-: SJC-13059,
Patricia A. Fournier as personal representative
of the estate of Emily Mesiashek v. Mary Lou Sutters
in her official capacity as Secretary of the
Executive Office of Health and Human Services.
-: Okay, Attorney Green.
-: Good morning, Your Honors.
May it please the court,
Assistant Attorney General Julie Green
for the defendant appellant, Secretary Sutters.
Thank you for the opportunity to appear in person today.
In Daley v. Secretary of EOHHS, this court identified
the possibility that an applicant for Medicaid benefits
could exercise a power of appointment like the one at issue
in this case in favor of a nonprofit nursing home,
and that such an exercise could constitute a payment
for the benefit of the applicant.
In this case, Mass Health examined the specific terms
of the trust at issue in this case, and determined
that such a theorized exercise of the power
of appointment is authorized by the terms of this trust,
and that such a payment would constitute a circumstance
for which payment could be made for the benefit
of the applicant, and therefore the trust assets
in this case are countable within the meaning of 42USC1396B.
-: So counsel, what's the theory upon which there is
a circumstance where the settlor could have the benefit
of the principle?
Green: So the theory is that the payment would be,
that the appointment would be exercised in payment
for services rendered by the nursing home.
-: So that how is that not in contravention
of the trust instrument?
-: I'm sorry, in contravention of?
-: The trust instrument, which gives the settlor
a limited power of appointment
for a non-profit organization.
-: Because the trust instrument explicitly authorizes
an exercise in favor of a nonprofit, but it contains
no limitation to the, for the purposes for which
that exercise may be made.
It does not limit the exercise to charitable
or donative purposes alone.
It also contains no limitation on use on exercise
of the appointment for the benefit of the applicant.
So for example, if you, you can see an example
of such a limitation not present in this trust
at Addendum page 113 of the appellee's brief.
It's a trust it's, it's a board of hearings decision
regarding a trust where it quotes a trust provision,
a power of appointment that says in effect,
but this power of appointment shall not be exercised
to pay a debt of the grantor
or in any way for the benefit of the grantor.
-: Isn't that exactly what's happening here, where there's
a limited power to a point in favor of a nonprofit
coupled with article 2.1 which does not allow the trustee
to appoint, to use principle on behalf of the settlor?
-: Two responses to that.
First of all, as a technical matter, this trust does not
contain any prohibition on the trustee using the trustee's
separate distributive power in favor of the applicant.
Many trusts do contain language like that, and I cited
a number of them in my brief, including in the Hein case.
-: So you think that would be consistent
with the trustee's fiduciary duty to execute,
let's say this hypothetical power of appointment
in favor of the settlor, despite article 2.18?
That wouldn't be a breach of the duty?
-: There's no breach of the fiduciary duty for
for two reasons.
First of all, no action by the trustee is required here.
-: Well, who distributes the funds?
-: It would not be a distribution.
It would be an exercise of the power of appointment,
and the mechanism by which it gets exercised is
as simple as a writing by the applicant,
Ms. Mesiashek, stating,
"I hereby exercise my power of appointment in favor of-"
Wendlandt: Myself.
-: In favor of such and such nursing home, nonprofit Inc.
That would be effective to exercise this power
of appointment.
It requires no action by the trustee, but it would cause
there to be a payment from the corpus of the trust
directly to a nonprofit nursing home.
-: And who would cause that payment to happen?
Green: So that exercise-
-: Be automatically executed by the bank,
or who, who would execute that?
-: There would likely have to be
some additional implementing actions, but-
Wendlandt: By whom?
-: Possibly by the trustee.
-: Okay, and so given that, given that that possibility,
why is that consistent with article 2.1?
-: It's consistent because it would be effectuating
a power explicitly granted by the trust.
There is no breach of fiduciary duty.
If the trust doesn't bar the exercise of the power
by Mrs. Mesiashek, then the trustee has no fiduciary duty
prohibiting the trustee from helping Mrs. Mesiashek
to implement a power that she's expressly authorized to use.
-: So where is the expressed power of the settlor to use
this power of appointment, which is a limited power
of appointment on her own behalf, for her own creditors
to pay for her own nursing home?
-: The expressed power is limited to an exercise in favor
of a non-profit or charitable organization.
-: Right, but here there's a quid pro according to
the scenario that you're envisioning
as Mass Health's lawyer, right?
The quid pro quo is you provide services to the settlor,
and in payment of those services, the settlor is going
to instead of paying you money, is going to give you
this power, is going to give you the principal, right?
-: That's correct, because this extra, this power
of appointment does not prohibit any type
of quid pro quo.
-: Why do we not read into the, this limited power
of appointment all the traditional trust law
that would preclude that?
-: Because trust fundamentally should be read in accordance
with their plain language.
This grantor, Mrs. Mesiashek plainly knew how to draft
the trust so it effectuated her intent.
She drafted a very broad power of appointment for herself.
The, I mean, obviously-
-: Well, it's actually a limited power of appointment.
I mean, it's only broad in the sense that you're suggesting
that it could be exercised in a way that is precluded
by traditional trust law under the traditional power
of appointment, which is limited.
-: It is limited solely in the sense that the class
of permissible appointees is limited.
-: Right, and she's not one of those persons in that class.
-: That's correct, and she cannot appoint to herself.
-: Right, and so isn't she effectively appointing
to herself under your hypothetical scenario?
-: She's clearly, she's appointing to a nonprofit.
-: In payment for services that she received.
-: And there's, there's definitely a benefit to herself.
I agree.
I'm not disagreeing with your hypothetical.
My position is that nothing in that power of appointment
prohibits benefits of any sort.
Nothing in the power of appointment limits the purposes,
or motives, or collateral benefits that an appoint,
that the applicant may receive as a result
of the power of appointment.
Let me, let me give some examples
-: If the power of appointment read, so right now it reads,
"During our lifetime we shall have the power to appoint
from time to time blank and blank to any one or more
charitable or non-profit organizations."
If it had added the sentence for charitable
or non-profit purposes, then this would be forbidden?
-: It would, if there were a limitation as to purpose
the outcome would be different.
-: So isn't that implicit in the first part of the sentence
that you're giving it to the charitable
or non-profit organization?
It's not for, I mean, it's not for your purposes, right?
It's for their purposes, isn't it?
-: It's, it is for the benefit of the non-profit,
but in the theorized transaction that I'm talking about,
there's clearly a benefit to the nonprofit.
-: So if she wanted to go to college, they could give it
to the university as long as she, they,
I'm giving you $50,000 as long as you just,
you take it to pay for my tuition, that would be fine too?
-: It, it would be fine because the power
of appointment could have limited its uses, and it doesn't.
I'll give you a couple of other examples.
-: How about the following?
She finds a non-profit says, "I'm going to give you
$100,000 as long as you give me $50,000 back."
That's okay too?
-: I think that would be, that would be skirting the line
that would, that would start to look
like a collusive exercise,
but there are a lot of circumstances.
I'm sorry I didn't mean to interrupt.
-: No, no, go ahead.
-: So actually, could I, can I follow up
on Justice Kafker's question?
What would happen if your scenario played out,
but then the nursing facility or the care facility
didn't apply it to the services
that were being rendered to the settlor?
-: I think that would depend on the specific transaction
that occurred with the applicant.
So for example, she might have a claim against
the nursing facility, the nonprofit for, you know,
money had and received, or-
-: But, but then that implicates Justice Wendlandt's point
then, that the only reason why the exercise of this power
of appointment would be for the settlor's benefit,
and isn't that directly in contradiction to the terms?
Because if you're saying that if she exercises this right,
and that money is transferred to the nursing facility,
and the nursing facility does not apply that to the benefit
that it's giving to her, that somehow
now she's got a separate cause of action.
Doesn't that just answer the question that the only exercise
of this power of appointment is for her benefit,
and that's prohibited?
-: Where I part ways with you is whether an exercise
for her benefit is prohibited.
I, the terms of this trust do not prohibit an exercise
for her benefit.
They could, and some trusts do, in fact
most trusts do contain terms.
Excuse me, I'm having terrible problems with my mask today.
Trusts do contain terms that expressly say that,
and I've cited a number of cases that involved trusts
that said exactly that.
I think it's very significant that the terms of this trust
do not contain any such prohibition.
They could and to, but they don't.
If this court were to read the power of appointment
as containing such an express prohibition on benefit
of any type to the applicant, it would be reading terms
into the trust that the applicant, the trust settlor did not
see fit to put there.
-: Do you know of any limited power of authority that has
been read in the way that Mass Health wants it to be read?
-: No, I'm not aware of any cases raising this question
or addressing it one way or the other.
-: But what about Pittman?
Can you explain the difference between this and Pittman?
Because it seems like there Pittman prohibited
the use of a limited power of authority, appointment,
sorry, to benefit somebody who was not
among those to receive the benefit.
-: That's true.
That's certainly the result in that case,
and I would submit that this case, that this trust should be
read differently for a couple of reasons.
First, that the entire purpose for which the court read
in that additional term that wasn't in the trust was
to serve a purpose that is to serve a rationale
that simply doesn't apply here.
So in that case, the whole purpose
of the additional unwritten prohibition was to vindicate
the will of the mother, and to prevent it from being abused
by the son using the power
differently than she had intended.
Here, Mrs. Mesiashek wrote the trust herself.
She gave herself exactly those powers that she wanted
to give herself, and did not include any prohibitions
that she did not want to include, and there's really
no reason to be reading in additional terms
that she herself did not see fit to put there.
Second, the rule of Pittman is a difficult rule
to administer, because it requires,
it requires the court to embroil itself in an inquiry
into what were the settlor's actual motives
when the settlor exercised.
-: Well I mean, it involves determining the settlor's intent,
which is what one always does when one looks
at a trust instrument.
You want to know what the intent was,
and you want to be true to the intent.
Here it seems to me that read as a whole,
the trust instrument may arguably have this intent
of never allowing the settlor to reach the principle.
Article 2.1 says that, and the limited power of authority,
if read consistent with Pittman would preclude that as well.
-: I disagree that the trust indicates such an intent.
I think another-
Wendlandt: Where do you see a contrary intent?
-: Well, the express purpose of the trust, in fact,
the express purpose of the trust in article one states
that the purpose of the trust is essentially
to benefit the applicant.
It talks about using the principle to allow the applicant
to, or sorry that the purpose of the trust is to manage
the applicant's assets and allow her to live
in the community as long as possible.
It is not an expressed purpose of preserving assets
to benefit the beneficiaries of the principal,
and that's an important distinction,
and I think that distinction is also born out in the fact
that it does include a power of appointment that permits
the applicant during her lifetime to dispose
of the entire principle without regard for whether
any principal is preserved for the children beneficiaries
at the end of her life.
Clearly she intended to retain a significant degree
of control over these assets, and not to prioritize
the legacy to the children beneficiaries at the end.
-: I mean, before, before you run out of time,
just from a different perspective, as we look
at the any circumstances test.
The charity is not going to be able to take this money.
In the real world, this isn't going to happen.
This is all theoretical, but the charity is not
going to take a risk of losing their designation.
They're not going to be able to benefit a private donor.
So I understand all the good reasons to expansively look
at the any circumstances test.
There's huge public policy implications that
your argument recognizes, obviously,
with the price running out of control,
but doesn't this just, it's a bridge too far,
just doesn't work.
The charity is not gonna be able to take the money.
-: I think the charity could take the money.
I recognize that this is an unclear area of the law,
and the charity would probably want some clarity
about what the legal result was at the end of the day.
But if there were no other source of assets available,
she entered the nursing facility with the understanding
that, you know, her children would pay and then they didn't,
and then now there's a debt.
I think it's entirely possible that a nonprofit-
-: Counsel, may I just interrupt for a moment?
You said this was an unsettled area or an unclear area
of the law, and then there's guidance needed essentially.
Can you tell me are there any other cases pending,
or do you know, have any of the nursing homes accepted money
this way, or accepted funds from a trust like this?
-: Not that I'm aware of, no.
I think this issue was first raised explicitly in a case
in 2017, when the daily court identified this possibility.
-: Is the AG's of charity division going to approve
this kind of transaction?
Is there any guidance from the charities division saying
that this is an appropriate charitable contribution?
Because you guys are monitoring that as well, right?
-: My position is that there's no charitable contribution
involved, so it wouldn't involve the charities division.
-: Charities division has not rendered an opinion?
-: And it has not rendered any opinion, no.
Budd: Okay, thank you very much.
-: Thank you, Your Honor.
-: Attorney Neeley.
-: Good morning, and may it please the court,
my name is Lisa Neeley, and I represent
the appellee, Patricia Fournier in this matter.
This case is about Mrs. Emily Mesiashek,
who is now deceased, being denied eligibility
for Mass Health benefits because she established
and funded an irrevocable trust while she was still alive.
In the trust, Mrs. Mesiashek retained a limited power
to appoint assets to charitable
and non-profit organizations only.
-: So can you address council's argument that
it didn't limit her power to charitable purposes,
and that she could enter into this quid pro quo agreement
with a nursing home that was a nonprofit?
-: Yes, your honor.
I believe that when read as a whole, the trust instrument
in this case needs to be read as a whole.
-: Right, and so what your opposing counsel has said is
that read as a whole, the purpose of the the trust is
to allow, as it says, in 1.2, "the management
of assets and living in the community as long as possible,"
not the preservation of principle.
-: Well, I believe that that clause 1.2 has also been read
out of context, because this, and it's not in contradiction
with the preservation of principle.
It just references management of assets.
And if you look at article 2.3, the trust states that
"The donor, Mrs. Mesiashek has the right to use and occupy
the residents held in trust."
So I don't view that as conflicting, considering that
she can reside in the property that's in the trust
for the remainder of her lifetime,
and that mentions nothing about a distribution
of principal to her.
If you read the trust as a whole, I mean it clearly,
the principal has to be held until the termination
of the trust, at which point it's distributed
out to the child, her children.
-: And that's, you're relying on section 2.1?
Neeley: Yes, your honor.
-: Okay.
-: I don't believe that the, I believe that just by operation
of law, the limited power means that the asset cannot be
applied for the benefit of an impermissible appointee,
and in this case, the quid pro quo transaction
that my sister is proposing would be for the benefit
of an impermissible appointee, because it is for the benefit
of Mrs. Mesiashek or her creditors.
I mean, in this case the nursing home would
essentially be a creditor.
They would be owed a debt, and under a limited power
of appointment, pursuant
to well-established Massachusetts case law,
a limited power cannot be used to-
-: But what case law are you relying on?
Is it Pittman that your opposing counsel has distinguished?
-: Yes, I am relying on Pittman.
-: Then why isn't the difference that she points out
between a self-settled trust and the third-party situation
and Pittman relevant in our analysis?
-: Because that is just not the way the law
in Massachusetts has been interpreted.
If it-
-: Can you be more specific though?
I mean she's distinguishing Pittman on that basis,
and you're saying there's this law out there in the ether.
What law are you referring to?
-: I'm talking about the restatements of property.
So the restatement first, second and third of property has
never distinguished between this power being operative
in a self-settled versus a third-party trust.
Pittman did not make that distinction at all.
It was about a third-party trust,
but it did not make that distinction,
and in other jurisdictions which my sister has relied upon
in her pleadings, there have been specific statutes
that state if the donor retains a limited power, that's
going to cause the trust to be includable so to speak.
And here in Massachusetts, we just don't have that statute,
and so I think one of the issues is that Mass Health
in this case is possibly trying to, you know,
they have a policy objective and you know, they're
essentially should be seeking guidance from the legislature.
-: Are you saying in other jurisdictions
there's a statute and we don't have one?
-: Correct, Your Honor, and I believe in the case,
in Reed Brown's estate, which is discussed in the briefs,
and also in the Massachusetts Bar Association brief,
there's just no such statute in Massachusetts,
and the reason for that is clarity.
I mean, you have individuals out there drafting
these irrevocable trusts for a variety of purposes.
It may be for protection of assets, which is authorized
under the any circumstances test.
-: Can I ask you to address something else?
Is it really an open question in Massachusetts whether
or not a nonprofit can retain its status, yet accept
the kind of quid pro quo contemplated by Mass Health?
-: I am not aware that that's an open question
of law in Massachusetts.
-: In your mind, it's clear
that the nonprofit would lose its status?
Neeley: Correct, Your Honor.
-: And what do we rely on for that?
-: I believe I cited several-
-: We do have the AG's office, which monitors charities,
suggesting that this is permissible, and we also do have
our own statement in Nadeau, which I take it
you're going to ask us to walk back, right?
-: Well, I believe that this statement in Nadeau.,
it just offered Mass Health the ability to consider
the possibility that this could render the corpus
of the trust countable and in Nadeau, Mass Health-
-: It's pretty, it's pretty direct.
I mean, I understand its dictum, and it may be incorrect,
but we do have to confront that, right?
-: Yes, Your Honor.
And you know, just a brief history of the Nadeau case,
that commentary that was included in the decision was not
based upon any argument made
by counsel at those proceedings.
Kafka: It's a question, not an answer.
-: Correct, it was a question, Your Honor.
And when, and I know this was discussed in my brief,
but in Nadeau, that matter, or that specific issue was
re-litigated at the Board of Hearings,
and Mr. Nadeau prevailed upon that specific issue again,
and that matter was not appealed further,
and then essentially it was like a snowball effect,
and then trust with this provision,
the limited power of appointment to charities or nonprofits,
the argument kept being raised by Mass Health repeatedly,
that this made these trusts countable.
So that's kind of the origin of this specific argument
that's being presented today.
-: It was a little more than a question though, wasn't it?
I'm reading directly, "Had Nadeau received care
in a nursing home operated by a nonprofit organization,
he could have used the assets of the trust, including
his home to pay the nonprofit organization for his care."
It doesn't sound like a question.
-: I believe the there was another sentence after,
or before that, which said Mass Health can consider
the possibility, and there was a remand direction.
-: No, the next sentence goes,
"Because approximately one fourth of nursing homes are
operated by non-profits, it is appropriate for Mass Health
to consider whether this possibility fits
within the any circumstances test.
-: Correct, so I interpret that as an invitation
for Mass Health to consider the possibility of whether
this would meet the any circumstances test,
not a direction that this does meet
the any circumstances test.
And, you know, part of the the issue with this case,
and how it has ended up here is that the hearing officer
at the below proceedings interpreted that
as a legal holding, and he essentially said in his decision,
"I credit the appellant's arguments regarding
the limitations on powers of appointment, and how they're
to be used in trust, but here we have a holding
from the daily court, so I have to unbound by them."
-: What is the best source, Justice Wendlandt's question,
what is the best source for us to look at to determine
that this would be an illegal charitable contribution?
What should we look at to make that determination?
-: Well, I believe the best source are
the restatement of property language that defines what
an impermissible appointee is, and then possibly
the Pittman case, and then, you know, to be quite honest-
-: There's no law from the charitable contribution
area that makes this express explicit?
Because you're asking us to look at trust law,
which may be the right place, but I think we're asking
a different question, which is when we look
at charitable organizations,
would they lose their tax status if they accept?
Is there some tax law that says that you lose
your tax exempt status if you accept
these kinds of contributions?
Anything you're aware of?
-: There is, Your Honor, and I did cite
several cases in my brief.
If I can just grab, if you don't mind, I can just.
-: You know, isn't it a matter matter of statutory law that
in order to be a 501C, you have to abide by 501C,
which specifically precludes donations of this kind
of quid pro quo and retention of the status?
-: That is correct.
It prohibits a charitable contribution for from being used
for the benefit of a specific individual.
That is the basic concept there, so I believe
the charity would be bound by that,
and they could potentially lose their tax exempt status.
But, you know, regardless of that, I think the primary issue
to be resolved in this case is just, you know,
concerns what the limited power of appointment is,
and how it operates in this trust document.
And Mass Health acknowledges the difference
between the two powers of appointment in their brief.
They acknowledge what a limited power of appointment is,
and what a general power of appointment is.
-: Yeah, but I think Mass Health's position is that
here, the settlor could have gone on to say, not only,
you know, you may use this limited power of appointment
to donate principle to a nonprofit,
and also not to an order to your benefit.
-: Well, I believe Mass Health is contemplating or asking
this court to contemplate a scenario that's
outside the four corners of the trust instrument.
-: Well, I think it's the opposite.
I think that, if I understand the argument correctly,
is that in order to arrive to your position,
we would have to read into the limited power of appointment
this exclusion of self-interest quid pro quo.
-: I don't believe-
-: I'm not suggesting I believe that, or agree
with that position, but I think that's the position,
and so I'm wondering what your answer is.
Why are you reading that in?
-: I don't, there's no Massachusetts case law which says
the limited power needs to specifically exclude
the donor from benefiting, and I'm not aware
of any case law to that effect.
I think the way the common law has been interpreted
over many decades is that a limited power cannot be used
for the benefit of the donor.
-: Well, it brings me back to my original question to you,
which is aside from Pittman,
are you relying on anything else?
And it sounds like you're relying on other jurisdictions,
or restatement, but not any Massachusetts case law.
-: I am, there are several items in case law
that I've relied upon.
I believe that in the N. Ray Tosi case,
the State Street Company vs. Riser case, which I've cited
into my pleadings, which just generally talk about
limited powers of appointment,
mostly in the creditor-debtor context.
Wendlandt: For self-settled trusts?
Neeley: Correct, Your Honor.
-: So you can understand where
the Attorney General's coming from here, though.
We've got any circumstance test, that's expansive language,
and we've got an area of budget that's hemorrhaging,
and why isn't this a reasonable position
that any circumstances really means
even theoretically any circumstances?
-: Well, you know, Mass Health is contemplating a scenario,
a hypothetical scenario that's just not
the way Massachusetts law interprets the use
of limited powers of appointment,
so they're contemplating something outside the bounds
of traditional trust law and how it's been interpreted
to satisfy this, to say this trust meets
the any circumstances test,
and therefore we can attach the asset of this trust.
I mean, the any circumstances test talks about
payments to or for the benefit of.
It doesn't talk about hypothetical scenarios,
and I think in this Verdeau case from New York
in which a limited power of appointment
similar to the one here was analyzed,
they talked about there's no evidence here
of any collusion or that that occurred.
I mean, there's just nothing to indicate
that this is going to occur in this case,
and I also believe if you, if you review the Hayne case
from the appeals court in 2016, they talk about
there was a limited power of appointment in that case where
it allowed the donor to appoint assets to their issue,
and Mass Health raised a similar argument there
that the issue could then turn around and give it back
to the applicant for benefits.
And what the appeals court said would be
that would be completely gratuitous.
There's no, there would be nothing compelling them
to do that, so therefore it's kind of, it was outside
of the bounds, and I think that is similar
to what's occurring here, is it's just a scenario.
It's multiple steps in a transaction that's
just not contemplated by the trust instrument
here to satisfy policy objective of counting
these irrevocable trusts.
I mean, this isn't the first case over the last few years.
It's been argued about these types of trusts.
This has been coming up very frequently,
and I think it's clear that Mass Health, you know,
wishes to deny these trusts and count them, you know,
due to fiscal or policy concerns, but it's very important
for the unity of trust law, even outside of the scope
of Medicaid and long-term care planning for these concepts
to interpreted equally across the board,
and not just make special exemptions for, you know, for this
this type of scenario in this any circumstances test.
-: Well, I think that argument could go both ways, right?
That those planning their estates should take
into consideration the evolving nature of the law,
and maybe be more clear when they, for example,
in article 2.2, have a limited power of appointment
to expressly state, and not to ignore to my benefit.
I mean, why would that be a legal regime
that would be unacceptable?
-: I don't think it's necessarily unacceptable,
but I think it's a new interpretation Mass Health is
presenting, that individuals that have been doing
these trusts and also in a variety of other contexts
as well, not necessarily for long-term care planning,
rely on the consistency of common law.
And if there's no statutory or regulatory guidance
about what is acceptable to Mass Health and what isn't,
and you're going to have scenarios like this,
where you have many different cases pending
in lower courts, Board of Hearings.
Now here before the Supreme Judicial Court,
where this provision is interpreted
in different ways by the agency.
And I think a resolution as presented by the MBA brief is
if Mass Health wants this change, I think
the legislature is the best way to go about that,
because then it gives notice to, you know,
individuals and the common law desiring to do planning,
and, you know, to their attorneys.
-: I think a decision from this court would also give notice.
-: But I think a decision from this court interpreting
the limited power to allow for payment
for Mrs. Mesiashek creditors or to the nursing home,
and to go that extra step would go against the grain
of what a limited power of appointment is, which is-
-: As set forth in the restatement, but no Massachusetts law.
-: Well, in the, like I said, the Pittman case
about the impermissible appointee, I think that that's
the most on-point, and there's just not a lot of case law
about this specific transaction being presented.
-: Okay, thank you very much.
Neeley: Thank you, Your Honor.