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15-P-166 Appeals Court

EILEEN M. HEYN, personal representative,1 vs. DIRECTOR OF THE 

OFFICE OF MEDICAID.

No. 15-P-166.

Worcester. February 5, 2016. - April 15, 2016.

Present: Green, Hanlon, & Henry, JJ.

Medicaid. Trust, Self-settled trust, Irrevocable trust, 

Distribution, Allocation of payments between principal and 

income, Power of appointment. Annuity.

Civil action commenced in the Superior Court Department on 

December 12, 2013. 

The case was heard by William F. Sullivan, J., on a motion 

for judgment on the pleadings.

Patrick Tinsley for the plaintiff.

Daniel J. Hammond, Assistant Attorney General, for the 

defendant.

Patricia Keane Martin, Robert P. Ford, Kathryn E. Szewczyk,

& Don J.J. Cordell, for National Academy of Elder Law Attorneys 

(Massachusetts Chapter), amicus curiae, submitted a brief. 

GREEN, J. We are called upon yet again to review a 

determination that assets within a self-settled irrevocable 

 

1 Of the estate of Everlenna Roche.
2

inter vivos trust should be treated as available to the trust 

grantor for payment of nursing home expenses (and, 

correspondingly, render the grantor ineligible for Medicaid 

benefits). We conclude that a hearing officer of the MassHealth 

board of hearings erroneously concluded that the trust at issue 

permitted its trustee to distribute proceeds from the sale of 

trust assets to the grantor in certain circumstances. 

Consequently, we reverse the judgment of the Superior Court 

affirming MassHealth's termination of benefits to the 

plaintiff's decedent.

2

Background. From November 4, 2011, until her death on 

August 25, 2013, the plaintiff's decedent, Everlenna Roche, 

resided at a skilled nursing facility in Westborough. 

Approximately eight and one-half years earlier, Roche had 

established the Everlenna R. Roche Irrevocable Trust (trust), 

and transferred to it title to her home at 10 Baker Way, 

Westborough, retaining a life estate.3 Upon moving into the 

 

2 We acknowledge the amicus brief submitted by the National

Academy of Elder Law Attorneys, Inc. (Massachusetts chapter).

3 The defendant makes no argument that the life estate 

retained by Roche might itself have a value that could affect 

her eligibility for benefits, stating in its brief that it is "a 

correct statement of the law under Cohen [v. Commissioner of the 

Div. of Med. Assistance, 423 Mass. 399 (1996), cert. denied sub 

nom. Kokoska, by Kokoska v. Bullen, 519 U.S. 1057 (1997),] and 

its progeny" that retention of a life estate does not render an 

individual ineligible for benefits. We do not consider the 

question.
3

skilled nursing facility, Roche applied for MassHealth benefits 

to pay for the cost of her care, and her application was 

initially approved. On March 27, 2013, MassHealth notified 

Roche that her eligibility for MassHealth benefits was 

terminated, based on its conclusion that her former residence, 

held by the trust, should be treated as a countable asset with a 

value in excess of the maximum asset value permissible to retain 

eligibility.4 Roche timely appealed the termination of her 

benefits, and a hearing was held on June 20, 2013. On October 

8, 2013, following her intervening death in August of that year, 

a decision on her appeal issued, upholding the termination of 

benefits. In the decision, the hearing officer reasoned that 

the trust instrument authorized the trustee to sell trust 

assets, and to invest the proceeds of any such sale in other 

forms of investment, including an annuity.5 Since the trust also 

authorized the trustee to make distributions of income to Roche, 

the hearing officer concluded that annuity payments resulting 

from any annuity purchased by the trustee with trust principal 

 

4 According to the notice, the value of the property was 

$214,423, based on the then most recent assessment for the 

property. Under 130 Code Mass. Regs. § 520.016(A) (2010), if 

"countable assets" available to an institutionalized single 

applicant exceed $2,000, the applicant is ineligible for 

Medicaid benefits. The plaintiff does not dispute on appeal the 

value assigned to the property in the MassHealth notice.

5 We reserve detailed discussion of the trust provisions for 

our discussion below.
4

could be distributed from the trust as income, and thereby be 

made available to provide support to Roche. After denial of the 

plaintiff's motion for rehearing, the plaintiff appealed the 

decision to the Superior Court pursuant to G. L. c. 30A, § 14, 

where a judge of that court denied the plaintiff's motion for 

judgment on the pleadings and affirmed the administrative 

decision. This appeal followed.

Discussion. As intimated in our introduction, the effect 

of the provisions of self-settled irrevocable inter vivos trusts 

on eligibility for Medicaid benefits has been the subject of 

considerable discussion. See, e.g., Cohen v. Commissioner of 

the Div. of Med. Assistance, 423 Mass. 399, 401-407 (1996), 

cert. denied sub nom. Kokoska, by Kokoska v. Bullen, 519 U.S. 

1057 (1997). See also Lebow v. Commissioner of the Div. of Med. 

Assistance, 433 Mass. 171, 172-173 (2001); Guerriero v. 

Commissioner of the Div. of Med. Assistance, 433 Mass. 628, 629-

632 (2001); Doherty v. Director of the Office of Medicaid, 74 

Mass. App. Ct. 439, 440-443 (2009). The legislative history and 

case law concerning the treatment of self-settled trusts reflect 

awareness of the possibility that comparatively affluent 

individuals might avail themselves of such trusts as an estate 

planning tool, in order to qualify for benefits. See Cohen, 

supra at 403-404. The resulting law reflects a compromise, with 

provisions for so-called "look back" periods for transfers of 
5

assets preceding an application for benefits, see 42 U.S.C.

§ 1396p(c)(1)(B)(i) (2012),6 and strict requirements governing 

the extent to which assets must be made unavailable to the 

settlor in order to avoid being treated as "countable assets" 

for purposes of Medicaid eligibility. Nonetheless, it is 

settled that, properly structured, such trusts may be used to 

place assets beyond the settlor's reach and without adverse 

effect on the settlor's Medicaid eligibility. See, e.g., 

Guerriero, supra at 633. See also Doherty, supra at 442-443.

Like the trust at issue in Doherty, supra at 440, and 

unlike the trusts in Cohen, supra at 408 n.15, Lebow, supra at 

172 n.2, and Guerriero, supra at 631, the trust in the present 

case is governed by the provisions of the statutory and 

regulatory framework in effect after 1993, following amendments 

to 42 U.S.C. § 1396p(d)(3)(B). Under the post-1993 version of 

the statute, for purposes of determining eligibility for 

Medicaid benefits, "countable assets" include any portion of the 

trust principal that could "under any circumstances" be paid "to 

or for [the] benefit [of]" Roche.

7 Doherty, supra. Such 

 

6 Under that section, a thirty-six month "look back" period 

applies to transfers of assets prior to any application for 

benefits, and a longer, sixty-month, "look-back" period applies 

to assets placed into trust. See Guerriero, supra at 631.

7 The "any circumstances" test replaced the former 

"peppercorn of discretion" test, which previously considered 

whether the trustee of an irrevocable trust could, in the 
6

circumstances need not have occurred, or even be imminent, in 

order for the principal to be treated as "countable assets"; it 

is enough that the amount could be made available to Roche under 

any circumstances. See Lebow, supra at 177-178.

In assessing whether the trust would allow distribution of 

principal to Roche "under any circumstances," we construe its 

provisions in light of the trust instrument as a whole. See 

Doherty, supra at 441. With that principle in mind, we examine 

the provisions of the trust that bear on the question. Article 

SECOND mandates quarterly distribution of trust income to the 

grantor for the remainder of her life. It also allows the 

trustee to distribute part or all of the trust principal to 

persons other than the grantor who are entitled to receive trust 

assets after the death of the grantor. Finally, it contains a 

reservation to the grantor of the power during her lifetime to 

"appoint any part or all of the principal or income of th[e 

t]rust to any one or more of the [g]rantor's issue, free of 

trust."

8

 

exercise of discretion, distribute principal to the person 

seeking benefits, regardless whether such discretion was 

exercised in fact to make a distribution. See Cohen, supra at 

413 & n.20. Though the motion judge framed his analysis by 

reference to the "peppercorn of discretion" test, the difference 

is immaterial to the result in this case.

8 Article SECOND reads as follows:
7

Separately, Art. EIGHTH grants broad authority to the 

trustee to deal with trust assets, including the rights to sell 

assets and invest the proceeds of such a sale in another form of 

asset, and "to determine, in accordance with reasonable 

accounting principles and practice and state law, what shall 

belong and be chargeable to principal and what shall belong and 

be chargeable to income."9 Finally, Art. NINTH includes a 

 

"SECOND: A. The Trustee shall pay to the Grantor all of 

the net income of the Trust, quarterly or more often, for 

the remainder of the Grantor's life.

"B. During the life of the Grantor the Trustee may 

distribute part or all of the principal of this Trust to 

any persons (other than the Grantor) otherwise entitled to 

the assets of this Trust after the death of the Grantor.

"C. The Grantor reserves the power, exercisable at 

any time or from time to time, by written instrument during 

the Grantor's lifetime or by the Grantor's will or any 

codicil thereto, to appoint any part or all of the 

principal or income of this Trust to any one or more of the 

Grantor's issue, free of trust of [sic] otherwise,

referring specifically to this special power of appointment 

in such written instrument, will, and/or codicil."

9 Pertinent provisions of Art. EIGHTH include the following:

"EIGHTH: In addition to the other powers given to the 

Trustee in this Trust Agreement or by law, the Trustee 

shall have the following powers in each case to be 

exercised in his, her or its sole discretion, upon such 

terms as he, she or it deems advisable and without leave of 

any court:

"A. to make and retain any investment, without notice 

to or consent of any interested party, including, without 

limiting the generality of the foregoing, the purchase, 

sale or writing of put or call options relating to any

security or index, the purchase or sale of commodities (or
8

provision entitling the grantor to require the trustee to 

"transfer any trust assets in exchange for assets of equivalent 

value," and provides that such power would be "exercisable [by 

the grantor] solely in a nonfiduciary capacity," free from 

restriction by any fiduciary duty imposed on the trustee.10

 

options thereon), the purchase or sale of domestic and 

foreign currencies and the purchase and sale of marketable 

and non-marketable securities including interests in 

limited partnerships of all types, although any of the 

investments so made or retained may be of such kind or in 

such amount or proportion that they would not otherwise be 

proper;

. . .

"O. to determine, in accordance with reasonable 

accounting principles and practice and state law, what 

shall belong and be chargeable to principal and what shall 

belong and be chargeable to income, and without limitation 

to make such determination in regard to stock and cash 

dividends, rights and other receipts in respect to the 

ownership of stock, to purchase or retain stock that pays 

dividends in whole or in part otherwise than in cash and to 

treat such dividends in whole or in part as principal or 

income and to amortize or to refrain from amortizing bond 

premiums[.]"

10 Article NINTH is as follows:

"NINTH: The Grantor intends that this trust be a grantor 

trust for federal income tax purposes and all provisions of 

this trust shall be construed so as to effectuate this 

intent.

"A. Upon the demand by EVERLENNA R. ROCHE, the 

Trustee shall transfer any trust assets in exchange for 

assets of equivalent value. This power is exercisable by 

EVERLENNA R. ROCHE solely in a nonfiduciary capacity, and 

no fiduciary duty imposed upon the Trustee of any other 

person may be asserted as a defense to the exercise of the 

powers granted under this Article.
9

As we have observed, the hearing officer concluded that the 

trust authorized distributions of principal to Roche under 

identifiable circumstances. In particular, pertinent to this 

appeal the hearing officer suggested that the trustee could sell 

the property, invest the proceeds in an annuity, and then treat 

the resulting annuity payments as income eligible for 

distribution. The analysis misapprehends the nature of annuity 

payments. Annuity payments are comprised of distinct 

constituent parts. One part is a return of a portion of the 

principal investment in the annuity itself; the other part is a 

portion of the investment income earned on the principal 

investment. Following each payment, the remainder of the 

principal investment remains in the annuity contract, accruing 

income. Federal Medicaid law recognizes these distinguishable 

parts, as does the United States Internal Revenue Code. See, 

e.g., 42 U.S.C. § 1396p(e)(2)(B) (2012) (distinguishing between 

the amount of an annuity's "income or principal" being 

withdrawn); 26 U.S.C. § 72(a) & (b) (2012). Out of each annuity 

payment, only the investment income portion would be available

 

"B. EVERLENNA R. ROCHE may waive this power by a 

writing delivered to a Trustee, and such waiver shall bind 

EVERLENNA R. ROCHE, the Trustee, and all other persons."
10

for distribution to the grantor from the trust;11 that portion of 

each payment representing a return of capital would be required 

by the trust instrument to be retained in the trust. The income 

portion available for distribution in such circumstances would 

be no different in character than interest earned on a 

certificate of deposit, dividends from stocks purchased and held 

by the trust, or other income earned on any trust assets. In 

all events, the trust principal is preserved in the trust, and 

is not available for distribution to the grantor under the 

governing provisions of the trust.12 

The foregoing analysis is unaffected by the authority of 

the trustee, provided by Art. EIGHTH O., and noted by the motion 

judge, to determine the allocation as between principal and 

income of any proceeds of trust assets, because the trustee's 

authority in that respect is expressly constrained by 

"reasonable accounting principles and practice and state law"

(emphasis added). See note 9, supra. In particular, the 

allocation of annuity payments as between principal and income

is governed by G. L. c. 203D, § 18(a), which creates a statutory 

 

11 The effect of income distributions on Medicaid 

eligibility is considered as and when the income is available 

for distribution, and is not at issue in this case.

12 As noted above, see note 8, supra, principal could be 

distributed to beneficiaries other than the grantor. However, 

any such distribution would not be available to the grantor, and 

therefore would not affect the grantor's Medicaid eligibility.
11

presumption that any amount received by the trust, not expressly 

characterized as dividend or interest income, shall be allocated 

to principal. See also Restatement (Third) of Trusts § 110 

(2011).

The hearing officer articulated two alternative grounds on 

which to rest a conclusion that the trust corpus could be made 

available for distribution to the grantor. First, he noted that 

Art. SECOND C. allows the grantor to appoint all or any part of 

the trust principal to any one or more of the grantor's issue, 

free of trust. See note 8, supra. In the view of the hearing 

officer, that would give rise to the possibility that the 

grantor could direct conveyance of the trust property to one of 

her children, who could in turn convey it to her. Second, the 

hearing officer found that Art. NINTH A. allows Roche to compel 

the trustee to return her former residence to her in exchange 

for assets of equivalent value. See note 10, supra. The motion 

judge did not rely on either ground in his order affirming the 

hearing officer's decision, and the defendant does not rely on 

either rationale to defend the judgment in this appeal. In any 

event, we offer the following brief comment on both arguments. 

The hearing officer cited no case in which either rationale was 

applied to support a conclusion that assets held in an 

irrevocable trust should be treated as countable assets for 

purposes of the trust grantor's Medicaid eligibility, and we are 
12

aware of none. As to the first rationale, a provision making 

trust principal available to persons other than the grantor does 

not by its nature make it available to the grantor, any more 

than if the grantor had gifted the same property to such a 

person when she created the trust, rather than placing it in 

trust. Indeed, the continuing authority of the trustee in 

Guerriero to distribute trust principal to beneficiaries other 

than Guerriero following Guerriero's irrevocable waiver of 

rights to receive principal did not derogate from the court's 

conclusion that the trust principal should not be treated as 

countable assets for purposes of determining Guerriero's 

eligibility for Medicaid benefits. See 433 Mass. at 635. More 

generally, for purposes of computing countable assets, Medicaid 

does not consider assets held by other family members who might, 

by reason of love but without legal obligation, voluntarily 

contribute monies toward the grantor's support.13 

Even less persuasive is the hearing officer's other 

rationale, which rested on the grantor's reserved power to 

direct a transfer of assets out of trust in exchange for other 

assets of equivalent value. Such an exchange would be 

equivalent to a sale of trust assets, with the grantor in the 

 

13 Of course, any voluntary transfer of monies or other 

assets by third parties to Roche, whether from distributions of 

trust assets or from other sources, would count toward Roche's 

Medicaid eligibility as and when she received them.
13

role of purchaser and the proceeds of the sale nonetheless 

retained by the trust as principal. Such a transfer would not 

effect any distribution or diminution of trust principal, any 

more than a sale of trust assets to unrelated third parties, 

followed by a reinvestment of sale proceeds by the trust. As a 

practical matter, of course, any assets held by the grantor and 

available to exchange for the assets transferred out of trust 

would themselves be treated as countable assets (if they 

existed).

Contrary to the conclusion of the hearing officer, pursuant 

to the terms of the trust there are no circumstances under which 

the trustee may distribute trust principal to Roche. The case 

is in that respect in contrast to Doherty, supra, in which Art.

XXII of the trust expressly authorized the trustee "in its sole 

discretion" and notwithstanding "anything contained in this 

Trust Agreement" to the contrary, to "pay over and distribute 

the entire principal of [the] Trust fund to the beneficiaries 

thereof [including the Medicaid applicant], free of all trusts." 

74 Mass. App. Ct. at 441.

Conclusion. The judgment of the Superior Court is reversed

and a new judgment shall enter reversing the decision of the 

hearing officer.

So ordered.