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revision and are superseded by the advance sheets and bound 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 longterm 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-carelooms-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/2RNC6P5G]. 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/healthinsurance/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 twothirds 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-termservices-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-animmediate-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 longterm 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 twentyone, 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 wellbeing." 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 nonprofit 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-nursinghomes [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.