 A.D.2d 605, 462 N.Y.S.2d 684 (N.Y.1983) (same). The parties have not cited any case in any jurisdiction that has applied this reasoning to a trust in which the grantor or settlor is also the beneficiary, a so-called self-settled trust, nor have we decided such a case. Indeed, as we show below, see infra at 778, n. 21, the law as to self-settled trusts is to the contrary. Nevertheless, individuals faced with health care costs that threatened to deplete their assets seized upon this jurisprudence as sanctioning their seeming impoverishment through self-settled trusts. Thus, a grantor: was able to qualify for public assistance without depleting his assets; could once more enjoy those assets if he no longer needed public assistance; and if such a happy time did not come, could let them pass intact pursuant to the terms of the trust to his heirs. The grantor was able to have his cake and eat it too.

There was considerable dissatisfaction with the ensuing state of affairs. The bill containing the provisions now before this court was referred in 1985 to the House Committee on Energy and Commerce. In its report recommending passage, the committee wrote:

"The Committee feels compelled to state the obvious. Medicaid is, and always has been, a program to provide basic health coverage to people who do not have sufficient income or resources to provide for themselves. When affluent individuals use Medicaid qualifying trusts and similar 'techniques' to qualify for the program, they are diverting scarce Federal and State resources from low-income elderly and disabled individuals, and poor women and children. This is unacceptable to the Committee."

H.R.Rep. No. 265, 99th Cong., 1st Sess., pt. 1, at 72 (1985).

The provisions, as finally enacted in 1986 and referred to here as the MQT statute, are the same in all relevant respects to those reported by the committee. ⁸ Compare H.R.Rep. No. 265, supra at 26-27 (Sept. 11, 1985) (committee report), with 42 U.S.C. § 1396a(k). Building on the predicate that a person's eligibility for Medicare assistance depends on whether the resources available to that person exceed a specified maximum, the MQT statute first provides that:

"In the case of a medicaid qualifying trust [described in paragraph (2) ], the amounts from the trust deemed available to a grantor, for purposes of subsection (a)(17), is the maximum amount of payments that may be permitted under the terms of the trust to be distributed to the grantor, assuming the full exercise of discretion by the trustee or trustees for the distribution of the maximum amount to the grantor. For purposes of the previous sentence, the term 'grantor' means the individual referred to in paragraph (2)."

42 U.S.C. § 1396a(k)(1). Subsection (2) then goes on to define the term "medicaid qualifying trust":

"(2) For purposes of this subsection, a 'medicaid qualifying trust' is a trust, or similar legal device, established (other than by will) by an individual (or an individual's spouse) under which the individual may be the beneficiary of all or part of the payments from the trust and the distribution of such payments is determined by one or more trustees who are permitted to exercise any discretion with respect to the distribution to the individual." ⁹

The rest of the House Committee report as well as later items of legislative history provide no further explanation or clarification of the terms in the MQT statute. ¹⁰ Effective April 1, 1989, the division amended its regulations to incorporate the required implementation of this statutory change. See 106 Code Mass.Regs. § 505.160(J) (1990). ¹¹ The regulation restates in slightly different language the provisions of the Federal statute regarding MQTs. ¹²

In 1993, Congress amended the provision relating to irrevocable MQTs to provide:

"(i) if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual, the portion of the corpus from which, or the income on the corpus from which, payment to the individual could be made shall be considered resources available to the individual, and payments from that portion of the corpus or income--

"(I) to or from the benefit of the individual, shall be considered income of the individual, and

"(II) for any other purpose, shall be considered a transfer of assets by the individual subject to subsection (c); and

"(ii) any portion of the trust from which, or any income on the corpus from which, no payment could under any circumstances be made to the individual shall be considered, as of the date of establishment of the trust (or, if later, the date on which payment to the individual was foreclosed) to be assets disposed by the individual for purposes of subsection (c), and the value of the trust shall be determined for purposes of such subsection by including the amount of any payments made from such portion of the trust after such date."

42 U.S.C. § 1396p(d)(3)(B). ¹³

This amendment, which, unlike the MQT statute, explicitly applies only to trusts...