Williams for and on Behalf of Squier v. Kansas Dept. of Social and Rehabilitation Services, 72159

Decision Date14 July 1995
Docket NumberNo. 72159,72159
Citation258 Kan. 161,899 P.2d 452
Parties, 48 Soc.Sec.Rep.Ser. 658, Medicare & Medicaid Guide P 43,540 JoAnn WILLIAMS, Guardian Ad Litem, for and on Behalf of Donna J. SQUIER, Appellee, v. KANSAS DEPARTMENT OF SOCIAL AND REHABILITATION SERVICES, Appellant.
CourtKansas Supreme Court

Syllabus by the Court

1. A state, in administering its Medicaid program, must set reasonable standards for assessing an individual's income and resources in determining eligibility for, and the extent of, medical assistance under the program. Those standards must take into account only such income and resources as are available to the applicant or recipient as determined in accordance with standards prescribed by the Secretary of Health and Human Services. 42 U.S.C. § 1396a(a)(17)(B) (1988).

2. A trust is established by the person who provides the consideration for the trust even though in form it is created by someone else.

3. Implicit in the term "individual," as that term is used in 42 U.S.C. § 1396a(k)(2), is a person acting as an individual's legal representative where the individual is incapable of acting on his or her own.

4. If an individual is not legally competent, a trust established by a 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 without the help of a third party.

5. Entitlement to Medicaid assistance is not based on an assumption that a claimant is entitled to Medicaid benefits. The first step is to determine eligibility under applicable law and guidelines based on available resources. Based on the facts in this case, the Kansas Department of Social and Rehabilitation Services correctly discontinued Medicaid benefits because the recipient has excess resources.

Reid Stacey, of Kansas Dept. of Social and Rehabilitation Services, argued the cause and was on the briefs, for appellant.

Timothy P. O'Sullivan, of Fleeson, Gooing, Coulson & Kitch, L.L.C., Wichita, argued the cause, and John E. Rees II, of the same firm, was with him on the brief, for appellee.

ABBOTT, Justice:

This appeal involves judicial review of an agency action concerning eligibility for medical benefits. The Kansas Department of Social and Rehabilitation Services (SRS) discontinued Donna J. Squier's Medicaid eligibility due to excess resources. The trial court reversed that determination and SRS appeals. The appeal was transferred to the Supreme Court on this court's own motion pursuant to K.S.A. 20-3018(c).

The facts of this case are not in dispute. Donna J. Squier was injured in a motor vehicle accident in 1988. While being treated for injuries sustained in that accident, she suffered severe and permanent brain damage, rendering her a permanent quadriplegic.

JoAnn Williams, Squier's mother, was appointed guardian ad litem for Squier. Acting in her capacity as guardian ad litem, Williams instituted an action for and on behalf of her ward to recover damages. She also applied for and received medical long-term care benefits under the Medicaid program for her ward.

On August 11, 1992, Williams executed the JoAnn Williams Irrevocable Trust ("Williams trust" or "trust") which was funded by Williams in the amount of $10. Williams is the named grantor of the discretionary trust. Bank IV Kansas, N.A. (Bank IV) is the trustee. Squier and her two minor children, Donielle Squier and Mary Jo Squier, are the trust beneficiaries.

Highly condensed, the 20-page trust agreement provides that "the trustee shall take into consideration the applicable resources and income limitations of any public assistance program for which Donna Jo Squier is eligible when determining whether to make any discretionary distributions." The trust goes on to state that "no part of the corpus of the trust created herein shall be used to supplant or replace public assistance benefits," and that "for purposes of determining Donna Jo Squier's eligibility for such benefits, no part of the principal or income of trust shall be considered available to Donna Jo Squier." The trustee is prohibited from knowingly exercising its discretion in a manner that would prevent Squier from receiving public assistance. The express intent is that no part of the trust income or principal be used to replace public assistance or in determining Squier's eligibility for public assistance. The purpose of the trust is to provide goods and services in addition to those provided by public assistance.

At the time the trust was created, it was funded entirely with Williams' money. At that time, it did not disqualify Squier. Williams was entitled to create a trust for the benefit of her daughter, and she had a legal right to provide for how it was to be used.

The problem arises because it becomes obvious why the trust was created. The same day the trust was executed, Squier's damages case was settled. The settlement was approved by Ron Rogg, administrative judge of Sedgwick County. Judge Rogg authorized the payment of outstanding medical expenses incurred for Squier's care and the payment of outstanding loans of Squier and repayment of PIP benefits. He also authorized attorney fees for Squier's representation. Judge Rogg then made what at best can only be described as an unusual finding: "The settlement proceeds have not come into the possession or control of Donna J. Squier or her guardian." He then ordered the remaining $1,672,570.63 paid to the trust.

The money placed in the trust was received in a lawsuit brought by the ward's guardian for negligent injuries inflicted on the ward. A release was signed releasing the defendants from liability for the ward's injuries, and Judge Rogg approved that release and the payment of approximately $127,500 in bills and loans incurred on behalf of the ward.

When SRS learned of the trust, it notified Williams that Squier was no longer entitled to Medicaid benefits because SRS considered the trust to be an "available resource" when evaluating Squier's Medicaid eligibility. Williams appealed this decision. The hearing officer found the Williams trust to be a Medicaid qualifying trust (MQT) and thus available for Squier's support, making her ineligible for Medicaid assistance. The hearing officer stated:

"The trust was created with funds received because of injuries and damages sustained by Donna Jo Squier. The trust was created by an individual who had been appointed to serve as guardian ad litem for Donna Jo Squier in the Sedgwick County lawsuit. The funds were Donna Jo Squier's. They were not the trust settlor's funds. They were not the court's funds. They were the property of Donna Jo Squier.... [I]t is clear that the settlor was acting on behalf of Donna Jo Squier, as Donna Jo Squier's legal representative."

Williams then appealed the decision to the State Appeals Committee for SRS, which affirmed the hearing officer's decision.

After exhausting the administrative process, Williams sought judicial review in the district court of Greenwood County. The district court reversed the decision of SRS.

The district court concluded that the Williams trust was not an MQT, disqualifying Squier from Medicaid benefits. The district court stressed that the purpose of the trust was to supplement, not replace, public financial assistance. The district court found that the record was silent as to what role, if any, Squier actually played in the creation of the trust and whether she had the capacity to voluntarily participate in the creation of the trust or in the settlement negotiations, and the record was insufficient to deem Squier as the grantor of the Williams trust. The court also found that Squier never had legal or equitable title to the settlement funds. Finally, the district court found that the trustee actually had no discretion to make distributions to Squier because the trustee was required to maintain Squier's eligibility for Medicaid benefits. The district court ordered that Squier's Medicaid benefits be reinstated without considering the Williams trust as an available resource.

This case involves judicial review of an agency action under the Kansas Act for Judicial Review and Civil Enforcement of Agency Actions (KJRA), K.S.A. 77-601 et seq. Our standard of review is statutorily defined. One ground for relief is that the agency has erroneously interpreted or applied the law. K.S.A. 77-621(c)(4).

Background on the federal Medicaid program was recently stated by the Second Circuit Court of Appeals in Himes v. Shalala, 999 F.2d 684, 686 (2d Cir.1993):

"The Medicaid program was enacted in 1965 as Title XIX of the Social Security Act, 42 U.S.C. §§ 1396, 1396a-u (1988) ('Medicaid Act' or 'the Act'), as a cooperative federal-state program designed to provide health care to needy individuals. Although a state is not required to participate in the Medicaid program, once it chooses to do so it must develop a plan that complies with the Medicaid statute and the Secretary's regulations. [Citation omitted.]

"A state, in administering its Medicaid program, must set reasonable standards for assessing an individual's income and resources in determining eligibility for, and the extent of, medical assistance under the program. See 42 U.S.C. § 1396a(a)(17). Those standards must take into account 'only such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant or recipient.' 42 U.S.C. § 1396a(a)(17)(B)."

See Clark v. Commissioner, 209 Conn. 390, 394-96, 551 A.2d 729 (1988).

Kansas has elected to participate in the Medicaid program. K.S.A. 39-708c gives the Secretary of SRS the power and duty to determine general policies relating to all forms of social welfare and to adopt rules and regulations therefor. K.S.A. 39-708c(s) requires the Secretary of SRS to develop plans financed by federal funds and/or state funds for providing medical care for...

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