The nightmare of trust law vs. Medicaid regulations revisited

Issue May 2012 By Albert Gordon

This is a follow-up to an article published in the August 2011 edition of Lawyers Journal. For a better understanding of the case, the author strongly suggests reading the original article, which is available at Choose the "Publications" tab on the top menu, select "Lawyers Journal" and go to page 13 of the August 2011 issue.

In 1989, a trust was formed making my client the income beneficiary, but distribution of assets were completely within the discretion of the trustee. In September of 2010, my client -- now requiring nursing home care -- applied for Mass Health benefits to pay the nursing home, as her other assets were depleted.

Her Mass Health application was denied for the reason that the trustee could distribute assets. The trustee, under the terms of the trust, refused to distribute any of the assets and hired legal counsel to defend the trust. I filed an appeal under the hardship provisions contained within the Mass Health regulations, leading to a lengthy dispute with the Mass Health agency.

After 16 months and three administrative hearings, we finally received, all things considered, a favorable decision by the Massachusetts Office of Medicaid, Board of Hearings.

On Sept. 1, 2011, the hardship appeal for my client was conducted. The hearing, in my opinion, was far more contentious than necessary. First, there was a challenge that a trust did not qualify for a hardship consideration. When I pointed out the regulations did indeed give us the authority to appeal on a hardship basis, the hearing officer ruled in our favor and we moved on to the substantive issues.

The agency representative argued that no attempt to retrieve the trust funds had been made. I countered with several documents for the trustee's attorney that his client would not pay anything from the trust assets in accordance with the terms of the trust. Further, the nursing home had attempted to discharge my client for nonpayment, which is required as a condition of a hardship appeal.

I called, as a witness, the director of the nursing home, who testified as to how much money was owed to the facility. Despite the evidence we presented, I sensed the hearing officer was looking for a lawsuit to be filed. I had argued at the two previous hearings that my client was without funds to initiate what would be a protracted lawsuit and that sufficient evidence had been offered to show that she had made all reasonable attempts to retrieve the funds.

I asked that the record be kept open for 60 days to allow the nursing home to make a decision to fund a lawsuit, since they had the most to lose. This request was granted. Subsequently, the corporate parent of this nursing home decided to fund an action, including engaging an attorney (not me, since I have a conflict) to represent my client's power of attorney to cover the standing issue that the trustee's attorney would challenge. I provided evidence to the hearing officer that the action had been filed in Superior Court. Yet, this was not enough for the Mass Health agency.

The hearing officer forwarded the complaint to Mass Health for their review. Their response was the filing of the complaint had not changed their position as the "appellant has not taken any reasonable steps to get the funds available through the trust. The nursing home has filed suit against the trustee, but if the hardship is granted, they will be paid and have no vested interest in getting the funds from the trust."

The hearing officer then made a decision in our favor. There were two parts to his decision. First, he deemed the trust assets inaccessible as of the date the civil suit was filed and ordered the Mass Health agency to pay the nursing home as of that date and continue to pay for the period during the court proceedings.

Second, regarding the hardship issue for the nursing home bill back to Sept. 1, 2010, the application will be held in abeyance until the issue of the trust is resolved. If the Superior Court decision is in favor of my client, she will have the funds to pay the nursing home from the trust assets.

If not successful, my client will have additional evidence to demonstrate that all appropriate action to retrieve the funds has been exhausted and that she does have a valid hardship claim. The Mass Health agency was ordered to then re-determine the hardship waiver request after the decision of the Superior Court. Note that there is no requirement for an appeal from the Superior Court decision. So if my client does not prevail in Superior Court, her hardship request should be granted without having to pursue an appellate court action.

Massachusetts Senate Bill 490 would change the current draconian requirements of hardship waiver requests so that clients won't face such a nightmare scenario for issues beyond their control.

Springfield-based attorney Albert Gordon concentrates in all aspects of elder and estate law, including advocating for clients at administrative hearings with the Medicaid Board of Hearings. He is the co-chair of the Elder Law Subcommittee of the MBA's Probate Law Section Council.