An appeals court holds that the Massachusetts Medicaid is not required to recognize the reformation of an applicant’s trust after the original trust was considered an available asset. Needham v. Director of Medicaid (Mass. Ct. App., No. 14-P-182, Oct. 20, 2015).

Maurice Needham, a Massachusetts resident, created two trusts. The first, a revocable trust, held the family home valued at over $400,000, The sole beneficiary of the revocable trust was the second trust, an irrevocable trust, which held liquid assets valued at over $400,000. A provision in the irrevocable trust instructed the trustee to accumulate principal and use it for the Mr. Needham’s needs without regard to the interest of the remaindermen, Mr. Needham’s children.

Mr. Needham filed for nursing home Medicaid. The state denied Mr. Needham’s application for Medicaid benefits, finding that the irrevocable trust was an available asset because Mr. Needham retained control over the assets due to the above mentioned trust provision. Mr. Needham filed an administrative appeal. The hearing was suspended at Mr. Needham’s request to permit him to file a complaint in the probate court seeking an order reforming the trust by approving a stipulation between Mr. Needham and his children removing the above-mentioned provision of the irrevocable trust that made Mr. Needham ineligible for Medicaid. At the parties’ request, a judge of the probate court entered an order approving the trust reformation. The order stated that the reformation was effective ab initio.

The administrative hearing resumed and the court order reforming the trust was offered into evidence. The hearing officer recognized that the reformation rendered the assets of the irrevocable trust non-countable, but concluded that the reformation was itself a disqualifying transfer of assets because the reformation was sought for purpose of qualifying for Medicaid benefits, and the reformation occurred within the 5 year look-back period.

Mr. Needham appealed to court which reversed the denial of Medicaid benefits, ruling that because a court had approved the reformation of the trust ab initio, it was as if the original trust never existed. The state appealed.

The Massachusetts Court of Appeals reversed, holding that the state was not required to consider the reformed trust. The court stated as follows:

The issue is whether [Medicaid] is required to recognize a reformation as a matter of Federal law when determining whether there has been a disqualifying transfer. The answer to that question in this case is no. Were the answer different, persons of means would be permitted to enjoy otherwise countable assets held in trust throughout their lives, transfer those assets for less than fair market value by reforming the trust ab initio when their health declines, and thereby obtain Medicaid payment for long-term nursing home care without complying with the waiting period imposed by Federal law.

For the full text of this decision, Needham v. Director of Medicaid

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