Title: State Ex Rel. Secretary of SRS v. Jackson
Citation: 249 Kan. 635, 822 P.2d 1033
Docket Number: 64,947
State: Kansas
Issuer: Kansas Supreme Court
Date: December 6, 1991

249 Kan. 635 (1991)
822 P.2d 1033
STATE OF KANSAS, ex rel. SECRETARY OF SOCIAL AND REHABILITATION SERVICES, Appellant,
v.
CARRIE CONNER JACKSON, Appellee.
No. 64,947

Supreme Court of Kansas.
Opinion filed December 6, 1991.
Robert R. Hiller, Jr., of Department of Social and Rehabilitation Services, argued the cause, and Reid Stacey, of the same department, was with him on the briefs for appellant.
Mark D. Calcara, of Watkins, Calcara, Rondeau &amp; Friedeman, P.A., of Great Bend, argued the cause and was on the briefs for appellee.
The opinion of the court was delivered by
McFARLAND, J.:
This action was brought by the State of Kansas, ex rel. Secretary of Social and Rehabilitation Services (SRS), against Carrie Conner Jackson for reimbursement of public assistance benefits paid during a period in which SRS had determined she was ineligible to receive such benefits. Such an action is authorized by K.S.A. 39-719b. The case was tried in a bench trial upon stipulated facts which incorporated certain depositions and interrogatories. The district court held in favor of the defendant, and the State appealed therefrom. The Court of Appeals affirmed the district court in State ex rel. Secretary of SRS v. *636 Jackson, 15 Kan. App.2d 126, 803 P.2d 1045 (1990). The case is before us on the State's petition for review.
Jackson received benefits comprised of medical assistance, food stamps, and cash public assistance from May 1983 through February 1986 in the total amount of $35,565.11. Her benefits were terminated in February 1986 by SRS on the basis that her interests in two trusts were undisclosed available resources which rendered her ineligible for the benefits she had received. The two trusts, known as the Essmiller Trust and the Carrie Conner Jackson Irrevocable Trust (Jackson Trust), were established by W.D. Essmiller, Jackson's maternal grandfather prior to the time Jackson received SRS benefits herein. By the time the State's appeal was heard by the Court of Appeals, the State was no longer claiming the Essmiller Trust was an available resource to Jackson. We are concerned herewith solely with the Jackson Trust.
Before proceeding further, it is important to further delineate exactly what is and what is not involved in the case before us. The State brings this action under K.S.A. 39-719b, which provides:
Thus, in this action, the State is contending Jackson is indebted to it in the amount of $35,565.11, this sum being the amount of assistance received by Jackson when she was an ineligible recipient. The trustees of the Jackson Trust are not parties hereto, *637 and no claim is asserted herein against them. The propriety of the termination by SRS of Jackson from receipt of future benefits is, likewise, not before us as Jackson did not appeal that administrative determination. The claim that Jackson received $35,565.11 in assistance is uncontroverted.
Although the posture of this case does not require us to analyze the particular benefits received, it is appropriate to state, generally, how eligibility is determined. The Court of Appeals explained:
The trust provisions at issue are as follows:
The parties stipulated that the Jackson Trust was "a discretionary trust with spendthrift provisions." The district court and the Court of Appeals accepted this categorization of the Jackson Trust. If we are bound by this stipulation, it controls the outcome of this case, as a discretionary trust is not an available resource to the beneficiary. We recognized the validity of discretionary trusts in Watts v. McKay, 160 Kan. 377, 162 P.2d 82 (1945).
The plaintiff in Watts sought an order compelling the trustee to pay a judgment for alimony. The court determined that a discretionary trust existed and stated:
....
In Watts, we cited with approval the provisions of the Restatement of Trusts § 155 (1935) concerning discretionary trusts. The present version of this treatise contains the same language:
Comment b of this subsection states:
See 76 Am.Jur.2d, Trusts § 164, pp. 401-02, as follows:
Restatement (Second) of Trusts § 157 (1957) provides:
The nature, construction, and legal effect of a written instrument are questions of law. Courts are not bound by stipulations as to questions of law. Lightner v. Centennial Life Ins. Co., 242 Kan. 29, 31, 744 P.2d 840 (1987); City of Lenexa v. Board of Johnson County Comm'rs, 237 Kan. 782, 703 P.2d 800 (1985). We may determine for ourselves the type of trust created herein.
We believe the Jackson Trust clearly treats the income from the trust differently from the principal. For convenience, the key trust provision is iterated as follows:
Stripped down, the provision states the Trustees shall pay the net income and, in addition, may pay from the principal. The payment of the net income is not tied to any determination of need as are payments from the principal.
Black's Law Dictionary 1375 (Centennial ed. 1991) defines "shall" as follows:
Black's distinguishes its definition of "shall" from its definition of "may," as follows:
True, the term "in their uncontrolled discretion" is used in the provisions relating to the payment of income and principal, but its usage in payment of income provisions is inconsistent with the "shall pay" language except perhaps as to the form of the payment. Since Jackson has been cut off welfare, the Trustees have been paying Jackson's rent, groceries, and baby-sitting costs by checks made out to the suppliers of such goods and services. How often the payments are made and the form of such payments are a matter of the Trustees' discretion. "Shall pay" so interpreted results in the payment of income not being a discretionary trust provision. This interpretation is consistent with what has actually occurred in this case. The parties stipulated that Jackson received "only nominal distribution from the Jackson Trust" during the period public assistance was received. In their briefs, the parties *643 ascribe different but equally valid definitions to the word "nominal." The State argues the amounts paid were small. Jackson uses the term in its meaning of in-name-only.
Webster's New Collegiate Dictionary 779 (1977) defines nominal as follows:
See also the definition in Black's Law Dictionary at 1049:
During the years in question, some $32,000 was reported on Jackson's income tax returns as having been received from Jackson Trust sources (directly from the Jackson Trust and from Affiliated Fund). Some income from the Jackson Trust was apparently invested in the Affiliated Fund. These amounts were apparently reported to the Internal Revenue Service by the Jackson Trust and Affiliated Fund as having been paid to Jackson, although it was a paper or nominal transaction in that the money was not physically received by Jackson. The Affiliated Fund reinvested the money. Such funds were apparently constructively delivered to Jackson. It could certainly be argued that such constructive delivery removed whatever discretion the Trustees may have had in these monies.
We believe our interpretation of the trust is consistent with the grantor's intention. W.D. Essmiller was concerned over his granddaughter's lifestyle, choice of a spouse, and financial responsibility. The Jackson Trust was intended to prevent her from decimating her inheritance and becoming destitute and, presumably, dependent upon public assistance for her support. The action *644 and inaction of the Trustees gave her no funds and resulted in instant destitution. Thus, the very thing the Jackson Trust was intended to prevent occurred immediately  instant destitution and dependence upon the taxpayers' largess for survival. Had SRS not become aware of the trust, presumably, SRS could have continued to support Jackson indefinitely. It should be noted that SRS does not contend Jackson acted willfully or fraudulently herein.
There is yet another reason to hold the income of the Jackson Trust was available to Jackson  public policy. Public assistance is available to the destitute and truly needy. It is not intended to provide subsistence to those with other resources. As was stated in In re van Gaalen's Estate, 38 Misc.2d 853, 854-55, 239 N.Y.S.2d 312 (1963):
Public assistance funds are ever in short supply, and public policy demands they be restricted to those without resources of their own. The Jackson Trust's grantor intended that Jackson receive the income of the Trust regardless of need, and said income was an available resource under the applicable statutes and SRS regulations.
When this matter was tried to the district court, it was the position of SRS that all trust monies in both trusts, including income and corpus, were available assets to Jackson. Jackson *645 contended neither trust was an available resource. There was apparently no issue as to whether or not the total trust funds were insufficient to render her ineligible for the assistance received. As noted previously, SRS abandoned any claim as to the Essmiller Trust prior to its appeal being determined by the Court of Appeals. Because of the posture of the case in the district court, no evidence was introduced as to how much income the Jackson Trust had generated in the years in question.
We have held herein that the net income from the Jackson Trust was an available resource to Jackson. There has, of course, been no determination as to how much income there was or whether such income rendered Jackson ineligible in whole or in part for the assistance received. Accordingly, the case must be remanded to the district court for such determination.
Before concluding this opinion, there is another matter which is of concern  namely the many hats worn by Jackson's attorney, Mark D. Calcara. The evidence in this case indicates he:
1. was the attorney for W.D. Essmiller;
2. drafted the Jackson Trust instrument;
5. represents the trust beneficiary in this action.
Obviously, it is the intention of the State to proceed against the Jackson Trust if successful herein. In any subsequent proceedings arising from this action, the trial court should insure that Carrie Conner Jackson has independent legal counsel.
The judgment of the Court of Appeals is affirmed in part and reversed in part. The judgment of the district court is affirmed in part and reversed in part, and the case is remanded to the district court for further proceedings consistent with this opinion.
ABBOTT, J., concurring and dissenting:
Carrie's grandfather established the trusts because he was concerned whether Carrie could handle money and care for her own needs. At the time Carrie received assistance from SRS, she was married and the mother of two children. Over a 34-month period, SRS paid Carrie $35,565.11. Since SRS stopped assisting the family in February *646 1986, Carrie and her husband have divorced. Carrie is working in a sheltered workshop for the mentally and physically handicapped, building wooden pallets on a commission basis. The workshop staff picks her up at her apartment and takes her home. The trust pays her transportation costs ($30 a month) and her apartment rent ($285 a month with utilities paid). The trust also pays about $200 for groceries and other incidentals each month. The trust is paying approximately $515 a month for shelter, transportation, and food.
This case was brought by the State. According to the State's petition and briefs to the trial court, the State's position is that Carrie's grandfather established the trust in question for her benefit and that the State is entitled to take the income and invade the corpus as a matter of public policy, even though the trust is a spendthrift and discretionary trust.
We do not answer that issue. The trial court did not answer that issue nor did the Court of Appeals. The trial court and the Court of Appeals held the trust was a discretionary trust and that the State has no greater right than the trust beneficiary and, thus, the State could not invade the corpus or take the income. The majority opinion does not deal with that issue, which, in my opinion, leaves unanswered the only real issue raised by the State in the trial court.
I am also concerned because the State stipulated the trust was "a discretionary trust with spendthrift provisions." I suspect the State so stipulated because the executor of Carrie's grandfather's estate previously petitioned the court to interpret the trust language that is also the subject of this appeal. Carrie and the trustees appeared in that proceeding. The court held
*647 None of the parties appealed the court's construction of the trust. Although it is part of the record on appeal, the parties in the present action did not mention that prior court determination at either the trial court or appellate court level. The State must claim through Carrie, and if Carrie is bound by the previous decision (res judicata), so is the State.
The trial court in this case also held that the trust was discretionary. On appeal to the Court of Appeals, the State contended that "public policy" allowed the State to take the income and to invade the corpus of a discretionary and spendthrift trust.
The Court of Appeals panel unanimously upheld the trial court's decision, and the State's petition for review with this court was granted. The State, in my opinion, changed its position before this court and took a position it had never taken before by arguing that the fundamental issue is whether Carrie was eligible for public assistance during the time she received it.
Two trial judges and three members of the Court of Appeals held that the provisions in question were unambiguous and established a discretionary trust. This court found the same provisions to be unambiguous and the trustees' only discretion concerning income from the trust was the manner in which it should be paid to Carrie.
I look at the fact that five other competent judges (the original trial judge in the estate proceedings, the trial judge in this case, and the three-judge Court of Appeals panel) reached a different conclusion from the six-person majority of this court. I question both groups' judgment that the phrase in question is unambiguous.
There is evidence in the record that the grandfather was dissatisfied with Carrie's lifestyle. He changed the original trust instrument to add the discretionary language. The persons named as trustees were relatives who appear to have discussed the trust with the grandfather and who were of the opinion they had absolute discretion. A trustee already has considerable discretion regarding how and when to pay funds to the trust beneficiary. At a minimum, I would reverse on this issue and remand the case to the trial court to determine the grandfather's intent.
*648 I do not place as much reliance on "shall" and "may" as does the majority.
This state has consistently followed the Restatement of Trusts, and the majority sets out Restatement (Second) of Trusts § 155 (1957). In the case at bar  as to income  the trust instrument before us uses the exact language "the trustee shall pay ... in his uncontrolled discretion" (emphasis supplied) as an example of when a discretionary trust is created. Here, the trust instrument follows the Restatement of Trusts' exact language to create a discretionary trust.
The majority relies on the fact that the trust instrument uses "may" when it speaks of invading the corpus. A careful reading of the majority opinion reveals authority that justice should not be the slave of grammar, that "shall" and "may" are frequently interpreted by courts to mean the same, and that the context in which the words appear must be the controlling factor.
I am not persuaded that "uncontrolled discretion" refers to the form of payment. The trustee already has as much discretion in that arena as "uncontrolled discretion" would give.
In summary, I believe the trust instrument to be ambiguous. However, in my opinion, that issue has been decided and is res judicata. The bottom line is that the issue presented in the trial court and Court of Appeals was whether the State has the right to take the net income of a discretionary trust to reimburse itself for welfare payments and, if the income is insufficient to do so, to invade the corpus of a discretionary trust. I would decide that case on that issue. I would reach the same result, i.e., that the State can reach the net income of a discretionary trust when the State has furnished necessities to the trust beneficiary. I would do so on the basis of public policy and on the authority of Restatement (Second) of Trusts § 157 (1957) cited in the majority opinion. I would not permit the State to invade the corpus of this discretionary trust.