Hecker v. Stark County Social Service Bd.

• Decision Date: 20 December 1994
• Docket Number: No. 940180,940180
• Citation: 527 N.W.2d 226
• Court: North Dakota Supreme Court
• Parties: Medicare & Medicaid Guide P 43,050, Medicare & Medicaid Guide P 43,465 Herman HECKER, Appellant, v. STARK COUNTY SOCIAL SERVICE BOARD and North Dakota Department of Human Services, Appellees. Civ.

Page 226

527 N.W.2d 226

Medicare & Medicaid Guide P 43,050,

Medicare & Medicaid Guide P 43,465

Herman HECKER, Appellant, v.STARK COUNTY SOCIAL SERVICE BOARD and North Dakota Department of Human Services, Appellees.

Civ. No. 940180.

Supreme Court of North Dakota.

Dec. 20, 1994.

Opinion Denying Rehearing Feb. 8, 1995.

Gordon W. Schnell of Mackoff, Kellogg, Kirby & Kloster, Dickinson, for appellant.

Jean R. Mullen, Asst. Atty. Gen., Bismarck, for appellee.

December 20, 1994.

LEVINE, Justice.

Herman Hecker appeals from an order affirming the Stark County Social Service Board's denial of medicaid benefits.The appeal presents the question whether a parent may establish a trust to benefit her adult developmentally disabled son which provides funds for his special needs that are not provided for by public assistance without making him ineligible to receive medicaid benefits.We hold she may, and we reverse and remand.

FACTS

The facts are not in dispute.Herman Hecker is a single, fifty-four-year-old, developmentally disabled male residing in a group home.Herman is the sole beneficiary of a trust [Hecker trust] established in 1984 by his now-deceased mother, Wilhelmina Hecker.The trust agreement was amended and restated in 1987 and describes the grantor's intent and the trustee's discretion as follows:

"III.

. . . . .

"(a) Introduction.It is the Grantor's primary concern in creating this Trust that it continue in existence as a supplemental fund to public assistance for her handicapped child, Herman Hecker, hereinafter referred to as the 'beneficiary', throughout his life as she would provide if she were personally present. ¹ ...

"(b) Special Needs.The Trustee shall pay to or apply to the benefit of the beneficiary, for his lifetime, such amounts from the principal or income, up to the whole thereof, as the Trustee in the Trustee's sole discretion may from time to time deem necessary or advisable for the satisfaction of the beneficiary's special needs.Any income not distributed shall be added to principal.As used in this instrument, 'special needs' refers to the requisites for maintaining the beneficiary's good health, safety, and welfare when, in the sole discretion of the Trustee, such requisites are not deemed provided by any public agency, office, or department of the State of North Dakota, or of any other state, or of the United States.'Special needs' include, but are not limited to, medical and dental expenses, clothing and equipment, programs of training, education, treatment, and essential dietary needs to the extent that such needs are not provided by any government entity."

In late June 1993, Herman, through his brother, guardian, and trustee of the Hecker trust, Peter Hecker, applied to the Stark County Social Service Board[Board] for medical assistance benefits through the State-administered medicaid program.The Board denied his application, based on its determination that the value of Herman's assets exceeded the prescribed maximum of $3,000.00.SeeNDAC Sec. 75-02-02.1-26.The Board included the full value of the trust corpus, ² approximately $81,000, in computing the value of Herman's assets.

Herman appealed from the Board's denial to the North Dakota Department of Human Services[Department].The Department, after a hearing, upheld the Board's denial of medicaid benefits.The hearing officer found that the trust created by Herman's mother was a support trust and, consequently, "deemed" to be available to Herman as a means of support.NDAC Sec. 75-02-02.1-31(3).

Herman appealed from the Department's order to the district court, which affirmed the decision of the Department, holding that the trust, created by Herman's mother, is a support trust and, therefore, deemed an available asset pursuant to section 75-02-02.1-31(3)(b) of the North Dakota Administrative Code.

On appeal to this court, Herman argues that the Department's finding that the trust is a support trust is in error.He argues that the trust is a discretionary trust, not a support trust and, therefore, is not an available asset for determining medicaid eligibility.The Department contends that at least one purpose of the trust is Herman's support and, therefore, it is a support trust within the meaning of the Department's regulations.Consequently, the Department argues, the full value of the corpus of the trust may be considered available to Herman for his support and considered in determining his eligibility for medicaid.

Three issues are presented in this appeal: 1) whether the Hecker trust is a support or a discretionary trust; 2) whether the Department may, by administrative regulation, overrule a trust settlor's intent; and 3) if not, whether the Hecker trust violates federal and North Dakota public policy.

NATURE OF THE TRUST

When construing a trust instrument, our primary objective is to ascertain the settlor's intent.Matter of Larson, 341 N.W.2d 627(N.D.1983).Intent is a question of fact.Matter of Estate of Klein, 434 N.W.2d 560(N.D.1989);McGuire v. Gaffney, 314 N.W.2d 851(N.D.1982).As this is an appeal from an administrative agency decision, we review the record and the determination of the agency, not that of the district court.Bohac v. Graham, 424 N.W.2d 144(N.D.1988).We will affirm the finding of the agency unless its factual conclusions are not supported by a preponderance of the evidence.Hins v. Lucas Western, 484 N.W.2d 491(N.D.1992).In deciding whether there is a preponderance of the evidence in support of the agency's findings of fact, "[w]e determine only whether a reasoning mind reasonably could have determined that the factual conclusions reached were proved by the weight of the evidence from the entire record."Power Fuels, Inc. v. Elkin, 283 N.W.2d 214, 220(N.D.1979).

A support trust is one which essentially provides that the trustee"shall pay or apply only so much of the income and principal or either as is necessary for the education or support of a beneficiary."Restatement (Second) of TrustsSec. 128 cmt. l (1959).SeeBohac, 424 N.W.2d 144.A support trust permits a beneficiary to compel distributions of income, corpus, or both, for expenses necessary for the beneficiary's support.Id.;Chenot v. Bordeleau, 561 A.2d 891(R.I.1989);In the Matter of Leona Carlisle Trust, 498 N.W.2d 260(Minn.App.1993).If the Hecker trust reasonably could have been interpreted to be a support trust, then the Department may consider it as an asset when evaluating Herman's eligibility for assistance.SeeNDAC Sec. 75-02-02.1-31(3).See alsoBohac, 424 N.W.2d 144.AccordChenot, 561 A.2d 891.

A discretionary trust, on the other hand, is one that grants the trustee"uncontrolled discretion over payment to the beneficiary."Bohac, 424 N.W.2d at 146.Restatement (Second) of TrustsSec. 128 cmt. d (1959);Scott on TrustsSec. 155(1987).References to the "general welfare" of the beneficiary indicate a discretionary trust.Id.Because the ability to compel distributions from the trust is not available to the beneficiary of a discretionary trust, only those distributions of trust income or corpus actually made by the trustee may be taken into account by the Department.SeeNDAC Sec. 75-02-02.1-31(4).

Whether a trust is a support or a discretionary trust depends on the settlor's intent.Bohac, 424 N.W.2d at 146.See alsoRestatement (Second) of TrustsSec. 128.Our duty is to uphold and implement the settlor's intent to the extent it does not contravene public policy.Leona Carlisle Trust, 498 N.W.2d 260;Tidrow v. Dir., Mo. State Div. of Family Services, 688 S.W.2d 9(Mo.App.1985).When a trust instrument is unambiguous, the settlor's intent is ascertained from the language of the trust document itself.Bohac, 424 N.W.2d 144.Whether or not a trust is ambiguous is a question of law, fully reviewable on appeal.Klein, 434 N.W.2d 560.

The Hecker trust instrument authorizes the trustee to "pay to or apply to the benefit of [Herman], for his lifetime, such amounts from the principal or income, up to the whole thereof, as the Trustee in the Trustee's sole discretion may from time to time deem necessary or advisable for the satisfaction of [Herman's] special needs."(Emphasis added.)The trust language defines "special needs" as "the requisites for maintaining the beneficiary's good health, safety, and welfare when, in the sole discretion of the Trustee, such requisites are not deemed provided by any public agency...."(Emphasis added.)Although the Hecker trust's definition of special needs includes medical and dental expenses, clothing, and education, items associated with support of a beneficiary, this language does not limit the trustee's absolute discretionary power.SeeChenot, 561 A.2d 891.In fact, the trust, in contrast to a general support trust, permits the trustee, in his sole discretion, to invade the trust when and if the trustee deems it necessary for Herman's welfare.CompareBohac. v. Graham, 424 N.W.2d 144(N.D.1988).At all times, the trustee retains the discretionary power to determine when and to what extent that power will be exercised.SeeLineback by Hutchens v. Stout, 79 N.C.App. 292, 339 S.E.2d 103(1986);Leona Carlisle Trust, 498 N.W.2d 260.Indeed, the trustee has the power to make no distribution at all to Herman and Herman cannot compel the trustee to make distributions under the terms of the trust instrument.The ability to discriminate against one or all beneficiaries is characteristic of a discretionary trust.Zeoli v. Comm'r of Soc. Serv., 179 Conn. 83, 425 A.2d 553(1979);In re Johannes Trust, 191 Mich.App. 514, 479 N.W.2d 25(1991).

Other plain language in the trust instrument demonstrates Wilhelmina Hecker's clear intent that the trust not be used for Herman's primary support.The trust unequivocally states that it is to be "a supplemental fund to public assistance," and that

"[i]t is the Grantor's express intent that because the beneficiary is...