The term “Testamentary Trust” refers to a Trust established by the terms of a decedent’s Last Will and Testament, indicating only that the Trust provisions are described within the pages of the decedent’s Last Will and Testament.
 

The term “Inter-Vivos Trust” refers to a Trust established during lifetime, indicating only that the Trust provisions are described in a separate Trust Agreement, not in the individual’s Last Will and Testament.
 

The term “Medicaid Qualifying Trust” refers to a Trust that disqualifies its beneficiary for Medicaid benefits, since the Trust is presumed to have been established solely for the purpose of qualifying for Medicaid benefits.  Under Massachusetts Law, Inter-Vivos Trusts are presumed to be Medicaid Qualifying Trusts, but Testamentary Trusts are not.
 

In Victor v Mass. Executive Office of Health & Human Services (Mass. Ct. App. No. 09-P-1361, July 21, 2010), Mr. Victor wanted to create a Trust for the benefit of his wife, to take effect upon his death if he predeceased her.  To accomplish that result, he could have created a Testamentary Trust in his Last Will and Testament, or he could have created an Inter-Vivos Trust, with the Trust provisions in a separate Trust Agreement.  In either case, the Trust provisions would have been identical and the Executor of Mr. Victor’s Estate would be directed to transfer the balance of Mr. Victor’s Estate to the Trustee of the Trust.  The sole difference would have been the piece of paper which Mr. Victor used to describe the Trust provisions.
 

If Mr. Victor had chosen to include the Trust provisions in his Last Will and Testament, creating a Testamentary Trust, the Trust would not be a Medicaid Qualifying Trust and Mrs. Victor would have been eligible for Medicaid benefits.  Unfortunately, when Mr. Victor created the Trust more than 25 years earlier, he chose to use an Inter-Vivos Trust instead, making it a Medicaid Qualifying Trust and, thereby, making Mrs. Victor ineligible for Medicaid benefits.
 

Logic and reason can, sometimes, overcome technical deficiencies, but not when it comes to Medicaid eligibility.  One cannot assume that an individual will receive Medicaid benefits because it seems to make sense, or it seems to be the fair outcome.  Fairness and logic cannot replace technical precision.
 

Mrs. Victor did nothing to warrant being ineligible for Medicaid benefits.  She violated no Medicaid regulations.  She did not even create the Trust - her deceased husband did.  The Trust provisions did not lead to the disqualification.  This case was decided solely on the fact that Mrs. Victor’s deceased husband chose to use an Inter-Vivos Trust, instead of a Testamentary Trust, more than 25 years earlier.

Even so, in more than 30 years of practicing law, I have never seen anything as absurd as what is happening now.  In 2001, a political compromise led to a temporary reduction in the federal estate tax.  Without the 2001 tax reduction, the amount exempt from federal estate taxation would have been $1,000,000.  The 2001 law temporarily increased that exemption through 2009, eliminated the estate tax for 2010 estates, and will reinstate the $1,000,000 exemption on January 1, 2011.
 

By its very nature, estate planning deals with uncertainty because so many life events will always be unpredictable.  How long will I live?  What health issues will I face?  What will my family look like?  What special needs will my beneficiaries have? Will anyone challenge my choices?  With all that uncertainty, having a stable, permanent, estate tax law helped keep the planning simpler, and therefore, less costly.  Since 2001, the task of developing estate plans that met our clients’ needs and objectives has been like trying to hit a moving target.  The estate tax uncertainty left us trying to plan around an infinite number of possibilities - a $1,000,000 exemption, an unlimited exemption, and anything in between.
 

Since 2001, most pundits have been certain that Congress would never let 2009 pass without amending this illogical tax law.  Even after Congress proved the pundits wrong, they remained convinced that Congress would act in 2010.  At the least, Congress was expected to allow 2010 estates to elect to use the 2009 law, since couples with a net worth of $7,000,000 or less fared better in 2009 than in 2010.  Still no action and only 2 weeks left in the year.
 

Sadly, Congress is not even discussing a permanent fix.  To the contrary, the only proposal currently being debated is whether to continue the uncertainty with another temporary fix - this one good for only 24 month.  Observing Congress’ 10-year failure to enact a permanent fix, the question is whether there is a political disincentive to do so.  The estate tax is a perfect wedge issue on both sides of the political aisle, giving rise to speculation that we will never have a rational and permanent solution.