Donna G. v. Nebraska Dept. of Health & Human Servs. ( 2018 )

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
DONNA G. v. NEBRASKA DEPT. OF HEALTH & HUMAN SERVS.
Cite as 301 Neb. 838
Donna G., Eric S.,
as mother and next friend of
a minor child, appellant, v. Nebraska Department
of H ealth and Human Services and Calder A.
Lynch, director, Division of Medicaid and
Long-Term Care, appellees.
___ N.W.2d ___
Filed December 14, 2018. No. S-17-712.
1. Administrative Law: Judgments: Appeal and Error. A judgment or
final order rendered by a district court in a judicial review pursuant to
the Administrative Procedure Act may be reversed, vacated, or modified
for errors appearing on the record.
2. ____: ____: ____. When reviewing an order of a district court under
the Administrative Procedure Act for errors appearing on the record, the
inquiry is whether the decision conforms to the law, is supported by com-
petent evidence, and is neither arbitrary, capricious, nor unreasonable.
3. Judgments: Appeal and Error. Whether a decision conforms to law
is by definition a question of law, in connection with which an appel-
late court reaches a conclusion independent of that reached by the
lower court.
4. Trusts: Intent. Whether a testamentary trust amended by a probate
court order pursuant to Neb. Rev. Stat. §§ 30-24,123 and 30-24,124
(Reissue 2016) remains a testamentary trust is a question of law.
5. Trusts: Medical Assistance: Intent. When a testamentary trust is modi-
fied by a court-approved compromise agreement, the question whether it
retains its testamentary character for purposes of determining a benefi-
ciary’s Medicaid eligibility will depend on both the nature of the parties’
agreement and the court’s order approving it.
6. ____: ____: ____. When analyzing the terms of a testamentary trust to
determine if the trust corpus is “available” for purposes of Medicaid
eligibility, courts look to whether the trust is a support trust or a discre-
tionary trust.
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DONNA G. v. NEBRASKA DEPT. OF HEALTH & HUMAN SERVS.
Cite as 301 Neb. 838
7. Trusts: Medical Assistance. When a testamentary support trust allows
a beneficiary to compel distributions of income, principal, or both, for
expenses necessary for the beneficiary’s support, the trust may be con-
sidered as an available asset when evaluating Medicaid eligibility.
8. ____: ____. When a testamentary trust grants the trustee uncontrolled
discretion over payments to the beneficiary, it is considered a discretion-
ary trust for purposes of Medicaid eligibility. Because the beneficiary
of a discretionary trust does not have the ability to compel distributions
from the trust, only those distributions of income, principal, or both
actually made by the trustee may be considered as available assets when
evaluating Medicaid eligibility.
Appeal from the District Court for Lancaster County:
A ndrew R. Jacobsen, Judge. Reversed and remanded with
directions.
Randy Fair, of Dudden & Fair, P.C., L.L.O., for appellant.
Douglas J. Peterson, Attorney General, and Ryan C. Gilbride
for appellees.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg JJ.
Stacy, J.
The Nebraska Department of Health and Human Services
(DHHS) terminated the Medicaid benefits of Eric S., and the
district court affirmed. Eric’s court-appointed guardian and
conservator appeals. The primary issue on appeal is whether
the corpus of a trust is available to Eric for purposes of deter-
mining his Medicaid eligibility. For the reasons set forth below,
we reverse, and remand with directions.
I. BACKGROUND
Eric is a young man with cerebral palsy. Before July 1,
2016, he was receiving “Aid to the Aged, Blind or Disabled”
Medicaid waiver services.1 The date Eric began receiving such
services is not clear from the record.
1
See Neb. Rev. Stat. §§ 68-1002 to 68-1005 (Reissue 2009).
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DONNA G. v. NEBRASKA DEPT. OF HEALTH & HUMAN SERVS.
Cite as 301 Neb. 838
In 2012, Eric’s grandmother, Lois Branting, executed her last
will and testament. Branting’s will devised all of her property,
in equal shares, to her grandchildren living at the time of her
death. The will further provided that “should any of my grand-
children be under the age of thirty (30) years at the date of my
death, then all of my property shall instead be distributed to
my Trustee to be held pursuant to the provisions of paragraph
5 below.” Paragraph 5 of the will was titled “Grandchildren’s
Trust” and provided in pertinent part:
5.1 My trustee shall hold all property devised to my
trustee for the benefit of my grandchildren who shall sur-
vive me and of the then living issue of any of my grand-
children who shall not survive me, upon the following
terms and conditions:
5.2 During the term of this trust, my trustee shall apply
such part of the net income and principal of this trust as
shall from time to time be necessary or appropriate to the
support, care, maintenance, medical expense, educational
expense and general welfare of my trust beneficiaries in
such amounts and proportions as my trustee, in the sole
and uncontrolled discretion of my trustee, shall deem
advisable, and shall accumulate and add to principal any
net income not used for such purposes.
5.3 At such time as my youngest living grandchild
shall reach the age of thirty (30) years, this trust shall
terminate and all principal and accumulated income, after
the payment of closing expenses, shall be distributed in
equal shares, to my then living grandchildren and the then
living issue of any grandchild of mine who shall then be
deceased, so that there shall be one such equal share for
each living grandchild of mine and one such equal share
for the then living issue of any grandchild of mine who
shall then be deceased to be shared by said issue by right
of representation.
When Branting died on November 29, 2014, she was survived
by four grandchildren, all of whom were minors.
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DONNA G. v. NEBRASKA DEPT. OF HEALTH & HUMAN SERVS.
Cite as 301 Neb. 838
In December 2015, the parents of Branting’s grandchildren
entered into a written agreement with Branting’s personal rep-
resentative to split the Grandchildren’s Trust into two separate
trusts: one solely for the benefit of Eric (Eric’s Trust), and
another for the benefit of the remaining three grandchildren.
That agreement recited in part:
[T]he four grandchildren . . . who are the beneficiaries
of the . . . Grandchildren’s Trust . . . are in very different
situations and will have very different needs in the future.
[The parents] have further determined that it would be
best for the grandchildren . . . if the [Grandchildren’s
Trust] was separated into one Trust for the benefit of
[Eric] and another separate Trust for the benefit of [the
other three grandchildren]. Specifically, [Eric] would be
best benefitted if his separate Trust had special needs pro-
visions which would enable for him to receive property
from the [Branting Estate] without significantly reducing
the benefits which he receives from various government
agencies as a result of his physical and mental disabili-
ties. They have further determined that it would be best
for the beneficiaries of the two new Trusts if the Trust
for the Benefit of [Eric] were to receive the 25% of the
Estate to which he is entitled in cash to the fullest extent
possible, and the Trust for [the other three grandchildren]
would receive the Real Estate still owned by the Estate
which includes the residence in which they have been and
will be raised together with any remaining assets together
totaling 75% of whatever assets remain in the Estate on
the date of distribution.
Beyond referencing “special needs provisions” for Eric, the
agreement did not include additional trust terms for the split
trusts, but merely recited the pertinent provisions of Branting’s
will, including the sections establishing and setting out the
terms of the Grandchildren’s Trust.
After the agreement was reached, Branting’s personal rep-
resentative petitioned the probate court, pursuant to Neb. Rev.
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DONNA G. v. NEBRASKA DEPT. OF HEALTH & HUMAN SERVS.
Cite as 301 Neb. 838
Stat. § 30-24,124 (Reissue 2016), to approve the agreement
and split the Grandchildren’s Trust. The probate court did so in
an order entered December 28, 2015, which provided:
Pursuant to the provisions of Neb. Rev. Stat. §30-24, 124
the Court finds that the effect of the provisions of the
Agreement upon the interests of the interested persons is
just and reasonable and therefore the Agreement is . . .
approved, and the Petitioner as Personal Representative of
the Estate shall make all further disposition of the Estate
in accordance with the terms of the Agreement.
After the probate court’s order was entered, the separate trusts
were funded in accordance with the agreement and separate
trustees were appointed for the two trusts. The probate court’s
order was not appealed, and no party to the instant appeal has
questioned the provisions of the probate order or the procedure
followed in the probate court.
The balance of Eric’s Trust was $512,380.39 as of May 16,
2016. DHHS regulations establish that the maximum available
resources one may own and still be considered eligible for
Medicaid is $4,000.2 Eric’s mother, Donna G., serves as his
court-appointed guardian and conservator.
In April 2016, Donna informed DHHS that Eric had what
she referred to as a “Special Needs Trust.” One month later,
DHHS determined that the entire corpus of Eric’s Trust was
an available resource for purposes of determining his Medicaid
eligibility. In June, DHHS mailed a notice of action advising
that Eric’s Medicaid coverage and Medicaid waiver services
would end effective July 1, 2016, because he was ineligible for
Medicaid due to excess resources.
In response to the notice of action, Donna requested and
was given an administrative hearing, after which DHHS
affirmed its decision terminating benefits. Donna timely
filed a petition for judicial review in the Lancaster County
2
See 477 Neb. Admin. Code, ch. 21, § 001.17 (2014).
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DONNA G. v. NEBRASKA DEPT. OF HEALTH & HUMAN SERVS.
Cite as 301 Neb. 838
District Court, challenging DHHS’ decision pursuant to the
Administrative Procedure Act.3
The district court affirmed DHHS’ decision to terminate
benefits, finding that the entire corpus of Eric’s Trust was an
available resource for purposes of determining his Medicaid
eligibility. The court first considered the nature of Eric’s Trust.
The court concluded it was not a testamentary trust, reasoning
it was the product of action taken in the probate court. And it
concluded Eric’s Trust was not a special needs trust, because it
lacked the necessary special needs provisions. Thus, by proc­
ess of elimination, the court found Eric’s Trust was properly
characterized as an “irrevocable trust created after August
11, 1993.”4
The court next considered the DHHS regulation governing
treatment of such a trust, which provides:
If there are any circumstances under which payment from
the trust corpus could be made to or for the benefit of the
client . . . the portion of the corpus from which payment
to or for the benefit of the client . . . could be made must
be considered a resource available to the client.5
Applying this standard, the district court found there were cir-
cumstances under which the trust corpus could be paid to Eric,
and thus concluded the corpus was an available resource for
purposes of determining his Medicaid eligibility.6
Alternatively, the district court reasoned that even if Eric’s
Trust was a testamentary trust, it would still be considered an
available resource for purposes of determining his Medicaid
eligibility.7 The court noted the language of Eric’s Trust had
elements of both a support trust and a discretionary trust, and
concluded it was the type of hybrid “‘discretionary support
3
Neb. Rev. Stat. §§ 84-901 to 84-920 (Reissue 2014).
4
See 477 Neb. Admin. Code, ch. 21, § 001.15A13b (2014).
5
§ 001.15A13b(1)2.
6
See § 001.15A13b(1) and (2).
7
See 477 Neb. Admin. Code, ch. 21, § 001.15A12 (2014).
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trust’” this court discussed in Smith v. Smith.8 In Smith, we
held that “the trustee of a discretionary support trust can be
compelled to carry out the purposes of the trust in good faith.” 9
Applying this principle, the court reasoned that if Eric could
compel his trustee to carry out the purpose of Eric’s Trust in
good faith, he could also compel the trustee to make distribu-
tions from it for his medical expenses. Thus, the court con-
cluded that even if Eric’s Trust was considered testamentary,
the entire corpus was still an available resource for purposes of
determining his Medicaid eligibility.
Donna timely appealed the district court’s judgment, and we
moved the case to our docket on our own motion.10
II. ASSIGNMENTS OF ERROR
Donna assigns, restated, that the district court erred when it
included Eric’s Trust as an available resource for purposes of
determining his Medicaid eligibility, because (1) the trust is
testamentary and (2) the trust is discretionary.
III. STANDARD OF REVIEW
[1] A judgment or final order rendered by a district court in
a judicial review pursuant to the Administrative Procedure Act
may be reversed, vacated, or modified for errors appearing on
the record.11
[2] When reviewing an order of a district court under
the Administrative Procedure Act for errors appearing on the
record, the inquiry is whether the decision conforms to the law,
is supported by competent evidence, and is neither arbitrary,
capricious, nor unreasonable.12
8
Smith v. Smith, 246 Neb. 193, 517 N.W.2d 394 (1994).
9
Id. at 198, 517 N.W.2d at 398.
10
Neb. Rev. Stat. § 24-1106 (Supp. 2017).
11
§ 84-918; J.S. v. Grand Island Public Schools, 297 Neb. 347, 899 N.W.2d
893 (2017).
12
J.S., supra note 11.
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DONNA G. v. NEBRASKA DEPT. OF HEALTH & HUMAN SERVS.
Cite as 301 Neb. 838
[3] Whether a decision conforms to law is by definition
a question of law, in connection with which an appellate
court reaches a conclusion independent of that reached by the
lower court.13
IV. ANALYSIS
We begin with an overview of the regulatory framework
that governs our analysis. Medicaid is a joint federal and state
funding program that provides medical care for individuals
whose resources are insufficient to meet the cost of neces-
sary medical care.14 The program provides federal financial
assistance to states that choose to reimburse certain costs of
medical treatment for needy persons.15 A state is not obligated
to participate in the Medicaid program; however, once a state
has elected to participate, it must comply with standards and
requirements imposed by federal statutes and regulations.16
Nebraska adopted the federal Medicaid scheme in the
Medical Assistance Act.17 Eligibility for Medicaid is set out in
§ 68-915, and it includes persons who qualify for assistance
under Nebraska’s program for assistance to the aged, blind,
or disabled.18
DHHS is tasked with administering Nebraska’s Medicaid
program for the aged, blind, or disabled,19 and has been
given the authority to promulgate regulations for the pro-
gram.20 DHHS regulations establish $4,000 as the maximum
13
Pohlmann v. Nebraska Dept. of Health & Human Servs., 271 Neb. 272,
710 N.W.2d 639 (2006).
14
In re Estate of Vollmann, 296 Neb. 659, 896 N.W.2d 576 (2017).
15
Id.
16
Id.
17
See Neb. Rev. Stat. §§ 68-901 to 68-991 (Reissue 2009, Cum. Supp. 2016
& Supp. 2017).
18
See §§ 68-915(2) and 68-1002 through 68-1005.
19
See § 68-1001.
20
See § 68-1001.01.
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DONNA G. v. NEBRASKA DEPT. OF HEALTH & HUMAN SERVS.
Cite as 301 Neb. 838
available resources one may own and still be considered eli-
gible for Medicaid.21 As stated, the balance of Eric’s Trust was
$512,380.39 in May 2016. Eric’s Medicaid benefits were prop-
erly terminated only if Eric’s Trust is considered an “available
resource” for purposes of determining his Medicaid eligibility.
DHHS regulations define “available resources” as “cash or
other liquid assets or any type of real or personal property or
interest in property that the client owns and may convert into
cash to be used for support and maintenance.”22 Generally
speaking, DHHS regulations treat trust assets as “[l]iquid
resources,” which regulations define as “assets that are in cash
or financial instruments which are convertible to cash.”23
1. Nature of Eric’s Trust
When determining which trust assets are “available
resources” for purposes of Medicaid eligibility, DHHS regu-
lations treat trust assets differently depending on the nature
of the trust. Consequently, the nature of Eric’s Trust must be
determined as a threshold matter.
As relevant here, DHHS regulations differentiate between
testamentary trusts,24 revocable trusts,25 and irrevocable trusts
created after August 11, 1993.26 The parties agree that Eric’s
Trust is not a revocable trust, so we limit our analysis to
whether it is properly characterized as either a testamentary
trust or an irrevocable trust created after August 11, 1993.
(a) Testamentary Trusts
A Nebraska statute defines a testamentary trust as “a trust
created by devising or bequeathing property in trust in a
21
See § 001.17.
22
477 Neb. Admin. Code, ch. 21, § 001.03 (2014).
23
477 Neb. Admin. Code, ch. 21, § 001.15A (2014).
24
See § 001.15A12.
25
See 477 Neb. Admin. Code, ch. 21, § 001.15A10 (2014).
26
See § 001.15A13b.
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will as such terms are used in the Nebraska Probate Code.”27
Under DHHS regulations, if a trust is testamentary, it may be
excluded as a resource “depending on the availability of the
funds to the individual or his/her spouse as specified in the
terms of the trust.”28
(b) Irrevocable Trusts
DHHS regulations provide that an irrevocable trust is one
created by an individual “who establishes a trust, who is a
beneficiary of a trust, and who is an applicant or recipient of
Medicaid.”29 Individuals are considered to have established
such a trust if the individual’s assets “were used to form a part
or the entire corpus of the trust other than by will.”30 Under this
regulatory definition, irrevocable trusts can be established by
the individual, his or her spouse, or by “any court or adminis-
trative body, acting at the direction or upon the request of the
individual or the individual’s spouse.”31
If an irrevocable trust is properly classified as one estab-
lished on or after August 11, 1993, DHHS regulations provide
the trust corpus will generally be included in the individual’s
resources for purposes of determining Medicaid eligibility if
the “any circumstances” test is met.32 That test provides:
If there are any circumstances under which payment from
the trust corpus could be made to or for the benefit of the
client . . . the portion of the corpus from which payment
to or for the benefit of the client . . . could be made must
be considered a resource available to the client.33
27
Neb. Rev. Stat. § 76-1514 (Reissue 2009).
28
§ 001.15A12.
29
§ 001.15A13b.
30
Id. (emphasis supplied).
31
§ 001.15A13b4.
32
See § 001.15A13b(1) and (2).
33
§ 001.15A13b(1)2.
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DONNA G. v. NEBRASKA DEPT. OF HEALTH & HUMAN SERVS.
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For the sake of completeness, we note the “any circumstances”
test does not apply if an irrevocable trust is also either a special
needs trust or a pooled trust as defined by DHHS regulations,34
nor does it apply if denial of Medicaid would “cause undue
hardship.”35 But here, no party contends that Eric’s Trust is
a special needs or a pooled trust, nor has an undue hardship
waiver been claimed, so we limit our analysis accordingly.
(c) Eric’s Trust Is Testamentary
It is undisputed that the original Grandchildren’s Trust cre-
ated by Branting’s will was a testamentary trust. The parties
dispute whether the subsequent agreement to split the testa-
mentary trust, and the probate court’s approval of that agree-
ment, changed the fundamental nature of the trust for purposes
of Medicaid eligibility. DHHS argues that Eric’s Trust was cre-
ated by the probate court’s using the procedures of Neb. Rev.
Stat. § 30-24,123 (Reissue 2016) and § 30-24,124, and thus
became either a self-settled or court-settled irrevocable trust.
Eric’s guardian and conservator argues the testamentary nature
of the trust was unchanged by the probate proceedings.
[4] Whether a testamentary trust amended by a probate court
order pursuant to §§ 30-24,123 and 30-24,124 remains a testa-
mentary trust is a question of law.36 When reviewing questions
of law, an appellate court reaches a conclusion independent of
the determination reached by the court below.37
It is true Eric’s Trust would not exist as a separate trust
without the probate order approving the agreement to split
the trust, but we are unpersuaded by DHHS’ contention that
Eric’s Trust lost its testamentary character by virtue of the
probate court proceedings. We find such a contention difficult
34
See § 001.15A13b(1)(a).
35
§ 001.15A13b(3).
36
See In re Trust Created by Hansen, 274 Neb. 199, 208, 739 N.W.2d 170,
178 (2007) (“the type of trust . . . created is a question of law”).
37
See In re Estate of Psota, 297 Neb. 570, 900 N.W.2d 790 (2017).
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to reconcile with either the facts of this case or the statutes
on which the Branting grandchildren and the probate court
relied to split the original testamentary trust.
Prior to the Legislature’s adoption of §§ 30-24,123 and
30-24,124 in 1974, agreements to modify testamentary trusts
were generally not allowed, pursuant to the common-law rule
that although a compromise “‘may provide for disbursement
of the estate of testator in a manner at variance with his will,
a valid, unexecuted testamentary trust cannot thus be modified
or destroyed.’”38 The rationale for this rule was that “[w]hen
an act or agreement of the parties disappoints the purpose of
the settlor by divesting the property from the purposes named,
such act or agreement is void ab initio.”39
The Legislature changed this common-law rule when it
adopted §§ 30-24,123 and 30-24,124, which expressly allow for
testamentary trusts to be affected by compromises. Specifically,
§ 30-24,123 states that “[a]n approved compromise is binding
even though it may affect a trust or an inalienable interest.”
The intent of the Legislature is expressed by omission as
well as by inclusion,40 and we see nothing in the statutory
language indicating that testamentary trusts affected by an
approved compromise necessarily lose their fundamental char-
acter. This conclusion is supported by the plain language of
§ 30-24,123, which recognizes that a “compromise does not
impair the rights of creditors or of taxing authorities who are
not parties to it.”
[5] The question here is whether a testamentary trust which
is modified by a court-approved compromise agreement retains
its testamentary character for purposes of determining a ben-
eficiary’s Medicaid eligibility. The answer to that question will
depend on both the nature of the parties’ agreement and the
38
Cahill v. Armatys, 185 Neb. 539, 544, 177 N.W.2d 277, 280 (1970),
quoting In re Estate of Mowinkel, 130 Neb. 10, 263 N.W. 488 (1935).
39
Id.
40
E.D. v. Bellevue Pub. Sch. Dist., 299 Neb. 621, 909 N.W.2d 652 (2018).
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court’s order approving it. But on this record, we conclude that
neither the agreement to split the trust nor the court’s order
approving that agreement changed the nature of Eric’s Trust
from a testamentary trust into a self-settled or court-settled
irrevocable trust.
The original Grandchildren’s Trust was created by Branting’s
will, and even after that trust was split, the essential terms of
the split trusts were derived from Branting’s will—there is
no separate trust document. The trust terms in Branting’s will
were recited verbatim in the agreement to split the testamen-
tary trust, and when the probate court approved that agree-
ment, it did not add or eliminate the trust terms. Moreover, the
entire corpus of Eric’s Trust was funded by Branting’s estate
pursuant to her will; none of Eric’s assets were used to fund
the trust.
Because the Grandchildren’s Trust was established by
Branting’s will, the administration of Eric’s Trust is still con-
trolled by the language of that will, and the trust was funded
exclusively from Branting’s estate pursuant to the terms of her
will, we conclude as a matter of law that Eric’s Trust retained
its character as a testamentary trust for purposes of determin-
ing Medicaid eligibility.41
2. Eric’s Trust Is Not
Available Asset
Having determined that Eric’s Trust is properly character-
ized as a testamentary trust, we next consider the extent to
which the trust corpus is “available” to him for purposes
of determining his Medicaid eligibility. Here, DHHS argues
the entire corpus of Eric’s Trust is available for purposes of
41
Accord Pohlmann, supra note 13, 271 Neb. at 278, 710 N.W.2d at 644
(“the plain meaning of the phrase ‘other than by will’ in [42 U.S.C.]
§ 1396p(d)(2)(A) [(2000)] and the corresponding Nebraska regulation
make it clear that a Medicaid applicant cannot be considered to have
established a trust for purposes of the restrictions imposed by § 1396p(d)
if the trust was established by will”).
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determining his Medicaid eligibility. Under the regulations, an
asset is “available” if it “may [be] convert[ed] into cash to be
used for support and maintenance.”42 The central question then
is whether, given the terms of Eric’s Trust, he can compel the
trustee to distribute the entire corpus of the trust for his support
and maintenance.
[6] This court considered whether the corpus of a trust was
available to a beneficiary for purposes of Medicaid eligibility
in Pohlmann v. Nebraska Dept. of Health & Human Servs.43
In that case, we recognized that when analyzing the terms of
a testamentary trust to determine if the trust corpus is “avail-
able” for purposes of Medicaid eligibility, “courts have looked
to whether the trust is a support trust or a discretionary trust.”44
We recited the basic difference between “support” trusts and
“discretionary” trusts:
“A support trust essentially provides the trustee ‘shall
pay or apply only so much of the income and principal
or either as is necessary for the education or support of
a beneficiary.’ . . . A support trust allows a beneficiary
to compel distributions of income, principal, or both, for
expenses necessary for the beneficiary’s support, and [the
agency administering Medicaid] may consider the support
trust as an available asset when evaluating eligibility for
assistance. . . .
“Conversely, a discretionary trust grants the trustee
‘uncontrolled discretion over payment to the beneficiary’
and may reference the ‘general welfare’ of the benefi-
ciary. . . . Because the beneficiary of a discretionary trust
does not have the ability to compel distributions from
the trust, only those distributions of income, principal, or
both, actually made by the trustee may be considered by
42
§ 001.03.
43
Pohlmann, supra note 13.
44
Id. at 279, 710 N.W.2d at 645.
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[the agency administering Medicaid] as available assets
when evaluating eligibility for assistance.”45
The trust in Pohlmann provided the trustee was to pay “‘all
of the accumulative income from the individual funds and such
portion of the principal as it may, from time to time, deem
appropriate for [the beneficiary’s] health, education, support
or maintenance.’”46 Pohlmann found the “key” provision in
this trust language was the discretion afforded the trustee, and
concluded that because the trustee could not be compelled to
distribute the entire corpus, the trust was not an available asset
for purposes of determining Medicaid eligibility.
We pause here to acknowledge that our analysis in Pohlmann
contemplates a binary choice between “support” and “discre-
tionary” trust provisions for purposes of determining Medicaid
eligibility. In that regard, the approach adopted in Pohlmann
is different than our treatment of similar trust terms in cases
where the question is one of general trust administration or
interpretation, and not Medicaid eligibility. An example of this
is Smith v. Smith.47
In Smith, a former wife sought to compel a trustee to pay
her former husband’s child support arrearages from the assets
of a trust which stated its purpose was for the “‘health, sup-
port, care and maintenance’” of the husband and his issue.48
The trust further provided that the trustee “‘shall have full,
absolute and uncontrolled discretionary power and authority
to exercise or fail to exercise any and all of the powers . . .
provided . . . .’”49 Smith recognized that because the trust had
attributes of both a discretionary trust and a support trust, it
45
Id. at 280, 710 N.W.2d at 645, quoting Eckes v. Richland Cty. Soc. Ser.,
621 N.W.2d 851 (N.D. 2001).
46
Id. at 280, 710 N.W.2d at 645 (emphasis in original).
47
Smith, supra note 8.
48
Id. at 195, 517 N.W.2d at 397.
49
Id.
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should be construed as a hybrid of the two—a “discretionary
support trust.”50 In Smith and other cases construing discre-
tionary support trusts in a non-Medicaid eligibility context,
we have rejected the suggestion that either the discretionary
terms or the support terms must be given operative effect to
the exclusion of the other, and instead, we attempt to ascertain
the intention of the testator and interpret the trust in a way
that gives effect to all its terms.51 Because support terms and
discretionary terms are often in direct conflict with one another
in a discretionary support trust, we have reconciled that ten-
sion by recognizing that although beneficiaries of such a trust
cannot always compel the trustee to make payments for their
benefit, “the trustee of a discretionary support trust can be
compelled to carry out the purpose of the trust in good faith.”52
In Smith, we applied that “good faith” rule and concluded that
payment of the child support arrearage would not further the
purpose of the trust, because the husband’s issue had become
emancipated. As such, we held the trustee could not be com-
pelled to distribute trust assets from the discretionary support
trust to satisfy the child support arrearage.
Here, presumably because Eric’s Trust contains both sup-
port terms and discretionary terms, DHHS urged application
of the analysis from Smith governing the administration of
discretionary support trusts, rather than the rule articulated
in Pohlmann. If the instant case involved a dispute over the
proper administration of Eric’s Trust, we would agree it is a
discretionary support trust, and would proceed to apply the
50
Id. at 198, 517 N.W.2d at 398.
51
See, e.g., Smith, supra note 8; In re Will of Sullivan, 144 Neb. 36,
12 N.W.2d 148 (1943). See, also, Restatement (Third) of Trusts § 60,
Reporter’s Notes, comment a. (2003) (rejecting historical distinction
between discretionary trusts and support trusts as unnecessary because
there is continuum of discretionary trusts with variety of support standards).
52
See Smith, supra note 8, 246 Neb. at 198, 517 N.W.2d at 398. Accord
Doksansky v. Norwest Bank Neb., 260 Neb. 100, 615 N.W.2d 104 (2000).
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general rules of construction applicable to such trusts. But
the analysis of Smith and Pohlmann is not interchangeable,
because the legal questions are not the same. In Medicaid
eligibility cases involving testamentary trusts, the question is
whether the beneficiary can compel a distribution of the entire
corpus of the trust, not whether the trustee is carrying out the
purpose of the trust in good faith.
Here, the district court’s classification of Eric’s Trust as a
discretionary support trust necessarily took its analysis outside
the framework of Pohlmann, and consequently the analysis
did not conform with the applicable law governing Medicaid
eligibility. Even though Eric’s Trust contained both discretion-
ary and support terms, the proper framework to apply when
determining Medicaid eligibility is that set out in Pohlmann.
Applying Pohlmann to the language of Eric’s Trust, we con-
clude the trust is discretionary and, as such, it is not an avail-
able asset.
The relevant trust language provides:
5.2 During the term of this trust, my trustee shall apply
such part of the net income and principal of this trust as
shall from time to time be necessary or appropriate to the
support, care, maintenance, medical expense, educational
expense and general welfare of my trust beneficiaries in
such amounts and proportions as my trustee, in the sole
and uncontrolled discretion of my trustee, shall deem
advisable, and shall accumulate and add to principal any
net income not used for such purposes.
[7,8] Pohlmann instructs that when a testamentary support
trust allows a beneficiary to compel distributions of income,
principal, or both, for expenses necessary for the beneficiary’s
support, the trust may be considered as an available asset when
evaluating Medicaid eligibility. But when a testamentary trust
grants the trustee uncontrolled discretion over payments to the
beneficiary, it is considered a discretionary trust for purposes
of Medicaid eligibility. Because the beneficiary of a discretion-
ary trust does not have the ability to compel distributions from
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the trust, only those distributions of income, principal, or both
actually made by the trustee may be considered as available
assets when evaluating Medicaid eligibility.
Considering the terms of Eric’s Trust under the Pohlmann
framework, we conclude the discretion afforded the trustee
here is even broader than that considered in Pohlmann. On
this record, we conclude Eric lacks the ability to compel dis-
tribution of the corpus, and it thus is not an available asset
for purposes of determining his Medicaid eligibility. As such,
while any distributions actually made by the trustee can be
considered as available assets when evaluating Eric’s eligibility
for Medicaid,53 it was error to find the entire trust corpus was
an available resource.
V. CONCLUSION
Eric’s Trust is properly characterized as a testamentary
trust, and DHHS regulations provide that testamentary trusts
may be excluded as resources “depending on the availability
of the funds to the individual or his/her spouse as specified
in the terms of the trust.”54 Under Pohlmann, courts deter-
mine whether testamentary trusts are “available” for purposes
of Medicaid eligibility by determining whether the trust is
properly classified as either a support trust or a discretion-
ary trust. Applying Pohlmann here, we conclude Eric’s Trust
is a discretionary trust and he does not have the ability to
compel distribution of the entire corpus. As such, we reverse
the judgment of the district court and remand the matter to
the district court for further consideration in accordance with
this opinion.
R eversed and remanded with directions.
53
See Pohlmann, supra note 13.
54
§ 001.15A12.