principal is not the individual’s resource for SSI purposes.” POMS SI 01120,200(D)(2) (emphasis
in original); sce also 20 C.F.R. § 416.1201 (a) (stating “, . . resources means cash or other liquid assets
or any real or personal property that an individual (or spouse, if any) owns and could convert to cash
to be used for his or her support and maintenance.”).4 Whether a trust is revocable depends on the
terms of the trust agreement and/or state law. Id.

To determine whether Kemble’s Trust is revocable, the Social Security Administration looks
to Illinois law. A trust is generally irrevocable if the grantor fails to reserve the power to revoke or
modify it. Restatement (Second) of Trusts §§ 330, 331 (1957); Restatement (Third) of Trusts § 63,
Comment ¢ (2003) (stating “[wJhere the settlor has failed expressly to provide whether a trust is
Subject to revocation or amendment, if the settlor has retained no interest in the trust . . itis rebuttably
presumed that the scttlor has no power to revoke or amend the trust,”); Williams v. Springfield Marine

Bank, 475 N.B.2d 1122, 1124 (Il.App, 1985). The Commissioner points out that under general trust

* The Commissioner docs not argue that Kemble can direct the Trustee to pay over the trust
principal for her support and maintenance. Under the terms of the Trust, Kemble does not have
authority to direct the payment of trust principal for her support and maintenance. Kemble’s Trust
clearly states that it was designed to provide only for her supplemental care and not cause the
termination or reduction of any benefits from any government program. Kemble expressed this intent
in several provisions. First, the Trustee is given sole diserction to make distributions of income and
principal from the Trust to enrich Kemble’s life and not for her “ordinary care, comfort and health,
including basic food, clothing and shelter, so long as there are sufficient monies available for those
purposes rom federal, state, and local governmental program, or private agencies, or a combination
thercof.” (R. 38); see also (R. 40) (stating “The Trust income and principal shall not be made available
lo provide for ELIZABETH KEMBLE’s primary or basic support.”), The Trustee is explicitly
prohibited from making any distributions that would “excced those amounts or limits as set forth by
statute and/or regulation in the aggregate which may cause the termination or reduction of any
benefits” from state, federal or local government programs, (R. 38-39), The Trustec is similarly
directed “to usc so much of the income and principal of the Trust as in its sole discrction believes will
enhance the quality of ELIZABETH KEMBLE’s life without disqualifying [her] from any state,
federal, or local benefits or programs then providing for [her] needs.” (R. 39). The Trustee has no
authority to distribute assets to Kemble at any time; and neither Kemble nor the guardian “have any
right or power to demand distribution from the Trust at any time.” Td.

4.


The Trust was designed to maintain Kemble’s eligibility to receive government benefits,
including Medicaid benefits, notwithstanding the fact that she obtained a personal injury scttlement.
The Trust terms provide unequivocal evidence that Kemble intended to create a trust which would
maintain her eligibility to reccive Medicaid benefits. Under the Illinois Administrative Code, a
Medicaid trust must be irrevocable. 89 Ill. Admin. Code 120,347(d)(1). Kemble’s intent to create an
irrevocable Medicaid trust is clear. Kemble expressly stated her intent to create the Trust in
accordance with 42 U.S.C. §1396p(d)(4)(A) and 89 TI. Admin, Code 120.347(d)(1), which govern
eligibility for Medicaid. (R. 37). Kemble’s Trust contains the Medicaid payback provision which
provides that upon the death of Kemble, the State of Illinois will be reimbursed for all Medicaid
assistance provided during her lifetime from funds then remaining in the Trust. The Trust provides:

Unless sooner terminated by exhaustion of corpus, or otherwise, the Trust shall

terminate upon the death of ELIZABETH KEMBLE. Specifically, in accordance with

42 U.S.C. 1396p(d)(4)(A) and 89 Tl. Admin Code, Ch. 1, Sect. 120.347(d)(1), the

Trust assets remaining at the Death of ELIZABETH KEMBLE shall be paid to the

appropriate State agencies, as rcimbursement to the State of Illinois for benefits

provided to BLIZABETH KEMBLE during ELIZABETH KEMBLE'’s lifetime.
(R. 41). The terms of the Trust do not allow it to be revoked. In Article Eight, Kemble “expressly
waive[d] all right, power and authority to aller, amend, revoke or terminate” the Trust. (R. 46).

Finally, an analysis of the circumstances under which the Trust was drafted confirms that
Kemble intended to create an irrevocable supplemental needs trust which would allow her to continue
receiving Medicaid and other government benefits. Kemble is a disabled person who was recciving
Medicaid benefits at the time she received a personal injury settlement. She obviously wanted to
continue receiving such benefits. Kemble’s counsel sent a copy of the Trust to the Illinois Department

of Public Aid (the “Department”) sceking confirmation that the Trust would not jeopardize her

Medicaid benefits. (R. 48). An Assistant General Counsel for the Department opined that the terms

9.



Trust language shows an unequivocal intent to designate the State of Illinois as a beneficiary by
expressly identifying the State of Illinois as the “sole successor beneficiary.” See Restatement
(Second) of Trusts § 127 (1957) (stating “[a] person is a beneficiary of a trust if the settlor manifests
an intention to give him a beneficial interest. . . . ”); Restatement (Third) Trusts § 48 (2003). The
Trust also provides that upon Kemble's death, the State will be reimbursed for medical assistance paid
on behalf of Kemble during her lifetime:

Pursuant to ARTICLE THREE, below, the State of Illinois is the sole successor

beneficiary, and, accordingly, shall receive all amounts remaining in the trust upon the

death of ELIZABETH KEMBLE, up to an amount equal to the total medical assistance

(Medicaid/Public Aid) paid on behalf of ELIZABETH KEMBLE, under the State of

Illinois plan operated under and in accordance with the applicable federal medical

assistance program (Medicaid Statutes and Regulations).

(R. 38). Thus, Kemble has set aside property for payment of a debt to the State of Tllinois and has
expressed her intention to create a beneficiary intcrest in the State of Illinois. See QOuinchett v.
Massanari, 185 F.Supp.2d 845 (S.D. Ohio 2001) (holding that a special needs trust established for the
benefit of a minor child that named the State of Ohio as contingent beneficiary and provided for
reimbursement to the state for medical assistance paid on behalf of the child upon termination of the
trust was irrevocable under Ohio law, and thus, not a countable resource for SST eligibility.).

The Commissioner nevertheless argues that the ALJ properly found that Kemble did not intend
that the State of Illinois be a beneficiary of the Trust. The ALJ found that “[t]he naming of the state
of Ulinois as sole beneficiary of the trust, to repay Medical Assistance received, does not create a
named residual beneficiary of the trust.” (R. 13). The ALJ reasoned that the Medicaid payback
provision is required to preserve Kemble’s cligibility for Medicaid benefits and does not confer a

benefit to the State because the money being repaid is for benefits that the State previously bestowed

on Kemble. Id. The ALJ’s reasoning would be more persuasive if nothing in the Trust indicated an

-6-



law and Illinois law, a trust that purports to be irrevocable can be revoked if the settlor of the trust is
also the sole beneficiary, Restatement (Sccond) Trusts § 339 (1957); Restatement (Third) Trusts §65,
Reporter’s Notes (2003); Vlahos v, Andrews, 1 N.E.2d 59, 62 (Ill. 1936); Stewart_v. Merchants

National Bank of Aurora, 278 N.E.2d 10 (II.App. 1972). Kemble does not dispute the ALI’s finding

that she is the setilor of the Trust. The dispositive issue, then, for review is whether substantial
evidence supports the ALJ’s finding that Kemble is the only beneficiary of the Trust. If Kemble is the
sole beneficiary, she can revoke the Trust, it is a countable resource for SST purposes, and she loses
her SSI monthly disability income.

In Illinois, courts determine the intent of a trust settlor by “analyzing both the words used in
the instrument and the circumstances under which they are drafted. ...” Harris Trust & Savings Bank

v. Beach, 513 N.E.2d 833, 834 (Ill. 1987); sce also Bescor, Inc. v. Chicago Title & Trust Co., 446

N.E.2d 1209, 1213 (1983) (stating in Illinois, the “test for determining who is the beneficiary of an
express trust is intent of the parties imposing the trust (Restatement (Second) of Trust sec. 127 (1959)),
and this intention will be ascertained in the first instance, from the express language of the document
creating the trust.”). “When, however, the instrument fails to make the settlor’s of testator’s intention
clear, courts often resort to rules of construction to determine the meaning of the terms used in the
document. Id.

The ALJ’s finding that Kemble did not intend for the State of Illinois to have a bencficial
interest in the Trust property is not supported by substantial evidence. The Court’s analysis begins

with the language of the Trust itself. The terms of Kemble’s Trust are clear and unambiguous, The

} Although the Trust identifies the Circuit Court of Cook County as the “Grantor,” Kemble is
the true grantor of the trust because the trust was formed with her assets. POMS SI 01 120.200(B)(2);
POMS SI 01120,200(L)(3).


the manifestation of intention of the debtor”).

A finding that Kemble intended the State of Illinois to bea beneficiary of the Trust is consistent
with the SSA’s policy as expressed in the POMS. POMS SICHIO1 120.200(D) provides: “In all States
in the Chicago Region, specifically named persons or entities, ot categories such as parents, siblings,
children, issue, or descendants, are considered residual beneficiaries. .. , If the trust provides that,
upon the beneficiary’s death, the trust will reimburse the State for medical assistance provided during
the beneficiary’s lifctime, the State is considered a creditor, not a residual beneficiary.” (Emphasis
added). Here, the Trust did not merely require that upon Kemble’s death, the Trust would reimburse
the State for Medicaid benefits paid on Kemble’s behalf. Kemble specifically named a particular
entily, the State of Illinois, as the “sole successor beneficiary.” Under the Commissioner’s own
policies, this designation is specific enough, and the Trust is irrevocable. The Commissioner asserts
that i’ Kemble had named other beneficiarics, such as family members, to receive any remaining assets
after the State was reimbursed, the Trust would be irrevocable. Def’s Memo., p. 14. The
Commissioner's position that the Trust must specify a particular person as opposed to a particular
entity as the residual beneficiary to be deemed irrevocable has been explicitly rejected by POMS SI
CHI01120.200(D) which recognizes that specially named entities are considered beneficiaries.

For the above reasons, the Court concludes that Kemble intended to give the State of Illinois
a beneficial interest in the Trust, and the Trust is irrevocable. The Court notes that a contrary holding
would not only eliminate Kemble’s eligibility for social security benefits, but she would also losc her
Medicaid benefits. If the State is not deemed to be a beneficiary, the Trust is considered revocable and
Kemble’s eligibility for Medicaid benefits under 89 Ill. Admin. Code 120.347(d)(1)) is inadvertently
eliminated. Thus, a finding that the State is not a beneficiary would frustrate Kemble’s plain intent to
create an irrevocable trust preserving her Medicaid eligibility.

-8-



Mowe

ev Farm i697)

8 - United States District Court, Northern District of Illinois
Name of Assigned Jude Nan R. Nolan Sitting Judge if Other
or Magistrate Judge than Assigned Judge
—
CASE NUMBER 02 C 8579 DATE 3/9/2004
CASE Elizabeth Kemble vs. Jo Anne Barmhart
TITLE

of the mation being presented. |

[In the following box (a) indicate the party filing the motion, ¢.s., plainti/f, defendant, 3rd party plaintiff, and (b) state brictty the nature

Case terminated.

(ll) (Wor further detail sce order attached to the original minute order.]

MOTION:
DOCKET ENTRY:
Q) oO Filed motion of [ usc listing in “Motion” box above.]
{2) QO Brief in support of motionduc____.
(3) oO Answer brief to motion due______.. Reply to answer briefdue____.
(4) a) Ruling/Hearingon_ ___setfor_— at»
(5) a] Status hearing{held/continued to] [set for/re-set for}on_ set for_ at,
(6) o Pretrial conference|held/continued to] [set for/re-set for]on___ set for_ at)
(7) o Trial{set for/re-set for]on ss at_
(8) qa [Bench/Jury trial) [Learing] held/continued to _at__
(9) oO This case is dismissed [with/without] prejudice and without costs]by/agrcement/pursuant to]
OFRCP4(m) OLocalRule di) COFRCP41 (a1) O FRCP41(ax(2).
ao [Other docket entry] For the reasons stated in the attached Memorandum Opinion and Order,

plaintiffs motion for summary judgment [11-1] is granted and the Commissioner’s motion [14-1] is
denied. Judgment is entered pursuant to Fed.R.Civ.P. 58 in favor of plaintiff and against the defendant

No notices required, advised in open eourt.

No notices required. number of neitices

Document.
Number

Notices mailed by judge's stat.
| MAR 10 2006
Notilied counsel by telephone:
Duckcting to mail notices,

Mail AQ 450 form, Sucheting deputy initia

Copy 10 judge/magisteate judge.

Jyai2008

awe witiled patie
courtroum

him deputy's ; eT Ty nb

initials
Date/time received in
central Clerk's Office mailing, deputy initrsts



of the ‘Trust were consistent with the “provisions of 42 U.S.C. 1396p(d)(4)(A) and with the
Department’s administrative rule implementing the federal law, 89 Ml.Adm.Code 120.347” and that
the creation of the Trust would not adversely effect Kemble’s Medicaid eligibility. Id. Disregarding
the unambiguous language of the Trust naming the State of Illinois as a beneficiary and finding the
Trust revocable would improperly eliminate Kemble’s Medicaid eligibility and frustrate her clear intent
to maintain her eligibility.
CONCLUSION

For the reasons stated above, Kemble’s motion for summary judgment is granted and the
Commissioner’s motion is denied. The final decision of the Commissioner in this case is reversed.
Kemble’s Trust is not a countable resource for purposes of determining her eligibility to Supplemental
Security Income. The Clerk is directed to enter judgment pursuant to Fed.R.Civ.P. 58 in favor of
plaintiff and against defendant. This case is terminated.

ENTER:

MAR 9 2004

Nan R. Nolan
United States Magistrate Judge

~10-



intent to go beyond what was required to create a Medicaid Trust. The ALJ improperly disregarded
the unambiguous Trust language which indicates an intent to do more than just preserve Kemble’s
cligibility for Medicaid benefits. Kemble named the State of Illinois as the “sole successor
beneficiary,” which was not necessary to qualify for Medicaid benefits. The ALJ’s suggestion that the
naming of the State of Illinois as the sole successor beneficiary was necessary to preserve Kemble’s
eligibility for Medicaid benefits is erroneous. Neither the federal statute nor the State’s administrative
tule implementing the federal law require that in order to qualify for Medicaid, the State must be
named as a beneficiary. See 42 U.S.C. § 1396p(d)(4)(A); 89 IIL Adm. Code 20.347.

The Commissioner also argues that the ALJ’s decision should be affirmed by resorting to rules
of construction. “Rules of construction... are court created presumptions of what the ordinary settlor
or testator would have intended the ambiguous terms to mean; they are the court’s own assessments
of what the person probably meant when the provision was drafted.” Harris Trust and Savings Bank,
513 N.£.2d at 834. ‘The Commissioner argues that Kemble’s intent was to make the State a creditor
of the Trust because the ordinary inference when a debtor creates a trust is that the debtor “does not
intend to create it for the creditor, but intends to create it only for his own benefit.” 2 Scott on Trusis
§ 126.1 (4" ed, 1987). However, as the Commissioner recognizes, a court may resort to rules of
construction to determine the meaning of the terms used in the document only when the document fails

to make the scttlor’s intention clear. Harris Trust and Savings Bank, 513 N.E.2d at 834, The rules of

construction advanced by the Commissioner are inapplicable here. The unambiguous language of the
Trust overrides any usual inference that the Trust was created solely for Kemble’s benefit, The
relevant language of the Trust—“the State of Illinois is the sole successor beneficiary’—evidences a clear
intent to confer a benefit on the State of Illinois. Sec 2 Scott on Trusts § 126.1 (4" cd. 1987)

(recognizing that “whether if a trust is created the creditor is a beneficiary of the trust, depends upon

-7-



at a hearing on December 6, 2000 before administrative law judge Cynthia M. Bretthauer (R. 89-106).
Kemble’s sister also appeared. On February 9, 2001, the ALJ issued a decision concluding that
Kemble is the grantor of the Trust and the sole beneficiary of the Trust. (R. 13). Thus, the AL] found
the Trust revocable and a resource to Kemble. (R. 12-15). The ALJ’s decision rendered Kemble
ineligible for SST benefits. The Appeals Council denied Kemble’s request for review. (R. 4-5).
Kemble seeks judicial review of the ALJ's decision pursuant to 42 U.S.C. § 405(g).
DISCUSSION

Judicial review of the ALJ's decision is limited to determining whether the ALI’s findings are
supported by substantial evidence or based upon a legal error. Stevenson v. Chater, 105 F.3d 1151,
1153 (7th Cir, 1997). Substantial evidence is “such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion.” Richardson v. Perales, 402 U.S. 389, 401,91 S.Ct. 1420
(1971). This Court may not substitute its judgment for that of the Commissioner by reevaluating facts,
reweighing evidence, resolving conflicts in evidence, or deciding questions of credibility. Estok v.
Apfel, 152 F.3d 636, 638 (7th Cir, 1998). The Court need not defer to conclusions of law, and if the
Commissioner commits an error of Jaw, the Court may reverse without regard to the volume of
evidence in support of the factual findings. White v. Apfel, 167 F.3d 369, 373 (7" Cir, 1999),

“Federal regulations prohibit a person from collecting SST benefits if that person has more than
$2000 in resources available for care or maintenance.” White, 167 F.3d, at 371. Both sides rely upon
the SSA’s Program Operation Manual System (“POMS”) in analyzing whether Kemble’s Trust is a
countable resource,’ The POMS provides that “{iJf an individual does not have the legal authority to

revoke the trust or direct the use of the trust asscts for his/her own support and maintenance, the trust

> “The POMS is a handbook for internal use by employees of the Social Security
Administration.” Parker v, Sullivan, 891 F.2d 185, 189 fn.4 (7° Cir, 1989),

3.


order. (R. 37-47).' The order authorized the transfer of the settlement funds to the Trust, the Circuit
Court of Cook County was named as the grantor, and Kemble’s sister, Valerie Kemble, was appointed
Trustee. The Trust names Kemble as the “primary beneficiary” and the State of Illinois (the “State””)
as the “sole successor beneficiary.” (R. 37-38). The Trust contains a Medicaid payback provision
stating that upon Kemblo’s death, the remaining assets are to be used to rcimburse the appropriate State
of Illinois agencies for benefits provided Kemble during her lifetime? (R. 41). Any assets remaining
after reimbursement to the State of Illinois are to be distributed to Kemble’s estate. Id.

On July 16, 1998, Kemble completed a Social Security Administration (“SSA”) statement for
the purpose of determining continuing eligibility for SSI payments and reported the assets held in the
Trust. (R. 19-20). On August 5, 1998, the Assistant Regional Commissioner (“ARC”) of the SSA
asked the Office of the General Counsel (“OGC”) to provide a legal opinion concerning whether the
Trust assets would be a countable resource to Kemble (R. 22). On April 12, 1999, the ARC
concluded, based on the legal opinion provided by the OGC, that “the subject trust principal should
be considered a resource to Elizabeth for SSI purposes, because as grantor, and sole beneficiary, she
can revoke the trust and use the trust principal for her support and maintenance.” (R. 28). The

decision was affirmed on reconsideration. (R. 30-34). Kemble, represented by her attorney, appeared

* “A supplemental nceds trust is a type of trust that limits the trustee’s discretion as to the
purpose of the distributions. This type of trust typically contains language that distributions should
supplement, but not supplant, sources of income including SSI or other government benefits.” POMS
$1 01120.200(B)(13).

2 42 U.S.C, 1396p(d)(4)(A) provides, among other things, that a trust will be counted in
determining eligibility for Medicaid bencfits unless a provision is included in the trust providing that
the State agency administering the Medicaid program will receive all amounts remaining in the trust
upon the death of the beneficiary up to the amount of medical assistance paid out by the State on behalf
of the individual.



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
ELIZABETH KEMBLE, )
) NS)
Plaintiff, )
v. ) Case No. 02 € 8579 ce Na
) S Ak
JO ANNE B. BARNHART, ) we
COMMISSIONER OF )
SOCTAL SECURITY, ) _e
) “
Defendant. y

MEMORANDUM OPINION AND ORDER

Plaintiff Elizabeth Kemble (“Kemble”) seeks judicial review of the final decision of the
Commissioner of Social Security (“Commissioner”) finding that a trust established for Kemble was
a countable resource for purposes of determining her eligibility for Supplemental Security Income
(“SSI”). The parties have consented to the jurisdiction of the United States Magistrate Judge pursuant
to 28 U.S.C. § 636(c). Cross-motions for summary judgment are pending. For the reasons explained
below, Kemble’s motion is granted, and the Commissioner’s motion is denicd.

BACKGROUND

Kemble suffers from multiple sclerosis, hypertension, heart disease, hyperthyroidism, diabetes,
schizophrenia, and short-term memory loss. Since July of 1986, Kemble has been deemed disabled
as defined in §1614(a)(3) of the Social Security Act, 42 U.S.C. § 1382(a)(3). On December 27, 1995,
Kemble was injured when she was struck by a sport utility vehicle (“SUV”) while walking on a
sidewalk. In February 1997, Kembic settled a personal injury lawsuit against the driver of the SUV.

The funds from the settlement were placed in a Supplemental Needs Trust (“Trust”) pursuant to court