Court Opinion

ID: 4115578
Source: CourtListenerOpinion
Date Created: 2017-01-13 14:08:26.259813+00
Date Added: 2024-06-11T14:10:09.596898
License: Public Domain

NOTICE: This opinion is subject to motions for rehearing under Rule 22 as
well as formal revision before publication in the New Hampshire Reports.
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                 THE SUPREME COURT OF NEW HAMPSHIRE

                           ___________________________

Department of Health and Human Services
No. 2015-0079

                    PETITION OF KELLY HAGENBUCH
          (New Hampshire Department of Health and Human Services)

                        Submitted: September 21, 2016
                       Opinion Issued: January 13, 2017

      Tarbell & Brodich Professional Association, of Concord (Friedrich K.
Moeckel on the brief), for the petitioner.

      Joseph A. Foster, attorney general (Laura E. B. Lombardi, senior
assistant attorney general, on the brief), for the New Hampshire Department of
Health and Human Services.

       BASSETT, J. The petitioner, Kelly Hagenbuch, has petitioned for a writ
of certiorari, see Sup. Ct. R. 11, challenging the termination of her food stamp
benefits by the New Hampshire Department of Health and Human Services
(department). The department terminated the petitioner’s benefits because it
found that her income exceeded the maximum amount permitted by the
program. In calculating the petitioner’s income, the department included
distributions from an irrevocable trust, of which the petitioner is the sole
beneficiary, that had been made by the trustee to third parties. These
distributions included payments for trust expenses and for legal fees that the
petitioner had incurred to obtain public benefits. On administrative appeal,
the presiding officer of the department’s Administrative Appeals Unit (AAU)
agreed with the department that the trust distributions counted as income to
the petitioner. In her petition for a writ of certiorari, the petitioner claims that
the presiding officer erred because the trust distributions should have been
excluded from her income for the purpose of determining food stamp benefits.
We reverse.

       The record supports the following facts. The petitioner began receiving
food stamp benefits through the department in approximately 2008. The
department is the state agency tasked with administering the federal
supplemental nutrition assistance program, commonly known as food stamps.
See 7 U.S.C. § 2013(a) (2012) (amended 2014); RSA 161:2, XIII (2014). Under
the program, the department disburses funds to eligible, low-income
households so that the household members may “obtain a more nutritious
diet.” 7 U.S.C. § 2011 (2012). Generally, a household is eligible for food
stamps if the household’s resources and income fall below certain thresholds.
See 7 C.F.R. §§ 273.8(b), 273.9(a) (2016). Alternatively, a household may be
“categorically eligible” for food stamps, without regard to its resources and
income, if household members qualify for certain other governmental
assistance programs. See id. §§ 273.2(j)(2), 273.8(a), 273.9(a). The parties
agree that the petitioner is categorically eligible for food stamp benefits.

       Separate from the question of a household’s eligibility for food stamps is
the amount of benefits to which an eligible household is entitled. The amount
of benefits an eligible household receives depends, in part, upon the
household’s income. See id. § 273.10(e)(2)(ii)(A); see also 7 U.S.C. § 2017(a)
(2012). In order to track household income and determine the amount of
benefits, the department periodically requires each household receiving food
stamp benefits to provide current income information. See generally 7 C.F.R.
§ 273.14 (2016); N.H. Admin. Rules, He-W 746.02. This is known as the
recertification process. See 7 C.F.R. § 273.14(b).

       In early 2013, as part of her recertification for food stamp benefits, the
petitioner submitted income and asset information to the department. In
connection with her submission, the petitioner provided information regarding
distributions made and income generated by the Kelly Jean Hagenbuch
Irrevocable Trust (Trust), of which the petitioner is the sole beneficiary during
her lifetime. The Trust was originally funded as part of the settlement of a
lawsuit arising out of an injury to the petitioner. Pursuant to the terms of the
Trust, an “Independent Trustee” (trustee) is vested with the sole discretion to
make distributions to the petitioner or for her benefit.

      The department examined the Trust’s income and distributions between
August 2012 and February 2013 and counted the following distributions as
income to the petitioner (collectively, “the trust distributions”): (1) distributions
that the trustee made to third parties to cover trust expenses—trust

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administration fees, legal fees, investment-management expenses, and tax
preparation fees—and (2) distributions that the trustee made to the petitioner’s
attorneys to pay the legal fees that the petitioner incurred to obtain public
benefits. These distributions totaled $20,344.94. None of the distributions
was paid directly to the petitioner.

       In June 2013, the department issued a Notice of Decision, in which it
“[c]losed,” i.e., terminated, the petitioner’s benefits, concluding that the
petitioner’s net income exceeded the maximum amount permitted by the
program. The petitioner’s mother, serving as the petitioner’s representative,
filed a timely request for a “fair hearing” with the AAU. RSA 126-A:5, VIII
(2015).

       The presiding officer of the AAU affirmed the department’s decision that
the trustee’s payments to third parties constituted income to the petitioner.
With the inclusion of those distributions, the petitioner’s income would be too
high for her to receive any benefits. The presiding officer denied the petitioner’s
motion for reconsideration as it related to the issues relevant to the present
petition. This petition followed.

       On appeal, the petitioner requests that we reverse the presiding officer’s
decision that the department properly counted the trust distributions as
income. First, she argues that the trust distributions do not meet the
definition of income under the regulations. Second, she argues that, even if the
distributions are deemed to be income, they fall within one of the income
exclusions in the regulations. Third, the petitioner contends that the presiding
officer erred by relying upon evidence that was not submitted by either party.
The petitioner also requests that we determine whether future payments that
the trustee intends to make to the petitioner’s guardian will count as income.

      “The only judicial review of a fair hearings decision issued by the
department is by petition for a writ of certiorari.” Petition of Kalar, 162 N.H.
314, 318 (2011) (quotation and brackets omitted). “Review on certiorari is an
extraordinary remedy, usually available only in the absence of a right to
appeal, and only at the discretion of the court.” Petition of Chase Home for
Children, 155 N.H. 528, 532 (2007). Our review of the department’s decision
on a petition for writ of certiorari entails examining whether the department
has “acted illegally with respect to jurisdiction, authority or observance of the
law or has unsustainably exercised its discretion or acted arbitrarily,
unreasonably or capriciously.” Id. “We exercise our power to grant such writs
sparingly and only where to do otherwise would result in substantial injustice.”
Id.

      This case presents an issue of first impression in New Hampshire:
whether a distribution made by the trustee of an irrevocable trust to third
parties counts as income to the trust beneficiary for the purpose of determining

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food stamp benefits. Resolving this issue requires that we interpret federal
food stamp statutory and regulatory provisions. “The interpretation of a
statute or a regulation is a question of law, which we review de novo.” Petition
of Estate of Braiterman, 169 N.H. ___, ___, 145 A.3d 682, 686 (2016) (slip op. at
4). We interpret federal statutes and regulations “in accordance with federal
policy and precedent.” Id. (quotation omitted). “When interpreting statutes
and regulations, we begin with the statutory or regulatory language, and, if
possible, construe that language according to its plain and ordinary meaning.”
Id.

       Because the department must administer the food stamp program in
accordance with federal law, see RSA 161:2, XIII; Petition of Kalar, 162 N.H. at
318, we begin by examining how federal food stamp law directs state agencies
to treat irrevocable trusts. When calculating household resources for the
purpose of determining whether the household is eligible for food stamps, a
state agency may not include funds in certain types of irrevocable trusts. See
7 C.F.R. § 273.8(e)(8) (2016). The regulations set forth a number of
requirements that an irrevocable trust must meet in order for it to be
considered an excludable resource. See id. § 273.8(e)(8)(i)-(iv). If the
irrevocable trust meets those requirements, any funds in the trust, as well as
the “income produced by that trust to the extent it is not available to the
household,” are not considered resources of the household. Id. § 273.8(e)(8).

       Because the parties stipulated in the administrative proceedings that the
petitioner’s trust is an excludable resource under section 273.8(e)(8), and the
presiding officer accepted that stipulation, we will assume, without deciding,
that the Trust is an excludable resource. We express no opinion regarding
whether the Trust, in fact, meets the requirements enumerated in section
273.8(e)(8), and we need not decide how the funds in the Trust would be
treated if, in the future, the department were to conclude that the Trust is not
an excludable resource.

        Funds in an excluded trust are treated as income when they are
withdrawn from the trust, unless the withdrawal is excluded “under the
provisions of paragraph (c)” of section 273.9. Id. § 273.9(b)(2)(vi). Paragraph
(c), in turn, lists a number of transactions that are excluded from household
income. See id. § 273.9(c). One exclusion is for “[a]ny gain or benefit which is
not in the form of money payable directly to the household,” including “certain
vendor payments.” Id. § 273.9(c)(1).

       A vendor payment is a payment made by a person outside of the
household to a third party for the household’s benefit. Id. A vendor payment
is excluded from income for the purpose of determining food stamp benefits if
the person making the payment uses funds that “are not owed to the
household.” Id. § 273.9(c)(1)(vii) (emphasis added). In contrast, when the
funds are “legally obligated and otherwise payable to the household,” but are

                                       4
“diverted by the provider of the payment to a third party for a household
expense,” the funds are counted as income. Id.

      The petitioner argues that, even assuming that the trust distributions
otherwise come within the definition of income, the distributions are not
counted as income because they were not owed to her and were, therefore,
excluded vendor payments. We agree.

       The narrow question before us is whether the trust distributions were
“owed” to the petitioner. Id. The term “owed” is not defined in the regulations,
so we look to the plain and ordinary meaning of the word. See Petition of
Estate of Braiterman, 169 N.H. at ___, ___, 145 A.3d at 686, 689-91
(interpreting and applying federal Medicaid law) (slip op. at 4, 8-11). The plain
meaning of “owe” is, in part, “to be under an obligation to pay.” Webster’s
Third New International Dictionary 1612 (unabridged ed. 2002). Thus, funds
are “owed to the household” when the household has a legal right to receive the
funds. 7 C.F.R. § 273.9(c)(1)(vii). This interpretation is consistent with the
provision as a whole, which provides that whether funds are excluded turns on
whether the “moneys [are] legally obligated and otherwise payable to the
household.” Id. In addition, the regulations provide a number of illustrations
of excluded vendor payments, all of which require a determination as to
whether a household is entitled to receive the funds in question. See id.
§ 273.9(c)(1)(vii)(A)-(C).

      Accordingly, a distribution by a trustee to a third party is an excluded
vendor payment if the household does not have a legal right to receive the
funds that are used to pay the third party. See id. § 273.9(c)(1)(vii). In order to
determine a beneficiary’s rights with respect to withdrawn funds, we examine
the terms of the trust. See Restatement (Second) of Trusts § 128, at 276 (1959)
(“The extent of the interest of the beneficiary of a trust depends upon the
manifestation of intention of the settlor . . . .” (bolding omitted)).

        Here, the terms of the Trust establish that the petitioner was not owed—
i.e., did not have the legal right to receive—the funds used to pay the third
parties for trust expenses and legal fees. The trustee has the sole discretion to
make payments from the trust, either to the petitioner or to third parties for
the petitioner’s benefit. The trustee also has the power to pay trust expenses
with trust assets. Despite her status as the beneficiary, the petitioner may not
access trust assets, amend the Trust’s terms, or terminate the Trust. Nor does
the petitioner have any right to “require payments from the Trust for any
purpose.” Indeed, under Massachusetts law, which governs the construction
and administration of the Trust, “any right of [a] beneficiary to receive anything
[from the trust] is subject to the condition precedent of the trustee having first
exercised his discretion.” Pemberton v. Pemberton, 411 N.E.2d 1305, 1312
(Mass. App. Ct. 1980) (quotation, italics, and brackets omitted); see also
Pfannenstiehl v. Pfannenstiehl, 55 N.E.3d 933, 940-41 (Mass. 2016).

                                        5
       Regarding the distributions at issue, the trustee did not exercise his
discretion in a manner that gave the petitioner a legal right to receive the
funds. See Pemberton, 411 N.E.2d at 1312. Rather, pursuant to his authority,
the trustee chose to pay third parties directly to cover trust expenses and the
petitioner’s legal fees. As the presiding officer noted in her final decision, the
purpose of the distributions was to satisfy those obligations. In light of the
nature of the trust arrangement and the trustee’s actions in this case, we
conclude that the funds used for the trust distributions were not “owed to” the
petitioner within the meaning of the regulations. 7 C.F.R. § 273.9(c)(1)(vii).

       The department, however, advances several arguments as to why the
trust distributions cannot be considered to be vendor payments. Most of the
department’s arguments are subsumed by one overarching theory: because the
Trust was originally established with the petitioner’s own funds, no trust
distribution—including the trust distributions at issue—may come within the
vendor payment exclusion. We disagree.

       We need not decide the validity of the premise underlying the
department’s argument—that because the money used to establish the Trust
was derived from the settlement of the petitioner’s personal injury lawsuit, the
Trust was established with the petitioner’s “own funds.” Even assuming that
the premise is correct, we conclude that the vendor payment exclusion applies
to the trust distributions because the regulations do not recognize the
distinction that the department attempts to draw regarding trusts originally
funded by the household.

       Although a trust established with household funds must satisfy certain
requirements in order to be considered an excludable resource, see id.
§ 273.8(e)(8)(iv), once the trust qualifies as an excludable resource, the funds in
the trust are not considered resources of the household, regardless of whether
the trust in question was funded by the household or by a nonhousehold
member, see id. § 273.8(e)(8). Likewise, the regulations provide a single
framework for determining when funds withdrawn from an excluded trust are
treated as income. Neither section 273.9(b)(2)(vi), which excludes from income
any trust withdrawal that comes within one of the enumerated exclusions, nor
section 273.9(c), which lists those exclusions, limits its application to excluded
trusts funded by a nonhousehold member. Rather, when read together, these
provisions contemplate that money in an excluded trust—regardless of how the
trust was originally funded—will not be attributed to the beneficiary unless and
until a non-exempt withdrawal is made. Because the parties agree that the
Trust is an excludable resource, any withdrawal from the Trust is subject to
the exclusions set forth in the regulations, including the exclusion for vendor
payments.

     The department also argues that, because the Trust must be
administered for the petitioner’s benefit, the funds in the Trust are “owed to the

                                        6
household” within the meaning of the regulations. However, as explained
above, funds are owed to a household when the household has a legal right to
receive the funds. Under the terms of the Trust, the trustee may pay third
parties for the petitioner’s benefit or to cover trust expenses, and the
petitioner’s status as the beneficiary of the Trust does not, standing alone, give
her the right to control trust assets, compel distributions, or receive payment
from the Trust. Thus, although the petitioner is the beneficiary of the Trust,
until the trustee disburses trust funds that the petitioner has legal right to
receive, the funds are not “owed to the household.”

      In this case, given that the distributions made by the trustee to third
parties were not owed to the petitioner—and therefore, were excluded vendor
payments—the department should have excluded the trust distributions from
the petitioner’s income. Accordingly, we reverse the presiding officer’s decision
that the department properly counted the trust distributions as income.

       In light of our decision, we need not address the petitioner’s other
arguments. Also, because the department stipulated during the administrative
appeal that future payments made by the trustee to the petitioner’s guardian
would be treated by the department in a manner “similar to” the trust
distributions at issue here, we need not separately address the question of
whether trustee payments to the guardian will count as income.

                                                  Reversed.

     DALIANIS, C.J., and HICKS and CONBOY, JJ., concurred; LYNN, J.,
concurred specially.

       LYNN, J., concurring specially. I concur with the majority decision but
write separately to emphasize the importance to the result reached that the
case comes before us based upon a stipulation of facts, which includes the
parties’ agreement that the irrevocable trust at issue is an excludable resource
for purposes of the food stamp program. See Joint Stipulation of Fact
¶ 8 (“The Trust is not a countable resource for purposes of determining Kelly’s
eligibility for benefits under the SSI, Medicaid and Food Stamp programs.”); see
also 7 C.F.R. § 273.8(e)(8) (2016). Given that this stipulation has been in place
throughout the proceedings before the agency and on appeal, it would be
unfair to the parties were we now to call the stipulation into question in
deciding the legal issues before us. We therefore properly accept the
stipulation in deciding the present case.

      However, since the petitioner’s future eligibility for food stamps
presumably will require that she participate in the “‘recertification’ process
mandated under both state and federal law,” Petition of Kalar, 162 N.H. 314,
321 (2011), and since the department has a continuing responsibility to ensure
that the requirements of the law and the regulations are met, id., I believe it

                                        7
important to note that the record raises at least some question as to whether
the parties have properly analyzed how the regulations governing the food
stamp program apply to the trust at issue in this case.

       Because the parties’ stipulation includes their agreement that the trust
qualifies as a special needs trust for Medicaid purposes, see 42 U.S.C.
§ 1396p(d)(4)(A), I also assume, without deciding, that this is correct. But
merely because a trust qualifies as a special needs trust under Medicaid is not
sufficient to make it an excludable resource for food stamp purposes. Section
273.8(e)(8) of the regulations provides, in relevant part, that “[r]esources having
a cash value which is not accessible to the household, such as but not limited
to, irrevocable trust funds” are to be excluded in determining whether the
household meets the resource eligibility requirements of the food stamp
program. 7 C.F.R. § 273.8(e)(8) (emphasis added). The regulation goes on to
state:

            Any funds in a trust or transferred to a trust, and the
      income produced by that trust to the extent it is not available to
      the household, shall be considered inaccessible to the household
      if:

      (i)     The trust arrangement is not likely to cease during the
              certification period and no household member has the power
              to revoke the trust arrangement or change the name of the
              beneficiary during the certification period;

      (ii)    The trustee administering the funds is either:

                 (A) A court, or an institution, corporation, or organization
                 which is not under the direction or ownership of any
                 household member, or (B) an individual appointed by the
                 court who has court imposed limitations placed on
                 his/her use of the funds which meet the requirements of
                 this paragraph;

      (iii)   Trust investments made on behalf of the trust do not directly
              involve or assist any business or corporation under the
              control, direction, or influence of a household member; and

      (iv)    The funds held in irrevocable trust are either:

                 (A) Established from the household’s own funds, if the
                 trustee uses the funds solely to make investments on
                 behalf of the trust or to pay the educational or medical
                 expenses of any person named by the household creating

                                         8
               the trust, or (B) established from non-household funds by
               a non-household member.

Id. (emphasis added).

       The hearings officer found that the trust, which was funded with the
proceeds of the settlement of a personal injury lawsuit brought by or on behalf
of the petitioner, was a self-funded trust––that is, one “[e]stablished from the
household’s own funds,” id. § 273.8(e)(8)(iv)(A)––and neither party challenges
that finding. However, the record before us raises a question as to whether the
settlement proceeds ever actually passed through the hands of the petitioner
before being placed in the trust. If the petitioner never had control of the
settlement funds, there may be an issue as to whether the trust can properly
be characterized as self-funded, as opposed to being funded by a
“nonhousehold member,” i.e., the tortfeasor or the tortfeasor’s insurance
carrier. If the trust is not a self-funded trust, then the hearings officer’s
decision is clearly in error because, as we point out, the trust is treated as
inaccessible to the petitioner and distributions from the trust made to third
parties by the trustee, as a matter of discretion rather than pursuant to a
binding obligation to the petitioner, are properly treated as vendor payments
excluded from income. See id. §§ 273.9(b)(2)(vi), 273.9(c)(1)(vii).

       On the other hand, if the hearings officer was correct in treating the trust
as a self-funded trust, her decision still seems to be erroneous, but for a
different reason. Even assuming that all other criteria of 7 C.F.R. § 273.8(e)(8)
are satisfied––and the record before us does not definitively establish that they
are—the ostensibly self-funded trust does not appear to qualify as an
excludable resource under this regulation because the trustee has not used the
trust funds “solely to make investments on behalf of the trust or to pay the
educational or medical expenses of any person named by the household
creating the trust.” Id. § 273.8(e)(8)(iv)(A). The most apparent deviation from
this requirement of the regulations is that trust funds were used to pay for
legal services provided to the petitioner; but even the expenditure of trust funds
for the payment of trust expenses and trust administration fees appears not to
qualify as “investments on behalf of the trust” within the meaning of the
regulation. Id.

       Although the resource eligibility regulations found in 7 C.F.R. § 273.8 do
not apply, as such, to the petitioner because she is categorically eligible for
food stamps, § 273.8(e)(8) is relevant in determining whether distributions from
the trust are included in the petitioner’s income because § 273.8(e)(8) is cross-
referenced in 7 C.F.R. § 273.9, the section of the regulations that defines the
types of income that are included and excluded for purposes of the food stamp
program. Section 273.9(b)(2)(vi) specifically provides that “[m]onies which are
withdrawn or dividends which are or could be received by a household from
trust funds considered to be excludable resources under § 273.8(e)(8) . . . shall

                                        9
be considered income . . . unless otherwise exempt under the provisions of
paragraph (c) of this section.” However, if the trust does not meet the
requirements of § 273.8(e)(8), the trust funds are deemed “accessible” to the
household. And if the trust funds are accessible to the household, the trust is
not treated as an entity separate from the household.

       But it does not follow that if the trust is not “separate” from the
petitioner’s household, all distributions from the trust are deemed to be income
to her under 7 C.F.R. § 273.9, which is essentially the manner in which the
hearings officer treated them. The settlement monies from which the trust was
originally established would appear to qualify as a “lump-sum payment” as
defined in 7 C.F.R. § 273.9(c)(8). Such monies are generally treated as a
resource in the month received, rather than as income, for purposes of the food
stamp program. See id. §§ 273.8(c)(1), 273.9(c)(8). Thus, in the absence of
some other consideration which has not been brought to our attention, if the
trust is regarded as an asset accessible to the petitioner, the income properly
chargeable to her under 7 C.F.R. § 273.9(b)(2)(v) could not exceed the earnings
of the trust, which, during the certification period at issue, amounted to
$3,158.11––far less than the legal fees, trust expenses and trust administrator
fees that the hearings officer attributed to her as income. As with any other
asset, withdrawals from the trust in excess of its earnings would appear not to
be considered as income to the petitioner, but rather as a reduction of her
capital (similar to a withdrawal from the principal of a savings account).

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