Estate Of Margaret Berto v. Dept. Of Social & Health Services

FILED
July 19, 2016
In the Office of the Clerk of Court
WA State Court of Appeals, Division Ill
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
IN THE MATTER OF THE ESTATE OF )
MARGARET L. BERTO, ) No. 33591-7-111
)
Appellant, )
)
v. )
) PUBLISHED OPINION
STATE OF WASHINGTON, )
DEPARTMENT OF SOCIAL & )
HEALTH SERVICES, WASHINGTON )
HEALTHCARE AUTHORITY, )
)
Respondent. )
KORSMO, J. -This appeal arose from the denial of Ms. Margaret Berto's
application for Medicaid benefits. Her estate argues in this appeal that the contents of a
testamentary trust established by her late husband should not have been considered
available assets that disqualified her from Medicaid eligibility. We reject her argument
and affirm.
FACTS
Sometime in the mid-2000s, Ms. Berto and her husband placed all of their assets,
including their home, in a living trust that named themselves as both beneficiaries and
trustees. When her husband died in January 2009, his will created a second trust to
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Estate of Berto v. D.S.H.S.
contain all of his assets. Ms. Berto was the sole beneficiary of this testamentary trust. It
allowed distributions for her "health, education, maintenance and support" at the
discretion of the trustees. Ms. Berto was one trustee. The trust provided that she could
not be the sole trustee and could not alone determine the amount of any distribution. The
trustees were restricted to distributing "net income that will not cause such beneficiary to
be ineligible for governmental financial assistance benefits." The trust also limited Ms.
Berta's use of the trust distributions to purposes other than those supplied by government
assistance.
In order to account for her husband's share of the marital estate, Ms. Berto divided
the value of her home between the living trust and the testamentary trust. She valued the
home at approximately $240,000. Acting as a trustee for the living trust, she issued a
promissory note for $120,000 to herself as a trustee for the testamentary trust, and
assigned ownership of the home to the living trust. The living trust spent $25,000
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preparing the home for sale, before selling it for $150,000. Ms. Berto satisfied the
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promissory note and transferred $120,000 from the living trust to the testamentary trust.
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In June 2013, Ms. Berto applied for state assistance. The Washington Healthcare I
Authority (WHA) denied her application after finding that her available assets exceeded I
the $2000 eligibility limit. In February 2014, Ms. Berto resigned as trustee and requested II
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a hearing to challenge the denial of her benefits. She argued that the testamentary trust i
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was not truly an available asset because of her limited control and the restrictions on
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distribution. The reviewing judge for the Department of Social and Health Services
(DSHS) affirmed the order. Ms. Berto timely appealed to this court.
ANALYSIS
The sole question is whether the testamentary trust constitutes an available
resource for determining Ms. Berta's eligibility for Medicaid. This requires an
examination of the rules concerning the treatment of trusts for eligibility purposes.
The facts are unchallenged and, therefore, are verities on appeal. Campbell v.
Dep 't ofSoc. & Health Servs., 150 Wash. 2d 881, 888, 83 P .3d 999 (2004 ). Ms. Berto
argues that the WHA erred in its legal interpretation of regulations promulgated by
DSHS. We review an agency's conclusions of law de novo. Skamania County v.
Columbia River Gorge Comm 'n, 144 Wash. 2d 30, 42-43, 26 P.3d 241 (2001). We interpret
regulatory language consistent with the rules of statutory construction. Over lake Hosp.
Ass 'n v. Dep 't of Health, 170 Wash. 2d 43, 51, 239 P .3d 1095 (2010). Where a rule is plain
and unambiguous on its face, we will give effect to that language. Id. at 52.
Essentially, the beneficiary of a "trust" has a type of property right in the contents
of the trust. This entitles them "to the beneficial enjoyment of property to which another
person holds the legal title." BLACK'S LAW DICTIONARY 1740 (10th ed. 2014); accord
State ex rel. Wirt v. Superior Court, 10 Wash. 2d 362, 369, 116 P.2d 752 (1941). This fits
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into the broad definition of what DSHS considers a "resource." WAC 182-512-0200(1). 1
Consequently, the principal of a trust will generally be considered an available resource
for the trust's beneficiary. 2 WAC 182-516-0100, the primary provision at issue in this
case, delineates particular treatment for specific types of trusts. Although somewhat
obtusely phrased, this rule is unambiguous.
Subsection ( 1) states the DSHS 's authority over eligibility determinations
involving trusts. Subsections (2)-(4) address trusts created prior to August 1, 2003, while
subsection (5) addresses the type of trust at issue here. This subsection is derived from
federal law and addresses a class of trusts that DSHS treats as if they were established by
the client. See 42 USC § 1396p( d). Trusts that are established by an individual or certain
related individuals, with assets that are partially from the individual or their spouse, and
that are not established by a will, are considered exactly the same as trusts created by that
individual. WAC 182-516-0100(5)(a). The principal of such a trust remains an available
asset until it can no longer be distributed to the client; at that point it is considered a
transfer of assets. WAC 182-516-0100(5)(d-e).
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"A resource is any cash, other personal property, or real property that an
applicant, recipient or other financially responsible person: (a) Owns; (b) Has the right,
authority, or power to convert to cash (if not already cash); and (c) Has the legal right to
use for his/her support and maintenance." WAC 182-512-0200(1).
2
Most of Ms. Berto's arguments appear to be premised on the faulty assumption
that a trust will not be considered an available resource unless the regulations explicitly
describe that type of trust.
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Since the testamentary trust was established by a will, subsection (5) does not
apply. However, Ms. Berto argues that a provision within this subsection exempts the
testamentary trust: "Only the assets contributed other than by will to the trust by either
the client or the client's spouse are available to the client." WAC 182-516-0100(5)(b). It
appears that this provision was intended to only apply to those trusts established by the
client. Regardless, Ms. Berto failed to read the entire sentence. This provision only
applies "when part of the trust assets were contributed by persons other than the client or
the client's spouse." Id. Since no third party contributed to the testamentary trust, this
provision is inapplicable. 3
Subsections (6) through (9) address special needs trusts created to care for
disabled individuals; the parties agree these provisions are inapplicable. Subsection ( 10)
states that distributions from trusts are considered unearned income. Although income is
important for other considerations, it is irrelevant in this action.
3 If this provision applied, there would be an open question concerning what
portion of the principal was actually contributed by her husband's will. Ms. Berto
attributed a value of $240,000 to their home, and issued a promissory note to the
testamentary trust for $120,000. The record does not indicate the origin of that dubious
valuation. Immediately afterwards, Ms. Berto sold the home and realized just $125,000.
She satisfied the note and placed$ f20,000 in the testamentary trust. Functionally, Ms.
Berto bought her husband's share of the home for almost double its value in order to
move her assets into the testamentary trust. Roughly $57,500 of the principal in the trust
probably should be considered directly contributed by Ms. Berto and $62,500 should be
considered contributed by her husband's will.
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Subsection ( 11) is the final provision of interest. It reads,
The department will only count income received by the client from
trusts and not the principal, if:
(a) The beneficiary has no control over the trust; and
(b) it was established with funds of someone other than the client,
spouse or legally responsible person.
WAC 182-516-0100. Although phrased poorly, the meaning is clear. If both conditions
are satisfied, DSHS will not count the principal as an available resource. If a third party
creates a trust over which the beneficiary has no control, the trust principal will not count
as an available resource for the beneficiary.
Here, neither condition is satisfied. As co-trustee, Ms. Berto had some control
over the trust and all of the funds came from either her husband or herself. Consequently,
subsection (11) does not exempt the testamentary trust. None of the regulations exempt
the testamentary trust from being considered an available asset for its beneficiary, Ms.
Berto. DSHS correctly considered the testamentary trust to be an available asset.
The judgment is affirmed.
WE CONCUR:
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