In re Valerie R. Pecce Supplemental Needs Trust
| Decision Date | 31 March 2021 |
| Docket Number | No. 19-P-591,19-P-591 |
| Citation | 167 N.E.3d 429,99 Mass.App.Ct. 376 |
| Parties | In the MATTER OF the VALERIE R. PECCE SUPPLEMENTAL NEEDS TRUST (and a companion case ). |
| Court | Appeals Court of Massachusetts |
James R. Knudsen, Wakefield, for Gino DiGiacomo.
Julia Kobick, Assistant Attorney General, for MassHealth.
Present: Rubin, Desmond, & Englander, JJ.
This case presents the question whether a trust created with reference to the Federal Medicaid statutes -- the Valerie R. Pecce Supplemental Needs Trust (2001 trust) -- should be reformed due to mistake. According to the petitioner, Gino DiGiacomo, the 2001 trust incorrectly and unnecessarily provides that trust assets must first be used to reimburse the Massachusetts division of medical assistance (hereinafter MassHealth) for benefits provided to Valerie during her lifetime, before any remaining assets can be distributed to other 2001 trust beneficiaries. To resolve this contention, we must examine the Federal statutes governing eligibility for Medicaid benefits, and in particular those statutes applicable to transfers of assets by or for the benefit of Medicaid recipients, see 42 U.S.C. § 1396p(c) and (d). The Probate and Family Court judge ruled that the clause of the 2001 trust requiring reimbursement to MassHealth was not a mistake, and declined to reform the trust. We agree only in part; while assets that Albert Pecce transferred to the 2001 trust during his lifetime are properly subject to the payback provision, we perceive no basis for the same to be true for assets that poured over to the 2001 trust from Albert's estate after his death. We consequently vacate the relevant judgments and remand with directions to provide some of the relief DiGiacomo seeks.
Background. Albert Pecce2 established the 2001 trust in September of 2001, for the benefit of his daughter, Valerie. Albert was seventy years old at the time, and Valerie was thirty-eight. Valerie had been born with disabilities, and as of 2001 had been receiving Medicaid benefits through MassHealth for many years. The principal purpose of the 2001 trust was to supplement, but not to supplant, available Federal, State, and local assistance programs for Valerie. The 2001 trust explicitly provided that it was established under 42 U.S.C. § 1396p(d)(4)(A) as a so-called "supplemental special needs trust, for the benefit of a disabled person." Albert transferred $200,000 to the 2001 trust at its inception. Valerie did not transfer any of her funds to the 2001 trust at any time.
On the same date that the trust was created in September of 2001, Albert also executed his will. Relevant here, the will provided that at his death all of Albert's assets would go to the 2001 trust. Albert died in 2007. He had substantial assets at his death, which poured over into the 2001 trust. Pursuant to the 2001 trust terms, the petitioner DiGiacomo, who is Albert's cousin, succeeded Albert as the trustee.3
Valerie died in 2015. Her death terminated the 2001 trust and triggered the provisions of article 6 of the trust, which sets forth how to dispose of trust assets upon Valerie's death. According to article 6, trust assets are to be used first, to pay Valerie's funeral and burial expenses; second, to reimburse MassHealth for "all Medical Assistance provided to [Valerie] during [her] lifetime, ... as required by law to be reimbursed upon [Valerie's] death"; and third, as to any remainder, to pay same to certain members of Albert's family -- as it turns out, the only remainder beneficiary is DiGiacomo.
DiGiacomo filed a petition in 2015, seeking to reform the 2001 trust, in particular, by removing the MassHealth reimbursement provision set forth in article 6.2 (payback provision). DiGiacomo's position is that Albert (or Albert's counsel) mistakenly formed the 2001 trust as a special needs trust under 42 U.S.C. § 1396p(d)(4)(A) (hereinafter [d][4][A]); that the 2001 trust actually should have been formed as a "third-party special needs trust" described in a different section of the Federal statute, see 42 U.S.C. § 1396p(c)(2)(B)(iv) (hereinafter [c][2][B][iv]); and that such a (c)(2)(B)(iv) trust, established by a third party and not by the Medicaid recipient, did not need the MassHealth payback provision to preserve the beneficiary's eligibility for Medicaid.
MassHealth opposed DiGiacomo's petition for reformation. In MassHealth's view, Albert did intend the payback provision, because it was necessary to ensure that Albert's transfer of assets to the 2001 trust did not render Albert ineligible for Medicaid, in the event that he might otherwise seek such benefits in the future. MassHealth sought additional relief, including the removal of DiGiacomo as trustee of the 2001 trust and as personal representative of Albert's estate, based on DiGiacomo's failure to perform his obligations in those roles.4
After a two-day trial, the judge issued written findings and a rationale, in which she ruled that reformation of the 2001 trust was not appropriate. The judge acknowledged that the 2001 trust was not a (d)(4)(A) special needs trust and was improperly designated as such in the trust documents, but she found that Albert did intend the payback provision and, therefore, it should not be reformed. The judge also removed DiGiacomo as trustee of the 2001 trust and as personal representative of Albert's estate. DiGiacomo appeals.
Discussion. To succeed on his petition to reform the 2001 trust, DiGiacomo needed to show, by clear and convincing evidence, that the provisions he seeks to reform were the result of a mistake. Section 415 of the Massachusetts Uniform Trust Code (MUTC), G. L. c. 203E, specifically authorizes reformation on that basis:
"The court may reform the terms of a trust, even if unambiguous, to conform the terms to the settlor's intention if it is proved by clear and convincing evidence that the settlor's intent or the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement."
Although the MUTC is of recent vintage, enacted in 2012, it was not intended to replace Massachusetts common-law principles, which "supplement [the MUTC], except to the extent modified" by specific statutory language. G. L. c. 203E, § 106. See De Prins v. Michaeles, 486 Mass. 41, 45, 154 N.E.3d 921 (2020). But while the Massachusetts common law has not been displaced, the language of G. L. c. 203E, § 415, is nevertheless instructive. It makes explicit a judge's power to reform a trust instrument to conform to the settlor's intention. The power to reform extends to those instances where "the terms of the trust were affected by a mistake of ... law," including "in expression." G. L. c. 203E, § 415. See DiCarlo v. Mazzarella, 430 Mass. 248, 250, 717 N.E.2d 257 (1999), quoting Pond v. Pond, 424 Mass. 894, 897, 678 N.E.2d 1321 (1997) ().
1. The question of reformation of the payback provision. DiGiacomo posits that the 2001 trust was affected by just such a mistake of law: that the drafter, Attorney Lisa Nahil,5 thought that she was creating, and needed to create, a (d)(4)(A) supplemental special needs trust in order to preserve Valerie's eligibility for Medicaid benefits, when in fact the drafter did not create a (d)(4)(A) trust, nor did she need to create a (d)(4)(A) trust to preserve Valerie's Medicaid eligibility. Rather, DiGiacomo argues, the drafter could have created a third-party special needs trust under 42 U.S.C. § 1396p(c)(2)(B)(iv), which would have preserved Valerie's Medicaid eligibility and did not require a MassHealth payback provision as the (d)(4)(A) trust did. Accordingly, DiGiacomo argues, the MassHealth payback provision was included in error, and ought to be removed.
To begin, we acknowledge that all parties agree that the 2001 trust is not, in fact, a (d)(4)(A) trust. A (d)(4)(A) trust must contain (at least in part) assets of the disabled individual;6 the 2001 trust does not contain any of Valerie's assets, and thus does not qualify as a (d)(4)(A) trust. Since the 2001 trust expressly states that it is "established" and shall be "administered" and "interpreted" as a (d)(4)(A) trust, that much of the trust document, at least, is a clear mistake.
While recognizing this error, the trial judge nevertheless refused to reform the 2001 trust because she determined that the payback provision in article 6.2 was not a mistake. In essence, the judge concluded that Albert had three purposes in establishing the 2001 trust: (1) to provide Valerie with assets to supplement her government benefits; (2) to ensure Valerie's continuing eligibility for Medicaid; and (3) to ensure Albert's Medicaid eligibility in the event that he sought such benefits within the applicable, three-year look-back period. She reasoned that the third of these purposes justified Albert's inclusion of the payback provision, because absent such a provision, any transfer by Albert to the 2001 trust would cause him to lose his Medicaid eligibility for three years.7 And after considering the trial evidence, the judge made an express finding to that effect: "The [c]ourt finds that the inclusion of the payback provision is not a mistake, but that Albert had a rational reason for creating the 2001 [t]rust with a payback provision, which was to ensure his eligibility for Medicaid."
On appeal DiGiacomo argues that Albert could not have intended to include the payback provision. He points out, correctly, that Albert retained substantial assets in 2001, and argues that this demonstrates that Albert was not in a position to qualify for Medicaid in any event. And he points out, again correctly, that for estate planning purposes the pour-over provision of Albert's will cannot be reconciled with the payback provision of the 2001 trust; even assuming that Albert was concerned about his Medicaid...
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