Case Summary: Cohen et al vs. Commissioner of the Division of Medical Assistance, 423 Mass 399 (1996)

The full text of the Supreme Judicial Court’s decision is available here.

Issue:

Whether assets held in Medicaid Qualifying Trusts (MQTs) are countable for Medicaid eligibility purposes.

Procedural History:

This consolidated case involves four separate plaintiffs—Mary Cohen, Lillian Walker, Sydney A. Comins, and John Kokoska—who each challenged the Massachusetts Division of Medical Assistance’s determination that they were ineligible for Medicaid because they held resources in self-settled trusts (MQTs). The Superior Court upheld the Division’s denials in all but one case, which was reported to the Appeals Court before being transferred to the Supreme Judicial Court.

Facts:

Each plaintiff created or benefited from an irrevocable trust designed to preserve assets while qualifying for Medicaid long-term care benefits. The trust agreements were structured so that trustees had discretion to make distributions of income or principal to the beneficiaries. However, each trust also included provisions limiting the trustees’ discretion to make payments if doing so would render the beneficiaries ineligible for public assistance.

The Division of Medical Assistance (now MassHealth) denied each plaintiff’s Medicaid application on the grounds that the trusts’ assets were available to them, despite the restrictions in the trust documents. The Division reasoned that the maximum amount payable under the terms of the trust should be considered as available to the plaintiffs when determining Medicaid eligibility, regardless of any limitations in the trust that purported to preserve the beneficiaries’ eligibility.

Legal Background:

Medicaid is a joint federal and state program providing healthcare to low-income individuals. To qualify for Medicaid, applicants must meet certain financial eligibility requirements. Congress, in response to Medicaid planning strategies designed to shield assets while enabling individuals to qualify for benefits, enacted provisions under 42 U.S.C. § 1396a(k) (the MQT statute) to address trusts created by applicants. The statute defines MQTs as trusts established by individuals or their spouses where the trustee has discretion to make payments to the grantor. For Medicaid eligibility purposes, the “maximum amount” of assets that could be paid out by the trustee, regardless of restrictions, is considered available to the applicant.

Plaintiffs’ Arguments:

The plaintiffs argued that their trusts should not be treated as available resources because the trustees’ discretion was expressly limited by provisions prohibiting distributions that would result in a loss of Medicaid eligibility. They claimed that these limitations meant the trust assets were not available to them under the terms of the trusts.

Defendant’s Arguments:

The Division countered that the trust provisions were designed to circumvent Medicaid eligibility rules, allowing the plaintiffs to appear impoverished while retaining access to significant assets. The Division maintained that the MQT statute required the full amount of the trust, regardless of restrictions, to be deemed available to the plaintiffs for eligibility purposes.

Court’s Analysis:

The court reviewed the federal MQT statute and related regulations, which aim to prevent individuals from using trusts to shield assets while qualifying for Medicaid. The statute mandates that the maximum amount of funds that could be distributed by the trustee, assuming full discretion, be considered as available resources.

The court emphasized that Medicaid is intended for individuals who lack the financial means to pay for their care, and Congress enacted the MQT statute to prevent affluent individuals from artificially impoverishing themselves through trusts. The court interpreted the statute to mean that any discretion granted to the trustee—even if theoretically limited by the terms of the trust—must be disregarded when determining the amount available to the beneficiary. Thus, the full amount of the trust, including both income and principal, was deemed available to the plaintiffs for purposes of Medicaid eligibility.

The court rejected the plaintiffs’ reliance on trust law precedents that had shielded trust assets from creditors or support obligations, noting that those cases did not involve self-settled trusts, where the grantor and the beneficiary were the same person. Under the long-standing principle that self-settled trusts are accessible to the grantor’s creditors, the court found that the assets in these MQTs were available to the plaintiffs.

Application to Specific Cases:

Cohen Case:

Mary Cohen created an irrevocable trust where the trustee had discretion to distribute income and principal, but was prohibited from making distributions that would render Cohen ineligible for public assistance. The court ruled that the full amount of the trust was available to Cohen for Medicaid purposes because the trustee had discretion to distribute the entire trust corpus.

Comins Case:

Sydney and Lilyan Comins created a trust that provided for discretionary payments of income and principal, with restrictions on distributions when they were institutionalized. The court found that the full amount of both income and principal was available to them for Medicaid purposes, as the trustee retained discretion to distribute funds under various circumstances

Walker Case:

Lillian Walker’s trust allowed discretionary distributions of income and principal, but the trustee was instructed not to make distributions that would interfere with public assistance eligibility. The court held that the full amount of the trust was available to Walker because the trustee retained discretion to distribute funds.

Kokoska Case:

John Kokoska’s trust was established by a conservator with proceeds from a medical malpractice settlement. The trust granted the trustee discretion to distribute income and principal for Kokoska’s benefit, but limited the trustee’s discretion to ensure her eligibility for Medicaid. The court ruled that the trust assets were available to Kokoska because the trustee had discretion to distribute the full amount of the trust.

Conclusion:

In each case, the Supreme Judicial Court affirmed the Superior Court’s rulings that the trusts were MQTs under the federal statute and that the full amount of the trust assets was available to the plaintiffs for Medicaid eligibility purposes. The court rejected the plaintiffs’ arguments that the discretionary limitations in their trusts shielded the assets from consideration. The court’s decision reinforces the principle that individuals cannot use self-settled trusts to preserve assets while qualifying for Medicaid benefits.

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