Court Rejects State Effort to Exploit Power of Appointment in Irrevocable Trust for Medicaid

As a result of a recent holding, the State of Massachusetts was ultimately unsuccessful in its effort to exploit a somewhat common term in irrevocable trusts designed for Medicaid and governments benefits planning, and for broader asset protection planning, in order to make trust assets available for Medicaid.

Emily Misiaszek created an irrevocable trust, placed her house in the trust, and named her daughter, Patricia Fournier, as the trustee. The trust stated that its purpose was to manage Ms. Misiaszek’s assets to allow her to age in place, specifically to live in the community as long as possible. The Trust stated that the principal of the trust "should" be held until the termination of the trust, but it gave Ms. Misiaszek a limited lifetime power of appointment to appoint all or any portion of the trust principal to a nonprofit or charitable organization provided that she had no controlling interest in the charity. 

Ms. Misiaszek entered a nursing home and applied for Medicaid (called MassHealth in Massachusetts). The state denied her benefits, claiming that the assets in the trust were available because the trust permitted Ms. Misiaszek to appoint the trust principal to a charity.  Massachusetts argued that "charity," could include a nonprofit nursing home to pay for her care.  Because federal law  provides "if there are any circumstances under which payment from the trust could be made 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," Massachusetts considered the power of appointment a circumstance, thus making the trust assets countable.  See, 42 U.S.C. § 1396p(d)(3)(B)(i).  State law provides that "[t]he effect of the ['any circumstances'] 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."

Ms. Misiaszek appealed, arguing that the assets in the trust were not countable. The state affirmed the denial, and Ms. Misiaszek appealed to court. The trial court reversed the state’s decision. The state appealed, arguing again that because the trust did not contain language expressly preventing transfers of principal to benefit Ms. Misiaszek, she could use her limited power of appointment to pay for her care.

The Massachusetts Supreme Judicial Court held that the trust is not an available asset, affirming the lower state court's decision.  Fournier v. Secretary of the Executive Office of Health and Human Services (Mass., No. SJC-13059, July 23, 2021). According to the Court, the trust did not contain any language allowing Ms. Misiaszek to benefit personally from any distribution of trust principal; rather, the trust reflected Ms. Misiaszek’s intent to preserve the principal for her children. The court ruled “that under the terms of her trust, [Ms.] Misiaszek's limited power of appointment does not allow her, in any circumstance, to appoint the trust principal for her benefit, and thus the trust principal is not ‘countable’ for purposes of determining her eligibility for MassHealth benefits.” Fournier, at p. 25.  

The Court noted that:

"'properly structured, [irrevocable] trusts may be used to place assets beyond the settlor's reach and without adverse effect on the settlor's Medicaid eligibility'). In short, for trust principal to be considered countable under the 'any circumstances' test, the terms of the trust must give the applicant a direct path to reach or benefit from the trust principal" [citations omitted].

Fournier, at p. 7.  

A power of appointment such as the one provided in Ms. Misiaszek's trust is often included in order to qualify the trust as a "Grantor Trust," under the Internal Revenue Code.  Why?  A Grantor Trust does not require a separate Taxpayer Identification Number, and is not required to file a separate tax return.  A power of appointment permits the use of an irrevocable trust to obtain an objective, such as shielding assets from creditors or protecting assets from spend down in the event of long term care need, without suffering some of the tax and administrative disadvantages of an irrevocable trust.  Typically,  exercise of the power of appointment is usually considered unlikely and unnecessary; it serves only to make the trust a more acceptable planning vehicle. 

 

Home Health Care Staff Shortages Threaten Health- Frustrates Aging in Place

This Blog has reported the threat staffing shortages pose to the long-term institutional care industry, its residents, and its patients.  Staffing shortages in the home health care industry present similar threats, both to the industry and to actual and prospective customers.  

There is a legal maxim that "Justice Delayed is Justice Denied."  In the long-term care and the health care industry there is no simple maxim that  warns that "freedom delayed is freedom denied," but there should be.  A shortage of home health care workers means that some seniors may be unable to safely return to their homes, and may, instead, be forced into institutional care alternatives otherwise avoidable.  This may seem an anomalous result, but it is real.  Seniors are transferred to institutions that are woefully understaffed every day.  

There is no compromise possible, however, for a family seeking return of their mother or father to a home when they cannot demonstrate adequate and sufficient support services.  The systemic choice is clear; it is unacceptable for a senior to be at risk in their own home, but acceptable if that risk is institutional.  The Trump Administration learned, for example, that there were nursing homes opened and operating, without a nurse.  Medicare did not, and to this day, does not prohibit the transfer of a patient from a hospital to a poorly staffed nursing home or assisted living facility!     

Aging in Place Planning is specifically designed to reduce the risk of unnecessary and avoidable institutional care.  Unfortunately, many seniors may need home health care workers for short periods of time following acute needs or hospitalizations in order to rehabilitate safely at home.  "Freedom," may be denied these seniors if there is no choice but institutional care.   

Kaiser Health News, published a story about the on-going shortage, entitled, "Desperate for Home Care, Seniors Often Wait Months With Workers in Short Supply."  Using Maine as an example, the article explains:

"The Maine home-based care program, which helps....more than 800 in the state, has a waitlist 925 people long; those applicants sometimes lack help for months or years, according to officials in Maine, which has the country’s oldest population. This leaves many people at an increased risk of falls or not getting medical care and other dangers.  The problem is simple: Here and in much of the rest of the country there are too few workers. Yet, the solution is anything but easy."

Katie Smith Sloan , CEO of Leading Age, which represents nonprofit aging services providers, told Kaiser that the workforce shortage is a nationwide dilemma:

 “Millions of older adults are unable to access the affordable care and services that they so desperately need,” she said at a recent press event. State and federal reimbursement rates to elder care agencies are inadequate to cover the cost of quality care and services or to pay a living wage to caregivers."

This shortage was not unexpected.  Kaiser reported that "[f]or at least 20 years, national experts have warned about the dire consequences of a shortage of nursing assistants and home aides as tens of millions of baby boomers hit their senior years." President Biden even included funding for home and community-based care in the infrastructure bill ("human infrastructure").

And here we are. 

Picture Credit: Photo 19608638 / Help Wanted © Martinmark | Dreamstime.com

Filial Responsibility Rule Means Son, Not Father, Must Pay Legal Bill for Negotiating Medicaid Penalty Reduction

 

A Pennsylvania trial court has ruled that the son of a Medicaid applicant must pay an elder law firm’s requested fee for successfully negotiating a penalty period reduction because the son would otherwise be responsible for paying the nursing home under the state’s filial responsibility doctrine.   Coates, et al., v. Salmon (Pa. C.P., Mont. Cty., No. 2018-16878, June 23, 2021).

William Salmon, Jr., a lawyer, engaged the services of elder law attorney Andrew A. Coates and his law firm to pursue an appeal of an $86,786 Medicaid penalty that the Pennsylvania Department of Human Services’ County Assistance Office had assessed against Mr. Salmon's father when he applied for Medicaid nursing home benefits. During their initial meeting, Mr. Coates explained to Mr. Salmon that if the penalty were upheld, Mr. Salmon could be held personally liable to the nursing home for the shortfall in payment pursuant to Pennsylvania’s legal doctrine of filial responsibility. As his father’s agent under a power of attorney, Mr. Salmon authorized Mr. Coates to proceed.  Mr. Coates failed to provide Mr. Salmon a written statement of the fees he would charge.

Mr. Coates ultimately reached a settlement with the County Assistance Office to reduce the penalty from $86,786 to $18,380, a savings of $68,406.  Mr. Coates sent Mr. Salmon a bill for $6,465.89, reflecting an hourly rate of $325 and applying a 15 percent “professional courtesy” discount.  Mr. Salmon refused to pay and requested “something much more reasonable.”

On January 14, 2021, the Court of Common Pleas of Pennsylvania, Montgomery County, ruled that because there had been no written fee agreement, recovery must be by an action in quantum meruit.  Quantum meruit is a Latin phrase meaning "what one has earned." In the context of contract law, it means  "reasonable value of services performed."  

Mr. Salmon contended that any claim in quantum meruit could be asserted only against his father, and not against Mr. Salmon personally.  Mr. Coates and his firm countered that under Pennsylvania’s doctrine of filial responsibility, Mr. Salmon would have been personally liable for payment of his father's nursing home fees, making Mr. Salmon the beneficiary of Mr. Coates’ legal services and liable for payment. The court ruled in favor of Mr. Coates and his firm for $7,606.64, the amount Mr. Salmon would have owed without the professional courtesy discount. Mr. Salmon has appealed to the Superior Court and in the course of that appeal he filed a Statement of Errors with the Court of Common Pleas. 

The reason this case is interesting because it utilized the law of filial responsibility to reach what was, in the court's determination, an equitable result.  Ostensibly, the father's estate would have been unable to pay the obligation, since the father qualified for Medicaid.  Although the services were performed for the father, contracted for by the father through his agent under a power of attorney, the court used the law of filial responsibility to assign the responsibility for the obligation to the son.  The court even noted that the son understood that he would ultimately be responsible for the father's nursing home bill, and equating that to understanding that he would ultimately be responsible for the attorney's fee. 

The case is also instructive for another reason, and that is that legal contests have costs and sometimes reach unexpected results.  Mr. Salmon probably assumed that the most he could stand to lose was the amount of the bill submitted to him; that assumption would have been incorrect. The Court actually awarded a sum greater than the total bill submitted by the attorney.  Although the attorney extended a courtesy discount on the total sum, the Court, in its judgment, removed the courtesy discount entering judgment for the full fee.  Ouch! 

Pandemic Pets, Pet Companionship, and Estate Planning Considerations

Pet companionship took on new meaning and importance during the pandemic as lock-downs, quarantines, social distancing, and social isolation impacted nearly everyone. For many, life trapped in a home would be unbearable and unthinkable without pet companions.  This blog has previously discussed how important pets are to some, and how important it is to consider pets in estate planning. 

An unanticipated effect of the pandemic has been a surge in interest for fostering and adopting abandoned pets. Although unanticipated, this effect is not surprising given the lack of social human interaction during stay-at-home orders, and subsequent social distancing. Regardless, the renewed focus on pets and pet companionship is welcome and important. 

There are at least seven quantifiable benefits to pet owners, including aging owners and owners with special needs:

1. Reducing Isolation and Loneliness; 
2. Lowering Stress and Anxiety; 
3. Improving Fitness; 
4. Increasing Social Interaction and Connection to the Community;
5. Improving Cardiovascular Health; 
6. Reducing Depression Risk, and;
7. Providing Routine and a Sense of Purpose.

Isolation

Isolation and loneliness are among the considerations for those planning to age in place. Seniors and persons with disabilities may experience feelings of isolation and loneliness if they spend a lot of time at home, sometimes because they lack mobility, security, or just comfort leaving home.  Isolation and loneliness are major risk factors for depression and increase the risk of heart disease, arthritis, diabetes, and dementia. 

Experts at the Centers for Disease Control and Prevention (CDC) agree; pet companionship eases loneliness and isolation. 

Stress and Anxiety

Relieving feelings of loneliness and isolation are not the only emotional and mental health benefits of pet ownership.  Research has shown that simply petting a dog lowers the stress hormone cortisol , while the social interaction between people and their pets actually increases levels of the feel-good hormones oxytocin and serotonin.  Oxytocin is the same hormone that bonds mothers to babies.   A University of Utah study found that even spending time near a pet can reduce stress levels and nervousness. 

The companionship of a pet can be particularly beneficial for reducing anxiety for a persons with disabilities or impairments.  In fact, an astonishing 84 percent of post-traumatic stress disorder patients paired with a service dog reported a significant reduction in symptoms, and 40 percent were able to decrease their medications, according to a recent survey.

Fitness

A pet increases opportunities for exercise. A daily exercise routine and physical activity can improve mobility the ability to perform activities of daily living.  Shelter dogs have been used for animal-assisted therapies to encourage physical activity for residents of nursing homes and assisted living facilities. A study published in Clinical Nursing Research found that people who walked with shelter dogs were more likely to go for a walk than those who walked with a human companion and even walked faster and for longer distances! 

Community

Programs that allow residents of assisted living facilities to spend time with a pet encourage interaction among the residents and give them something to look forward to.  

Pet care offers opportunities for  interaction with others, such as vets, groomers, pet care retail staff, and other pet owners.  Most folks that serve in the pet care industry are, themselves, pet lovers, which creates a community that is naturally sharing, caring, and helpful.  Pet walkers often follow a regime which affords them  insight into the routine of other owners.  A pet owner may notice that another pet owner is suddenly absent, or might observe another owner struggling physically and offer help.  

Pets can help persons with autism improve social skills by facilitating social connections with others, inspiring the person to work harder on communication skills and teaching compassion.

Cardiovascular Health

According to the American Heart Association, pet ownership is associated with lower blood pressure and lower heart rate during mental stress. A University of Utah study found that just the presence of a companion dog is associated with lower cardiovascular responses during stress. The CDC lists decreased blood pressure and reduced cholesterol levels as two benefits of pet ownership. 

Depression

The Research Center for Human/Animal Interaction has found that dog owners are less likely to suffer  depression. Animal-assisted activities and therapy have been used successfully with patients struggling with depression, loneliness, and mental illness and can reduce the symptoms of depression. The effects are particularly apparent with seniors.

Purpose

Pet care invites structure and scheduling, establishing a beneficial routine, and lots of older adults who own a pet say that their pets provide a sense of purpose and help them enjoy life.

For more information how to incorporate pet care into your estate plan, consider the following article:  Ohio Pet Trusts.

Source: Rebecca H. Miller, Pandemic Pets and Pet Companionship: Seven Benefits/Considerations for Care Coordination and Estate Planning, Chambliss Law, May 5, 2021. 

Federal Law Preempts Minn. Law Treating Irrevocable Trusts as Revocable for Medicaid Purposes

Filial responsibility laws make children legally responsible to support and care for indigent parents.  Under these laws, a child's assets are recoverable by the state if a senior receives Medicaid to pay for long-term care, such as a nursing home.  The state is not limited to recovering only inheritance, or return of lifetime gifts, but can recover assets that a child has worked to acquire for his or her family. 

Filial responsibility is a general concern for most estate planning clients, but the prospect of a parent becoming a financial burden to children is particularly troubling for those seniors aging in place and/or implementing asset protection from nursing home spend down (Medicaid planning).   

Filial responsibility is one tool that the Centers for Medicare & Medicaid Services (CMS) has long advocated States adopt and enforce in order to financially support Medicaid.  CMS is a federal agency within the U.S. Department of Health and Human Services (HHS) that administers the Medicare program and works in partnership with state governments to administer Medicaid.  

Despite CMS' support, states that have implemented such laws have visited upon their citizens familial discord, hardship, chaos, and inequity.  In addition, these laws even threaten the financial safety net of some seniors by making parents responsible financially for their adult children, ironically making them more likely to need Medicaid!  These problems helps explain why many states have resisted pressure from to fundamentally change their Medicaid resource recovery systems.  

Many states have, nonetheless, employed various alternative methods to fulfill the spirit of the CMS campaign, by, for example, expanding the assets recoverable by Medicaid to "augmented estates," permitting nursing homes to "work around" federal law prohibiting a home from soliciting a guarantee of payment from family members, and restricting legitimate planning options to reduce Medicaid resource recovery or shielding assets from nursing home spend-down.    

One such effort, courtesy of the Minnesota legislature was recently invalidated by a Minnesota appeals court.  The Court ruled that a statute "deeming" irrevocable trusts to be revocable for the purposes of a Medicaid eligibility determination is preempted by federal law governing irrevocable trusts.  See, Geyen v. Commissioner Minnesota Dept. of Human Services (Minn. Ct. App., No. A20-1300, July 12, 2021).

In 2011, Dorothy Geyen created two irrevocable trusts that named her children and grandchildren as beneficiaries. The trust agreements provided that the trustee was specifically precluded from loaning assets or making distributions to Ms. Geyen. In 2019, Ms. Geyen applied for Medicaid benefits. The state denied her application on the basis of her having excess assets; the court determined that under the state law, her irrevocable trusts were revocable when she applied for benefits. Minnesota law provided that when making a determination about eligibility for Medicaid benefits, any irrevocable trust containing the assets that were formerly the applicant's becomes revocable for the purpose of that eligibility determination.  The effect of the law is to invalidate completely transfers to irrevocable trusts specifically permitted by federal law. 

Ms. Geyen appealed the denial, arguing that state law conflicts with federal law. The state affirmed the denial, and Ms. Geyen appealed to court. The district court determined that under federal law, the trusts were not available assets and federal law preempted state law. The state appealed, arguing that the funds in the trust were available to Ms. Geyen under federal law and that the trusts became revocable under state law.

The Minnesota Court of Appeals affirmed, holding that the trusts are not available assets under federal law and that federal law preempted state law. According to the court, “because the trust agreements did not permit the trustees to make payments to or for the benefit of [Ms.] Geyen under any circumstances,” they were not available assets. The court further held that by “deeming irrevocable trusts to be revocable” for the sole purpose of a Medicaid eligibility determination, the state law “conflicts with the federal requirements governing the treatment of irrevocable trusts.”

This holding is a great and welcome result.  Citizens of the State of Minnesota should be outraged at the colossal assault by their legislature on their rights to lawfully plan and orchestrate their affairs, and for the waste of public resources dragging a family through protracted litigation in a craven effort to save pennies rather than supporting a person (and system) in need.  

The only bad news is that as states fail to succeed in efforts to implement alternatives to filial responsibility, filial responsibility becomes more likely.  Good planning is the best and most secure means of avoiding unnecessary and avoidable institutionalization and filial responsibility.