Case Title: Daley v. Secretary of Executive Office of Health & Human Services

Citation: 

Docket Number: SJC-12200

State: massachusetts

Court: Massachusetts Supreme Court

Date: 2017-05-30T00:00:00Z

Document:
NOTICE:  All slip opinions and orders are subject to formal 
revision and are superseded by the advance sheets and bound 
volumes of the Official Reports.  If you find a typographical 
error or other formal error, please notify the Reporter of 
Decisions, Supreme Judicial Court, John Adams Courthouse, 1 
Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-
1030; SJCReporter@sjc.state.ma.us 
 
SJC-12200 
SJC-12205 
 
MARY E. DALEY, personal representative,1  vs.  SECRETARY OF THE 
EXECUTIVE OFFICE OF HEALTH AND HUMAN SERVICES & another.2 
 
LIONEL C. NADEAU  vs.  DIRECTOR OF THE OFFICE OF MEDICAID. 
 
 
 
Worcester.     January 5, 2017. - May 30, 2017. 
 
Present:  Gants, C.J., Lenk, Hines, Gaziano, Lowy, & Budd, JJ. 
 
 
Medicaid.  Trust, Irrevocable trust.  Real Property, Life 
estate, Ownership. 
 
 
 
 
Civil action commenced in the Superior Court Department on 
February 11, 2015. 
 
 
The case was heard by Dennis J. Curran, J., on a motion for 
judgment on the pleadings. 
 
 
The Supreme Judicial Court granted an application for 
direct appellate review. 
 
 
Civil action commenced in the Superior Court Department on 
December 23, 2014. 
 
 
The case was heard by Shannon Frison, J., on a motion for 
judgment on the pleadings. 
 
                                                          
 
1 Of the estate of James Daley. 
2 Director of the Office of Medicaid. 
 
 
2 
 
The Supreme Judicial Court on its own initiative 
transferred the case from the Appeals Court. 
 
 
 
Lisa Neeley (Patrick Tinsley also present) for Lionel C. 
Nadeau. 
 
Brian E. Barreira for Mary E. Daley. 
 
Ronald M. Landsman, of Maryland, for National Academy of 
Elder Law Attorneys, Inc. 
 
Elizabeth Kaplan & Julie E. Green, Assistant Attorneys 
General, for Director of the Office of Medicaid & another. 
 
Patricia Keane Martin, for National Academy of Elder Law 
Attorneys (Massachusetts Chapter), was present but did not 
argue. 
 
Leo J. Cushing & Thomas J. McIntyre, for Real Estate Bar 
Association for Massachusetts, Inc., amicus curiae, submitted a 
brief. 
 
 
 
GANTS, C.J.  These two cases require this court to navigate 
the labyrinth of controlling statutes and regulations to 
determine whether applicants are eligible for long-term care 
benefits under the Federal Medicaid Act (act) where they created 
an irrevocable trust and deeded their primary asset -- their 
home -- to that trust but retained the right to reside in and 
enjoy the use of the home for the rest of their life.  The 
Director of the Massachusetts Office of Medicaid (MassHealth) 
determined that the applicants in these two cases were not 
eligible for long-term care benefits because their retention of 
a right to continue to live in their homes made the equity in 
their homes a "countable" asset whose value exceeded the asset 
eligibility limitation under the act.  The applicants 
unsuccessfully challenged MassHealth's determinations in the 
 
 
3 
Superior Court pursuant to G. L. c. 30A, § 14.  We granted Mary 
E. Daley's application for direct appellate review and 
transferred Lionel C. Nadeau's appeal to this court on our own 
motion.  We conclude that neither the grant in an irrevocable 
trust of a right of use and occupancy in a primary residence to 
an applicant nor the retention by an applicant of a life estate 
in his or her primary residence makes the equity in the home 
owned by the trust a countable asset for the purpose of 
determining Medicaid eligibility for long-term care benefits.  
We therefore vacate the judgments that rely on such a finding 
and remand the matters to MassHealth for findings regarding two 
other possible sources of countable assets contained in the 
trusts.3 
 
Background.  The act, enacted in 1965 as Title XIX of the 
Social Security Act, 42 U.S.C. §§ 1396 et seq., created a 
cooperative State and Federal program to provide medical 
assistance to individuals who cannot afford to pay for their own 
medical costs.  See Arkansas Dep't of Health & Human Servs. v. 
Ahlborn, 547 U.S. 268, 275 (2006).  The general administration 
of Medicaid is entrusted to the United States Secretary of 
                                                          
 
 
3 We acknowledge the amicus brief submitted by the National 
Academy of Elder Law Attorneys, Inc., in both cases; the amicus 
brief submitted by the Real Estate Bar Association for 
Massachusetts, Inc., in Mary E. Daley's case; and the amicus 
brief submitted by the National Academy of Elder Law Attorneys 
(Massachusetts Chapter) in Lionel C. Nadeau's case. 
 
 
4 
Health and Human Services, who in turn exercises authority 
through the Centers for Medicare and Medicaid Services (CMS).  
Id.4  Although the Medicaid program is voluntary for States, 
participating States must comply with certain requirements 
imposed by the act and regulations promulgated by the Secretary 
through CMS.  See Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 
502 (1990).  Massachusetts has opted to participate in Medicaid 
via the establishment of a State Medicaid program known as 
MassHealth.  See G. L. c. 118E, § 9 (establishing program of 
medical assistance "pursuant to and in conformity with the 
provisions of Title XIX"). 
 
Participating States are required to cover the costs of 
care for the "categorically needy," which the act defines as 
those individuals who are unable to cover the costs of their 
basic needs and who already receive or are eligible for certain 
forms of public assistance.  See Roach v. Morse, 440 F.3d 53, 59 
(2d Cir. 2006).  States have the option to cover the costs of 
care for the "medically needy," Haley v. Commissioner of Pub. 
Welfare, 394 Mass. 466, 467-468 (1985), which the act defines as 
people who have income and resources to cover the costs of their 
                                                          
 
 
4 Until 2001, the Centers for Medicare and Medicaid Services 
were known as the Health Care Financing Administration.  See 
Centers for Medicare & Medicaid Services Statement of 
Organization, Functions and Delegations of Authority, and 
Reorganization Order, 66 Fed. Reg. 35,437-03 (2001). 
 
 
5 
basic needs but not their necessary medical care.  See 42 U.S.C. 
§ 1396a(a)(10)(C). 
 
Medicaid has become one of the largest programs in the 
Federal budget as well as a major expenditure for State 
governments, which must finance a significant portion of 
Medicaid benefits on their own.  See R. Rudowitz, Kaiser 
Commission on Medicaid and the Uninsured, Medicaid Financing:  
The Basics (Dec. 2016) (Medicaid is third largest domestic 
program in Federal budget, exceeded only by Medicare and Social 
Security); Massachusetts Medicaid Policy Institute & 
Massachusetts Budget and Policy Center, Understanding the Actual 
Cost of MassHealth to the State (Nov. 2014) (reporting net cost 
of MassHealth and health reform programs as twenty-three per 
cent of State budget).  As of 2015, the Medicaid program 
provided health and long-term care coverage to nearly 70 million 
low-income Americans, including, among many others, poor senior 
citizens who are also covered by Medicare.  See Kaiser Family 
Foundation, Medicaid at 50 (2015), http://kff.org/medicaid 
/report/medicaid-at-50 [https://perma.cc/TK7Q-72KR]. 
 
The demand for Medicaid long-term care benefits, which 
cover nursing home care as well as other forms of personal long-
term care services, has grown steadily as a result of our 
country's aging population and the expense of paying privately 
for nursing homes or other long-term care.  See Cohen v. 
 
 
6 
Commissioner of the Div. of Med. Assistance, 423 Mass. 399, 402 
(1996), cert. denied sub nom. Kokoska v. Bullen, 519 U.S. 1057 
(1997).  See also Bernstein, With Medicaid, Long-Term Care of 
Elderly Looms as a Rising Cost, N.Y. Times, Sep. 6, 2012, 
http://www.nytimes.com/2012/09/07/health/policy/long-term-care-
looms-as-rising-medicaid-cost.html [https://perma.cc/2JB6-L6NM] 
(describing Medicaid as "the only safety net for millions of 
middle-class people whose needs for long-term care, at home or 
in a nursing home, outlast their resources").  A recent survey 
estimated that the median annual cost of nursing home care for a 
senior in a semiprivate room in Massachusetts was more than 
$128,000.  See Genworth 2015 Cost of Care Survey, Massachusetts, 
https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate
/cost-of-care/118928MA_040115_gnw.pdf [https://perma.cc/2RNC-
6P5G].  Private long-term care insurance can cost more than 
$3,000 annually.  See AARP, Understanding Long-Term Care 
Insurance (May 2016), http://www.aarp.org/health/health-
insurance/info-06-2012/understanding-long-term-care-insurance 
.html [https://perma.cc/56MK-DYZ2].  Because many individuals 
cannot afford these expenses, Medicaid pays for the care of two-
thirds of people in nursing homes in the United States.  See 
Zernike, Goodnough, & Belluck, In Health Bill's Defeat, Medicaid 
Comes of Age, N.Y. Times, Mar. 27, 2017.  See also E.L. Reaves & 
M. Musumeci, Kaiser Commission on Medicaid and the Uninsured, 
 
 
7 
Medicaid and Long-Term Services and Supports:  A Primer (Dec. 
2015), http://kff.org/medicaid/report/medicaid-and-long-term-
services-and-supports-a-primer [https://perma.cc/KJZ5-5WJR].  
The cost of Medicaid's long-term care benefit is expected to 
rise by fifty per cent over the next decade, and State and 
Federal officials are reportedly "scrambling to control 
spending."  Gorman & Feder Ostrov, Long-Term Care Is an 
Immediate Problem -- For the Government, Kaiser Health News, 
Aug. 1, 2016, http://khn.org/news/long-term-care-is-an-
immediate-problem-for-the-government [https://perma.cc/N9V9-
5QKE]. 
 
In order to qualify for Medicaid in Massachusetts, 
MassHealth requires that "[t]he total value of countable assets 
owned by or available to" an individual applicant not exceed 
$2,000.  130 Code Mass. Regs. § 520.003(A)(1) (2014).5  For a 
                                                          
 
 
5 This asset limit is not codified in Title XIX of the 
Social Security Act, 42 U.S.C. §§ 1396 et seq.  Instead, Federal 
law and guidance from Federal regulators generally instruct the 
State Medicaid programs that their treatment of applicants' 
resources in determining eligibility may not be more restrictive 
than the methodology that would be employed under the Federal 
supplemental security income (SSI) program.  See 42 U.S.C. 
§ 1396a(a)(10)(C)(i); State Medicaid Manual, Health Care 
Financing Administration Pub. No. 45-3, Transmittal 64 
§ 3257.B.4 (Nov. 1994).  But see Mistrick v. Division of Med. 
Assistance & Health Servs., 154 N.J. 158, 174-175 (1998) 
(specific Congressional legislation regarding Medicaid 
eligibility supersedes general rule that State Medicaid 
eligibility rules may be "no more restrictive" than SSI).  The 
asset limit for SSI beneficiaries is $2,000.  See 42 U.S.C. 
§ 1382(a). 
 
 
8 
couple living together, the limit is $3,000.  130 Code Mass. 
Regs. § 520.003(A)(2) (2014).  This asset limit often requires 
applicants to "spend down" or otherwise deplete their resources 
to qualify for Medicaid long-term care benefits when they enter 
a nursing home.  See Lebow v. Commissioner of the Div. of Med. 
Assistance, 433 Mass. 171, 172 (2001).6 
 
Through "Medicaid planning," individuals attempt to 
transfer or otherwise dispose of their assets long before they 
need long-term care so that, when the need arises, they may 
satisfy the asset limit and qualify for Medicaid benefits.  In 
essence, the purpose of Medicaid planning is to enable persons 
whose assets would otherwise render them ineligible for long-
term care benefits to become eligible for Medicaid benefits by 
transferring to their children or other loved ones the assets 
they would otherwise use to pay for long-term care, shifting to 
the taxpayers the burden of paying for that care.  See generally 
Cohen, 423 Mass. at 402-403.  As a report of the House of 
Representatives's committee on energy and commerce declared in 
1985, "When affluent individuals use Medicaid qualifying trusts 
and similar 'techniques' to qualify for the program, they are 
                                                          
 
 
6 As we discuss later in this opinion, an applicant's 
principal residence is generally not considered to be a 
countable asset in the eligibility determination and thus an 
applicant does not have to sell his or her home in order to 
qualify for Medicaid long-term care benefits.  See 20 C.F.R. 
§ 416.1212(b); 130 Code Mass. Regs. §§ 520.007(G)(3), 520.008(A) 
(2014). 
 
 
9 
diverting scarce Federal and State resources from low-income 
elderly and disabled individuals, and poor women and children."  
H.R. Rep. No. 265, 99th Cong., 1st Sess., pt. 1, at 72 (1985), 
quoted in Cohen, supra at 404. 
 
Congress has imposed two substantial constraints on such 
Medicaid planning.  The first is the so-called "look-back" rule, 
which imposes a penalty for any asset transfer for less than 
fair market value made by an individual within five years of the 
individual's application for Medicaid benefits.  See 42 U.S.C. 
§ 1396p(c)(1)(B)(i).  See generally D. Westfall, G.P. Mair, J.R. 
Buckles, N.M. Oliveira, & W. Murieko, Estate Planning Law & 
Taxation § 13.05 (2017) (Westfall).  In its present form, the 
"look-back" rule provides that, if such a transfer occurs, the 
applicant is ineligible for Medicaid benefits for a period of 
time determined by dividing the value of the transfer by the 
average monthly cost of the nursing home facility.  See 42 
U.S.C. § 1396p(c)(1)(E).  Thus, if an applicant transfers 
$100,000 in assets during the look-back period, in a State where 
the average monthly cost of a nursing home is $10,000, the 
applicant will be ineligible for Medicaid benefits for ten 
months.  See Westfall, supra. 
 
Second, where an applicant has created an irrevocable trust 
and transferred assets to that trust, "if there are any 
circumstances under which payment from the trust could be made 
 
 
10 
to or for the benefit of the individual, the portion of the 
corpus from which, or the income on the corpus from which, 
payment to the individual could be made shall be considered 
resources available to the individual, and payments from that 
portion of the corpus or income (I) to or for the benefit of the 
individual, shall be considered income of the individual, and 
(II) for any other purpose, shall be considered a transfer of 
assets by the individual."  42 U.S.C. § 1396p(d)(3)(B)(i).  This 
is commonly referred to as the "any circumstances" test.  See 
Heyn v. Director of the Office of Medicaid, 89 Mass. App. Ct. 
312, 315 & n.7 (2016).7  The effect of the test is that if the 
trustee is afforded even a "peppercorn of discretion" to make 
payment of principal to the applicant, or if the trust allows 
such payment based on certain conditions, then the entire amount 
that the applicant could receive under "any state of affairs" is 
the amount counted for Medicaid eligibility.  See Cohen, 423 
Mass. at 413.8 
                                                          
 
 
7 The cognate Massachusetts regulation states:  "Any portion 
of the principal or income from the principal (such as interest) 
of an irrevocable trust that could be paid under any 
circumstances to or for the benefit of the individual is a 
countable asset."  130 Code Mass. Regs. § 520.023(C)(1)(a) 
(2014). 
 
 
8 To illustrate the operation of this rule, Federal 
regulators provide the example of a trust containing $50,000 in 
principal under which payment of principal may be made to the 
Medicaid applicant only in the event that the applicant requires 
a heart transplant.  Because it is possible the applicant could 
 
 
11 
 
Under the "any circumstances" test, where the grantor of 
the irrevocable trust gives the trustee any "leeway to respond 
to emergency and unexpected circumstances," the total amount 
available to be paid to address such circumstances is counted as 
fully available to the grantor, even if the trust provisions 
otherwise limit the trustee's discretion to pay for long-term 
care.  See id. at 418-420.  Consequently, where the terms of an 
irrevocable trust give the trustee discretion to pay both income 
and principal to the grantor for various purposes, but limit 
that discretion in an attempt to assure the grantor's 
eligibility for public assistance despite the considerable 
resources otherwise available to the grantor, the full amount of 
the trust, both principal and income, is the amount deemed 
available for purposes of determining Medicaid eligibility.  Id. 
at 421-422. 
 
The "any circumstances" test is qualified by an important 
caveat:  if the amounts that may be paid to the Medicaid 
applicant come only from the income of the trust, those income 
payments do not render the principal of the trust available as 
an asset; rather, they are treated as income that may affect the 
amount of Medicaid benefits to be received but not the 
                                                                                                                                                                                           
require a heart transplant, "this full amount is considered as 
payment that could be made under some circumstances, even though 
the likelihood of payment is remote."  See State Medicaid 
Manual, Health Care Financing Administration Pub. No. 45-3, 
Transmittal 64 § 3259.6(E) (Nov. 1994). 
 
 
12 
applicant's eligibility for such benefits.  See Guerriero v. 
Commissioner of the Div. of Med. Assistance, 433 Mass. 628, 632 
n.6 (2001); 130 Code Mass. Regs. § 520.026 (2013).  See also 
J.A. Bloom & S.M. Cohen, Nursing Home MassHealth Eligibility, in 
Estate Planning for the Aging or Incapacitated Client in 
Massachusetts § 26.3.2 (Mass. Cont. Legal Educ. 4th ed. 2012 & 
Supp. 2015) (explaining general rule that anyone whose income is 
less than monthly cost of his or her nursing home may be 
eligible for MassHealth). 
 
The application of this labyrinth of statutes and 
regulations is best understood by examples.  If a married couple 
without any savings forgoes Medicaid planning and continues 
jointly to own in fee simple a single family home, then when one 
spouse needs long-term care and applies for MassHealth benefits, 
the applicant's primary residence is not a countable asset for 
MassHealth eligibility purposes, so long as its value does not 
exceed an annually adjusted limit (currently $828,000).  See 130 
Code Mass. Regs. § 520.008(A) (2013); 130 Code Mass. Regs. 
§ 520.007(G)(3) (2014).  See also 20 C.F.R. § 416.1212(b) (SSI 
regulation).9  Thus, the spouse may be admitted to a nursing home 
and be covered by MassHealth without having to sell the home.  
                                                          
 
 
9 If the applicant's spouse, child under the age of twenty-
one, disabled child, or caretaker child, among others, remains 
living in the home, the value of the home will not be counted 
even if it exceeds the limit.  130 Code Mass. Regs. 
§ 520.007(G)(8)(b) (2013). 
 
 
13 
However, Federal law requires that MassHealth must attempt to 
reclaim the costs of long-term care benefits provided to such an 
applicant from the applicant's estate after his or her death.  
42 U.S.C. § 1396p(a), (b).  See 130 Code Mass. Regs. 
§ 515.011(A) (2014).  As a result, where the house is the only 
asset in the applicant's estate and is sold by the estate after 
both spouses have died, the children will be able to inherit 
only the proceeds of the sale that exceed the amount of the 
MassHealth recovery claim. 
 
If a married couple who owns no primary residence but has 
substantial liquid assets engages in Medicaid planning, they 
could create an irrevocable trust and transfer all of their 
assets to that trust.  If, under the terms of the trust, the 
trustee were authorized to pay them only income from the trust 
and could not under any circumstance pay them a penny of 
principal, and if the transfer to the trust complied with the 
"look-back" rule because it occurred more than five years before 
either spouse applied to MassHealth for long-term care benefits, 
the applicant would be eligible for such benefits because the 
assets of the trust would not be countable as his or her assets.  
See Cohen, 423 Mass. at 419-420 (where trust is written to 
deprive trustee of any discretion to pay principal and allows 
payment only of income, principal will not be counted as assets 
for Medicaid purposes); Heyn, 89 Mass. App. Ct. at 314 (where 
 
 
14 
properly structured, irrevocable trust may be used to place 
assets beyond grantor's reach and permit grantor to be eligible 
for Medicaid benefits). 
 
In essence, a wealthy person may decide five years in 
advance of applying for Medicaid to either give away all of his 
or her assets to the children or transfer them to an irrevocable 
trust with the children as beneficiaries, reserving only the 
receipt of income, and therefore become someone with less than 
$2,000 in assets who is eligible for Medicaid benefits.  The 
inclusion of the primary residence among the assets transferred 
to the irrevocable trust allows the grantor to avoid the estate 
recovery claim against his or her primary residence that would 
occur had the grantor obtained Medicaid long-term care benefits 
and continued to own the home until it was transferred to his or 
her heirs as part of the probate estate. 
 
Although the transfer of assets to an irrevocable trust 
through Medicaid planning offers substantial benefits to the 
grantor, it also poses considerable risks.  Having been stripped 
of all assets, the grantor may be unable to pay unforeseen 
nonmedical expenses, and may need to look to children or other 
relatives for payment.  If the grantor were to require nursing 
home care sooner than expected, he or she would face a 
significant penalty under the look-back rule.  See A.K. Dayton, 
J.A. Garber, R.A. Mead, & M.M. Wood, Advising the Elderly Client 
 
 
15 
§ 29.82 (2016) ("planning only for Medicaid eligibility severely 
restricts planning options for other goals, and often the 
adverse impact of Medicaid planning outweighs the benefit if the 
client is advised thoroughly . . . [and] consideration should be 
given to . . . possible loss of autonomy, pride, and dignity" 
involved in process).  If the grantor of the irrevocable trust 
leaves open even a "peppercorn" of discretion for the trustee to 
pay the grantor from the principal of the trust under any 
circumstance, the entire principal of the trust will be deemed 
available to the applicant and therefore will be treated as a 
"countable asset," making the applicant ineligible for Medicaid 
benefits.  Where the grantor transfers his or her primary 
residence to the irrevocable trust, the value of the home, which 
would not be a countable asset if he or she were to continue to 
own it (provided its value does not exceed $828,000), would 
become a countable asset if it were found to be among the 
"resources available to the individual" under 42 U.S.C. 
§ 1396p(d)(3).  And if the terms of the trust were to bar the 
trustee from paying the grantor's nursing home expenses, the 
grantor might have no ability to pay for long-term care. 
 
The risks of Medicaid planning are highlighted by these two 
cases, where the plaintiffs challenge the determinations by 
MassHealth that their primary residence was a countable asset 
that rendered them ineligible to receive Medicaid long-term care 
 
 
16 
benefits because they had transferred ownership of the home to 
an irrevocable trust but retained the ability to reside in their 
home for the balance of their life.  A key difference between 
these two cases is the property interest that was transferred to 
the irrevocable trust:  in one, the home was transferred in fee 
simple but the terms of the trust granted the settlors the right 
of use and occupancy for their lifetimes; in the other, the 
settlors retained a life estate in the home and transferred only 
the remainder interest to the irrevocable trust.  We look now to 
the terms of the irrevocable trust at issue in each case and to 
the MassHealth determinations. 
 
Nadeau Trust.  On March 27, 2001, plaintiff Lionel C. 
Nadeau and his wife (collectively, Nadeaus) deeded their primary 
residence in Webster to an irrevocable trust (Nadeau Trust) in 
return for nominal consideration, naming their daughter as sole 
trustee.  Under the terms of the trust, the trustee may pay to 
the Nadeaus, or on their behalf, whatever income she determines 
in her sole discretion to be necessary for their "care and well-
being."  The trustee, apart from two exceptions, must hold the 
principal until the termination of the trust, which shall occur 
upon the death of the Nadeaus or when the trustee, in her sole 
discretion, determines that the trust should be terminated.  The 
first exception is that the Nadeaus may appoint "all or any part 
of the trust property then on hand to any one or more charitable 
 
 
17 
or non-profit organizations over which [they] have no 
controlling interest."  The second is that the trustee may 
distribute principal to the Nadeaus "to the extent that the 
income of the trust generates a tax liability" so that they may 
pay that tax liability.  As earlier mentioned, the terms of the 
trust grant the Nadeaus "the right to use and occupy any 
residence that may from time to time be held" by the trust.  
Upon termination of the trust, the "trustee shall . . . [p]ay 
the remaining principal and undistributed income in equal shares 
to [the Nadeaus'] children." 
 
Thirteen years later, and after the passing of his wife, 
Nadeau was admitted to a skilled nursing facility and applied 
for MassHealth long-term care benefits.  At the time, the 
assessed value of the residence held by the Nadeau Trust was 
$173,700, and Nadeau, then eighty-nine years old, had only 
$168.15 in cash assets.  MassHealth denied Nadeau's application 
based on its finding that the home remained a "countable asset," 
placing Nadeau above the $2,000 asset limit for long-term care 
eligibility.  MassHealth determined that he needed to spend down 
$171,868.15 of his assets in order to qualify for the requested 
benefits. 
 
Daley Trust.  On December 19, 2007, Mary E. Daley and her 
husband (collectively, Daleys) deeded their primary residence in 
Worcester to their children as trustees of an irrevocable trust 
 
 
18 
(Daley Trust) in return for consideration of less than one 
hundred dollars, but retained a life estate in the property.  
Under the terms of the trust, the trustees are to pay to Daley 
or her husband "so much of the net income of the Trust as either 
Donor shall request in writing," but "[t]he Trustee[s] shall 
have no authority or discretion to distribute principal of the 
Trust to or for the benefit of either Donor."  However, as with 
the Nadeau Trust, the trustee may pay principal as needed to 
satisfy any tax obligation arising from the payment of income to 
the Daleys. 
 
Six years later, Daley's husband was admitted to a skilled 
nursing home; he applied for MassHealth long-term care benefits 
on February 21, 2014.  At the time, he was eighty-seven years 
old, he had $18,176 in a bank account, and the principal of the 
Daley Trust had a value of $150,943.  Daley was still living in 
the home.  MassHealth denied her husband's application because 
it found that the trust principal was countable.  While Daley 
was permitted a spousal resource allowance of $117,240, the 
value of the residence still placed her husband about $50,000 
over the $2,000 eligibility limit. 
 
In both cases, the MassHealth determination was appealed to 
a MassHealth hearing officer, who upheld the determination by 
finding that, because the applicant retained the ability to 
reside in the home, the home is "available" to the applicant and 
 
 
19 
must be deemed a countable asset under 130 Code Mass. Regs. 
§ 520.023(C)(1)(d), which provides: 
"The home or former home of a nursing-facility resident or 
spouse held in an irrevocable trust that is available 
according to the terms of the trust is a countable asset.  
Where the home or former home is an asset of the trust, it 
is not subject to the exemptions of 130 [Code Mass. Regs. 
§] 520.007(G)(2) or (G)(8)."10 
 
The hearing officers also found that the provision in the trusts 
that permit the trustee to pay the grantors' tax obligations 
arising from the payment of trust income does not render the 
entirety of the trust principal available under the "any 
circumstances" test.  They specifically did not reach the issue 
of how much of the principal could be paid in that circumstance 
and therefore become countable, declaring that, if eligibility 
were to rest on that determination, the matter would have to be 
remanded to MassHealth to make such findings. 
                                                          
 
 
10 The exemptions in these two provisions apply only to 
"real estate owned by the individual and the spouse."  130 Code 
Mass. Regs. § 520.007(G)(1).  Under 130 Code Mass. Regs. 
§ 520.007(G)(2), the value of real estate is exempt as a 
countable asset for nine months after the date of notice by 
MassHealth provided that the applicant executes an agreement 
within thirty days of the date of notice to sell the property at 
fair market value.  Under 130 Code Mass. Regs. § 520.007(G)(8), 
where an applicant moves out of his or her home with no intent 
to return in order to enter a medical institution where 
placement is expected to continue for at least thirty days, the 
home becomes a countable asset unless a spouse, a child who is 
less than twenty-one years of age, a child who is blind or 
permanently and totally disabled, or other designated relatives 
reside in the home. 
 
 
20 
 
Discussion.  The Medicaid program in Massachusetts was 
established "pursuant to and in conformity with the provisions 
of" the act.  G. L. c. 118E, § 9.  If a person meets the Federal 
financial eligibility requirements for Medicaid, MassHealth may 
not deny the person long-term care benefits.  Id. ("[P]rovided 
that such persons meet the financial eligibility requirements of 
[the act], . . . long-term care services shall be available to 
otherwise eligible persons whose income and resources are 
insufficient to meet the costs of their medical care as 
determined by the financial eligibility requirements of the 
program").  See Cruz v. Commissioner of Pub. Welfare, 395 Mass. 
107, 113 (1985) ("The language of this section clearly indicates 
that the Legislature intended the [Medicaid] benefits program to 
comply with the Federal statutory and regulatory scheme" 
[citation omitted]).  "When there is a conflict between State 
and Federal regulations, the Legislature intended that 
[MassHealth] comply with the Federal rule."  Cruz, supra. 
 
Under Federal law, "[f]or purposes of determining an 
individual's eligibility for, or amount of, benefits under a 
State plan under [the act] . . . , the rules specified in 
paragraph (3) shall apply to a trust established by such an 
individual."  42 U.S.C. § 1396p(d)(1).  "[T]he rules specified 
in paragraph (3)" provide that "if there are any circumstances 
under which payment from the trust could be made to or for the 
 
 
21 
benefit of the individual, the portion of the corpus from which, 
or the income on the corpus from which, payment to the 
individual could be made shall be considered resources available 
to the individual."  42 U.S.C. § 1396p(d)(3).  Therefore, the 
issue we must decide is whether 130 Code Mass. Regs. 
§ 520.023(C)(1)(d), which MassHealth interprets to mean that the 
equity in a home that is part of the corpus of an irrevocable 
trust is a countable asset where the grantor of the trust 
retains the authority to reside in or otherwise enjoy the use of 
the home, is consistent with 42 U.S.C. § 1396p(d)(3). 
 
The plaintiffs contend that § 1396p(d)(3) makes an asset in 
the corpus of an irrevocable trust countable only where there 
are circumstances in which principal from the trust might be 
paid to them or for their benefit.  They contend that, because 
they can only reside in the home but not reach any of the equity 
in the home under the trust, the equity should not be countable 
as an asset because it may not be paid to them.  MassHealth 
argues that interpretive guidance from the Health Care Financing 
Administration (HCFA)11 in its State Medicaid Manual (Manual), 
which provides instruction to State officials in applying the 
provisions of Federal Medicaid law, indicates that a right to 
use and occupancy can be a form of "payment" to a Medicaid 
                                                          
 
 
11 See note 4, supra. 
 
 
22 
applicant.  Transmittal 64, issued in November, 1994, includes a 
section entitled "Treatment of Trusts," which states: 
"For purposes of this section a payment from a trust is a 
disbursal from the corpus of the trust or from income 
generated by the trust which benefits the party receiving 
it.  A payment may include actual cash, as well as noncash 
or property disbursements, such as the right to use and 
occupy real property." 
 
State Medicaid Manual, HCFA Pub. No. 45-3, Transmittal 64 
§ 3259.1.A.8 (Nov. 1994). 
 
The Manual is comprised of the various transmittals issued 
by HCFA and, later, by CMS. The transmittals contained in the 
Manual do not carry the force of regulations and are not 
entitled to the deference that we give to regulations that 
reflect an agency's interpretation of a statute it is obliged to 
enforce.  See Chevron, U.S.A., Inc. v. Natural Resources Defense 
Counsel, Inc., 467 U.S. 837, 845 (1984); Springfield v. 
Department of Telecomm. & Cable, 457 Mass. 562, 567-568 (2010).  
However, we consider such guidance carefully for its persuasive 
power.  See Wos v. E.M.A. ex rel. Johnson, 133 S. Ct. 1391, 1402 
(2013) (interpretations contained in policy statements, agency 
manuals, and enforcement guidelines lack force of regulations 
and "do not warrant Chevron-style deference," but are "'entitled 
to respect' in proportion to their 'power to persuade'" 
[citations omitted]); Atlanticare Med. Ctr. v. Commissioner of 
the Div. of Med. Assistance, 439 Mass. 1, 9 & n.12 (2003). 
 
 
23 
 
We conclude that HCFA Transmittal 64 accurately interprets 
the meaning of "payment from the trust" in 42 U.S.C. 
§ 1396p(d)(3).  We also conclude that MassHealth has 
misinterpreted the meaning of these words in both the statute 
and the transmittal.  Section 1396p(d)(3) recognizes that a 
"payment from the trust" may be made from the "corpus" of the 
trust or from "income on the corpus."  Where a home is 
transferred to a trust, the home becomes another asset of the 
trust.  Like any other asset, a home adds to the corpus of the 
trust, in that it may be sold for its fair market value; a home 
also increases the trust's capacity to generate income, in that 
rent may be collected for its use and occupancy.  Where the 
trustee retains the discretion to pay income produced from the 
corpus to the grantors, as in the Nadeau and Daley Trusts, the 
trustee may pay any rental income earned from any real estate in 
the corpus of the trust to the grantors.  Where the terms of the 
trust, as in the Nadeau Trust, grant a right of use and 
occupancy to the grantors for their lifetime, the grantors 
receive from the trust the right to receive any income that may 
be generated from the rental of the home, as well as the right 
to forgo that rental income by residing in the home themselves.  
See Hinckley v. Clarkson, 331 Mass. 453, 454-455 (1954) (right 
of use and occupancy grants "right to the income of the property 
[for] life," but not right to "alienate or consume" property).  
 
 
24 
See also Langlois v. Langlois, 326 Mass. 85, 87-88 (1950).  HCFA 
Transmittal 64 accurately recognizes that, where a trust grants 
the use or occupancy of a home to the grantors, it is 
effectively making a payment to the grantors in the amount of 
the fair rental value of that property. 
 
To illustrate with an example, if a grantor transfers to an 
irrevocable trust ownership of a condominium unit and the 
trustee decides to rent the unit to a third person and pay the 
rental income to the grantor, there is a payment of rental 
income from the trust to the grantor.  If the grantor instead 
exercises his or her right of use and occupancy under the terms 
of the trust, and decides to reside in the unit or permit a 
family member to reside there without the payment of rent, the 
fair market value of the rent that otherwise would have been 
earned and treated as actual trust income is deemed paid to the 
grantor under Transmittal 64. 
 
This payment, however, is not a payment from the corpus of 
the trust; the grantors do not have the power through their 
right of use and occupancy to sell the property under any 
circumstances.  It is instead a payment from the "income on the 
corpus."  Such payments, whether actually received as rental 
income or imputed as the fair market rental value of the 
grantors' occupancy of the home, may be countable as income of 
the grantors, but the value of the home is not thereby countable 
 
 
25 
as their asset.12  Such payments, therefore, do not affect an 
applicant's eligibility for Medicaid long-term care benefits, 
but they may affect how much the applicant is required to 
contribute to the payment for that care.  Just as the payment of 
income from the liquid assets of an irrevocable trust does not 
make those assets "available to the individual" under 
§ 1396p(d)(3) and therefore countable assets for purposes of 
Medicaid eligibility, the payment of what is essentially rental 
income from real estate owned by the trust does not make the 
equity in that real estate a countable asset. 
 
The MassHealth regulation, 130 Code Mass. Regs. 
§ 520.023(C)(1)(d), accurately interprets § 1396p(d)(3) in 
providing, "The home or former home of a nursing-facility 
resident or spouse held in an irrevocable trust that is 
available according to the terms of the trust is a countable 
asset."  There is no doubt that, where the terms of the trust 
grant the trustee the discretion in any circumstance to sell the 
grantors' home and distribute to them the proceeds, the home is 
                                                          
 
 
12 Under the Massachusetts regulations implementing the 
Federal Medicaid act, countable income includes income to which 
an applicant, a person already receiving Medicaid benefits, or a 
spouse "would be entitled whether or not actually received when 
failure to receive such income results from [their] action or 
inaction."  See 130 Code Mass. Regs. § 520.009(A)(4) (2014).  
"In determining whether or not failure to receive such income is 
reasonably considered to result from such action or inaction, 
the MassHealth agency will consider the specific circumstances 
involved."  Id. 
 
 
26 
a countable asset for Medicaid eligibility.  Where MassHealth 
errs is in interpreting its regulation to mean that a home "is 
available according to the terms of the trust" simply because 
the terms of the trust give the grantors the right of use and 
occupancy of the home.  Such a right is not a circumstance that 
would give the trustee the discretion to sell the home and 
distribute the proceeds to the applicant, and therefore is not a 
circumstance that may render the home a countable asset. 
 
As the United States Supreme Court has declared, "the 
principle of actual availability . . . has served primarily to 
prevent the States from conjuring fictional sources of income 
and resources by imputing financial support from persons who 
have no obligation to furnish it or by overvaluing assets in a 
manner that attributes nonexistent resources to recipients."  
Heckler v. Turner, 470 U.S. 184, 200 (1985).  The "any 
circumstances" test for trusts requires an additional layer of 
analysis, but it does not depart from this fundamental purpose.  
See Guerriero, 433 Mass. at 634 (trust assets not available to 
applicant where trustee did not have "any legal discretion" to 
pay any part of trust principal to her).  By declaring the 
equity in a home owned by an irrevocable trust to be actually 
available to an applicant where the trustee has no power to sell 
the home and distribute the proceeds to the applicant under any 
circumstance, Massachusetts is effectively "conjuring [a] 
 
 
27 
fictional" resource (the applicant's home) by "imputing 
financial support" from a person who has no authority to furnish 
it (the trustee). 
 
Because the MassHealth determination that Nadeau was 
ineligible to receive Medicaid long-term care benefits rests 
solely on the availability of his home as a resource, we vacate 
the judgment affirming this finding and remand the matter to 
MassHealth to evaluate two other possible sources of countable 
assets.  As earlier discussed, the terms of the Nadeau Trust 
permit the equity in the Nadeau home to be paid at the Nadeaus' 
direction or for their benefit during their lifetimes in two 
circumstances. 
 
First, the Nadeaus may "appoint . . . all or any part of 
the trust property . . . to any one or more charitable or non-
profit organizations" over which they have no controlling 
interest.  Had Nadeau received care at a nursing home operated 
by a nonprofit organization, he could have used the assets of 
the trust, including his home, to pay the nonprofit organization 
for his care.  Because approximately one-fourth of the nursing 
homes in Massachusetts are operated by nonprofit organizations,13 
albeit not the nursing home where he received care, it is 
                                                          
 
 
13 See MatchNursingHomes.org, Massachusetts Nursing Homes 
and Resources, http://matchnursinghomes.org/state/ma-nursing-
homes [https://perma.cc/G7CS-2G3B] (citing 2011 data). 
 
 
28 
appropriate for MassHealth to consider whether this possibility 
fits within the "any circumstances" test. 
 
Second, because the trust is intended to be construed as a 
"grantors trust" under the Internal Revenue Code, 26 U.S.C. 
§ 677(a), with all income distributed to the grantors taxable to 
them, the trustee may pay any tax liability arising from such 
distributions from the corpus of the trust.  MassHealth may 
determine that this portion of the corpus is a countable asset 
under the "any circumstances" test and may ascertain, under 
§ 1396p(d)(3), the size of the "portion of the corpus from which 
. . . payment to the individual could be made" in this 
circumstance. 
 
Our analysis is different for the Daley Trust because, in 
contrast with the Nadeau Trust, the Daley Trust did not own the 
home in fee simple; the Daleys retained a life estate and deeded 
only the remainder interest in their home to the trust.  Their 
continued residence in the home, therefore, cannot be deemed 
putative income received from the trust through a right of use 
and occupancy, because the trust has no property interest in the 
home during the Daleys' lifetime.  Instead, the life estate is 
an asset of the Daleys that can be sold, mortgaged, or leased.  
See Hershman-Tcherepnin v. Tcherepnin, 452 Mass. 77, 88 n.20 
(2008), quoting H.J. Alperin & L.D. Shubow, Summary of Basic Law 
§ 17.5, at 586 (3d ed. 1996) ("[a] life estate is alienable by 
 
 
29 
the life tenant, and he can accordingly convey his estate to a 
third person, or mortgage it, or lease it for a term of years").  
Moreover, when the underlying property itself is sold, the life 
tenant has a right to a portion of the sale proceeds, pursuant 
to an actuarial evaluation of the life estate.  See J.A. Bloom & 
H.S. Margolis, Elder Law § 12:3 (2016).  Although we do not 
decide the question, it appears that MassHealth does not 
consider a life estate in an applicant's primary residence to be 
a countable asset for Medicaid eligibility purposes.14,15  Where 
the irrevocable trust does not own the life estate in the 
                                                          
 
 
14 In Heyn v. Director of the Office of Medicaid, 89 Mass. 
App. Ct. 312, 313 n.3 (2016), MassHealth declared in its brief 
that it is "a correct statement of law" that retention of a life 
estate in a primary residence does not make an individual 
ineligible for Medicaid benefits. 
 
 
15 We note that 42 U.S.C. § 1396p(b)(4)(B) gives States the 
option to expand their estate-recovery procedures for Medicaid 
expenses to include assets beyond those within the individual's 
probate estate, including "any other real and personal property 
and other assets in which the individual had any legal title or 
interest at the time of death . . . , including such assets 
conveyed to a survivor, heir, or assign of the deceased 
individual through joint tenancy, tenancy in common, 
survivorship, life estate, living trust, or other arrangement."  
Massachusetts has not chosen to expand its estate recovery 
provisions in this fashion.  See G. L. c. 118E, § 31 (c).  In 
States that have exercised this option under § 1396p(b)(4)(B) 
and increased the scope of estate recovery, the remainder 
interest in life estates retained by Medicaid beneficiaries are 
ultimately subject to recovery after the beneficiary's death.  
See, e.g., Matter of the Estate of Peterson v. Peterson, 157 
Idaho 827, 836 (2014) ("When assets of a Medicaid recipient are 
conveyed to a survivor, heir or assign by the termination of a 
'life estate,' the assets remain part of the recipient's 
'estate' pursuant to 42 U.S.C. § 1396p[b][4][B] and Idaho Code 
section 56–218[4][b]"). 
 
 
30 
applicant's primary residence, the continued use of the home by 
the applicant pursuant to his or her life estate interest does 
not make the remainder interest in the property owned by the 
trust available to the applicant.  Therefore, we vacate the 
judgment affirming the finding that the equity in the Daleys' 
home is available to them and is accordingly a countable asset 
for purposes of Medicaid eligibility.  Because the Daley Trust, 
like the Nadeau Trust, is intended to be construed as a 
"grantors trust" and the trustee may pay any tax liability 
arising from income distributions to the grantors from the 
corpus of the trust, we remand the matter to MassHealth to 
determine whether this portion of the corpus is a countable 
asset under the "any circumstances" test and to ascertain under 
§ 1396p(d)(3)(B)(i) the size of the "portion of the corpus from 
which . . . payment to the individual could be made" in this 
circumstance. 
 
Conclusion.  We reverse the judgments in both cases, and 
remand to MassHealth for further proceedings consistent with 
this opinion. 
 
 
 
 
 
 
 
So ordered.