You have asked for our assistance in determining the irrevocability of a trust designated
as the "ELIZABETH R. G~ IRREVOCABLE TRUST." Bonnie L. O~ (also known as Bonnie T~),
the mother of Elizabeth R. G~ (Elizabeth), has requested reconsideration of the Field
Office decision that the G~ Trust Agreement is revocable. We believe that a Kansas
court would find the G~ Trust is irrevocable.
I. TRUST PROVISIONS
The Trust Agreement indicates that Bonnie L. O~ is Conservator of Elizabeth's estate
and, in addition, names Bonnie L. O~ as grantor of the trust. Bonnie L. O~ and Bonnie
J. S~, Esquire, are named as co-trustees. The Trust Agreement, executed on May 21,
1999, and signed by the co-trustees, names Elizabeth R. G~ as the Trust Beneficiary.
Elizabeth is described as the Grantor's child who is disabled as defined in 42 U.S.C.
§ 1382c(a)(3). Trust Agreement, Introduction and Article I.C. The Trust Agreement
specifies that the trust is irrevocable and the Trustee agrees to hold and administer
the Trust Estate for the sole benefit of the Beneficiary. Trust Agreement, Articles
I and VI.
To establish the Trust, the "Grantor" provided the sum of ten dollars ($10) and "such
other property, if any," as was described on an attached schedule (no schedule was
attached to the copy we received). This property constituted the initial trust estate
which was to be held by the Trustee "for the benefit of the Beneficiary and the Beneficiary's
descendants." Trust Agreement, Introduction.
The Trust Agreement provides that,
"[u]pon the death of the Beneficiary, the Trustee shall be required to pay back to
the State of Kansas Social Rehabilitation Services (SRS), pursuant to 42 U.S.C. §
1396p(d)(4)(A) and governing SRS regulations, all amounts remaining in the trust up
to an amount equal to the total medical assistance paid on behalf of the Beneficiary.
The remaining trust estate shall be distributed by the Trustee, in the Trustee's sole
discretion, either to the Personal Representative of the Beneficiary's estate, or
to the same persons or entities and in the same manner and proportions such distributions
would have been made had such remaining trust estate been distributed to the Personal
Representative of the Beneficiary's estate.
Trust Agreement, Article I.C.
The Trust Agreement provides that to the extent that the Trustee has discretion to
distribute income or principal for the Beneficiary's health, education, support, or
maintenance,such trust income or principal shall be supplemental to any resources
available for such needs from any local, regional, state or federal government or
agency or from private agencies, it being the Grantor's express purpose and intent
that such trust income or principal not be utilized for such purposes to the extent
such needs are otherwise provided for from such other resources.
Trust Agreement, Article IV.F.
II. TRUSTS AS RESOURCES
Generally, if trust principal is available to the trust beneficiary, it will be considered
a resource to him for purposes of determining his eligibility to SSI benefits. Regulations
define resources for SSI eligibility as follows:
(a) Resources; defined. For purposes of this subpart L, resources means cash or other
liquid assets or any real or personal property that an individual . . . owns and could
convert to cash to be used for his or her support and maintenance.(1) If the individual
has the right, authority or power to liquidate the property or his or her share of
the property, it is considered a resource. If a property right cannot be liquidated,
the property will not be considered a resource of the individual[.]
20 C.F.R. § 416.1201(a)(1). Regulations further define resources as liquid or nonliquid.
Liquid resources are resources in the form of-
cash or other property which can be converted to cash within 20 days . . . . Examples
of resources that are ordinarily liquid are stocks, bonds, mutual fund shares, promissory
notes, mortgages, life insurance policies, financial institution accounts (including
savings, checking, and time deposits, also known as of deposit) and similar items.
Liquid resources, other than cash, are evaluated according to the individual's equity
in the resources[.]
Id. at § 416.1201(b).
The Commissioner has further construed the meaning of "resource," by issuing interpretive
guidelines in the Program Operation Manual System (POMS). With respect to trust instruments,
the POMS provides that-
if an individual (claimant, recipient or deemor) has the legal authority to revoke
the trust and then use the funds to meet his food, clothing or shelter needs, or if
the individual can direct the use of the trust principal for his/her support and maintenance
under the terms of the trust, the trust principal is a resource for SSI purposes.
POMS SI 01120.200D.1.a (emphasis in original). However,
[i]f an individual does not have the legal authority to revoke the trust or direct
the use of the trust assets for his/her own support and maintenance, the trust principal
is not the individual's resource for SSI purposes.
[t]his Trust is established pursuant to the 1993 Omnibus Reconciliation Act[,]
469 NAC 2.009.07A5B (4) and Neb. Rev. Stat. 68-1047. This trust is not for the support
of Kyle D. S~. It is the intent of the Grantor to make provisions in this Trust Agreement
to provide funds necessary to Kyle D. S~'s happiness over and above the essential,
primary support and services otherwise available to him. This Trust is not to replace
or make unnecessary any public or private assistance that Kyle D. S~ may now or in
the future qualify to receive. It is the intent to provide resources for non-support
purposes including comfort over and above the essentials provided by any state or
federal government agency or program. The supplemental resources provided through
this Trust may include, but shall not be limited to education, personal care needs,
attendants, entertainment, and other goods and services not otherwise provided by
public aid or private sources, but which are reasonable and necessary for the rehabilitation
and special non-support needs of the Beneficiary.
Trust Agreement, Article 2. In addition, the Trust Agreement provides that-
[w]hile it is the intention that the Trustee have broad and effective powers
to carry out the provisions of this Trust Agreement, no power conferred upon any Trustee
by this article, shall be exercised in such a manner that it deprives the Trust of
an otherwise available tax exemption, deduction, exclusion or credit, nor to deprive
the Beneficiary of any public or private assistance as described above. This Trust
is intended to qualify under 42 U.S.C. § 1396p(d)(4)(A) and the Trustee shall have
no power which is inconsistent with such law and its regulations, and all provisions
of this Trust shall be interpreted in a manner consistent with such law.
Trust Agreement, Article 2.
Concerning the Trustee's powers, the Trust Agreement provides that—
[t]he Trustee may distribute income or principal or both, . . . [and] in its
sole and absolute discretion, shall apply and distribute such part, all or none of
the net income and principal of the Trust estate in such amounts and proportions as
the Trustee, in the Trustee's absolute discretion, deems necessary or appropriate
for Kyle D. S~'s best interest, [but only after exhausting] all other resources available
. . . from all sources other that his trust including, without limitation, payments,
services and programs administered, provided or sponsored by any governmental (federal,
state or other), private or institutional agency, authority or provider, any rule
or regulation of such agency, authority or provider to the contrary notwithstanding.
Trust Agreement, Article 2. The Trust Agreement also includes a spendthrift clause
intended to prohibits creditors from attaching the assets of a trust. Trust Agreement,
Article 8.
The Trust Agreement provides that the trust terminates upon Kyle's death and "any
remaining undistributed income or principal . . . shall be first paid to the State
of Nebraska, and to any other state who has made payments under Title XIX" on Kyle's
behalf. "In the event that either principal or income remain [after the State is reimbursed],
it shall be paid over and distributed pursuant to the intestacy laws of the State
of Nebraska." Trust Agreement, Article 11.
II. TRUSTS AS RESOURCES
Generally, if trust principal is available to the trust beneficiary, it will be considered
a resource to him for purposes of determining his eligibility to SSI benefits. Regulations
define resources for SSI eligibility as follows:
(a) Resources; defined. For purposes of this subpart L, resources means cash or other liquid assets or any
real or personal property that an individual . . . owns and could convert to cash
to be used for his or her support and maintenance. (1) If the individual has the right,
authority or power to liquidate the property or his or her share of the property,
it is considered a resource. If a property right cannot be liquidated, the property
will not be considered a resource of the individual[.]
20 C.F.R. § 416.1201(a)(1). Regulations further define resources as liquid or nonliquid.
Liquid resources are resources in the form of-
cash or other property which can be converted to cash within 20 days . . . .
Examples of resources that are ordinarily liquid are stocks, bonds, mutual fund shares,
promissory notes, mortgages, life insurance policies, financial institution accounts
(including savings, checking, and time deposits, also known as of deposit) and similar
items. Liquid resources, other than cash, are evaluated according to the individual's
equity in the resources[.]
Id. at § 416.1201(b).
The Commissioner has further construed the meaning of "resource," by issuing interpretive
guidelines in the Program Operation Manual System (POMS). With respect to trust instruments,
the POMS provides that-
if an individual (claimant, recipient or deemor) has the legal authority to revoke
the trust and then use the funds to meet his food, clothing or shelter needs, or if
the individual can direct the use of the trust principal for his/her support and maintenance
under the terms of the trust, the trust principal is a resource for SSI purposes.
POMS SI 01120.200D.1.a (emphasis in original). However,
[i]f an individual does not have the legal authority to revoke the trust or
direct the use of the trust assets for his/her own support and maintenance, the trust
principal is not the individual's resource for SSI purposes.
POMS SI 01120.200D.2 (emphasis in original). The revocability of a trust and the ability to use the trust
principal is determined by the terms of the trust and/or by State law. POMS SI 01120.200D.1.a and SI 01120.200D.2. "Most States follow the general principle of trust law that if a grantor is also
the sole beneficiary of a trust, the trust is revocable regardless of language in
the trust document to the contrary." POMS SI 01120.200D.3 (emphasis in original).
A trust is generally irrevocable if the grantor fails to reserve the power to revoke
or modify it. Restatement (Second) of Trusts §§ 330 and 331 (1957). Nevertheless,
the general law of trusts recognizes an exception to this rule when the grantor is
the sole beneficiary of the trust agreement. Where the grantor is the sole beneficiary
of a trust, he may amend or terminate the trust, even without having reserved the
power to do so. Id. at § 339.
Although the laws of Nebraska have not specifically addressed this issue, we believe
that Nebraska would follow the general rule. While the Trust Agreement at issue here
names the Court as Grantor, the consideration funding the trust belonged to Kyle.
Thus, Kyle is the grantor and, if Kyle is the sole beneficiary of the trust, it is
revocable notwithstanding the Trust Agreement language to the contrary. However, if
the grantor is not the sole beneficiary, the trust would not be revocable.
The trust herein appears to be a "Medicaid Special Needs Trust," a trust created by
means other than a will, and which includes a Medicaid payback provision upon termination
of the trust or the death of the individual. SSA's policy is that the Medicaid trust
"affects the individual's eligibility for Medicaid only, and has no effect on the
SSI income and resource determinations." POMS SI 01120.200H.1.a (emphasis in original). In addition, the POMS provide that-
[a]ccording to the law in most States, the State is not considered a residual
or contingent beneficiary, but is a creditor and the reimbursement is payment of a
debt. This law may or may not apply in your State . . . .
POMS SI 01120.200H.1.b. .
Our research indicates that the purpose of including the State reimbursement provision
in the special needs trust (SNT) is to qualify the beneficiary for medical assistance
from the State. If the SNT meets the exception set out in 42 U.S.C. § 1396p(d)(4)(A)
and State requirements, the State does not consider the trust to be a resource and
the grantor/beneficiary is eligible for medical assistance. Previously we indicated
that a trust provision for repayment of Medicaid funds to a Region VII state represents
repayment of a debt and does not make the State a trust beneficiary. G.C. Opinion,
Iowa,
Kansas, Missouri, and Nebraska State Law on Grantor Trusts; SSI
Resource Issue, dated June 16, 1999. Our advice is consistent with the definition of a beneficiary
in the Restatement (Second) of Trusts (1959) § 127 (Restatement Second) as "[t]he
person for whose benefit property is held in trust." None of the property in a Medicaid-qualifying
trust is held for the "benefit" of the State.
You ask whether the language in Article I.C of the Trust Agreement, see
supra at page 2, makes the trust irrevocable. We previously discussed this issue at length
in G.C. Opinion, Determination of
Irrevocability of a Nebraska Trust, dated February 23, 2000. We also reviewed our prior advice about the revocability
of grantor trusts in Region VII states. Id. We believe it will be helpful to the Kansas Field Office to repeat part of our prior
opinion.
The Restatement (Second) provides that at common law there was a rule of the law of
real property that the owner of land could not, by a conveyance inter vivos (between
living parties), create a remainder interest in his heirs. An attempt to do so created
a reversionary interest in the owner, rather than a remainder interest in his heirs.
However, there is no longer any such rule of law. There is only a question of construction.
Restatement (Second) § 127 cmt. b (1957).
If the owner manifests an intention to create a contingent interest in remainder,
legal or equitable, in the persons who on his death may become his heirs, he can do
so. In the absence of evidence of a contrary intent, however, the inference is that
he does not intend to create a remainder interest in his heirs. The Restatement (Second)
provides that if the beneficial interest is limited to the grantor for life and on
his or her death the property is to be conveyed to his or her "children, or issue,
or descendants" then he or she is not the sole beneficiary of the trust and a remainder
interest is created in his or her children, issue, or descendants. Id. at § 127 cmt. b. Where the owner of property, however, transfers it in trust to pay
the income to himself or herself for life and upon his or her death to pay the principal
to "his heirs or next of kin," in the absence of a manifestation of a contrary intention,
"the inference is that he is the sole beneficiary of the trust, and that he does not
intend to create any interest in the persons who may become his or her 'heirs or next
of kin.'" Id.
Likewise, the inference is that the grantor is the sole beneficiary where the income
is to be paid to the grantor for life and upon his or her death the principal is to
be paid "as he may by deed or will appoint, and in default of appointment to his heirs
or next of kin." If he or she reserves power to appoint by will alone, and in default
of appointment the property is to be conveyed to his or her heirs or next of kin,
the Restatement (Second) indicates that this is some indication that the grantor intended
to confer an interest on his or her heirs or next of kin of which they could be deprived
only by a testamentary appointment, "but this is not of itself sufficient to overcome
the inference that he intended to give them no such interest but intended to be the
sole beneficiary of the trust." Id.
If the grantor "manifests an intention to create a vested or contingent interest in
others, as for example, his children, or the persons who may be his heirs or next
of kin on his death, he is not the sole beneficiary unless such intended interests
are invalid. . . ." Id.at § 339 cmt. b. Thus, the question is whether the language of a trust creates a valid
remainder interest. If no valid remainder interest is created, the grantor is the
sole beneficiary of the trust, the trust is revocable, and the trust principal is
a resource.
In summary, we concluded that you would be justified in finding that the words "child,"
"children," "issue," "descendants," or "words of similar import" create a residual
beneficiary and make a grantor trust irrevocable. If the grantor uses the words "heirs,"
"heirs-at-law," "next-of-kin," or "by intestate succession,"we concluded that you
would be justified, in most cases, in finding that a residual beneficiary was not
created and a grantor trust is revocable. Accord G.C. Opinion, Accessability of Discretionary Support Trust Fund
as a Resource for Supplemental Security Income Purposes in Nebraska
Where Grantor Is also the Sole Beneficiary, dated March 17, 1997. However, if considering the document as whole indicates that
the grantor had a different intention, the trust may be irrevocable despite use of
the words "heirs," "heirs-at-law," or "next-of-kin." Our research reveals that words
such as "heirs" do not have a precise meaning and are interpreted inconsistently by
the courts, depending upon how the court perceives the grantor's intent. We are not
able to provide a general rule that will apply to all trusts.
Where State law is silent, Kansas courts "have often turned to the guidance of the
Restatement of Trusts[.]" In the
Matter of the Estate of Sanders, 929 P.2d 153 (Kan. 1996). Accord Neeley v. Neeley, ___ P.2d ___, 2000 W.L. 45835 at *1 (Kan. App.). Although it was not dispositive
in the case, in Daughters of the American Revolution of Kansas, Topeka
Chapter v. Washburn College, 164 P.2d 128, 132 (Kan. 1945), the Kansas Supreme Court acknowledged the Restatement
rule that a trust is revocable when the grantor is the sole beneficiary. The court
did not indicate that the rule was improper or would not be followed in Kansas. Although
we found no Kansas statute or case applying the grantor trust rule in Kansas, Kansas
law does provide that all gifts and conveyances of goods and chattels (but not land)
to a trust made for the use of the person making the trust are valid and effective
except as to all past, present or future creditors and a nonconsenting wife's statutory
rights. See Kan. Stat. Ann. § 33-101 (1993). See also Newman v.
George, 755 P.2d 18, 20 (Kan. 1988); Ackers v.
First National Bank of Topeka, 192 Kan. 319(1963), as
modified at rehearing, 192 Kan. 471 (1964). A trust is irrevocable unless the power to amend or revoke
is reserved in the trust agreement. Kan. Stat. Ann. § 58-2417 (1994).
In considering only Article I.C of the G~ trust, it includes no named heir and, initially,
one could conclude that the trust was revocable. However, consistent with the Restatement
(Second), Kansas law holds that the primary consideration in the construction of trusts
is the intention of the grantor as evidenced by an examination of the entire document.
See In the Matter of the Estate
of Sam Saroff, 625 P.2d 458, 465 (Kan. 1981). We believe that, because the Trust Agreement Introduction
indicates that it was created for the benefit of the Beneficiary and the Beneficiary's
"descendants," a Kansas court would conclude the use of the word "descendants" was
sufficient to demonstrate the grantor's intent to create a residual beneficiary. For
example, in the case of In
re Watts, 162 P.2d 82, 87 (Kan. 1945), in interpreting whether the corpus of a discretionary
spendthrift trust created by will could be reached by a judgment for alimony due the
beneficiary's ex-spouse, a county district court made the testator's "unknown heirs"
parties to the litigation. The trustee argued that, if the beneficiary never showed
himself capable of handling the trust property, upon his death any remaining property
would go to the testator's heirs. Upon appeal, the Kansas Supreme Court held that,
in order to determine the meaning and effect of the trust provisions, the unknown
heirs were properly made parties to the litigation. However, because it found that
the beneficiary had no current vested interest in the trust which could be reached
by the ex-spouse's judgment, the court did not have to decide at that time who might
receive any remaining trust property upon the beneficiary's death. 162 P.2d at 86-87.
The Kansas Supreme Court also has found that "'the same rules that apply to [the]
construction [of wills] apply to trusts and most other written documents.'" In the Matter of the
Estate of Sanders, 929 P.2d at 158, quoting In
re Estate of Hauck, 223 P.2d 707 (Kan. 1950).
For the reasons set out above, we believe a Kansas court would find that the G~ Trust
is irrevocable.
Frank V. S~ III
Chief Counsel
By_________
C. Geraldine U~
Assistant Regional Counsel