Medicaid Liens on Certain Property
Massachusetts Appellate Court Clarifies Medicaid Liens on Life Estates and Deed Transfers to Irrevocable Trusts
If you have a deed reference to a life estate or occupancy interest, whether it is in a trust or not, Massachusetts will assert a Medicaid lien on the real estate deeming there to be a reserved life estate. The Massachusetts Appeals Court recently ruled on the implications of language on a deed which sought to transfer the property to an irrevocable trust and provide record title in order to obtain an elderly real estate abatement.
The Appeals Court ruled that, in the context of a Medicaid lien, the interest created by a reference on a deed to the reservation is indeed a legal interest (i.e., a life estate) subjectable to a lien for the cost of services rendered by MassHealth. See D. v. Commissioner of the Division of Medical Assistance, Case No. 05-P-386; see also 130 CMR 515.012(A). The opinion, though concise and somewhat simple, resulted in part due to expanded Medicaid recovery in Massachusetts that included non-probate assets for purposes of paying back the state. This provision of the law was in place from July 1, 2003 to June 30, 2004. Prior to expanded estate recovery, such references were ignored by the state. See T. v. Division of Medical Assistance (administrative decision available). The opinion nevertheless applies to all such references even without expanded estate recovery.
The crux of the opinion was the intent of the grantors when conveying their property to trust. To discover the intent of the grantors the Court looked at the language of the deed, the language of the trust to which the property was conveyed, and, less so, one of the grantors' responses to questions asked on her Medicaid application.
The deed sought to convey full title in fee simple to the trust in the grantor's clause, but at the bottom of the deed there was mention of the occupancy rights reserved in the trust for purposes of obtaining an elderly real estate tax abatement. The grantor's clause read, "We, (the grantors), grant to . . . the (Trust) . . . the land together with the buildings thereon . . ." and the deed went on to describe the physical boundaries of the property. The reference to the occupancy rights reserved in the trust followed, and read, "Said premises being conveyed subject to a life estate as more fully described in the contemporaneously executed (Trust)."
The irrevocable trust to which the property was conveyed included several articles that were made the subject of the analysis of the grantor's intent. The first was titled "Reservation of Life Estate" which went on to reserve the rights to the use and occupancy of the subject property in the settlors for their lives. The second was titled "Massachusetts Residential Abatement Protection" which stated that the settlors' reservation of the rights to use and occupancy was for the purpose of securing a residential property tax abatement under the Massachusetts General Laws and certain Massachusetts appellate decisions.
The Medicaid application contained questions pertaining to any legal interest the applicant may have in real estate, to which the grantor answered "yes" qualified by "for occupancy only."
When read together, these several factors persuaded the Appeals Court to infer the grantors' intent to retain a legal interest in the form of a life estate in the property. The overriding factor was that the intent to receive a residential property tax abatement of itself required ownership of a legal interest in the property as a condition of obtaining the abatement. This requirement was dictated by one of the cases referenced in the trust itself. Thus, because the intent of the grantors was to retain a legal interest in the subject property, and because that legal interest was, at the time, subject to a Medicaid lien, the lien was upheld for the actuarial value of the life estate.
Clearly, from a practice perspective, it would be advisable for clients to consider foregoing elder abatement qualification with a deed reference. It is also advisable that real estate not be sold until the death of a grantor when such references exist, as a lien is relinquished at that time (under current Massachusetts law). What is most interesting about the Appellate Court decision is the imposition of the creation of a severable life estate based solely on a reference on a deed to a provision in a trust; and doing so with the extrapolation of case law in a line of cases related to tax abatements which were not readily on point.
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