Decade Long Battle Over Disability Trusts Ends with Protection for Vulnerable Seniors
By Kimberly Butler Rainen
A pooled trust is a type of special needs trust (“SNT”) that can bring dignity, comfort, and a degree of independence to the lives of individuals with disabilities who might otherwise rely entirely on public benefits for support. Pooled trusts were added to the federal Medicaid statute in 1993 as part of a major revision of the eligibility rules for trusts, which included exemptions for individual SNTs for persons under the age of 65, and a pooled trust option for persons aged 65 or older. See 42 U.S.C § 1396p(d)(4). The trustee of a pooled trust must be a non-profit agency, and the rules allow such a trustee to retain for its charitable work a portion of the assets that remain at the beneficiary’s death, often 5 to 20 percent. Any assets that are not retained by the agency are reimbursable to the state’s Medicaid program (known as “MassHealth” in the Commonwealth of Massachusetts), up to the amount of medical services that were provided for the beneficiary during lifetime. Any excess funds remaining in the SNT after reimbursement can pass to the beneficiary’s heirs.
The assets in a pooled trust are vital to the well-being of elderly residents in nursing care facilities.
The income of a resident in a long-term care facility who receives MassHealth benefits is payable to the facility to offset the cost of their care, except for a monthly personal needs allowance of $72.80. This amount is intended to cover ordinary expenses that are not covered by public benefits, such as haircuts, medical procedures, medical equipment, legal fees, guardian fees, geriatric care services, travel, and entertainment. Without pooled trust assets, expenses over the $72.80 monthly allowance would simply be unaffordable for elders, who would have to rely on the benevolence of family and friends for these needs. As an attorney assisting elderly clients utilizing pooled trust funds, I have seen their benefits first-hand. They cover the critical cost of companion care when these clients have no local friends or family to visit them. They cover the simple creature comforts that many of us in peak earning years take for granted, such as a favorite soda or candy unavailable at a nursing care facility.
The importance of this supplemental income is backed by data. In 2021, a study analyzed the well-being of nursing home residents with the Gallup-Well-Being Index, a widely accepted tool to measure well-being. This study evaluated the Index’s well-being factors in light of how pooled trusts funds are accessed for nursing home residents. As noted by the study, these funds “typically pay for goods and services as basic as clothing, a telephone or a haircut, or as critical as a replacement hearing aid, social support or transportation to social and community events.” Patricia Brierley-Bowers, Heather Connors, & Peter M. Macy, Special Needs Pooled Trust Disbursements and the Well-Being of Nursing Facility Residents Receiving Medicaid Benefits, Journal of Aging & Social Policy, May 17, 2021. The study found substantial correlation between the well-being of nursing home residents who had access to pooled trusts compared to those who did not.
The Penalty Problem
The assets in a pooled trust are generally not counted when determining eligibility for public benefits, including nursing home coverage under MassHealth. However, the federal statute is ambiguous as to whether creating a pooled trust serves as an exemption from the five-year lookback period for transfers of assets that disqualifies individuals aged 65 or older. For nearly 30 years after the statute was added to federal law, Massachusetts accepted pooled trusts as a penalty exemption regardless of age.
MassHealth’s 2016 Proposed Change
On November 24, 2016, however, MassHealth proposed a change that would have reversed that policy, eliminating pooled trusts as transfers permissible without regard to age, see 130 CMR 520.019 (D)(5) (repealed), and leaving it only as a transfer permissible for persons under age 65. See id. at (D)(4). Advocates from the pooled trust programs, along with many members of the elder law bar and the Massachusetts Chapter of the National Academy of Elder Law Attorneys (“MassNAELA”) responded immediately, showing up in strength at a public hearing. At the start of the 2017-2018 legislative session, Sen. Patricia Jehlen and Rep. Kate Hogan filed bills that would have preserved the right of persons of any age to establish a pooled trust. See, e.g., An Act Preserving Special Needs Trusts For Disabled Seniors, S.629, 190th Gen. Ct. (Ma. 2017). Versions of these bills were included in both the House and Senate and gathered substantial legislative support, but were ultimately not signed into law.
A similar bill was refiled in the 2019-2020 legislative session to preserve pooled trusts for seniors, with the support and efforts of the elder law bar. See An Act Preserving Special Needs Trusts For Disabled Seniors, S.688, 191st Gen. Ct. (Ma. 2019). Along with their legislative efforts, Sen. Jehlen and Rep. Hogan wrote a letter to Daniel Tsai, Assistant Secretary for MassHealth, dated March 21, 2017 and signed by over a hundred Senators and Representatives, discouraging the change. A similar letter was written and supported the following year, as the Baker Administration signaled its intent to go forward with the change. Both letters resulted in postponement of the planned implementation.
2019 First Circuit Decision
In 2019, the First Circuit Court of Appeals ruled in Maine Pooled Disability Trust v. Hamilton, 927 F.3d 52, 62, that the automatic exemption does not apply to individuals 65 and older. However, the Court also recognized that a separate exemption could apply to a pooled trust, allowing transfers that return fair-market value (“FMV”) to the individual, regardless of age. See id. at 62; see also id. at 63-67 (Barron, J., concurring). The Hamilton decision meant the language in the bills that Rep. Hogan and Sen. Jehlen had filed January of 2019 needed revision. Instead of stating a policy not to impose penalty, the proposed statute needed to provide methodology for finding that pooled trusts provide FMV to the beneficiary. This approach was feasible in Massachusetts because pooled trusts here tend to be primarily used for medical care for the beneficiary, through a combination of direct purchases of support services and Medicaid payback rates of 75 to 95 percent, clearly aligning the assets transferred to trust with FMV.
Proposed Change Becomes Reality
During the final legislative session, on March 1, 2024, MassHealth implemented the change of regulation that had been proposed nearly eight years prior, which prevented seniors aged 65 and over from funding SNTs. Although the remedial statute passed six months later, it did not take effect until December 5, 2024, which left those seniors vulnerable and without any options for nine months. In a gesture of good faith, MassHealth eventually waived any penalties that had been imposed during those nine months. What could not be recuperated was the loss of protection suffered by the most at-risk seniors, those with estates less than $50,000, who had no choice but to spend the assets on nursing home care when they otherwise could have retained the benefit from those funds by funding placing such assets into a pooled trust.
Finally, a Legislative Fix
The threat to pooled trusts for seniors did not end until five years after the Hamilton decision, during which time the remedial statute was refiled in the 2021-22 and 2023-24 legislative sessions. After an exceptional year of drama and delay in the latter, the new law finally passed on September 5, 2024. As a result of this new statute, MassHealth will now consider the FMV of benefits received over the lifetime of a pooled trust before imposing any transfer penalty on the transaction, regardless of the age of the beneficiary.
In addition to averting the harsh impact that penalties had on disabled seniors, the coordinated efforts of four Massachusetts pooled trusts and MassNAELA revealed financial benefits of pooled trusts that were not previously understood. Peter Macy, the Executive Director of Guardian Community Trust, Inc., whose efforts were instrumental in passing the bill, submitted evidence to the legislature while the bill was pending that showed how pooled trust programs in Massachusetts returned an estimated $20 million to the Commonwealth in 2024. These pooled trust assets represent approximately 60% of all assets recovered by MassHealth, yet represent less than 5% of the population receiving MassHealth benefits. Memorandum from Peter Macy, J.D., Ed.M. to Hon. Ron Mariano (April 8, 2024) (on file with author).
Conclusion
After a years’ long back and forth over impending regulations, the legislature finally got it right by passing An Act to Improve Quality and Oversight of Long-Term Care, H.5033, 193rd Gen. Ct. (Ma. 2024) (enacted). Pooled trusts are a “win-win” for seniors and the Commonwealth. They provide improved quality of life to some of our most vulnerable population, with the added benefit of reducing the burden on public funds to provide this humanitarian elder care.
Kimberly Butler Rainen practices in Andover and serves as co-chair of the Disability and Elder Law Section and the Board of Guardian Community Trust, Inc.
