Lebow v. Commissioner of medical assistance
| Decision Date | 05 October 2000 |
| Docket Number | SJC-08188 |
| Citation | 433 Mass. 171,740 N.E.2d 978 |
| Parties | (Mass. 2001) BERNARD LEBOW, guardian, <A HREF="#fr1-1" name="fn1-1">1 vs. COMMISSIONER OF THE DIVISION OF MEDICAL ASSISTANCE. Docket No.: |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
County: Norfolk.
Present: Marshall, C.J., Abrams, Greaney, Ireland, Spina, Cowin, & Sosman, JJ.
Summary:
Medicaid. Trust, Self-settled trust, Distribution, Trustee's discretion.
Civil action commenced in the Superior Court Department on July 3, 1997.
The case was heard by Charles F. Barrett, J.
The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.
Jeffrey L. Allen for the plaintiff.
Amy Spector, Assistant Attorney General (Barbara Green Whitbeck with her) for Commissioner of the Division of Medical Assistance.
This case concerns the denial of Florence Rodnesky's application for Medicaid benefits. A Superior Court judge affirmed a decision of the division of medical assistance (division) that Rodnesky was ineligible for Medicaid coverage because she had sufficient, available resources as a beneficiary of a self-settled trust, despite her cobeneficiary's "irrevocable" withdrawal of consent pursuant to the trust instrument which restricted the trustee from exercising his discretion to distribute trust assets to Rodnesky. On appeal we transferred the case to this court on our own motion. We affirm the judgment of the Superior Court.
The Medicaid program, established in 1965 as Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., is designed to provide health care for indigent persons. Individuals are expected to deplete their own resources before obtaining assistance from the government. The unfortunate reality is that some individuals with significant resources devise strategies to appear impoverished in order to qualify for Medicaid benefits. One such strategy is to transfer assets into an inter vivos trust, whereby funds appear to be out of the individual's control, yet generally are administered by a family member or loved one.
The House Committee on Energy and Commerce, to which the bill containing the provisions at issue in this case were referred, expressed its dissatisfaction with the use of such trusts to obtain eligibility for Medicaid: H.R. Rep. No. 265, 99th Cong., 1st Sess., pt. 1, at 72 (1985). Congress responded, in 1986, by enacting the medicaid qualifying trust (MQT) statute, 42 U.S.C. § 1396a(k).2 The purpose of the statute is to prevent individuals from using trust law to ensure their eligibility for Medicaid coverage, while preserving their assets for themselves or their heirs. We construe the statute with this purpose in mind.
Section 1396a(k) provides in relevant part:
§ 1396a(k)(1). Paragraph (2) provides that an MQT 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."
§ 1396a(k)(2). The statute applies whether the trustee actually exercises the discretionary authority or whether the trust was established for a purpose other than to qualify for Medicaid benefits. § 1396a(k)(3).
In Cohen v. Commissioner of the Div. of Med. Assistance, 423 Mass. 399, 413 (1996) (Cohen), we interpreted the statute to define what constitutes an MQT:
Id. If the trust qualifies as an MQT, we proceed under the statute to determine how much money is deemed available:
Id. With this background, we consider the trust here at issue.
Rodnesky established an irrevocable trust on April 2, 1993, in which she named herself and her grandson, Bernard Lebow (Lebow), as the beneficiaries. Her grandson, Lebow, was also named as trustee.
The trust authorized Lebow, in his capacity as trustee, to exercise his "sole discretion" to distribute net income and principal as he deemed necessary or advisable for the health, education, and comfortable maintenance and support of Rodnesky and himself, as the beneficiaries. However, Lebow, as trustee, could not distribute any trust assets to Rodnesky without giving his consent in his capacity as a beneficiary. Nor could Lebow, as trustee, distribute any trust assets to himself as a beneficiary without Rodnesky's consent.3 Lebow or Rodnesky could each issue a blanket consent to allow Lebow, as trustee, to exercise his discretion in making distributions until such consent was revoked.
Rodnesky was given no right to alter, amend, revoke, or terminate the trust, but Lebow could amend the trust at any time, as long as the amendment did not "alter or diminish the beneficial interest" of Rodnesky or "eliminate or impair any power" reserved to her.4 Both beneficiaries could disclaim any part of the trust, including disclaiming their entire interest.
At the time the trust was established, both Rodnesky and Lebow, as a beneficiary, issued blanket consents, thus giving Lebow, as trustee, the discretion to make distributions to Rodnesky or to himself. On January 5, 1995, Lebow, in his capacity as a beneficiary, signed a document in which he "irrevocably" withdrew his consent and expressed his intent to "permanently preclude" his grandmother from future distributions from the trust; on the same day, Rodnesky "irrevocably disclaim[ed]" her right to "modify, alter, amend, withdraw and/or revoke" her earlier blanket consent.5 These actions had the effect, at least in theory, of preventing Lebow from making any further distributions to Rodnesky.
The following year, Rodnesky entered a nursing facility, and on July 22, 1996, she applied for Medicaid assistance. The division denied her application stating that she had assets in excess of the $2,000 limit governing Medicaid eligibility.6 Rodnesky appealed from the denial to a division hearing officer, who upheld the division's decision.
Rodnesky sought judicial review and filed a motion for judgment on the pleadings in the Superior Court pursuant to Mass. R. Civ. P. 12 (c), 365 Mass. 754 (1974). A Superior Court judge affirmed the hearing officer's decision. He concluded that the division was correct in finding Rodnesky's trust to be an MQT because Rodnesky was both the grantor and a beneficiary and because the terms of the trust gave the trustee "sole discretion" to pay for her maintenance and support from both income and principal. He concluded that, notwithstanding Lebow's "irrevocable" withdrawal of consent in his capacity as a beneficiary, Lebow, as trustee, retained discretion to pay out trust assets to Rodnesky because of his power to amend the trust (thereby rendering the consent provision irrelevant). Therefore, the full value of the trust was properly counted.
Rodnesky filed a motion to amend the Superior Court's findings, rulings, and order for judgment, which was denied. She filed a notice of appeal from the judgment and from the denial of the motion to amend. This appealed followed.
We conclude that the trust satisfies the definition of an MQT and that the full amount of the trust is deemed available to Rodnesky in calculating her Medicaid eligibility. The consent requirements, the power to amend, and Lebow's subsequent withdrawal of his consent may have been appropriate estate planning techniques, but they were ineffective to circumvent the MQT statute and the Medicaid laws.
Rodnesky's trust meets the definition of an MQT: (1) she was both the grantor and one of the beneficiaries, and (2) her grandson, as trustee, had discretion to make payments of income and principal to her as necessary for her maintenance and support. See Cohen, supra at 413. The question is not whether Lebow, as trustee, actually exercised such discretion but whether he had any discretion to do so pursuant to the trust instrument. The MQT statute requires only that a trustee have a "peppercorn" of discretion to disburse trust assets to the grantor. Id. Here, the trust authorized Lebow, as trustee, to distribute trust assets to his grandmother as he deemed necessary and advisable; thus, he possessed sufficient discretion for Rodnesky's trust to qualify as an MQT.
Once we have determined that the trust at issue is an MQT, we consider what amount of the trust assets is deemed available to the...
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