Court Opinion

ID: 9323625
Source: CourtListenerOpinion
Date Created: 2022-12-07 18:03:47.688452+00
Date Added: 2024-06-11T17:14:48.909840
License: Public Domain

IN THE COURT OF APPEALS OF IOWA

                                   No. 22-0048
                             Filed December 7, 2022

IN THE MATTER OF THE TRUST UNDER THE WILL OF WALTER RIESSEN,

RONALD RIESSEN,
     Trustee-Appellant.
________________________________________________________________

       Appeal from the Iowa District Court for Ida County, James N. Daane, Judge.

       A trustee appeals an order requiring it to pay a claim for Medicaid debt of

the trust beneficiary. AFFIRMED.

       Justin F. Reininger and Peter A. Goldsmith of Boerner & Goldsmith Law

Firm, P.C., Ida Grove, for appellant.

       Thomas J. Miller, Attorney General, and Laura F. Kron, Assistant Attorney

General, for appellee.

       Heard by Vaitheswaran, P.J., Ahlers, J., and Danilson, S.J.*

       *Senior judge assigned by order pursuant to Iowa Code section 602.9206

(2022).
                                           2

AHLERS, Judge.

       Walter Riessen died in 1972. His will gave his property to his four children

in equal shares, but the share given to his daughter Joan Riessen was to be held

in trust with his son Ronald Riessen serving as trustee. Specifically, the part of the

will relevant to this dispute provided:

               I hereby give, devise and bequeath unto my children: Lois
       Jensen, Alberta Reitz, Ronald Riessen and Joan Riessen in equal
       shares all personal property owned by me at the time of my death,
       share and share alike, provided that the share of Joan Riessen is to
       be placed in the Trust hereinbelow provided.
               . . . . [After providing for the surveying and division of Walter’s
       farm into four equal parcels,] I give, devise and bequeath said four
       equal tracts as follows:
               ....
               2. Tract No. 2 to the Trustee hereinafter named, subject to the
       terms and conditions of said Trust.
               ....
               I hereby appoint Ronald Riessen as Trustee for the benefit of
       my daughter, Joan Riessen, and said Trustee shall take possession
       of all properties herein provided as being placed in trust.
               The Trustee shall manage all of said property from the same
       as a reasonable prudent man under the circumstances would. It is
       my specific wish and order and direction that the Trustee shall have
       the full right to rent the land held in trust personally under the same
       leasing arrangements as is prevalent in and around the community
       of Battle Creek, Iowa. It being my full intent that he shall have every
       right to farm the land as a tenant.
               The said Trustee shall pay out the net income from the trust
       property in such amounts and at such times as he deems advisable
       for the benefit of my daughter, Joan Riessen.
               The said Trustee shall deliver to my daughter, Joan Riessen,
       all trust property and accumulated income held in his hands at such
       time as he in his sole and absolute discretion determines that she
       should receive said property. This discretion shall be his alone and
       shall not be possessed by any subsequent trustee.
               Said Trustee shall have the right to invade any trust corpus
       held by him when in his own sole and absolute discretion he deems
       it necessary for the benefit of my daughter, Joan Riessen. This again
       is a personal right belonging to the Trustee herein named, and shall
       not be the right of any subsequent Trustee.
               In the event of the death of my daughter, Joan Riessen, any
       property in the hands of the said Trustee shall immediately pass to
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       my other children, namely: Lois Jensen, Alberta Reitz and Ronald
       Riessen.
               It is my specific will and request that in the event that the
       owners of both Tracts 3 and Tract 4 should at any time sell said
       tracts, then in that event only the Trustee shall have the right to
       purchase from himself Tract No. 2. The purchase price shall be
       determined in the following manner: the inheritance tax appraisers
       for Ida County at that time shall place a valuation on said Tract No. 2
       which shall be the selling price.
               My reason for giving this power to the Trustee herein named
       is that it is my hope and desire to keep the entire property in the
       family.

       The terms of the will were carried out, and Ronald served as trustee of the

trust. During Joan’s lifetime, the trust provided no funds for Joan’s medical care.

Instead, her medical needs were paid for by Title XIX medical assistance

(Medicaid). Following Joan’s death in 2020, the Iowa Department of Human

Services sought reimbursement from the trust for the Medicaid assistance Joan

received. The probate court ordered the trust to reimburse the department. The

trustee appeals.

I.     Standard of Review

       This claim was tried as a probate proceeding. “Contested claims in probate

are tried and reviewed at law.” In re Est. of Melby, 841 N.W.2d 867, 871 (Iowa

2014), see also Iowa Code § 633.33 (2021). Likewise, we review the probate

court’s interpretation of statutes for legal error. Id.

II.    Discussion

       Under Iowa Code section 249A.53(2), when Medicaid funds are used to

provide medical assistance to “an individual who is fifty-five years of age or older,

or who is a resident of a nursing facility, intermediate care facility for persons with

an intellectual disability, or mental health institute, who cannot reasonably be
                                           4

expected to be discharged and return to the individual’s home” a recoverable debt

is created that is “due [to] the department from the individual’s estate for all medical

assistance provided on the individual’s behalf, upon the individual’s death.” “For

purposes of this section, the estate of a medical assistance recipient, . . . includes

. . . interests in trusts.” Iowa Code § 249A.53(2)(c).

       “[T]o determine whether a trust should be subjected to Medicaid recovery

under Iowa Code section 249A.[53(2)]” we follow a three-step process. In re Est.

of Gist, 763 N.W.2d 561, 565 (Iowa 2009). “First, we must classify the trust at

issue. Next we must determine whether the beneficiary’s interest in the trust is the

kind of interest encompassed by section 249A.[53(2)(c)]. Finally, we must decide

whether that interest was present at the time of the beneficiary’s death.” Id.

(internal citations omitted).

       Turning to the first step in our analysis, the trustee urges us to classify this

as a trust without standards. Conversely, the department urges us to classify the

trust as a discretionary trust with standards.1 Both parties highlight different trust

language to support their arguments.

       As a preliminary observation, it may not matter how we classify the trust.

Although set forth in our case law as a three-step approach, our supreme court

has noted that determining whether trust assets are available to the department

for satisfaction of its claims “may be resolved by any of the three inquiries, and

thus the analysis need not follow the same sequence in every case.” Melby, 841

1Case law uses the phrases “discretionary support trust” and “discretionary trust
with standards” interchangeably; the two terms refer to the same type of trust. Gist,
763 N.W.2d at 565 (“Regardless of whether we refer to a trust as a discretionary
support trust or a discretionary trust with standards, they are the same animal.”).
                                          5

N.W.2d at 871 n.5. Further, even if this is a pure discretionary trust as claimed by

the trustee, it may not shield the trust’s assets from the department’s claim. As

noted by a recognized authority:

               Even with a pure discretionary trust in which the trustee’s
       discretion is “sole and absolute,” or “uncontrolled,” and the trust is
       without standards, the beneficiary may obtain judicial review to
       determine whether the trustee has abused that discretion. If there
       were no judicial review, and the terms were taken literally, the trustee
       would, in effect, be the owner of the trust property and the settlor’s
       trust terms would be precatory only.

Helene S. Shapo, George Gleason Bogert & George Taylor Bogert, Bogert’s the

Law of Trusts and Trustees § 228 (June 2022 Update); see also Gist, 763 N.W.2d

at 565 (citing Bogert’s with approval).

       Although classification of the trust may not be required, we do so here. We

side with the department and conclude the trust language creates a discretionary

trust with standards.

       [A] settlor creates a [discretionary trust with standards] if the “stated
       purpose of the trust is to furnish the beneficiary with support, and the
       trustee is directed to pay to the beneficiary whatever amount of trust
       income [or principal] the trustee deems necessary for his support.”
       Generally, if the trust is a [discretionary trust with standards],
               the beneficiary has a right that the trustee pay him the
               amount which in the exercise of reasonable discretion
               is needed for his support . . . ; and the beneficiary can
               transfer this interest or his creditors may reach it,
               unless it is protected by a spendthrift clause.

Gist, 763 N.W.2d at 565 (second and third alteration in original) (quoting In re

Barkema Trust, 690 N.W.2d 50, 54 (Iowa 2004)). The trust language required the

trustee to pay out net income for Joan’s benefit and to invade the trust corpus when

“necessary for the benefit” of Joan. Cf. id. at 564.; In re Kinsel, No. 08-1625, 2010

WL 446551, at *3 (Iowa Ct. App. Feb. 10, 2010) (emphasizing that the trust at issue
                                           6

was a discretionary support trust when it provided “the trustee with the discretion

to invade the principal or the corpus of the trust in order to meet [a] minimum level

of support”). So, the trust language made clear that the trustee was required to

provide benefit to Joan when needed, even permitting the trustee to invade the

corpus when necessary. See Barkema, 690 N.W.2d at 54 (citing trust language

that permitted the trustee to invade the trust corpus when necessary for the

beneficiary’s support as evidence the trust at issue was a discretionary support

trust).    While it gave the trustee discretion to determine when to make such

payments for Joan’s benefit, it still required the trustee to pay when the time was

right.

          In an attempt to avoid classifying the trust as a discretionary trust with

standards, the trustee points to Iowa Code section 633A.4702, which provides:

                 In the absence of clear and convincing evidence to the
          contrary, language in a governing instrument granting a trustee
          discretion to make or withhold a distribution shall prevail over any
          language in the governing instrument indicating that the beneficiary
          may have a legally enforceable right to distributions or indicating a
          standard for payments or distributions.

However, in Kinsel, we determined section 633A.4702 is not applicable to trusts

established before the section’s enactment in 2004 because the legislature did not

intend to materially alter trusts already in existence at the time of enactment. 2010

WL 446551, at *4–5. This trust was established long before 2004, so we apply the

same reasoning from Kinsel and conclude section 633A.4702 does not alter this

trust. The trustee asks us to overrule Kinsel as being overly broad, but he does

not provide any supporting argument. In addition to there being no supporting
                                          7

argument in favor of abandoning Kinsel, we find Kinsel’s reasoning to be sound.

So, we decline to overturn Kinsel, choosing instead to follow it.

       The trustee also argues we must consider Walter’s intent as the testator

when classifying this testamentary trust.      It is true that when we interpret a

testamentary trust, like this one, “the intent of the testator is the polestar and must

prevail.” Strojek v. Hardin Cnty. Bd. of Supervisors, 602 N.W.2d 566, 571 (Iowa

Ct. App. 1999). To determine a testator’s intent, we consider: “(a) all of the

language contained within the four corners of the will, (b) the scheme of

distribution, (c) the surrounding circumstances at the time of the will’s execution

and (d) the existing facts.” In re Est. of Rogers, 473 N.W.2d 36, 39 (Iowa 1991).

The trustee highlights the following passage of Walter’s will, “My reason for giving

this power to the Trustee herein named is that it is my hope and desire to keep the

entire property in the family.” The trustee argues this makes clear Walter did not

intend to create a discretionary trust with standards that could result in family

property held by the trust be sold outside the family to satisfy debts.

       We find the trustee’s argument unpersuasive for two reasons. First, the

passage relied upon by the trustee follows provisions for what happens if the tracts

given to Lois and Alberta were sold. In that event, Ronald was given the authority

to purchase the land in the trust himself.       It was in this context that Walter

expressed the hope and desire to keep the property in the family. We do not view

this passage as a proclamation that Walter intended to prevent Joan’s needs from

being met in favor of a desire to keep the land in the family. Second, we also

consider the fact that Walter specifically permitted the corpus of the trust to be

invaded for Joan’s benefit when necessary.            This suggests Walter had a
                                          8

preference to keep the property within the family but understood it might be

necessary to break it up to provide for Joan. And like in Kinsel, because “Medicaid

estate recovery had not yet been enacted by the legislature,” “it would not have

occurred to [Walter] to try to shield assets from [the department]’s eventual reach

by making their availability to [Joan] purely discretionary.” 2010 WL 446551, at *5.

Having considered Walter’s intent, we are still satisfied that this is a discretionary

trust with standards.

       Having classified the trust as a discretionary trust with standards, we must

determine whether Joan’s interest in the trust is the kind of interest encompassed

by section 249A.53(2)(c). See Gist, 763 N.W.2d at 565. “[A] person has an

‘interest’ in the trust to the extent the assets of a trust are actually available to a

trust beneficiary, as that term is used in section 249A.[53(2)(c)].” Barkema, 690

N.W.2d at 55. “In order for an asset to be considered an actually available

resource, an applicant must have a legal ability to obtain it.” Id. (citation omitted).

The trust here required the trustee to make payments to Joan for her benefit and

permitted the trustee to invade the corpus when “necessary for the benefit” of Joan.

That permitted Joan “the legal ability to compel the trustee to invade the corpus of

the trust and make distributions to her for her support.” Id. at 56. As a result, she

had an interest in the corpus of the trust.

       Finally, we consider whether Joan had an interest in the trust at the time of

her death. Gist, 763 N.W.2d at 565. This means her interest at the point in time

immediately before her death. Barkema, 690 N.W.2d at 56. Nothing terminated

her interest in the trust immediately prior to her death. So, the department acquired
                                        9

her interest in the trust and the right to recover for the medical expenditures

following her death.

III.   Conclusion

       For the foregoing reasons, we affirm the district court and conclude the

trustee shall pay the department’s claim for reimbursement.

       AFFIRMED.

Vaitheswaran, P.J, concurs; Danilson, S.J., dissents.
                                         10

DANILSON, Senior Judge (dissenting).

       I respectfully dissent. As the trial judge in In re Barkema Trust, 690 N.W.2d

50 (Iowa 2004), and Strojek ex rel. Mills v. Hardin County Board of Supervisors,

602 N.W.2d 566 (Iowa Ct. App. 1999), I have previously acknowledged the State’s

authority to recoup Medicaid expenditures from a beneficiary who was entitled to

trust distributions. However, I disagree that Riessen’s trust provisions can be

interpreted to identify an ascertainable or measurable standard upon which the

beneficiary had an interest subject to recoupment by the State. Thus, I would

reverse.

       Walter Riessen, an Iowa landowner, entrusted his only son to serve as

trustee. He granted his son “sole and absolute discretion” to invade the trust

corpus when his son deemed “it necessary for the benefit of my daughter, Joan

Riesssen.” Riessen gave this authority to his son stating, “This again is a personal

right belonging to the [t]rustee herein named, and shall not be the right of any

subsequent [t]rustee.” Along with the personal and broad discretion, the standard

imposed by the terms of the trust—“necessary for the benefit”—does not reference

support, care, maintenance, comfort, general welfare, or any other standard upon

which to ascertain or measure an interest in the trust. One authority discussing

distribution standards stated: “The fact of the matter is that there is a continuum of

discretionary trusts, with the terms of distributive powers ranging from the most

objective (or ‘ascertainable,’) of standards (pure ‘support’) to the most open ended

(e.g., ‘happiness’) or vague (‘benefit’) . . . .” Restatement (Third) of Trusts § 60

cmt. a (Oct. 2022 update) (internal citation omitted).
                                         11

       One court facing a similar issue attempted to define the word “benefit” by

citing to dictionaries and reviewing related authorities, and it ultimately concluded

the trustee was “vested with absolute discretion to determine in the first instance

the amount to be expended for the benefit of” the beneficiary. In re Emmons’ Will,

300 N.Y.S. 580, 585 (Surr. Ct. 1937). In Emmons, the court stated, “this court has

no power to determine or to give instructions to the trustee in relation thereto until

such time as an interested party can show that said trustee has abused its

discretion or failed to exercise the same.” Id.

       In Barkema, the Iowa Supreme Court concluded if the beneficiary had the

legal ability to compel the trustee to invade the trust corpus the beneficiary had an

interest in the trust corpus. 690 N.W.2d at 56. In concluding the State could

recoup the monies expended on the beneficiary’s behalf for Medicaid, the court

found the trust “contained enough of a distribution standard to create an interest”

in the trust corpus.   Id.   The Barkema trust required the trustee to pay the

beneficiary “the amount which in the exercise of reasonable discretion [was]

needed for [the beneficiary’s] support.” Id. (first alteration in original) (citation

omitted).

       Here, if Riessen intended for the trust corpus to encompass support, care,

maintenance, or some other clearly ascertainable or measurable standard, he

could have easily included such language. Instead, Riessen expressed his utmost

respect for his son’s exercise of authority as trustee and provided only vague

instructions on the use of the trust corpus. The terms of the trust simply do not

provide “enough of a distribution standard” as required in Barkema.           Id.   To

interpret “benefit” under the facts of this case to be an ascertainable standard
                                        12

constituting an interest in the trust would modify the terms of the trust. Moreover,

on this record there is no evidence the trustee abused his discretion. I would

reverse.