TN 34 (02-15)
PS 01825.018 Iowa
A. PS 15-070 Review of Retroactive Effect of Iowa District Court Order on Special Needs Trust Agreement (K~)
DATE: October 17, 2014
This Regional Chief Counsel (RCC) discusses whether, under Iowa state law, the court has the authority to modify an Irrevocable Trust (Trust), and whether the court’s modification of the Trust has retroactive effect. The Trust was established on February 18, 2013 and judicial modification was granted on July 14, 2014. There is nothing in the Iowa Code that provides for the retroactive modification of a trust. Retroactive effect, also known as nunc pro tunc, is to supply or correct a record to make it conform to that which was actually done at an earlier date, and that as between the parties it operates to validate or correct the original judgment. There is no indication in the Judge’s July 2014 order that the amendment to the trust agreement was needed due to a clerical error. In conclusion, absent additional information, we believe the Judge did not have authority under Iowa law to enter the July 2014 order retroactively modifying the terms of the Irrevocable Trust agreement. Therefore, the Order should be given no retroactive effect. It is, however, a valid order effective July 14, 2014.
You requested advice regarding whether an order issued by the Iowa District Court for Guthrie County retroactively amended the K~ Irrevocable Trust Agreement, which would result in the Trust being considered a countable resource for the purposes of an award of supplemental security income (SSI) benefits.
On February 18, 2013, M~, mother of K~, established an irrevocable trust for the benefit of K~. On May 23, 2014, the Social Security Administration (SSA) notified M~ that the February 2013 trust agreement did not qualify as a special needs trust under section 1917(d)(4)(A) of the Social Security Act, 42 U.S.C. § 1396p(d)(4)(A). Specifically, SSA indicated that two provisions caused the trust assets to be considered a countable resource under the SSI program. First, Article IV, Section A of the trust violated the requirement that the trust be established and used for the sole benefit of the disabled individual. Second, Article IV, Section 8 of the trust violated the requirement for state Medicaid reimbursement from any amount remaining in the trust upon the death of the disabled individual.
Thereafter, on July 14, 2014, the District Court Judge in Guthrie County, Iowa, ordered that the terms of the trust be amended “as of the effective date of the Trust.” In re: The K~ Medical Assistance Special Needs Trust for Disabled Person, Case No. TRPR013976 at 1. K~’s electronic claims file indicates that on August 27, 2014, it was determined that the trust, as amended, met the criteria for a special needs trust and would be excluded as a resource effective August 1, 2014. However, the question of whether the court’s order should have retroactive effect remained.
In order to be eligible to receive SSI benefits, an individual must have income and resources within specified limits, and an individual with countable resources in excess of the statutory limit is not eligible for SSI benefits. See generally Social Security Act § 1611(a), 42 U.S.C. § 1382(a); Program Operations Manual System (POMS) SI 01110.001. Under section 1613(e)(3) of the Act, SSA considers trusts created on or after January 1, 2000, from a disabled beneficiary’s assets to be a resource to the extent that the trust is revocable, or, in the case of an irrevocable trust, to the extent that any payments can be made from the trust for the benefit of the disabled beneficiary. See 42 U.S.C. § 1382b(e)(3); POMS SI 01120.201.
Pursuant to the Iowa Code an irrevocable trust “may be modified or terminated upon the consent of the settlor and all of the beneficiaries” or may be modified by a court with the consent of all beneficiaries. Iowa Code §§ 633A.2202, 633A.2203 (2014). Specifically, a court may modify the administrative provisions of a trust if, owing to circumstances not known to the settlor, the continuation of the trust under its terms would “defeat or substantially impair the accomplishment of the purposes of the trust.” Iowa Code §633A.2204 (2014); see also Schade v. Gethmann, 784 N.W.2d 202 (Iowa Ct. App. 2010) (the court may only modify an administrative provision of the trust, not a dispositive provision). M~ is the settlor and K~ is the beneficiary of the trust in this case. It appears that the judge properly agreed to modify the trust agreement at the request of M~.
However, SSA must also consider whether the judga had the authority under state law to issue the July 2014 Order with retroactive effect. There is nothing in the Iowa Code that provides for the retroactive modification of a trust. Nunc pro tunc is a Latin term meaning “now for then,” and in the legal context indicates a retroactive legal effect. Although the judge did not use this phrase, the retroactive application of the amendment of the trust is the equivalent of an order nunc pro tunc. The Iowa Supreme Court summarized that:
The purpose of a nunc pro tunc entry is to supply or correct a record to make it conform to that which was actually done at an earlier date, and that as between the parties it operates to validate or correct the original judgment. Murnan v. Schuldt, 221 Iowa 242, 245, 265 N.W. 369, 371 (1936). Thus, a court may properly use a nunc pro tunc order to correct a clerical error, an error “that is not the result of judicial reasoning and determination.” State v. Naujoks, 637 N.W.2d 101, 113 (Iowa 2001). On the other hand, “a nunc pro tunc order is not available to correct a judicial, as distinguished from a clerical, error.” State v. Steffens, 282 N.W.2d 120, 122 (Iowa 1979). Consequently, it “cannot be used to remedy an error in judicial thinking, a judicial conclusion, or a mistake of law.” Naujoks, 637 N.W.2d at 113. It “is not an alternative to the established procedures to alter, vacate, or modify judgments under our procedural rules.” Steffens, 282 N.W.2d at 122.
Weissenburger v. Iowa Dist. Court for Warren County, 740 N.W. 2d 431, 434 (Iowa 2007).
Iowa courts look to “the words used by the court in its order, the nature of the alleged error, whether the matter had been previously called to the court’s attention, and the length of time passing before the mistake’s ‘discovery’” in determining whether a nunc pro tunc order is proper. Graber v. Iowa District Court, 410 N.W. 2d 224, 229-30 (Iowa 1987). There is no indication in the judge’s July 2014 order that the amendment to the trust agreement was needed due to a clerical error. In fact, the judge made no comment whatsoever with regard to the reason for the amendment for the trust agreement; based on the chronology, the amendment was presumably requested because of SSA’s May 2014 notice that the trust agreement language did not qualify as a special needs trust under the Social Security Act. There is no indication that the amendment was made to “conform to [what] was actually done at an earlier date,” but instead appears to be a substantive change to comply with the Social Security Act. There is no basis in the Iowa Code or Iowa case law for a retroactive effect of the court’s order amending the trust agreement.
In conclusion, absent additional information, we believe the judge did not have authority under Iowa law to enter the July 2014 order retroactively modifying the terms of the K~ Irrevocable Trust agreement. Therefore, the Order should be given no retroactive effect. It is, however, a valid order effective July 14, 2014.
Rhonda J. Wheeler
Acting Chief Counsel, Region VII
Pamela A. Kultgen
Assistant Regional Counsel
B. PS 00-468 Determination of Irrevocability of a Nebraska Trust K~, SSN: ~
DATE: February 23, 2000
The issue concerns what language is sufficient to establish that a grantor trust is irrevocable in Iowa, Kansas, Missouri, and Nebraska.
Although the laws of Nebraska have not specifically addressed it, it appears that Nebraska would follow the general rule that a trust is revocable if the grantor is the sole beneficiary, even if there is a provision making the trust irrevocable.
There does not appear to be any Kansas statute or case applying the grantor trust rule in Kansas. Generally, a trust is revocable when the grantor is the sole beneficiary.
Missouri has explicitly adopted the rule that a trust is revocable if the grantor is the sole beneficiary.
There does not appear to be any Iowa statute or case applying the grantor trust rule in Iowa. It appears Iowa would follow general trust law regarding revocability of a trust when the grantor is the trust's sole beneficiary.
Thus, in all Region VII States, the words "child," "children," "issue," "descedents," 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," in most cases it would justify a finding that a residual beneficiary was not created and a grantor trust is revocable.
You have asked for our assistance in determining the irrevocability of a trust designated as the K~ Special Needs Trust, ~. You also asked us revisit the question of what language is sufficient to establish that a grantor trust is irrevocable in Iowa, Kansas, Missouri, and Nebraska.
I. TRUST PROVISIONS
The K~ Special Needs Trust (SNT) was funded with an insurance settlement in the amount of $26,129.20, the result of litigation involving personal injury suffered by K~. The Trust Agreement names the County Court of Buffalo County, Nebraska, as the grantor and K~'s aunt, C~, as the trustee. The Trust Agreement, executed on August 13, 1999, and signed by the County Judge and by the Trustee, describes K~, born October , as the Beneficiary who is "a disabled person within the meaning of 42 U.S.C. § 1382c(a)(3)." Trust Agreement, Article 1.
The Trust Agreement specifies that the trust is irrevocable and that "the beneficiary, his guardians or conservator, shall have no right whatsoever to alter, revoke or terminate this Trust, in whole or in part." However, "[t]he Trust may be amended by the Court with notice to the State of Nebraska, Department of Health and Human Services Finance and Support, if amendment would benefit the disabled's [sic] beneficiary." Trust Agreement, Article 4. The Trust Agreement also provides that-
[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 K~. It is the intent of the Grantor to make provisions in this Trust Agreement to provide funds necessary to K~'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 K~ 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 K~'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 K~'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 K~'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 K~. Thus, K~ is the grantor and, if K~ 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 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. Where there is a pre-existing Medicaid lien, several courts have held that the State may require satisfaction of the lien before any third-party settlement can be put into a SNT. In Nebraska, a Medicaid grantor SNT is considered to be void and revocable by operation of law upon filing for or receiving State public assistance unless the SNT is ordered by a court of competent jurisdiction, for good cause shown. Neb. Rev. Stat. § 68-1047. Although no court order was included in the material received, we are assuming that this requirement was met.
You ask whether the words "pursuant to the intestacy laws of the State of Nebraska" created a residual beneficiary. The Restatement (Second) of Trusts 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, create a remainder interest in his heirs. An attempt to do so created a reversionary interest in himself, 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) of Trusts § 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.
Restatement (Second) presents an example similar to the trust herein. The illustration provides: "A transfers property to B in trust to pay the income to A for life and on A's death to pay the principal as A may by deed or by will appoint and in default of appointment to A's heirs or next of kin. A is the sole beneficiary of the trust." Restatement (Second) § 127 cmt. b, illus. 2. In addition, the Nebraska Supreme Court has held that an inter vivos trust which purports to convey an interest in property only after the death of the grantor is testamentary in character and passes no present interest in the property. Such a purported conveyance was found to be void because it was in effect a will, and the statutory requirements for the execution of a will had not been met. Thus, it had no validity. Young et al. v. McCoy et al., 40 N.W.2d 540, 542 (Neb. 1950). The court stated that these words were expressly limited to take effect only after the death of the grantor; thus, they were necessarily revocable words. Id.
The primary objective of the K~ S~ trust appears to be to provide for the grantor/life beneficiary, and not to preserve the trust principal for the grantor's heirs. Examination of the trust agreement does not reveal any manifestation of intent to convey a remainder interest to the grantor's heirs. For the reasons given above, if there is no named residual beneficiary, absent additional language manifesting a contrary intent, we believe you would be justified in finding that the words "distributed pursuant to the intestacy laws of the State of Nebraska" in a grantor trust make the trust revocable despite trust language to the contrary. However, we believe a residual beneficiary would be created by words that any remainder should go to a named beneficiary or to the individual's children, issue, or descendants. In Ellengrod v. Trombla, 95 N.W.2d 635, 638 (Neb. 1959), in interpreting a will devise and the Uniform Property Act, the court said that conveyance of property to a person and his "children," "issue," "descendants" and "words of similar import" create a life interest in the person and a remainder in the life beneficiary's descendants unless a contrary intent is manifested. If no children, issue, or descendants exist presently, the remainder is contingent. Id. at 640. In Wilkins v. Rowan, i185 N.W. 437, 438-39 (Neb. 1921), the court defined "issue," "lawful issue," or "issue of the body" to include children and lineal descendants of every degree in the absence of qualifying words showing a contrary intent.
III. REVIEW OF PRIOR ADVICE
As you requested, we have reviewed our prior advice concerning the revocability of grantor trusts in Region VII. On this issue, although the laws of Nebraska have not specifically addressed it, we believe that Nebraska would follow the general rule that a trust is revocable if the grantor is the sole beneficiary, even if there is a provision making the trust irrevocable. Restatement (Second) of Trusts § 339 (1957). The grantor is the sole beneficiary of a trust if he or she does not "manifest an intention to give a beneficial interest to anyone else." 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 (see discussion above).
We found no Kansas statute or case applying the grantor trust rule in Kansas. However, 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. Newman v. George, 755 P.2d 18, 20 (Kan. 1988). A trust is irrevocable unless the power to amend or revoke is reserved in the trust agreement. Kan. Stat. Ann. § 58-2417 (1994). 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 S~, 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. We believe Kansas would follow this rule in the appropriate case. Kansas law is consistent with the Restatement (Second) in holding that the primary consideration in the construction of trusts is the intention of the grantor as evidenced by an examination of the document. In the Matter of the Estate of Sam Saroff, 625 P.2d 458, 465 (Kan. 1981). In the case of In re Watts, 162 P.2d 82, 87 (Kan. 1945), in interpreting a will, the court made "unknown heirs" parties to the litigation. "'[T]he same rules that apply to [the] construction [of wills] apply to trusts and most other written documents." In the Matter of the Estate of S~, 929 P.2d at 158, quoting In re Estate of H~, 223 P.2d 707 (Kan. 1950).
In Missouri, rights to trust income and property are determined by the trust agreement. Hillyard v. Leonard, 391 S.W.2d 211 (Mo. 1965). Missouri has explicitly adopted the rule that a trust is revocable if the grantor is the sole beneficiary. Couch v. Director, Missouri State Division of Family Services, 795 S.W.2d 91, 94 (Mo. App. 1990); Pilgrim Evangelical v. Lutheran Church-Missouri Synod Foundation, 661 S.W.2d 833, 838 (Mo. App. 1983). The intention of the settlor is the key to the construction of a trust. Tidrow v. Director, Missouri State Division of Family Services, 688 S.W.2d 9 (Mo. App. 1985). The term "bodily heirs" is a technical term which should be accorded its technical meaning unless a contrary meaning clearly appears from the context of the will. Central Trust Bank v. Stout, 579 S.W.2d 825 (Mo. App. 1979). "Nearest blood kin" has no settled meaning but where the testator does not indicate otherwise, the definition in the Restatement of Property will be used. Graves v. Hyer, 626 S.W.2d 661 (Mo. App. 1981). It has been held in Missouri that where one transfers property inter vivos in trust to pay the income to himself for life and on his death it is to be conveyed to his "heirs or next of kin," that he is the sole beneficiary. Stephens v. Moore, 249 S.W. 601 (Mo. 1923).
We found no Iowa statute or case applying the grantor trust rule in Iowa. We believe that Iowa would follow general trust law regarding the revocability of a trust when the grantor is the trust's sole beneficiary. Iowa's probate code defines the word "issue," for purposes of intestate succession, as including "all lawful lineal descendants of a person, whether biological or adopted, except those who are the lineal descendants of the person's living descendants." I.C.A. § 633.3.24 (Supp. 1992). The Iowa Supreme Court has indicated that "heir" is given the popular meaning of issue, children, or descendants when language of the entire will and circumstances in which the will was executed indicated that intention. Cook v. Underwood, 228 N.W. 629 (Iowa 1930). The court subsequently stated that the word "heirs" is a flexible term to which the technical meaning of the word is frequently not applied. The meaning to be given to "heirs" is a question of the testator's intent. In re Austin's Estate, 20 N.W.2d 445 (Iowa 1945). The court also stated that the word "heirs" used by a testator does not have a fixed meaning and meaning must be determined from the instrument read as a whole and in light of all relevant facts and circumstances under which the instruments were executed. Schaefer v. Merchants Nat. Bank of Cedar Rapids, Iowa, 160 N.W.2d 318, 320-21 (Iowa 1968). In a will devising the remainder of a trust estate to an old folks' home if a son died without leaving heirs, the word "heirs" meant "descendants." In re Clifton's Estate, 218 N.W. 926 (Iowa 1928).
In summary, we believe that you would be justified in finding that, in all Region VII states, 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 believe 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, Accessibility 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 words "heirs," "heirs-at-law," or "next-of-kin" may make the trust irrevocable. For example, you attached a previous legal opinion concerning the Felicia Ann Bribiesca trust. See G.C. Opinion, Determination of Irrevocability of a Grantor Trust, dated June 21, 1994. You asked whether the naming of heirs in general constituted naming another beneficiary making the trust irrevocable. We affirmed that it did. We cannot conclude, however, that our response was inconsistent with the advice herein. The Bribriesca trust reveals that it was the grantor's intention that any undistributed principal and income should be distributed to Felicia's "descendants who survive." Therefore, we believe the advice given was correct.
As illustrated by the cases cited above, words such as "heirs" do not have a precise meaning and are defined inconsistently by the courts. We are not able to provide a general rule that will apply to all trusts. If the grantor's intent is not clear from a trust document, we suggest you submit the trust document for review by this office.
C. PS 00-466 Request for Iowa, Kansas, Missouri, and Nebraska State Law on Grantor Trusts; SSI Resource Issue
DATE: June 16, 1999
The regional attorney was asked if a State reimbursement provision in a Medicaid Trust creates a residual beneficiary or creditor status for the States of Missouri, Kansas, Iowa and Nebraska.
All four states are considered creditors and not beneficiaries. Even if a trust contains a State reimbursement provision, it would be revocable if the SSI recipient was the grantor and the sole beneficiary since the state is a creditor and not a beneficiary.
CAUTION: Because of a change in the Social Security Act, this opinion may only be applicable to trusts established before 1/1/00.
You have asked whether in Missouri, Kansas, Nebraska, and Iowa, a State reimbursement provision in a Medicaid Trust creates a residual beneficiary or creditor status for the state. We are of the opinion that in all four states, the state would be considered a creditor. None of the states specifically address a trust which contains a state reimbursement provision; however, all four states have statutes that address reimbursement of Medicaid benefits. As you are aware, each state also follows the rule that a trust is revocable if the grantor is the sole beneficiary. See GC Opinion: Request for Interpretation of State Trust Law, dated June 29, 1992. The following is a discussion of each state's Medicaid statute.
Payments for medical assistance are not recoverable in all circumstances under the Iowa statute. However, under certain circumstances the state is considered a creditor of the recipient or his estate. Under the recovery of payment provision in Iowa, "[m]edical assistance paid to, or on behalf of, a person [by the Department of Human Services] . . . is not recoverable unless . . . it was incorrectly paid." "Incorrectly" paid sums are recoverable from the recipient during his or her lifetime or from the estate of the recipient as a debt due the state. Iowa Code § 249A.5(1). See also Estate of K~, 591 N.W.2d 630, 633 (Iowa 1999). For purposes of collection, the estate includes all interests in property held at the time of the recipient's death. Estate of K~, 591 N.W.2d at 633. However, collection of the debt will be waived if the collection would result in (1) reduced amounts received by the surviving spouse or child who is under 21 years of age, blind, or permanently disabled at the time of the recipient's death or (2) an undue hardship as defined under 42 U.S.C. § 1396p(b)(3).
D. PS 00-464 E~ Revocable Trust; Whether Iowa Revocable Trust is a Resource to G~
DATE: August 12, 1999
This opinion provides that under Iowa law, a trust is irrevocable unless the power of revocation is specifically reserved.
The Sioux City, Iowa Field Office has asked for legal advice on whether the principal from the E~ trust is a resource to G~ for SSI purposes.
According the information submitted to our office, on April 14, 1994, E~, trustor, who is living, executed a revocable trust in which he named G~ as a contingent beneficiary. The trust document indicates that upon the trustor's death, providing that certain contingencies are met, the trustee shall distribute all of trustor's interests, if any, in personal and household effects equally among G~ and his siblings, as they agree. Article 7B.1. Also, upon the death of trustor and trustor's wife, G~ is to receive a parcel of land located in Lyon County, Iowa. Article 7B.3.c.(3).
Resources are defined in the social security regulations to mean any cash or the liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance. If an 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 (or spouse). 20 C.F.R. § 416.1201 (a). The POMS further provide that if an individual has legal authority to revoke a trust and then use the funds to meet his/her 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. A beneficiary generally does not have the power to revoke a trust. However, the trust may be a resource to the beneficiary, in the rare instance, where he/she has the authority under the trust to direct the use of the trust principal. In such case, the beneficiary's equitable ownership in the trust principal and his/her ability to use it for support and maintenance means it is a resource. POMS SI 01120.200D.1.b.
Under Iowa law, a trust conveyance is irrevocable unless the power of revocation is expressly reserved. Young v. Young-Wishard, 288 N.W. 420, 426 (Iowa 1939). In this case, the Fourth provision of the trust provides in pertinent part that: "The trustor reserves the right at any time or times to amend, alter, revoke, or terminate this trust, in whole or in part, or any provisions thereof . . . ." This provision gives E~, settlor, the express power to revoke the trust. There is no other provision within the trust that gives G~, or any other individual the express right to revoke the trust. Thus, according to Iowa law, E~ is the only individual that has the right to revoke the trust. Also, the trust does not give L~ the authority to direct the use of the trust principal. In fact, the Seventh Article directs how the trustee is to dispose of the trust principal. Because the trust does not expressly give L~ the right to revoke the trust, nor the authority to direct the use of the trust principal, the trust principal cannot not be considered a resource to L~ for SSI purposes. See 20 C.F.R. § 416.1201 (a); POMS SI 01120.200D.1.a.; POMS SI 01120.200D.1.b.
The laws of each state provide the circumstances under which the state may be reimbursed by a recipient or his estate for Medicaid payments. In all states, the law provides that monies expended for Medicaid payments which are recoverable are categorized as a debt due to the applicable department, or the department may file a claim against the estate of the recipient. Consequently, we believe the state is properly considered as a creditor and not a beneficiary of the trust. Because each state's statute provides for the right to reimbursement, we do not believe it is relevant whether or not a Medicaid Trust contains a state reimbursement provision. The inclusion of such a provision in a trust would not be of any consequence where the grantor is the sole beneficiary. In all four of the Region VII states, a trust would be revocable, and thus available as a resource for SSI purposes, where the grantor is the sole beneficiary, even if the trust contained a state reimbursement provision.