Daley v. Secretary of the Executive Office of Health and Human Services

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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.