In The Matter Of The Estate Of Elenore Gist Iowa

• Court: Supreme Court of Iowa
• Decided: March 27, 2009
• Docket: 07–1142
• Status: Published

Opinion

IN THE SUPREME COURT OF IOWA No. 07–1142

Filed March 27, 2009

IN THE MATTER OF THE ESTATE OF ELENORE GIST

IOWA DEPARTMENT OF HUMAN SERVICES,

Appellee,

vs.

SUSAN ERAL and COLLEEN CONRAD,

Appellants.

Appeal from the Iowa District Court for Pocahontas County,

William C. Ostlund, Judge.

Trustees appeal a district court order enforcing a Title XIX lien

against the trust assets. AFFIRMED.

Daniel D. Dykstra, Joel D. Vos, and Deena A. Townley of Heidman,

Redmond, Fredregill, Patterson, Plaza, Dykstra & Prahl, L.L.P., Sioux

City, for appellants.

Thomas J. Miller, Attorney General, and Barbara E.B. Galloway,

Assistant Attorney General, for appellee. 2

WIGGINS, Justice.

We must decide whether the district court correctly allowed the

State to enforce its Title XIX lien against a trust containing a spendthrift

clause. Because we find the trust is a discretionary trust with

standards, we conclude our common law allows the State to recover its

lien for necessities supplied to the beneficiary from the trust, in spite of

the spendthrift provision. We also conclude the lack of symmetry

between Medicaid’s eligibility requirements and Medicaid’s ability to

recover from an estate does not preclude recovery. Therefore, we affirm

the decision of the district court.

I. Background Facts and Proceedings.

In 1974, Alice and Glenn Pirie signed a joint will leaving all assets

to the surviving spouse. If at the time of death there was not a surviving

spouse, the property was to go to their daughter Elenore Gist, in trust for

her lifetime. After Elenore’s death, the assets would go to Glenn and

Alice Pirie’s granddaughters, Susan Eral and Colleen Conrad f/k/a

Susan and Colleen Gist. In May 1982, after the death of Glenn Pirie,

Alice Pirie signed a codicil to the will appointing Elenore’s daughters,

Conrad and Eral as trustees for the testamentary trust.

Conrad and Eral assumed their role as trustees on August 15,

1983, after the death of Alice Pirie. Elenore Gist was forty-seven years

old at the time. Elenore began receiving Title XIX benefits under the

Iowa medical assistance program in 1995. She continued receiving those

benefits until her death on July 19, 2006.

By January 31, 2007, Conrad and Eral completed the final report

and accounting for the Elenore Gist Trust. The court set the date for the

hearing on that final report for March 12, 2007. On March 6, the Iowa

Department of Human Services filed a claim in probate court against the 3

trust for the amounts it paid under Title XIX. The department also filed

an objection to the final report of the trust claiming the final report failed

to provide the department reimbursement for the monies it paid to

Elenore under Title XIX. The department claimed Gist owed $396,570.20

to the State for services she received under Title XIX. By March 9, Eral

and Conrad had filed an amended denial of the claim.

The district court ruled on the claim and objection and found the

trust was a discretionary support trust set up for Elenore Gist and as

such, it should be used to repay her Title XIX debt. Eral and Conrad

appeal.

II. Issues.

In this appeal, we must decide whether the district court erred in

finding the testamentary trust created for Elenore Gist was subject to

Gist’s Title XIX medical assistance debt. If we determine that the trust is

subject to the debt, we must then determine whether the trust’s

identification as a spendthrift trust defeats the State’s claim for

reimbursement. Finally, we must decide whether the lack of symmetry

between Medicaid’s eligibility requirements and Medicaid’s ability to

recover from an estate precludes the State from recovery.

III. Scope of Review.

This case comes to us from a ruling in probate court. The State’s

objections to the trustees’ final report as well as its claim against the

trust are equitable in nature. In re Barkema Trust, 690 N.W.2d 50, 53

(Iowa 2004). Thus, the court’s scope of review is de novo. Iowa R. App.

P. 6.4; Barkema, 690 N.W.2d at 53.

IV. Applicable Trust Provisions.

The relevant provisions of the Piries’ will creating the trust for

Elenore are as follows: 4 The trustee shall pay to Elenore for so long as she shall live at quarterly intervals, or more often the income from the trust assets or so much thereof as may be necessary to provide her with a reasonable standard of living, considering any other means of support or resources which she may have. If the income shall be insufficient to provide her with a reasonable standard of living the trustee may invade the principal or corpus of the trust assets. While provision is hereinafter made for the disposition of any trust assets which may remain at Elenore’s death it shall not be an objective of this trust to preserve the trust estate intact for the remaindermen beneficiaries nor to deny Elenore a reasonable standard of living for the purpose of enhancing the value of the trust estate or even preserving it for the benefit of the beneficiaries. The discretion of the trustees shall therefore extend to disbursing the whole of the trust estate for Elenore’s benefit during her lifetime but, if possible, the trustee shall make provision for her burial expenses.

If any trust assets remain at the time of Elenore’s death they shall be first applied to payment of her burial expenses. Should tangible property remain in the trust at the time of her death the trustee shall sell same whether it be real or personal property. Such remaining assets shall, after the payment of Elenore’s burial expenses be distributed to our grandchildren Colleen Gist and Susan Gist to share and share alike but if they, or either of them have not attained their majority then the share of the minor or minors shall continue to be held in trust by the trustee; it shall make such payments of or from income and principal as it may be considered necessary for the care, support and education of any such minor and the balance, if any, remaining at said minor’s attaining her majority shall then be paid to her and the trust shall end upon the last such payment. In the event of the death of either Colleen or Susan before the time for distribution to them, or either of them, has arrived then their respective shares shall be paid to their heirs at law.

All assets of the trust and the income therefrom shall be free from the claims of any and all creditors of the beneficiaries thereof and shall not be used for the payment of their debts or obligations except as may be necessary to carry out the purposes of the trust. No beneficiary shall have any power or right to assign, sell, pledge, hypothecate or in any other manner deal with the trust property. All restrictions herein contained shall apply equally to include 5 every person having a claim against, or making a demand against the beneficiaries whether such claim or demand is imposed by law or otherwise, except that lawful taxes may be collected from the trust assets to the extent permitted by law.

The last paragraph of the quoted language is a spendthrift provision.

V. Whether the Trust is Subject to Gist’s Title XIX Medical Assistance Debt.

The State claims Iowa Code section 249A.5 allows it to recover

from the estate the monies it paid on Elenore’s behalf under Title XIX.

Section 249A.5 provides:

The provision of medical assistance to an individual who is fifty-five years of age or older, or who is a resident of a nursing facility, intermediate care facility for persons with mental retardation, or mental health institute, who cannot reasonably be expected to be discharged and return to the individual’s home, creates a debt due the department from the individual’s estate for all medical assistance provided on the individual’s behalf, upon the individual’s death.

Iowa Code § 249A.5(2) (2005). The Code defines “estate” under chapter

249A as property in which a recipient has “any legal title or interest at

the time of the recipient’s . . . death, to the extent of such interests,

including but not limited to interests in jointly held property, retained life

estates, and interests in trusts.” Id. § 249A.5(2)(c). Iowa adopted this

recovery statute in 1994. 1994 Iowa Acts ch. 1120, § 10 (codified at Iowa

Code § 249A.5(2) (1995)). The assets included within the expansive

definition of “estate” are subject to probate. Iowa Code § 249A.5(2)(d);

see also In re Estate of Serovy, 711 N.W.2d 290, 293–94 (Iowa 2006)

(holding the estate included assets held in joint tenancy and allowing for

recovery of those assets).

We have recently set forth the analytical framework to determine

whether a trust should be subjected to Medicaid recovery under Iowa 6

Code section 249A.5(2)(c). Barkema, 690 N.W.2d at 53, 55–56. First, we

must classify the trust at issue. Id. at 53. Next we must determine

whether the beneficiary’s interest in the trust is the kind of interest

encompassed by section 249A.5(2)(c). Id. at 55. Finally, we must decide

whether that interest was present at the time of the beneficiary’s death.

Id. at 56.

A. Classifying the Trust. In Barkema, we identified the two

classifications of support trusts, a pure support trust and a discretionary

support trust. Id. at 53–54. The Restatement of Trusts no longer refers

to the classification of discretionary support trust as a discretionary

support trust. Restatement (Third) of Trusts § 50 (2003). The

Restatement now classifies a discretionary support trust as a

discretionary trust with standards. Helene S. Shapo, George Gleason

Bogert & George Taylor Bogert, The Law of Trusts and Trustees § 228, at

567 (3d ed. 2007). Regardless of whether we refer to a trust as a

discretionary support trust or a discretionary trust with standards, they

are the same animal.

We explained the difference between a pure support trust and a

support trust with standards as follows:

A settlor creates a pure support trust “[i]f a trustee is directed to pay or apply trust income or principal for the benefit of a named person, but only to the extent necessary to support him, and only when the disbursements will accomplish support.” In contrast, a settlor creates a [discretionary trust with standards] if “the stated purpose of the trust is to furnish the beneficiary with support, and the trustee is directed to pay to the beneficiary whatever amount of trust income [or principal] the trustee deems necessary for his support.” Generally, if the trust is a [discretionary trust with standards],

the beneficiary has a right that the trustee pay him the amount which in the exercise of 7 reasonable discretion is needed for his support . . . ; and the beneficiary can transfer this interest or his creditors may reach it, unless it is protected by a spendthrift clause.

Barkema, 690 N.W.2d at 54 (citations omitted).

The trust agreement created by the joint will of the Piries gave the

trustee the discretion to distribute the income of the trust to Elenore “as

may be necessary to provide her with a reasonable standard of living,

considering any other means of support or resources which she may

have.” The trust gave the trustee the discretion to invade the principal or

corpus to provide her with a reasonable standard of living. The trust did

not limit the principal and corpus payments to the mere support of

Elenore, but allowed those payments to provide her with a reasonable

standard of living. This language created a discretionary trust with

standards. Id.

B. Whether the Beneficiary’s Interest in the Trust is the Kind

of Interest Encompassed by Section 249A.5(2)(c). We have stated

that for purposes of section 249A.5(2)(c) a beneficiary has an “interest” in

a trust to the extent the assets are available to the trust beneficiary. Id.

at 55. In a discretionary trust with standards, the beneficiary has the

right to require the trustee to pay him the amount, which in the exercise

of reasonable discretion is needed to support him. Id. at 54.

Additionally, the beneficiary may transfer his interest and a creditor may

reach it. Id. Accordingly, a beneficiary’s interest in the discretionary

trust with standards is the kind of interest encompassed by section

249A.5(2)(c). Therefore, Elenore’s interest in the trust is the kind of 8

interest encompassed by section 249A.5(2)(c), unless the spendthrift

clause of the trust precludes the State from reaching that interest.1

C. Whether the Beneficiary’s Interest in the Trust was Present

at the Time of the Beneficiary’s Death. In Barkema, we determined

that in a discretionary trust with standards, the beneficiary’s interest is

present at the time of the beneficiary’s death. Id. at 56. The trustees

have not contested the district court’s finding that Elenore’s interest in

the trust was present at the time of her death. On appeal the trustees

only contest whether Elenore’s trust was a discretionary trust with

standards and whether that interest was the type encompassed by

section 249A.5(2)(c). Thus, we agree with the district court that the trust

is a discretionary trust with standards, the beneficiary’s interest in the

trust is the kind of interest encompassed by section 249A.5(2)(c), and

that interest was present at the time of her death.

VI. The Effect of the Spendthrift Clause.

Having determined the Gist Trust is the type of trust from which

the State is entitled to reimbursement for its Title XIX claim, we must

determine whether the spendthrift clause protects the assets of the trust.

The trustees argue that the Iowa Trust Code’s provisions on spendthrift

trusts prevent the State from seeking reimbursement from the trust on

its Title XIX lien. The trustees cite Iowa Trust Code sections 633A.2301

and 633A.2302, which provide in relevant part:

633A.2301. Spendthrift protection recognized

Except as otherwise provided in section 633A.2302, all of the following provisions shall apply:

1The beneficiary’s power to transfer his or her interest or the ability of a creditor to reach it may be limited by a spendthrift provision under certain circumstances. In re Barkema Trust, 690 N.W.2d 50, 54 (Iowa 2004). See division VI of this opinion for a discussion on the spendthrift clause of the Gist Trust. 9 1. A term of a trust providing that the interest of a beneficiary is held subject to a “spendthrift trust”, or words of similar import, is sufficient to restrain both voluntary and involuntary transfers of the beneficiary’s interest.

....

4. A creditor or assignee of a beneficiary of a spendthrift trust may not compel a distribution that is subject to the trustee’s discretion despite the fact that:

a. The distribution is expressed in the form of a standard of distribution.

b. The trustee has abused its discretion.

Iowa Code § 633A.2301.

633A.2302. Exception to spendthrift protection

A term of a trust prohibiting an involuntary transfer of a beneficiary’s interest shall be invalid as against claims by any creditor of the beneficiary if the beneficiary is the settlor.

Id. § 633A.2302.

On its face, these sections of the Iowa Trust Code appear to end

the analysis because the Code does not contain an exception to the

spendthrift protection in the trust for services or supplies provided for

necessities. See Restatement (Third) of Trusts § 59(b) (2003) (providing

an exception to a spendthrift provision in a trust for “services or supplies

provided for necessities”). However, our analysis must continue based

on section 633A.1104 of the Iowa Trust Code, which provides, “[e]xcept

to the extent that this chapter modifies the common law governing

trusts, the common law of trusts shall supplement this trust code.” Iowa

Code § 633A.1104.

Our common law does have an exception to a spendthrift provision

for services or supplies provided for necessities. In re Estate of Dodge,

281 N.W.2d 447, 451–52 (Iowa 1979). There we held a creditor’s claim

may be enforced against the trustee of a support trust subject to a 10

spendthrift clause if (1) the claim is for necessary goods or services, not

officiously rendered, which the settlor intended to provide the beneficiary

through trust funds; and (2) the withholding of payment for the goods

and services is not properly within the discretion granted the trustee by

the trust instrument. Id. at 451.

The Iowa Trust Code is silent as to a necessity exception. Sections

633A.2301 and 633A.2302 do not provide that its exceptions are

exclusive. As section 633A.1104 clearly establishes, the common law of

trusts shall supplement the trust code. Our common law has recognized

a necessity exception since 1979. Accordingly, the common law

necessity exception in Dodge still applies notwithstanding enactment of

the Iowa Trust Code. See Martin D. Begleiter, In the Code We Trust—

Some Trust Law for Iowa at Last, 49 Drake L. Rev. 165, 210–11 (2001)

(opining that section 633A.1104 retains the necessity exception).

Applying the exception as set forth in Dodge, the State provided

Elenore with necessary goods or services. The settlor of the trust

intended for the trust to provide a reasonable standard of living for

Elenore, which includes the goods and services provided by the State.

Additionally, because this was a discretionary trust with standards, the

withholding of payment for the goods and services was not properly

within the discretion granted the trustee by the instrument. Barkema,

690 N.W.2d at 54. Therefore, the spendthrift provision of the trust does

not prevent the State from collecting its Title XIX lien.

VII. Symmetry Argument.

The final argument made by the trustees to prevent the State from

enforcing its Title XIX lien is that there should be symmetry between the

determination of whether an asset is available during the lifetime of the

beneficiary for Medicaid eligibility purposes and the determination made 11

for estate recovery purposes of whether an asset is included in the

decedent’s estate under Iowa Code section 249A.5. In other words, if an

asset does not make a person ineligible for Medicaid, that asset should

not be used to reimburse the State for its Medicaid payments.

The trustees claim it is unfair not to have symmetry. Whether

there should be symmetry between the eligibility for Medicaid and the

recovery allowed by the State under section 249A.5 is not a decision for

this court. That is a policy decision to be made by the legislature, the

branch of government responsible for enacting the laws governing

Medicaid. Moreover, there are valid reasons for this policy decision.

By not requiring a person to spend all of his or her assets in order

to be eligible for Medicaid, the legislature has allowed the recipient to use

his or her funds for items not covered by Medicaid. Although the

legislature could have just as easily required a recipient to spend all

assets before being eligible for Medicaid, that requirement would create a

significant hardship on Iowa families because Medicaid does not cover

one hundred percent of a person’s expenses. The legislature took a more

humanitarian approach by allowing recipients to keep certain assets to

pay for items not covered by Medicaid. To the extent such assets are not

exhausted at the time of the recipient’s death, however, the legislature

allows the State to recoup its payments from those assets. As a court,

we defer to the legislature on these matters. Consequently, the lack of

symmetry is not a reason for us to hold the State is not entitled to

reimbursement of its Title XIX lien.

VIII. Disposition.

Having determined that the trust is a discretionary trust with

standards, we conclude our common law allows the State to recover its

lien for necessities supplied to the beneficiary from the trust, in spite of 12

the spendthrift provision. Because the lack of symmetry between

Medicaid’s eligibility requirements and Medicaid’s ability to recover from

an estate does not preclude recovery, we affirm the decision of the

district court.

AFFIRMED.