A Massachusetts trial court ruled that a community spouse's transfer of a partial interest in a homestead in exchange for an amended promissory note is an allowable transfer that cures the remaining portion of a divestment penalty period.
In the case of Clark v. Dehner (Mass. Supp. Ct., Middlesex, No. 08-02427-H, July 30, 2009), George Clark ("Mr. Clark") is a resident of a Massachusetts long-term care nursing facility, where he has resided since August 1, 2006. Mr. Clark is married to Susan Clark ("Mrs. Clark"), who is also is attorney in fact.
On May 4, 2005, Mrs. Clark established the Susan A. Clark Irrevocable Income Trust and the Susan A. Clark Revocable Trust, designated herself as both Grantor and Trustee for both trusts. On that same date, Mr. and Mrs. Clark established the George E. & Susan A. Clark Irrevocable Trust (the "Trust") and designated themselves as the Grantors and Trustees. Mr. and Mrs. Clark then transferred their homeplace into the Trust. The value of the homeplace in 2005 was $412,359. The 2007 tax assessed value of the homeplace was $522,400. Based on the applicable MassHealth law and regulations, the aforementioned transfer disqualified Mr. Clark from receiving MassHealth benefits for approximately 52 months from the time of the transfer.
On June 27, 2007, with approximately 27 months remaining in the divestment penalty period, Mrs. Clark transferred a 44% interest in the homeplace for no consideration. Then a daughter of Mr. and Mrs. Clark executed a deed transferring her 44% interest in the homeplace to Mrs. Clark, individually, also for no consideration. Mrs. Clark then executed a deed selling her 44% interest in the property to her daughter in exchange for a promissory note and mortgage valued at $230,000 on the property.
When Mr. Clark subsequently applied for MassHealth benefits on October 31, 2007, his application was denied on the grounds that the transaction was a transfer for less than fair market value. Prior to an administrative hearing, the promissory note was amended making it explicitly not self-canceling at death. The hearing officer upheld the agency's denial, reasoning that if the note could be so readily amended, among various other reasons. Mr. Clark then appealed.
The Middlesex County Superior Court rules that the promissory note meets legal requirements and that it succeeds in curing the earlier disqualifying transfer. The court finds that the hearing officer had no basis for deciding that the amendment was not binding because it could be easily amended. Further, the court holds that the relevant regulations do not provide that transactions between family members are by nature disqualifying transfers.
To see the full decision of Clark v. Dehner, please click here.
