Mass. Court: Trust Principal Not Countable for Medicaid

One way to qualify for Medicaid is to put excess resources into an irrevocable trust. But Medicaid officials look closely at the extent to which the trustee of such a trust is allowed to give the trust beneficiary (the Medicaid applicant) any of the principal (the funds that make up the trust). If the trustee has the power to give some or all of the principal to the applicant, that amount is likely to be included in the applicant''s resources in determining Medicaid eligibility.

What if the trustee once had the power to give the beneficiary the principal, but the beneficiary later waives her right to receive it? Recently, the highest court in Massachusetts considered this question and ruled that in determining a Medicaid applicant''s eligibility for benefits, Medicaid officials cannot count the principal of a trust created by the applicant after she waived her right to any of the principal in her capacity as trust beneficiary. Guerriero v. Commissioner of the Division of Medical Assistance (Massachusetts Supreme Judicial Court) SJC-08194, April 3, 2001).

Here are the facts of the case: In June 1987, Jeannette Guerriero created an irrevocable trust naming herself as a beneficiary. Ms. Guerriero was allowed to receive income and principal from the trust, based on the trustee''s discretion. In February 1991, Ms. Guerriero signed a document in which she irrevocably waived her right to receive any of the trust principal. In effect, she said she wanted to prevent herself from ever receiving any of the funds in the trust. Ms. Guerriero applied for Medicaid benefits in May 1998. The Massachusetts Division of Medical Assistance (DMA) denied her application because it said the trust principal should still be included among her "countable assets." This gave her more assets than Medicaid allows.

Ms. Guerriero appealed the DMA''s denial to the Board of Hearings, which upheld the denial. Ms. Guerriero appealed to the Superior Court, which agreed with her. The DMA then appealed this decision to Massachusetts'' Supreme Judicial Court (SJC).

Massachusetts'' Medicaid statute says that when deciding whether trust principal should be a countable asset, the DMA must consider "the greatest amount that the trustees in any set of circumstances might have discretion to pay out to the beneficiary." The question before the SJC was whether Ms. Guerriero had the power to amend the trust in the way that she did. The SJC ruled that Ms. Guerriero did not have the authority to amend the trust in her capacity as the person who created the trust (the trust "grantor"). However, the SJC held that when Ms. Guerriero signed the document waiving her interest in the trust principal, she did so in her capacity as the trust beneficiary. This, the SJC ruled, she was allowed to do.

When Ms. Guerriero waived her rights to the trust principal, she removed any possible circumstances in which the trustee could have the discretion to pay her the principal. Thus, the principal in the trust cannot be counted as among Ms. Guerriro''s assets in determining her Medicaid eligibility.