Issue: Whether a life estate retained in a nominee trust is a countable asset for Medicaid eligibility.
Procedural History:
The plaintiff, Dorothy Frank, established a nominee trust that held her home, while she retained a life estate in the property. When Frank applied for Medicaid (MassHealth) long-term care benefits, her application was denied because the Office of Medicaid (MassHealth) included the property as a countable asset, determining that it exceeded the asset limit for eligibility. Frank appealed to the Superior Court, which ruled in favor of MassHealth. The case was transferred to the Supreme Judicial Court on its own initiative after Frank’s appeal.
Facts:
In 1999, Dorothy Frank established the Frank Family Realty Trust, transferring her home into the trust and retaining a life estate. Her five children held the remainder interest in the property. Frank lived in a long-term care facility from 2017 and applied for Medicaid benefits through MassHealth. The agency denied her application, deeming her home, valued at $109,000, a countable asset. Frank appealed the decision, arguing that her life estate should not be counted for Medicaid eligibility.
Legal Background:
Medicaid is a joint federal and state program providing medical assistance to low-income individuals. Massachusetts operates Medicaid through MassHealth, which sets eligibility criteria, including a $2,000 limit on countable assets for long-term care benefits (130 Code Mass. Regs. § 520.003(A)(1)). Generally, assets include all resources available to the applicant, except for the principal residence. However, if the home is transferred into a trust, the value of the home can be considered a countable asset unless certain exceptions apply. Irrevocable trusts are often used to shield assets from being counted in Medicaid eligibility, but both federal and state laws contain provisions (such as the “any circumstances” rule) to prevent individuals from transferring assets into trusts in a way that falsely impoverishes them to qualify for Medicaid benefits.
Plaintiff’s Argument:
Frank contended that the trust holding her home was a nominee trust rather than a “true” trust. In a nominee trust, the trustee holds legal title to the property, but the beneficiaries control the trustee’s actions, which creates a principal-agent relationship. Frank argued that her life estate was not a countable asset for Medicaid eligibility because she no longer had access to the remainder interest in the property, and her children were the vested owners of the remainder.
Defendant’s Argument:
MassHealth maintained that the property was a countable asset because the plaintiff retained a life estate, and the trust was either revocable or irrevocable under Medicaid regulations. MassHealth argued that under either scenario, the property should be included in the countable assets. Additionally, they argued that since any beneficiary could terminate the trust, Frank had indirect access to the property and therefore should be considered as having an interest in the remainder.
Court’s Analysis:
The Supreme Judicial Court began by addressing whether the trust was a nominee trust, as defined by Massachusetts law. In a nominee trust, the trustee holds title but has no power to act independently; all decisions must be directed by the beneficiaries. The court agreed with the plaintiff that the Frank Family Realty Trust was a nominee trust, not a true trust. Since the beneficiaries (Frank’s children) controlled the property, Frank had no ability to reclaim ownership of the remainder interest, and her life estate was her only interest in the property.
The court further noted that under federal and state Medicaid law, the corpus of a trust is countable only if the applicant can access it, which Frank could not. The nominee trust did not function like a typical irrevocable or revocable trust that would allow her to access the principal or regain full ownership of the property. The court distinguished between a nominee trust and a traditional trust, concluding that nominee trusts are not subject to the same Medicaid regulations that apply to trusts designed to shield assets.
Lastly, the court considered whether a life estate should be counted as an asset for Medicaid eligibility. Citing similar rulings from other jurisdictions, the court found that the value of a life estate in a primary residence is generally not counted in Medicaid eligibility determinations. Since Frank could not sell or access the full value of the property, her life estate should not be considered a countable asset.
Conclusion:
The Supreme Judicial Court reversed the lower court’s decision and remanded the case to MassHealth for further proceedings. The court ruled that because the trust was a nominee trust, Frank’s only interest in the property was a life estate, which was not a countable asset for Medicaid eligibility purposes.
Significance:
This decision reinforces the principle that nominee trusts, in which beneficiaries control the trustee’s actions, are distinct from traditional trusts for Medicaid eligibility purposes. Retaining a life estate in such a structure does not render the applicant ineligible for Medicaid long-term care benefits, provided the applicant cannot reclaim ownership or benefit from the remainder of the property. This ruling provides clarity for elder law attorneys engaged in Medicaid planning strategies involving nominee trusts.
