Lead Opinion
December 20, 1994.
Herman Hecker appeals from an order affirming the Stark County Social Service Board’s denial of medicaid benefits. The appeal presents the question whether a parent may establish a trust to benefit her adult developmentally disabled son which provides funds for his special needs that are not provided for by public assistance without making him ineligible to receive medicaid benefits. We hold she may, and we reverse and remand.
FACTS
The facts are not in dispute. Herman Hecker is a single, fifty-four-year-old, developmentally disabled male residing in a group home. Herman is the sole beneficiary of a trust [Hecker trust] established in 1984 by his now-deceased mother, Wilhelmina Heck-er. Thе trust agreement was amended and restated in 1987 and describes the grantor’s intent and the trustee’s discretion as follows:
“HI.
[[Image here]]
“(a) Introduction. It is the Grantor’s primary concern in creating this Trust that it continue in existence as a supplemental fund to public assistance for her handicapped child, Herman Hecker, hereinafter referred to as the ‘beneficiary’, throughout his life as she would provide if she were personally present.1 ...
“(b) Special Needs. The Trustee shall pay to or apply to the benefit of the beneficiary, for his lifetime, such amounts from the principal or income, ujd to the whole thereof, as the Trustee in the Trustee’s sole discretion may from time to time deem necessary or advisable for the satisfaction of the beneficiary’s special needs. Any income not distributed shall be added to principal. As used in this instrument, ‘special needs’ refers to the requisites for maintaining the beneficiary’s good health, safety, and welfare when, in the sole discretion of the Trustee, such requisites are not deemed provided by any public agency, office, or department of the State of North Dakota, or of any other state, or of the United States. ‘Special needs’ include, but are not limited to, medical and dental expenses, clothing and equipment, programs of training, education, treatment, and essential dietary needs to the extent that such needs are not provided by any government entity.”
Herman appealed from the Board’s denial to the North Dakota Department of Human Services [Department]. The Department, after a hearing, upheld the Board’s denial of medicaid benefits. The hearing officer found that the trust created by Herman’s mother was a support trust and, consequently, “deemed” to be available to Herman as a means of support. NDAC § 75-02-02.1-31(3).
Herman appealed from the Department’s order to the district court, which affirmed the decision of the Department, holding that the trust, created by Herman’s mother, is a support trust and, therefore, deemed an available asset pursuant to section 75-02-02.1-31(3)(b) of the North Dakota Administrative Code.
On appeal to this court, Herman argues that the Department’s finding that the trust is a support trust is in error. He argues that the trust is a discretionary trust, not a support trust and, therefore, is not an available asset for determining medicaid eligibility. The Department contends that at least one purpose of the trust is Herman’s support and, therefore, it is a support trust within the meaning of the Department’s regulations. Consequently, the Department argues, the full value of the corpus of the trust may be considered available to Herman for his support and considered in determining his eligibility for medicaid.
Three issues are presented in this appeal: 1) whether the Hecker trust is a support or a discretionary trust; 2) whether the Department may, by administrative regulation, overrule a trust settlor’s intent; and 3) if not, whether the Hecker trust violates federal and North Dakota public policy.
NATURE OF THE TRUST'
When construing a trust instrument, our primary objective is to ascertain the settlor’s intent. Matter of Larson,
A support trust is one which еssentially provides that the trustee “shall pay or apply only so much of the income and principal or either as is necessary for the education or support of a beneficiary.” Restatement (Second) of Trusts § 128 cmt. 1 (1959). See Bohac,
Whether a trust is a support or a discretionary trust depends on the settlor’s intent. Bohac,
The Hecker trust instrument authorizes the trustee to “pay to or apply to the benefit of [Herman], for his lifetime, such amounts from the principal or income, up to the whole thereof, as the Trustee in the Trustee’s sole discretion may from time to time deem necessary or advisable for the satisfaction of [Herman’s] special needs.” (Einphasis added.) The trust language defines “special needs” as “the requisites for maintaining the beneficiary’s good health, safety, and welfare when, in the sole discretion of the Trustee, such requisites are not deemed provided by any public agency....” (Emphasis added.) Although the Hecker trust’s definition of special needs includes medical and dental expenses, clothing, and education, items associated with support of a beneficiary, this language does not limit the trustee’s absolute discretionary power. See Chenot,
Other plain language in the trust instrument demonstrates Wilhelmina Hecker’s clear intent that the t2’ust not be used for Herman’s primary support. The trust unequivocally states that it is to be “a supplemental fund to public assistance,” and that
“[i]t is the Grantor’s express intent that because the beneficiary is developmentally disabled and unable to support and maintain himself independently, the Trustee shall, in the exercise of the Trustee’s best judgment, seek support and maintenance from all available public resources, including the appropriate Regional Center for the developmentally disabled. In making distributions for the speсial needs defined herein, [the] Trustee shall take into consideration the applicable resource limitations of the public assistance programs for which the beneficiary is eligible.”
This language plainly indicates an intent not to provide primary support or maintenance for the beneficiary. Compare Bohac,
Special needs trusts and supplemental needs trusts are recognized as means for individuals to рrovide for persons who do not have the ability to be self-supporting and to whom the individuals owe no duty of support. See Silber, rnpra. Both supplemental needs trusts and special needs trusts require that public assistance be used for the primary support of the beneficiary with the trustees to provide only for the beneficiary’s particular “special” or additional needs that public assistance does not provide. See, e.g., Young v. Dept. of Public Welfare,
We conclude that Wilhelmina Heeker unambiguously created a discretionary trust to be used as a secondary or supplemental source of income for Herman’s needs which are not met by public assistance. The Department’s finding that it is a support trust is contradicted by the plain language of the trust instrument and thus is not supported by a preponderance of the evidence.
EFFECT OF ADMINISTRATIVE REGULATION
The Department contends that NDAC § 75-02-02.1-31(3) negates the plain language of the trust and Wilhelmina Hecker’s clear intent and is the determining factor in interpreting a trust for purposes of medicaid eligibility.
The Department’s regulation says:
“a. For purposes of this subsection, ‘support trust’ means a trust which has, as a purpose, the provision of support or care to a beneficiary. The purpose of a support trust is indicated by language such as ‘to provide for the care, support, and maintenance of ... ’; ‘to provide as necessary for the support of ...’; or ‘as my trastee may deem necessary for the support, maintenance, medical expenses, care, comfort, and general welfare’. No particular language is necessary, but words such as ‘care’, ‘maintenance’, ‘medical needs’, or ‘support’ are usually present. The term includes trusts which may also be called ‘discretionary support trusts’ or ‘discretionary trusts’, so long as support is a trust purpose. This subsection applies without regard to:
(1) Whether or not the suрport trust is irrevocable or is established for purposes other than to enable a beneficiary to qualify for medicaid or any other benefit program where availability of benefits requires the establishment of financial need; or
(2) Whether or not the discretion is actually exercised.
“(b) Except as provided in subdivisions c and d, the amount from a support trust deemed available to the beneficiary, the beneficiary’s spouse, and the beneficiary’s children is the maximum amount of payments that may be permitted under the terms of the trust to be distributed to the beneficiary, assuming the full exercise of discretion by the trustee or trustees for the distribution of the maximum amount to the beneficiary.” NDAC § 75-02-02.1-31(3)(a), (b). (Emphasis added.)
The Department argues that its regulation рermits it to deem the entire corpus of the trust as available to Herman for his support.
Herman concedes that an applicant bears the burden of establishing eligibility for benefits. See Wagner v. Sheridan Cty. Soc. Serv. Bd.,
The Department is authorized to promulgate eligibility standards for medical assistance benefits generаlly under NDCC § 50-06-16 and specifically under § 50-24.1-02(3). Properly promulgated administrative rules have the force and effect of law. NDCC § 28-32-03(3). However, an agency may not promulgate a rule or regulation which exceeds its statutory authority. Berger v. State Personnel Board,
The underlined portion of NDAC § 75-02-02.1-31(3), which, as applied by the Department, overrules the explicit intent of Wilhelmina Hecker, is void because it supersedes our case law holding that the settlоr’s intent determines whether a trust is a support or a discretionary trust. See Bohac v. Graham,
We have found no other state which has established, absent an explicit legislative directive, an administrative regulation deeming available to an applicant the assets of a discretionary trust. The Department argues that its regulation is proper and points to Minn.Stat. § 501B.89, to support its position. Enacted in 1992, § 501B.89, makes unenforceable any provision in a trust which attempts to make assets or income unavailable to a beneficiary if the beneficiary applies for or is determined eligible for public assistance or a public health care program. Actually, the Department makes our point for us. By enacting § 501B.89, the Minnesota legislature spoke directly to the availability of the trust at issue. In so doing, the Minnesota legislature explicitly authorized its Deрartment to overrule a settlor’s intent and interpret a trust instrument without giving credence to those particular provisions which the statute renders unenforceable.
In addition, we note that subdivision (2) of § 501B.89, Minn.Stat., exempts supplemental needs trusts created for the benefit of a disabled person by an individual who has no legal duty to provide the funds for the benefit of the chosen beneficiary. Consequently, the Minnesota statute would not authorize deeming the Hecker trust as Herman’s available asset. Id.
Medicaid is a cooperative federal-state program that provides medical assistance to persons who lack sufficient income or resources to provide for their own medically necessary care. 42 U.S.C. § 1396. Herman qualifies for medicaid under provisions for the “medically needy.” See NDAC § 75-02-02.1-05(3). Coverage of the “medically needy” is optional; however, once a state elects to provide coverage to the medically needy, the financial methodology to be employed in determining eligibility for medical assistance “shall be no more restrictive than the methodology which would be employed under the supplemental security income program in the case of groups consisting of aged, blind, or disabled individuals.... ” 42 U.S.C. § 1396a(a)(10)(C)(i)(III); 42 CFR § 435.401(c)(2). “A financial methodology is considered to be no more restrictive if, by using the methodology, additional individuals may be eligible for Medicaid and no individuals who are otherwise eligible are by use of that methodology made ineligible for Medicaid.” 42 CFR § 435.601(d)(3).
The Department argues that North Dakota participates in the medicaid program as a “§ 209(b)” state which permits it to promulgate more restrictive eligibility methodology. However, while § 209(b) states may elect to provide more restrictive eligibility guidelines for their group of “categorically needy” recipients, 42 U.S.C. § 1396a(f), once a state opts to provide coverage for the medically needy, its financial methodology must be no more restrictive than that of SSI.
No federal regulations address specifically whether trust assets of a discretionary trust, such as the Hecker trust, may be deemed available for determining medicaid eligibility. See Miller v. Ibarra,
Herman has no legal ability to compel distributions from the Hecker trust because the trustee has absolute discretion over any and all payments to Herman. Consequently, under the federal definition of “available,” this trust would not qualify as Herman’s available resource. 20 CFR § 416.1201(a)(1). See 45 CFR § 233.20(a)(3)(iii). Accord Zeoli,
Absent the Department’s regulation, Herman would qualify for medicaid. The regulation is more restrictive than the federally prescribed financial methodology because it renders Herman, who is otherwise qualified for medicaid, ineligible, and, consequently, it is invalid. See 42 CFR § 435.601(d)(3).
We conclude that the underlined portion of NDAC § 75-02-02.1-31(3) is void and unenforceable because it impermissibly creates a more restrictive financial methodology for
PUBLIC POLICY
The Department argues that even if NDAC § 75-02-02.1-31 does not apply, the supplemental and special needs provisions in the Hecker trust contravene North Dakota and federal public policy and, therefore, must be disregarded. The Department relies on NDAC § 75-02-02.1-31(7), which says:
“Trusts may provide that trust benefits are intended only for a beneficiary’s ‘special needs’, and require the trustee to take into consideration the availability of public benefits and resources, including medicaid. Some trusts may provide that the trust is not to be used to supplant or replace public benefits, including medicaid benefits. Some trusts may contain terms which attempt to declare or make the dеtermination of the availability of trust assets for medicaid purposes. If a medicaid-qualifying trust or support trust contains such terms, the amount available to the medicaid applicant or recipient is the amount provided in subsection 2 or 3, assuming, for the purposes of making that determination, that the applicant or recipient is ineligible for medicaid.”5
Interpretation and application of administrative regulations is a question of law, fully reviewable on appeal. Americana Healthcare Centers—Minot and Fargo v. N.D. Dept. of Human Services,
Section 75-02-02.1-31(7), NDAC, on its face, applies only to support trusts and medicaid-qualifying trusts. We have determined that the Hecker trust is a discretionary trust, not subject to Herman’s demands for distribution, and subsection (7) does not apply to discretionary trusts. See id.
Nor is the Hecker trust a Medicaid Qualifying Trust [MQT], An MQT is a trust established, other than by will, by an individual or an individual’s spouse, under which the individual is a beneficiary. NDAC § 75-02-02.1-31(2). Because the trust was created by Herman’s mother and not by Herman himself, it does not fall within the definition of an MQT. Thus, the regulation does not render Wilhelmina Hecker’s intent unenforceable on public policy grounds.
Courts look to constitutional and statutory provisions to find public policy, see Ressler v. Humane Society of Grand Forks,
The Department argues that even if NDAC § 75-02-02.1-31(7) does not invalidate the trust, other public policy grounds do. First, it claims that the purpose of the federal and state medicaid program is to provide assistance to the truly needy and Herman is not truly needy because of the trust’s existence. The Department relies on our case law to support its argument that public policy requires recipients of public assistance to exhaust their own resources before shifting the burden оf their support to the taxpayers. See In Interest of McMullen,
The cases relied upon by the Department are distinguishable on their facts. McMullen was an appeal brought by Joshua McMul-len, a minor, whose mother was receiving Aid for Families With Dependent Children [AFDC] benefits.
In Penuel, we rejected a father’s request to reduce his child support obligation because the government’s deep pockets would bear the extra costs of supporting his quadriplegic daughter.
Finally, in Bohac, the trust at issue was a support trust which gave the beneficiary the right to compel distributions for his support.
Second, while we accept the Department’s position that medicaid should be a benefit of last resort, see NDAC § 75-02-02.1-09 and NDCC §§ 50-24.1-02(2), 50-24.1-02.1 [requiring medical assistance applicants to assign and cooperate in pursuit of any claims of the applicant against a responsible third party], its reliance on Commonvealth Bank and Trust Co. v. Commonwealth, Dept. of Pub. Welfare,
Herman’s situation is more akin to a parallel line of Pennsylvania cases holding that a discretionary trust is not an available asset for medical assistance eligibility. See Lang v. Commonwealth, Dept. of Public Welfare,
Third, the Department argues that persons with substаntial assets would prefer supporting their relatives incapable of self-support rather than forcing them to rely on public assistance. That may be true for some, but obviously, not all. Indeed, many jurisdictions reject that proposition outright on the ground that the notion of public assistance as charity is anachronistic. See, e.g., Estate of Escher,
As our last word on the subject, we adopt the reasoning of the Wisconsin Supreme Court which we believe is sound, sensible and just:
“We know of no public policy to prohibit a person who is not liable for the support of a charity patient in a public institution to give to the patient extra comforts or luxuries or, at need, necessities which the institution does not furnish nor do wе find a public policy to seize such gifts before the patient has received them.” In re Wright’s Will,12 Wis.2d 375 ,107 N.W.2d 146 , 149 (1961).
CONCLUSION
We conclude that the assets of this discretionary trust are not “available” for purposes of determining Herman’s medicaid eligibility and the Department, absent legislative authority, cannot include them in evaluating Herman’s available assets. To hold differently would place otherwise qualified applicants for medicaid in an untenable position, forcing the settlor to either deplete the corpus of the trust to below $3,000.00 or to leave the applicant stranded — unable to compel payments under the trust instrument and unable to qualify for public assistance. Leona Carlisle Trust,
Notes
. The trust also contains a spendthrift clause which prevents the beneficiary from assigning his interest to creditors; however, that provision is not at issue in this appeal.
. For purposes of this appeal, we are concerned only with the value of the trust corpus as a disqualifying asset. Neither party raises the issue of distributions of trust income to Hecker.
. The Department defines "available assets" in the follоwing manner:
"Only such assets as are actually available will be considered. Assets are actually available when at the disposal of an applicant, recipient, or responsible relative; when the applicant, recipient, or responsible relative has a legal interest in a liquidated sum and has the legal ability to make the sum available for support, maintenance, or medical care; or when the applicant, recipient, or responsible relative has the lawful power to make the asset available, or to cause the asset to be made available. Assets will be reasonably evaluated. A determination that an asset is deemed avail*232 able is a determination that the asset is actually available." NDAC § 75-02-02.1-25(2).
The federal regulations define available assets similarly. See 45 CFR § 233.20(a)(3)(ii)(D).
. For a more thorough discussion of the medicaid program and the impact of § 209(b) status, see Estate of Krueger v. Richland County Social Services, 526 N.W.2d 456 (N.D.1994).
. The amount deemed available under NDAC §§ 75-02-02.1-31(2) and (3) is "the maximum amount of payments that may be permitted under the terms of the trust to be distributed to the [grantor or beneficiary], assuming the full exercise of discretion by the trustee or trustees for the distribution of the maximum amount to the [grantor or beneficiary].”
. This type of hybrid trust is generally known as a discretionary-support trust. See Bohac v. Graham.
Dissenting Opinion
dissenting.
In a dissent in Nielsen v. Cass County Social Services Bd.,
Relying on Bohac v. Graham,
I dissent consistent with the reasons set forth in my dissent in Nielsen v. Cass County Social Services Bd., supra.
Lead Opinion
ON PETITION FOR REHEARING.
February 8, 1995.
On petition for rehearing, the North Dakota Department of Human Services, relying on Mowbray v. Kozlowski,
In any event, we need not decide that issue because North Dakota’s § 209(b) status does not rescue the underlined portion of the Department’s regulation from invalidation. The federal regulations governing state participation in the medicaid program require that states consider only those assets of an applicant which are actually available to the applicant. 42 U.S.C. § 1396a(a)(17)(B); Himes v. Shalala,
Full resolution of the effect of North Dakota’s § 209(b) status on the validity of the Department’s medicaid eligibility criteria can await another day when the answer will directly affect the outcome of the parties’ dispute.
Petition denied.
NEUMANN and MESCHKE, JJ., concur.