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).
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.