PS 01825.030 Nebraska

A. PS 01-170 Your Request for Determination of the Revocability of a Nebraska Trust: Logan S~ Trust

DATE: May 24, 2001

1. SYLLABUS

This Nebraska trust was established after 1/1/01 and is subject to the statutory provisions of section 1613(e) of the SSACT. The trust is a revocable grantor trust despite the statements that it is irrevocable because it does not name a residual beneficiary. The balance of the trust will be paid to the beneficiary's heirs. The trust also does not meet the requirements of a supplemental needs or Medicaid pay back trust (1917(d)(4)(A)) because it provides for the payment of funeral expenses before reimbursing the State for Medicaid expenditures.

Finally, the judge's attempted restriction removing the grantor's common law and statutory right to revoke the trust and precluding the Agency from finding the trust revocable is not valid.

2. OPINION

You have asked for our assistance in determining whether a Nebraska trust designated as the "Logan J. S~ Trust" is countable as a resource. You ask whether the trust language precludes a finding that the trust is a grantor trust and, if not, whether there is a residual beneficiary to the trust, thereby making it irrevocable. For purposes of this opinion, we assume Logan is disabled as defined in 42 U.S.C. § 1382c(a)(3). For the reasons outlined below, we believe you would be justified in finding that the trust is a resource.

I. TRUST PROVISIONS

The Trust Agreement (TA) indicates that the Trustee is the Nebraska Trust Company, N.A., 201 North Dewey, North Platte, Nebraska 69103. TA at 2. The Trust Agreement, executed on January 4, 2001, and signed by G. Glenn C~, County Judge, Scotts Bluff County, Nebraska, and by Shelly S~, refers to the County Court of Scotts Bluff County as the "Grantor-Court." TA at 2, 14. The Trust Advisory Committee consists of Shelly S~, Kate D~, and Jack L. S~. TA at 2. The Trust describes Logan J. S~, born February 13, 1997, as severely disabled since birth. Id. Logan is identified as the Trust's beneficiary. TA at 2, 6.

The corpus of the Trust is derived from a court-approved medical malpractice settlement resulting from malpractice attending Logan's birth. The amount of the settlement is not shown. TA at 2. The Trust Agreement states that-

     [t]his Trust is being established at the specific provision and direction of the Grantor-Court as authorized at 42 USC 1396p(d)(4)(A) and the Social Security Programs Operations Manual System (POMS) Paragraph 01120.200, and therefore the assets directed to this Trust by the Grantor-Court should not be deemed to have been or to be available to the beneficiary. This Trust is considered a "grantor" trust for federal tax purposes. Nonetheless in consideration of the purposes and intents of the federal statute under which this Trust is established, the Grantor-Court hereby declares that this is not a grantor trust for any other purposes and that the beneficiary does not retain any common law or statutory rights to revoke this Trust except as provided under Paragraph III. "Term" below. This Trust is established under the jurisdiction, at the direction, and with the specific approval of the Grantor-Court and without transfer of ownership of the settlement proceeds to Logan J. S~ or his attorneys, legal guardian, or conservator. Accordingly, it cannot be considered a "Medicaid qualifying trust" as that term has been defined at P.L. 99-272, Section 9506 (42 U.S.C. § 1396(a)(K)).

TA at 3. The Trust Agreement provides that the Trust is an irrevocable, spendthrift, supplemental needs, discretionary trust, and it is the intention of the Grantor Court to provide benefits for Logan without interfering with or reducing the benefits he would be entitled to from any state or federal agency, including the Social Security Administration. Responsibility for the use and distribution of the corpus and income of the Trust is vested in the Nebraska Trust Company, N.A., subject to the direction, discretion, and control of the Trust Advisory Committee. TA at 4. Additions to the initial Trust corpus, including periodic annuity payments, may be made from any source and at any time. TA at 5. The Trust Advisory Committee is authorized, but not required, to provide a regular monthly amount for Logan for services he needs and may allow periodic allowances for personal spending money, as long as Logan's eligibility for disability related benefits is not impacted. TA at 6.

The Trust Agreement provides that, upon Logan's death, the Trust shall terminate and the Trustee shall be the sole administrator of the Trust property. TA at 7, 12. Upon termination of the trust, the remaining assets will be distributed as follows:

(1) First, the Trustee shall pay or make provisions for payment of the expenses of administration of the Trust, other obligations payable by the Trust, and the expenses of the funeral, burial, cremation, or other disposal of Logan J. Terkel's remains.

TA at 7-8. Second, any remaining assets shall be paid to any state or agency of a state, which has provided medical assistance or long term care assistance under a state plan under Title XIX of the Social Security Act (Medicaid) up to an amount equal to the total medical and long term care assistance paid on behalf of Logan J. S~ under the state plan.

TA at 8. If any assets remain after reimbursement of State medical assistance, the remaining assets shall be distributed by the Trustee "for the benefit of the surviving heirs of Logan J. S~, in accordance with the laws of the State in which he is residing at the time of his death" if he dies intestate. If Logan has executed a valid will, the remaining assets will be distributed in accordance with the terms of the will. TA at 8.

II. Additional Trust Related Documents

Included in the material received with the Trust Agreement was Exhibit A, a March 7, 2001 memorandum to the Trust Advisory Committee. It was signed by Rodney L. S~, Russell A. S~, and Dale A. P~ and all three declined the position on the Advisory Committee which had been held by Kate D~. All three persons had been named as possible successors to any member of the Trust Advisory Committee who was unable or unwilling to serve. TA at 8-9.

Also included was a Notice of Hearing and an Application to the County Court of Scotts Bluff County, Nebraska, indicating that the Trustee, Nebraska Trust Company, had not accepted the Trust or the members of the Trust Advisory Committee established in the Trust. The Application noted that, in accordance with the Court's order establishing the Trust, it would not become effective until the execution of the Trust by the Trustee. Because the named Trustee was geographically removed from Logan's residence, Shelly S~ (Applicant, Special Conservator, and Logan's natural mother) asked the Court to change the Trustee to Valley Bank and Trust Company. The Application states that Shelly had determined that she did not want Kate D~ as a member of the Trust Advisory Committee, and the three individuals designated in the Trust Agreement as substitutes had declined to serve as set forth in Exhibit A. Thomas T. H~, one of Shelly's attorneys, had agreed to serve on the Advisory Committee.

The Application refers to the Court's "order of January 4, 2001," in which the Court ordered the law office of Samuel K. C~, M.D., P.C., to establish a special interest-bearing trust account in the amount of $100,000.00 pending further order of the Court concerning requests by family members for reimbursement for Logan's care. Applicant Shelly S~ asks the Court to order payment of $30,000.00 from this account to Betty S~, Logan's grandmother, who had worked with Shelly to provide Logan's care. Shelly asks the Court to order the balance of this account to be paid to the Trust. The Notice of Hearing indicates that a hearing was set for March 29, 2001.

The results of that hearing are not included in the materials received. Thus, at least prior to March 29, 2001, it appears the trust had not become effective. However, we will assume for purposes of this opinion that the trust did become effective as written.

III. TRUSTS AS RESOURCES

Generally, for trusts established before January 1, 2000, 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 certificates 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 (Feb. 28, 2001) (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).

IV. DISCUSSION

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 belongs to Logan. Thus, Logan is the grantor and, if the trust language does not preclude revocation and Logan is the sole beneficiary of the trust, it is revocable. However, if Logan is not the sole beneficiary, the trust would not be revocable.

The Trust 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. The Commissioner's policy on trusts created prior to January 1, 2000, 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.

Section 205 of the Foster Care Independence Act of 1999 (P.L. 106-169), signed into law on December 14, 1999, provides that the corpus of a revocable trust established with the assets of an individual after January 1, 2000, will be considered a resource. 42 U.S.C. § 1382b(e)(3)(A). However, an exception from § 1382b(e)(3) was made for a "Medicaid Special Needs Trust" if it was established on or after January 1, 2000, by a parent, grandparent, legal guardian or a court, with the assets of a disabled individual under age 65, when the trust provides that the State will receive all amounts remaining in the trust upon the death of the individual. 42 U.S.C. §§ 1382b(e)(1) and (5); POMS SI 01120.203. In order to meet the exception, the state must be listed as the first payee and have priority over payment of other debts and administrative expenses. See POMS SI 01120.203B.1.f. The Office of the General Counsel's Office of Program Law has opined that, if the exception in 42 U.S.C. § 1382b(e)(5) is met, the trust cannot be considered under § 1382b(e)(3), but it does not provide a general resource exclusion for such trusts and the trust should be considered under the regular resource rules set forth in regulations to determine if it is a resource available to the individual. See Questions Related to Implementation of Section 205 of the Foster Care Independence Act of 1999 (Revocable Trusts Which Meet the Section 1917(d)(4)(A) and (C) Exceptions-REPLY by Gwen Jones K~, Deputy Associate General Counsel for Program Law (November 27, 2000) (attached).

Because the Logan J. S~ Trust does not provide that assets remaining in the trust at the beneficiary's death will go first to reimburse the State, it does not meet the exception set out in the Foster Care Independence Act. If the exception is not met, then 42 U.S.C. § 1382b(e) applies to a trust without regard to the purposes for which the trust is established, whether the trustees have or exercise any discretion under the trust, any restrictions on when or whether distributions may be made from the trust, or any restrictions on the use of distributions from the trust. 42 U.S.C. § 1382b(2)(C). If the trust is not revocable, 42 U.S.C. §§ 1382b(e)(2)(B) and (C) and § 1382b(e)(3)(B) apply and it must be determined if there are any circumstances under which payment can be made from the trust to or for the benefit of the individual. If it is revocable, it is a resource pursuant to 42 U.S.C. § 1382b(e)(3)(A). Therefore, we must consider whether the Logan J. S~ Trust is revocable or irrevocable.

On the issue of whether a trust is revocable or not, we previously advised you that, in Nebraska and the other states in Region VII, 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. See G.C. Opinion, Determination of Irrevocability of a Nebraska Trust, Kyle D. S~, dated February 23, 2000. 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 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.

In reviewing the language of the Logan J. T~ Trust, we believe that you would be justified in finding that the trust does not have a residual beneficiary and is a grantor-sole beneficiary trust. Therefore, the remaining issue is whether the trust's language purporting to remove the grantor-sole beneficiary's common law and statutory rights to revoke the trust, except for federal tax purposes, precludes the Agency from finding that the trust is revocable. We believe that you would be justified in finding that the county court judge's attempted restriction of the grantor-beneficiary's statutory and common law right to revoke the trust is not valid. See SI 01120.201C.2.d (no exculpatory clause precludes a trust from being considered under the Agency's rules). The trust document does not attempt to set out any authority for the county court judge to take away the grantor-beneficiary's common law or statutory rights to revoke the trust. Neither does the trust document purport to explain why the trust is a grantor trust for tax purposes but is not a grantor trust for other federal programs and purposes.

We believe you would be justified in finding that the statement that remaining assets will be distributed to surviving heirs or, if Logan has executed a will the remaining assets will be distributed in accordance with the will's terms, does not create a residual beneficiary. Further, we do not believe that this language requires you to determine if a will currently exists.

In summary, the trust does not take effect unless a Trustee has signed the trust document. The Trust Agreement does not meet the exception from application of 42 U.S.C. § 1382b(e) which requires the State to be the first payee. Despite the trust language to the contrary, the trust is a grantor-sole beneficiary trust and is revocable and a resource.

B. PS 00-468 Determination of Irrevocability of a Nebraska Trust Kyle D. S~, SSN: ~

DATE: February 23, 2000

1. SYLLABUS

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.

2. OPINION

You have asked for our assistance in determining the irrevocability of a trust designated as the Kyle D. S~ 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 Kyle D. S~ 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 Kyle. The Trust Agreement names the County Court of Buffalo County, Nebraska, as the grantor and Kyle's aunt, Catherine L. K~, as the trustee. The Trust Agreement, executed on August 13, 1999, and signed by the County Judge and by the Trustee, describes Kyle, born October 15, 1993, 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 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 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 Kyle 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, 185 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).

CONCLUSION

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

1. SYLLABUS

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.

2. OPINION

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.

NEBRASKA

Section 68-1036.02 of the Nebraska Revised Statutes states that the "estate of the decedent who has received medical assistance benefits . . . shall be indebted to the Department of Health and Human Services Finance and Support for the total amount paid . . . if (a) the decedent was at least 55 years of age at the time the medical assistance was provided, or (b) the decedent resided in a medical institution and," it is determined that he or she "could not have reasonably been expected to be discharged and resume living at home." The statute further provides an exception to recovery of the payments. No debt exists where the decedent is survived by a spouse or child who is under 21 years of age or blind or totally and permanently disabled as defined by the Supplemental Security Income criteria. Id. Further, the state may waive all or part of its claim if it is determined that recovery would not be in the "best interest of the state or would result in undue hardship." Neb. Rev. Stat. § 68-1036.02.

SUMMARY

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.

D. PS 00-280 SSI-Nebraska-Review of a Trust for J.S. M~

DATE: January 9, 1998

1. SYLLABUS

This irrevocable trust was established on March 24, 1994 as a discretionary trust. The trustee has complete discretion as to the control of the assets in the trust and in the distribution of the principal to the benefit of the beneficiary. As the beneficiary of the trust, the SSI recipient does not have the power to revoke the trust or to use the trust principal for her support and maintenance. Therefore, the trust is not a resource for SSI purposes.

CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.

2. OPINION

A request for a legal opinion concerning a trust executed in Nebraska and governed by Nebraska law was forwarded to our office. The issue presented is whether the M~ Family Irrevocable Trust is a countable resource to J.S. M~ (a/k/a J. Sue M~), an SSI applicant.

The M~ Family Irrevocable Trust was created on March 21, 1994, by Floyd A. M~ and Elsie S. M~, grantors. The trust's corpus consists of three certificates of deposit, totaling $35,000, held at the Jones National Bank and Trust Company (JNBTC) in Seward, Nebraska. The trust agreement specifies that the trust is irrevocable, with the grantors having no power to alter, amend, revoke, or terminate the trust(s) created or designate persons who would possess or enjoy the trust property or income. See Trust Agreement, Article VII.

The trust agreement provides that until the death of the grantors, the trustee(s) may distribute all or none of the income and/or principal of the trust to or for the benefit of the beneficiary, J.S. M~, the grantors' daughter, for her health, education, maintenance, and support. See Trust Agreement, Article II.A. Any income earned from the trust in any calendar year which is not distributed within thirty days after the end of such year shall be accumulated and added to the principal. See Article II.A. The trust terminates upon the death of both grantors, with the remaining principal distributed to J.S. M~ or her living issue if she is deceased. See Trust Agreement, Article II.C.

The grantors named J.S. M~ as trustee. John K~, Jeffrey K~, and Mathew [sic] K~ were named as successor trustees. See Trust Agreement, Article IV.A. The trustee has the full authority to dispose of trust income and principal, as well as the authority to terminate the trust when it becomes so small as to no longer be economical and distribute the remaining principal and interest to the current beneficiaries. See Trust Agreement, Article II.H and Article V.

The trust agreement provides that any trustee may resign by giving thirty days written notice. See Trust Agreement, Article IV.B. The successor trustee must accept the office by written assignment. Once the office has been accepted, title to the trust estate vests in the successor trustee. The resigning trustee must execute all instruments and do all acts necessary to vest such title in the successor trustee. See Trust Agreement, Article IV.D.

J.S. M~ resigned as trustee of the M~ Family Irrevocable Trust on November 15, 1996. John K~ accepted his appointment as successor trustee on December 15, 1996. An August 26, 1997 Customer Information File Inquiry from JNBTC concerning the M~ Family Irrevocable Trust confirmed that the three certificates of deposit comprising the corpus of the trust were registered to John K~ as trustee. Allan R. Roth, Vice-President/Trust Officer, at JNBTC indicated that J.S. M~ did not receive any interest generated by the trust's corpus. Mr. Roth also indicated that the interest from the trust was directly deposited into Elsie S. M~'s account. J.S. M~ is neither a co-owner nor an authorized signer on the account.

A trust is a fiduciary relationship with respect to property, subjecting the person by whom the property is held to equitable duties to deal with it for the benefit of another. A trust arises as a result of a manifestation of an intention to create a fiduciary relationship. Restatement (Third) of Trusts § 2 (1996). The trust instrument in question conforms to this definition. As a preliminary matter, the trust appears to be valid and irrevocable under Nebraska law. Neb. Rev. Stat. § 30-2081 et seq. Section 30-2209(50) states that the definition of a trust includes, "any express trust, private or charitable, with additions thereto, wherever and however created." The trust was properly executed and witnessed, and Article VII of the trust agreement expressly states that it is an irrevocable trust, and that the grantors do not retain the power to alter, amend, revoke, or terminate the trust. We believe a Nebraska court would find the trust valid and irrevocable.

The trust's principal is not a countable resource to J.S. M~. When an individual possesses the legal authority to revoke the trust and use the funds to meet food, clothing, and shelter needs, or when an individual can direct the use of the trust principal for her support and maintenance under the terms of the trust, the trust principal is a resource for SSI purposes. Programs Operations Manual System ("POMS") SI 01120.200D.1 (1994). As a beneficiary, J.S. M~ does not have the power to revoke the trust. She also lacks the power to invade the trust principal during her lifetime for her support and maintenance. That is solely within the power of the trustee, John K~.

Where, as here, the trust principal is not a resource, trust earnings are not income to an SSI claimant who is a trust beneficiary unless the trust directs or the trust makes payment to the beneficiary. POMS SI 01120.200F.1.a (1994). The M~ Family Irrevocable Trust is a discretionary trust in that the trustee has virtually unlimited freedom in controlling and applying the assets of the trust. Smith v. Smith, 517 N.W.2d 394, 398 (Neb. 1994). The trustee of a discretionary trust cannot be compelled to make distributions. Id. The terms of the trust agreement provide that the trustee, John K~, has complete discretion in distributing the principal and/or interest to or for the benefit of J.S. M~. Until the earnings from the trust are distributed to J.S. M~, t