Opinion ID: 1360483
Heading Depth: 1
Heading Rank: 1

Heading: individual

Text: Williams first argues that the trust was not established by the individual (Squier) who applied for Medicaid benefits. This argument is incorrect. Although the trust was established in form by Williams, it was created with Squier's funds and was established by her. In Forsyth v. Rowe, 226 Conn. 818, 826, 629 A.2d 379 (1993), the Connecticut court stated: A trust is established by the person who provides the consideration for the trust even though in form it is created by someone else. See In re Estate of Hickey, 263 Ill. App.3d 658, ___, 635 N.E.2d 853, 855 (1994), cert. denied ___ U.S. ___, 130 L.Ed.2d 1068 (1995); 76 Am.Jur.2d, Trusts § 55. Moreover, implicit in the term individual is a person acting as an individual's legal representative where the individual is incapable of acting on his or her own. JoAnn Williams was appointed guardian ad litem for the purposes of Squier's damages action, and Williams also appears in this case as Squier's guardian ad litem. Williams concedes that she established the Williams trust in her capacity as guardian ad litem for Squier. She also concedes that the Williams trust was created in contemplation of a settlement in the damages action. The trust was initially funded with $10, Williams' personal funds. We are aware that even a peppercorn can be consideration and that $10 can be consideration. That is not the issue in this case. The corpus of the trust here rapidly grew to more than $1.6 million, funded entirely, except for the initial $10, with proceeds from Squier's damages settlement. The creation of the Williams trust and the payment of the damages proceeds directly into the trust was an attempt to preserve Squier's Medicaid eligibility in order to preserve the $1.6 million settlement for her children. This is precisely the situation § 1396a(k)(2) was designed to limit. Williams argues that Squier never had a legal or equitable interest in the settlement proceeds; therefore, the Williams trust was not funded by Squier. The trial court agreed. We do not. The settlement proceeds may not have come into Squier's hands directly, but the proceeds were hers nonetheless. The proceeds were derived from her cause of action in the damages case. That her representative in that case, Williams, agreed to a settlement in which the funds were placed directly into the Williams trust, does not alter the fact that the proceeds were Squier's funds. Several other courts, under facts nearly identical to those in the case at bar, have reached similar conclusions. Forsyth, 226 Conn. 818, involved facts identical to the case at bar. Gregory Forsyth sustained injuries in a 1988 car accident which left him unable to care for himself. His father was appointed conservator of Forsyth's estate and person. Forsyth's father, acting on Forsyth's behalf, entered into a settlement agreement with State Farm in which State Farm paid $195,000 into the Gregory L. Forsyth Trust in return for a release of Forsyth's tort claim from the car accident. Forsyth's application for Medicaid benefits was denied because the funds in the trust were deemed available to Forsyth. 226 Conn. at 820-21. Forsyth's father argued that the trust was not an MQT because it was established by him as Forsyth's conservator and not by Forsyth. The Connecticut court disagreed, holding that for purposes of 42 U.S.C. § 1396a(k) Forsyth was both the grantor and the beneficiary of the trust. The court's reasoning is persuasive: The trust in this case was funded with the proceeds from the settlement of the personal injury claim brought by [Forsyth's father] solely on Gregory's behalf. Gregory provided the funds with which the trust was established when, through [his father], his claim was settled in return for a payment to the trust. Gregory, therefore, is the individual who established the trust. ... It is clear ... from the purpose and history behind § 1396a (k) that a Medicaid qualifying trust may also be `established ... by an individual' when that individual, acting through his conservator, provides the consideration for the trust. ... The plaintiff's narrow reading of the words `established ... by an individual' discloses an ambiguity in the language of § 1396a (k) as applied to the facts of this case. It would be anomalous to construe the statute to allow a Medicaid applicant to accomplish through a conservator or guardian acting on his behalf what the law prevents that applicant from doing on his own. Our conclusion reflects the legislative concern that the Medicaid program not be used as an estate planning tool. The Medicaid program would be at fiscal risk if individuals were permitted to preserve assets for their heirs while receiving Medicaid benefits from the state. Congress enacted the Medicaid qualifying trust provision as an addition to the `provisions designed to assure that individuals receiving nursing home and other long-term care services under Medicaid are in fact poor and have not transferred assets that should be used to purchase the needed services before Medicaid benefits are made available.' H. Rep. No. 99-265, 99th Cong., 1st Sess. 71 (1985). .... Our holding that a trust established by the person who furnishes the consideration is a Medicaid qualifying trust for purposes of § 1396a (k) comports with the present Congressional mandate delineating the assets that are available to a potential Medicaid recipient. To permit Gregory to collect Medicaid benefits from the taxpayers when $195,000 of his assets are sheltered in a trust, all of which could potentially go to his heirs, would violate the spirit and intent of the Medicaid program. 226 Conn. at 826-30. Thomas v. Arkansas Department of Human Resources, 319 Ark. 782, 894 S.W.2d 584 (1995), also involved similar facts, except that the settlement proceeds were received from a workers compensation claim and the employer was designated as the grantor of the trust. The settlement proceeds, $270,000, were placed directly into the trust by the employer. 319 Ark. at ___, 894 S.W.2d at 586. The court pointed to the Arkansas public policy that trusts not be created and used to sequester resources for the purposes of qualifying otherwise ineligible individuals for Medicaid assistance. 319 Ark. at ___, 894 S.W.2d at 588. The court held that the trust was an MQT. In Romo v. Kirschner, ___ Ariz. ___, 889 P.2d 32 (Ariz. App. 1995), the trust was created by the defendant in a personal injury action and funded with $150,000 from the personal injury settlement. In holding that the trust was an MQT, the Arizona court recognized the intent behind section (k) to close a loophole in the eligibility criteria and insure that persons receiving Medicaid benefits have not transferred assets which should be used to pay for their own care before Medicaid benefits are made available. ___ Ariz. ___, 889 P.2d at 34-35. The court rejected an argument that the trust in question was established or approved by the court at the request of the individual's conservator, finding that the trust was in reality established by the individual acting through his conservator. The court also pointed out the potential for unfairness should a contrary result be reached: [A] beneficiary who is represented by a conservator and has his trust approved by a court may preserve his assets, while one who lacks a conservator and court approval loses them. ___ Ariz. ___, 889 P.2d at 35. Barham v. Rubin, 72 Hawaii 308, 816 P.2d 965 (1991), also involved similar facts where a Colorado probate court having jurisdiction over a personal injury action deemed itself to be the settlor of a trust. The Hawaii court recognized the purpose of Medicaid to provide assistance to those whose income and resources are inadequate to meet the costs of necessary medical services and concluded: To permit Barham to collect public assistance benefits while he is receiving and potentially accumulating $3000 a month, all of which may go to his heirs, would violate the spirit and intent of the Medicaid laws. 72 Hawaii at 312. Cases involving inheritance, rather than settlement proceeds, placed in a trust are also persuasive. Ronney v. Director of the Department of Social Services, ___ Mich. App. ___, ___ N.W.2d ___, 1995 WL 259154 (April 28, 1995), includes a helpful discussion of the interpretation of section (k)(2). In Ronney, the plaintiff inherited $50,000 which her niece, as her legal guardian, placed in a trust. The court held that a trust established by a legal guardian is an MQT, relying on the interpretation of section (k)(2) by the Secretary of the Department of Health and Human Services, through the Health Care Financing Administration (HCFA): In its State Medicaid Manual, the HCFA has codified its ... interpretation in the following manner: An `individual' is the person who both establishes the trust (or whose spouse establishes the trust) and is beneficiary of the trust. A trust that is established by an individual's guardian or legal representative acting on the individual's behalf, falls under the definition of a Medicaid qualifying trust. If an individual is not legally competent, for example, a trust established by his legal guardian (including a parent) using the individual's assets can be treated as having been established by the individual, since the individual could not establish the trust for himself. [Healthcare Financing Administration, Department of Health and Human Services, State Medicaid Manual, § 3215.1 (May 1989).] ___ Mich. App. at ___, 1995 WL 259154 at 2-3. The Ronney court agreed with the Forsyth court that a trust is established by the person who provides the consideration for the trust. Therefore, the court read section (k)(2) as including guardian-established trusts as MQTs. Other cases reaching similar conclusions include Hatcher v. Dept. of Health & Rehab. Serv., 545 So.2d 400 (Fla. Dist. App. 1989) (upon father's death, mentally retarded 30-year-old became entitled to annuity benefits which were placed by legal guardian into a trust; court held trust was an MQT); Striegel v. S.D. Dept. of Social Services, 515 N.W.2d 245 (S.D. 1994) (upon father's death, mentally incompetent adult inherited money and property which years later were placed with court approval into a trust by legal guardian; court held trust was an MQT). See In re Johannes Trust, 191 Mich. App. 514, 479 N.W.2d 25 (1991). Williams relies on Kegel v. State, 113 N.M. 646, 830 P.2d 563 (Ct. App. 1992). There, a settlement from a malpractice action provided for payments made jointly to the seven-year-old disabled Medicaid beneficiary's conservator, his parents, and their attorneys. The conservator established a trust with some of the funds. Placing the burden on the state department of human services to prove that the child was no longer eligible for Medicaid benefits by showing that the trust was an MQT, the court found the evidence insufficient to prove that the child was the grantor of the trust. Kegel is distinguishable from the case at bar. In Kegel, the monies with which the trust was funded were payable to both the child and his parents, with no distinction as to what portion of the settlement proceeds belonged to the parents and what portion was the child's. Here, Squier was the sole plaintiff in the damages action. The settlement proceeds were hers alone. Moreover, the reasoning of Forsyth and the other cases discussed above is more persuasive. Williams also cites Trust Co. of Okl. v. State ex rel. DHS, 825 P.2d 1295 (Okla. 1991), in arguing that a trust created by an individual's legal representative is not legally tantamount to a trust established by the individual for purposes of Medicaid eligibility. Trust Co. did not address whether the trust was an MQT under section (k) except in a footnote. In the footnote, the court concluded summarily that the trust was not an MQT because the settlor was the tortfeasor rather than the beneficiary. 825 P.2d at 1302 n. 31. The Trust Co. facts are nearly identical to those in the case at bar, but the court's failure to address the MQT issue more extensively limits the persuasiveness of its decision. Williams also relies on Miller v. Ibarra, 746 F. Supp. 19 (D. Colo. 1990), in which Colorado probate courts had approved creation of trusts in favor of four mentally incompetent nursing home patients. The federal district court held that the trusts were not MQTs because they were not created by the Medicaid beneficiaries. Miller predates all of the cases discussed above holding that the trusts were MQTs except Hatcher. The court distinguished Hatcher as relying on Florida law to conclude that the guardian was acting in place of the incompetent person. The court also distinguished Hatcher because the Hatcher trust involved not only income but also principal in excess of $10,000. 746 F. Supp. at 33-34. For these same reasons, Miller is distinguishable from the case at bar. Here, the trust is more like the one found in Hatcher than the ones in Miller. Significantly, the Miller court pointed out that the trusts at issue had no remaindermen; rather, any remnants of the income would go to the Colorado Department of Social Services. 746 F. Supp. 34. Here, conversely, the remnants of the Williams trust will go to Squier's children, not to the State. For these reasons, Miller is not persuasive. We follow the reasoning of Forsyth, Ronney, and the other cases holding that trusts established by an individual's legal representative with the individual's own funds are established by the individual. The Williams trust is precisely the situation Congress protected against by enacting 42 U.S.C. § 1396a(k). Here, in anticipation of receiving some $1.6 million from a damages settlement, a trust was created in an attempt to preserve Squier's Medicaid eligibility. Although the trust was in form created by Williams, it was funded by Squier and therefore established by her.