Belshe v. Hope, F021281

• Decision Date: 24 February 1995
• Docket Number: No. F021281,F021281
• Court: California Court of Appeals Court of Appeals
• Parties: , 46 Soc.Sec.Rep.Ser. 732 Kimberly S. BELSHE, as Director, etc., Plaintiff and Respondent, v. Leonard T. HOPE, Jr. et al., Defendants and Appellants.

Page 917

38 Cal.Rptr.2d 917

33 Cal.App.4th 161, 46 Soc.Sec.Rep.Ser. 732

Kimberly S. BELSHE, as Director, etc., Plaintiff and Respondent, v. Leonard T. HOPE, Jr. et al., Defendants and Appellants.

No. F021281.

Court of Appeal, Fifth District, California.

Feb. 24, 1995.

Coffill & Coffill and William J. Coffill, Sonora, for defendants and appellants.

Daniel E. Lungren, Atty. Gen., Charlton G. Holland III, Asst. Atty. Gen., Dennis Eckhart and Mateo Munoz, Deputy Attys. Gen., for plaintiff and respondent.

ARDAIZ, Presiding Justice.

Plaintiff Molly Joel Coye, M.D., director of the California Department of Health Services (hereafter Department), ¹ filed (in her official capacity) a complaint against defendants Leonard T. Hope, Jr., Michael M. Hope, Warren J. Hope and Mary P. Barnthouse seeking to recover the value of Medi-Cal benefits provided to Myrtle M. Hope, the decedent and mother of the defendants. The facts were undisputed and summary judgment was granted in favor of the Department. The defendants appeal, raising the question of law whether property passing by way of a revocable inter vivos trust is part of the estate of the decedent for purposes of recovery of Medi-Cal benefits.

FACTS

On or about September 13, 1976, Myrtle Hope executed a revocable inter vivos trust. The trust contained a one-half interest in certain real property. Under the trust agreement, Myrtle retained the use and benefit of the property for her natural lifetime. Upon her death, the trust estate was to be delivered to her husband. If her husband predeceased her, then the trust estate was to be distributed in equal shares to her four named children, the defendants. The defendants were Myrtle's only children. Myrtle named herself as trustee and reserved unto herself the power to revoke the trust in whole or in part without giving notice and/or gaining the consent of any of the beneficiaries. On the same date, the grant deed was signed by Myrtle transferring the real property to the trust.

From April 1, 1987, through July 30, 1992, Myrtle was a recipient of Medi-Cal benefits totaling $294,062.26. Myrtle died on July 30, 1992. Prior to her death, Myrtle did not revoke, repudiate or modify the trust. The Department filed a preferred creditor's claim for $294,062.26 against Myrtle's estate. The claim was rejected. The Department then filed this suit.

DISCUSSION

Under the federal Medicaid Act, 42 United States Code section 1396 et seq., the federal government will partially reimburse states that provide medical treatment to the poor. If a state decides to participate in the program, the state must enact legislation which meets various federal requirements. (42 U.S.C., § 1396a, subd. (a)(8).) California's Medicaid program, known as the "California Medical Assistance Program" or Medi-Cal, is found in the Welfare and Institutions Code at section 14000 et seq.

The federal statutes provided that the state may seek reimbursement, under certain circumstances, from the "estate" of the recipient of benefits. (42 U.S.C., § 1396p(b)(1)(B).) At the time of Myrtle's death, the term "estate" was not defined in the federal statute. ² Welfare and Institutions Code section 14009.5 is the California statute which allows the Department to make a claim against the estate of a decedent. ³

The defendants alleged below that the property which they acquired was not within the estate of Myrtle when she died and is therefore exempt from any claim by the Department. The Department asserted alternative grounds for recovery of the property. First, the Department contended that property which passes by way of a revocable inter vivos trust is considered to be within the estate for purposes of Welfare and Institutions Code section 14009.5. Second, the Department asserted that the property which passed by trust remained in the estate because the trust document was testamentary in nature. The third theory argued by the Department was that under the common law the trust property would pass by way of descent through the estate.

The trial court found in favor of the Department on all three bases. Each basis was found by the trial court to be a separate, alternative, and independent basis. First, the trial court found that property which passes from a decedent to her heirs by way of a revocable inter vivos trust is within the "estate" for purposes of Welfare and Institutions Code section 14009.5. Second, the trial court found that the trust was testamentary in nature and therefore remained in Myrtle's estate at the time of her death. The court found that the reservation of a life estate, combined with the power to revoke and control the trust, rendered the trust invalid. Finally, the trial court found that Myrtle's intent was to benefit her heirs and under the common law the acquisition of the property by defendants was by way of descent.

Defendants' appeal makes the same three arguments which were made below. Because the facts are undisputed, the issues raised are purely questions of law that must be determined independently by this court.

The trial court relied on Demartini v. Allegretti (1905) 146 Cal. 214, 79 P. 871 in finding that the inter vivos trust was testamentary in nature and was part of the estate. In 1895 Geralomo Demartini gave money to two individuals, G. Allegretti and G.B. Demartini (hereafter referred to as Allegretti) to invest for him. In 1896 he executed a document directing Allegretti how to dispose of the money on his death. Demartini died in 1902. Between 1896 and the time of his death, Allegretti gave Demartini "whatever of the money he wanted." (Id. at p. 216, 79 P. 871.) The administrator of Demartini's estate sought to recover the funds for the estate; others named in the instruments as the proposed recipients of the funds (appellants) sought to recover the money by virtue of the 1896 written instrument, claiming the instrument vested in them a present interest. (Id. at pp. 215-217, 79 P. 871.) The trial court found that the money belonged to the estate. The Supreme Court found that the written document was testamentary.

"[L]ooking alone at the instrument in question there is nothing to be seen in it which gives to appellants any present vested interest or estate in the property in contest. It merely gives direction to Allegretti and G.B. Demartini that, in the event of the death of the deceased, they shall then give whatever of his money they may still have in their hands to the appellants. Nothing is given them before the event of his death. This direction had no effect before his death, and it could not have effect after that event, for a disposition of property to take effect after death can be made only by an instrument executed in accordance with the statute of wills. The instrument from beginning to end is, on its face, clearly and entirely testamentary in character." (Demartini v. Allegretti, supra, at p. 218, 79 P. 871.)

The Department claims that Demartini is dispositive and stands for the proposition that "retention of excessive control by the settlor of a trust invalidates the trust as the settlor is deemed not to have parted with present interest in the trust property." The Supreme Court in Demartini was not determining if a trust was valid; the court was determining if the document was a trust document or a testamentary document. The document contained no express language naming it as one or the other. The court in Demartini determined that the instrument was a directive letter telling Allegretti what to do with the property on his death and was therefore testamentary in character and had to comply with the statute of wills.

The Department asserts that Tennant v. John Tennant Memorial Home (1914) 167 Cal. 570, 140 P. 242, the case relied on by the heirs, is not on point because it "does not examine the issue of extensive control retained by a settlor of a trust, but rather holds that in order for a trust in land to be created a present interest in the property must pass from the settlor." The Department mischaracterizes Tennant.

In Tennant, Margaret Tennant executed a deed purporting to grant real property to the defendant, John Tennant Memorial Home " '[S]ubject to the exceptions and reservations.' " (Tennant v. John Tennant Memorial Home, supra, 167 Cal. at p. 571, 140 P. 242.) The exceptions and reservations in the deed were as follows:

" 'Excepting, however, and reserving to said grantor the exclusive possession and the use and enjoyment in her own right, of the rents, issues and profits of said lots and each of them for and during the term of her natural life.'

" 'And further reserving to the said grantor the right to revoke this deed as to the said property above described or as to any portion thereof, and further reserving to her, the said grantor, the right during her natural life to sell any of the above described property, and to sign and execute deeds therefor in her own individual name and to convey by any such deed a full, perfect and absolute title thereto to the purchaser thereof, and with right to use the proceeds arising from such sale or sales to her own use, without any liability for her or her estate to account therefor. In case of such revocation being made, it shall be made and can only be made in writing, duly acknowledged and recorded.' " (Tennant v. John Tennant Memorial Home, supra, 167 Cal. at p. 572, 140 P. 242.)

Margaret died, and during her lifetime did not revoke, sell or otherwise convey the property as allowed by the written reservations in the deed. After Margaret's death, her heirs claimed the deed was void and sought relief. The trial court gave judgment to the defendant, John Tennant Memorial Home. (Id. at pp. 571-572, 140 P. 242.)

On appeal, following a lengthy discussion of the common law, the Supreme Court rejected the heirs' claim that the deed was void because Margaret inserted a reservation of power to revoke the deed. The court held that the law does not forbid...