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Massachusetts Estate Recovery Redux: Beneficiary Designations Continue to Confound

 

In our January 29, 2020 article, we discussed how the Massachusetts Superior Court’s decision in Dermody v. Executive Office of Health and Human Services, (Mass. Super. Ct., No. 1781CV02342, Jan. 16, 2020) impacted how elder law attorneys use Medicaid Compliant Annuities in crisis planning. The primary issues in Dermody related to what is known as the “sole benefit rule” and the beneficiary designation requirements under the federal and state Medicaid law. Recently, the Suffolk County Superior Court addressed the same issues but came to a different conclusion than the court did in Dermody. Today we will discuss American National Insurance Company v. Jennifer Breslouf and the Commonwealth of Massachusetts (Mass. Super. Ct., No. 2084CV02374).

 

Similar to Dermody, Breslouf is premised on a straightforward fact-pattern. Julius Breslouf purchased an annuity from American National Insurance Company and named the Commonwealth of Massachusetts as the primary beneficiary of the annuity upon his death. Julius’ daughter, Jennifer, was named as the contingent beneficiary. The annuity was purchased as part of a plan to obtain Medicaid eligibility for Julius’ wife, Suzanne. Julius passed away on April 24, 2020. Because there were competing claims for the proceeds of the annuity, one from the state and one from Jennifer, American National filed an interpleader action for an ultimate determination on the issue.

 

To briefly revisit the ruling in Dermody, the Middlesex County Superior Court ruled that the “sole benefit rule” – found in 42 U.S.C. 1396p(c)(2)(B) – was separate from the Deficit Reduction Act beneficiary designation requirement found in 42 U.S.C. 1396p(c)(1)(F). The Court further concluded because the annuity at issue in Dermody satisfied the sole benefit requirement, that it did not need to satisfy the DRA requirements and therefore the state was not entitled to the proceeds from the annuity. The Dermody decision was primed to have a significant impact on crisis Medicaid planning in Massachusetts. Enter Breslouf.

 

Each of the Dermody and Breslouf Courts framed the issues similarly – if both the sole benefit rule and the DRA beneficiary designation requirements have to be met, the State recovers. However, the Suffolk County Superior Court took an entirely different view of the law as it relates to the sole benefit rule, the DRA beneficiary requirements, and the use of annuities in crisis Medicaid planning in Breslouf. Notable takeaways from the Breslouf decision include:

  • Multiple references to the size of the annuity in the context of congressional intent of both avoiding pauperization of the community spouse and preventing wealthy couples from qualifying for Medicaid by sheltering assets.
  • The Breslouf Court took issue with the 6th Circuit’s decision in Hughes v. McCarthy, which was found to be “highly persuasive” by the Dermody Court, relying on the non-binding nature of a 6th Circuit case in Massachusetts and stating that Hughes was factually distinct from the Breslouf
  • The Breslouf Court relied on the Department of Health and Human Services’ interpretation of the issue; cited to the Department’s amicus brief to the 6th Circuit in Hughes; and afforded both HHS and the Commonwealth of Massachusetts’ Office of Medicaid (MassHealth) deference in their reasoning.

The Breslouf Court determined that the DRA provisions were intended to “allow states to reach community spouse annuities and, therefore, community spouse annuities must comply with [the beneficiary designation requirements].”

 

Breslouf is significant because not only does it reach a different conclusion than Dermody and alter crisis Medicaid planning tactics, but it muddies the waters in that there are now two diverging Superior Court decisions bringing confusion to an already complex practice area. It is important to recognize that this is a state trial court decision without the authoritative weight of a state or federal appellate determination. However, now that there are two decisions with contradicting results, it appears the stage is set for further litigation.

 

We will continue to monitor this issue as it continues to develop. Please contact our office if you have any questions regarding this case.