Young v. Ohio Dept. of Human Serv.
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1 YOUNG, APPELLEE, V. OHIO DEPARTMENT OF HUMAN SERVICES, 2 APPELLANT. 3 [Cite as Young v. Ohio Dept. of Human Serv. (1996), ___ Ohio 4 St.3d ___.] 5 Public welfare -- Testamentary trust that expressly prohibits trustee 6 from making any distribution that would affect the beneficiary s 7 Medicaid benefits does not constitute a countable resource 8 under Ohio Department of Human Services Medicaid 9 Regulatory scheme set out in Ohio Adm.Code Chapter 10 11 5101:1-39. (No. 95-967 -- Submitted May 7, 1996 -- Decided 12 September 4, 1996.) 13 APPEAL from the Court of Appeals for Allen County, No. CA94- 14 07-0048. 15 Janet Lee Young, appellee, entered a nursing facility in August 16 1993. On October 12, 1993, she applied for Medicaid benefits. The 17 Allen County Department of Human Services ( ACDHS ) denied her 18 application for the reason that Young was the beneficiary during her 1 lifetime of a $53,000 irrevocable trust ( the Albright trust ) created by 2 her father George Albright. 3 constituted an available resource that exceeded the $1,500 resource 4 limitation established by the Ohio Department of Human Services 5 ( ODHS ) for Medicaid eligibility. 6 7 ACDHS determined that the trust Young appealed the determination to ODHS, which upheld the determination of the ACDHS. 8 Young then appealed the department s order to the Court of 9 Common Pleas of Allen County pursuant to R.C. 5101.35 and 10 119.12. The court affirmed the administrative decisions and Young 11 appealed that decision to the Allen County Court of Appeals which 12 reversed the trial court, holding that the terms of the trust excluded it 13 from the definition of countable resource under the Ohio Medicaid 14 eligibility requirements. 15 16 The cause is now before this court upon the allowance of a discretionary appeal. 2 ------------------------- 1 2 3 4 5 6 Martin, Pergram & Browning Co., L.P.A., and Dennis L. Pergram, for appellee. Betty D. Montgomery, Attorney General, and Margaret E. Adams, Assistant Attorney General, for appellant. ------------------------- 7 MOYER, C.J. The issue to be decided in this appeal is whether 8 a testamentary trust that expressly prohibits the trustee from making 9 any distributions that would affect the beneficiary s Medicaid benefits 10 constitutes a countable resource under the ODHS Medicaid 11 regulatory scheme set out in Ohio Adm. Code Chapter 5101:1-39. 12 The Allen County Court of Appeals held that the Albright trust 13 corpus does not meet the definition of a countable resource and 14 therefore may not be relied upon by ODHS as a reason for denying 15 Young s Medicaid application. For the reasons that follow, we agree. 16 The stated purpose of the Medicaid program is to provide 3 1 assistance to financially needy citizens in their efforts to procure 2 adequate health care. Ohio Adm. Code 5101:1-39-01(A). In view of 3 this objective, ODHS promulgated regulations, consistent with federal 4 law, which limit the available resources an individual may have if he 5 or she is to receive Medicaid. Former1 Ohio Adm. Code 5101:1-39- 6 05 provided in pertinent part: (A) There are certain restrictions of value placed upon an 7 8 applicant/recipient s resources in Medicaid. 9 maximum placed upon total nonexempt resources, which is termed 10 There is an overall the resource limitation. *** 11 * * * 12 (4) Resources are defined as those assets, including both 13 real and personal property, which an individual or couple possesses. 14 *** 15 16 (5) Personal property is defined as those resources that are available for the support or maintenance of a person s physical 4 1 2 needs or medical care. (6) Countable resources are those resources remaining 3 after all exemptions have been applied. These nonexempt resources 4 are applied, or counted, toward a resource limitation; thus, these 5 nonexempt resources are termed countable. 6 (7) The resource limitation is the overall maximum value 7 placed upon an applicant/recipient s total countable resources. For 8 an individual, the resource limitation is one thousand five hundred 9 dollars. *** 10 (8) Only those resources in which an applicant/recipient has 11 a legal interest and the legal ability to use or dispose of are counted. 12 If both legal interest and ability to use or dispose of the resources do 13 not exist, the value of the resources is not counted. 14 The dispositional language of the trust at issue in this litigation 15 provides: 16 (1) The share to be held for Grantor s daughter, JANET LEE 5 1 YOUNG, shall be held, managed and distributed by the Trustee as 2 follows: The Trustee shall pay such amounts of the net income and, 3 if necessary, principal of this Trust as she deems necessary for the 4 benefit of JANET LEE YOUNG, provided, however, that the Trustee 5 shall not make any distributions of income or principal for the benefit 6 of JANET LEE YOUNG which shall render her ineligible or cause a 7 reduction in any benefit she may be entitled to receive, including, but 8 not limited to, the following: institutional care provided by the State 9 or Federal government, Social Security, Supplementary Security 10 Income, Medicare, and Medicaid. * * * Distributions of income or 11 principal to or for the benefit of JANET LEE YOUNG shall be made 12 liberally and generously, but not for the purpose of providing for 13 anything which could otherwise be provided for her by governmental 14 or other assistance. 15 The language of the trust instrument clearly prohibits the 16 trustee from making distributions which would result in a reduction in 6 1 benefits or elimination of Young s Medicaid eligibility. The restriction, 2 however, was held unenforceable by the trial court on the grounds 3 that it was an attempt to force Medicaid to accept primary liability for 4 Young s nursing facility expenses despite the existence of substantial 5 personal financial resources. The trial court found the enforcement 6 of such a provision to be against public policy and therefore found 7 that term of the trust instrument to be unenforceable. 8 Under R.C. 119.12, the court of common pleas must review an 9 agency order to determine whether the order is supported by 10 reliable, probative, and substantial evidence and is in accordance 11 with law. 12 administrative decision and held the trust provision unenforceable as 13 a violation of public policy. In reversing the trial court, the court of 14 appeals concluded that no public policy considerations rendered the 15 trust provisions unenforceable. 16 Applying this standard, the trial court affirmed the ODHS argues that the court of appeals holding must be 7 1 reversed because it thwarts the fundamental purpose of Medicaid 2 which is to help those who are truly needy. ODHS also asserts that 3 the appellate court s interpretation will, if upheld, permit all citizens to 4 restrict the availability of their assets and defeat the Medicaid 5 eligibility criteria, converting Medicaid from a safety net to an estate 6 planning tool for the wealthy and middle income persons. Therefore, 7 ODHS urges that the court of appeals be reversed and the trust 8 provision held unenforceable as contrary to important public policy. 9 We do not agree. 10 The primary responsibility for the support of an individual lies 11 with that individual, and a trust created for the benefit of an individual 12 will be considered an available resource upon application for 13 Medicaid unless the applicant s access to the trust principal is 14 restricted. Former Ohio Adm. Code 5101:1-39-271(E). This principle 15 is well established and is not disputed by Young. 16 position, however, that her use of and access to the trust is 8 It is Young s 1 restricted. 2 It is axiomatic that a grantor may dispose of his or her property 3 in any manner chosen so long as the disposition is not prohibited by 4 law or public policy. 5 George Albright was under any obligation to provide for the support 6 of his adult child. Had Albright not chosen to establish the trust and 7 name his daughter beneficiary, there would be no question as to her 8 eligibility to receive Medicaid benefits. Neither party to this dispute contends that 9 Though the issue before us is one of first impression in Ohio, 10 the majority rule from other jurisdictions appears to hold that if the 11 purpose of a trust is to supplement rather than supplant Medicaid (or 12 other government benefit programs), the instrument will be 13 enforceable as drafted. See Trust Co. of Oklahoma v. State ex rel. 14 Dept. of Human Serv. (Okla. 1991), 825 P.2d 1295; Tidrow v. Dir. of 15 Family Serv. (Mo. App. 1985), 688 S.W.2d 9. 16 In Tidrow, the trust at issue was created by a father for the 9 1 benefit of a retarded adult son. 2 testamentary trust, contained 3 intent that payments from the trust to or for [the beneficiary] were to 4 supplement, rather than supplant, the benefits to which [the 5 beneficiary] would otherwise be entitled. Id. at 12. The language of 6 the trust instrument was less restrictive than in the case at bar, yet 7 the court held that the intent of the settlor was controlling, and found 8 that his intent was to supplement state support. Id. 9 The instrument in Tidrow, a language expressing the settlor s Evidence of the intent, in Tidrow, included language of the 10 instrument providing for payments to the beneficiary throughout his 11 life and a provision for the remainder of the trust to go to the 12 beneficiary s brother upon the beneficiary s death. 13 reasoned that these provisions clearly indicated that the settlor did 14 not intend the entire corpus of the $175,000 trust to be dissipated 15 within a few years time from paying for the beneficiary s institutional 16 care. Id. The court thus held that the trust did not constitute an 10 The court 1 available asset under the federal law applicable both in Tidrow and 2 the case at bar. 3 The Tidrow court also observed that the effect of the trust was 4 only to continue providing what the father had provided for his son 5 while he was alive. Based on that reasoning, the court found: The 6 conclusion is compelling that the father intended his trust estate, the 7 existence of which was triggered by his death, to do for [the 8 beneficiary] what his father did for him in life: to supplement the 9 benefits received from the State. Tidrow at 12. The same is true of 10 the Albright trust. 11 In the case at bar, the language of the trust instrument is more 12 precise than in Tidrow. Albright expressly directed that the Trustee 13 shall not make any distributions of income or principal for the benefit 14 of JANET LEE YOUNG which shall render her ineligible or cause a 15 reduction in any benefit she may be entitled to receive, including, * * * 16 Medicaid. Albright clearly did not intend for the trust to take the 11 1 place of Medicaid. The court of appeals found that there was no 2 practical difference between the case at bar and those cases, such 3 as Tidrow and Trust Co. of Oklahoma, involving a trust instrument 4 expressly stating that the trust was intended to supplement Medicaid 5 benefits. We agree. 6 ODHS would have us treat supplement as a controlling word 7 without which the trust restriction may not be enforced. We reject 8 such a rigid and formalistic rule. We find that ODHS s approach 9 would not serve the ends of justice and is not required in this case by 10 any special circumstances demanding that we raise form over 11 function. We prefer a standard analysis that requires us to determine 12 the intent of the settlor from the language of the instrument, rather 13 than to attribute intent on the basis of a magic words rule. 14 The plain meaning of the restrictive language in the present 15 case is that Albright intended to provide his daughter with a source of 16 supplemental support that would not jeopardize her access to basic 12 1 assistance from Medicaid. The absence of the word supplement is 2 not determinative of the settlor s intent to supplement or supplant the 3 beneficiary s Medicaid support. 4 Our resolution of this case, however, is guided most directly by 5 the language of the administrative regulations themselves, as was the 6 judgment of the court of appeals. Former Ohio Adm. Code 5101:1-39- 7 271(E) stated: 8 principal is restricted, the principal is not a resource to the individual. 9 Under former Ohio Adm. Code 5101:1-39-05(A)(8), a resource will not 10 be counted unless the applicant has both a legal interest in the 11 resource and the legal ability to use or dispose of the resource. Janet 12 Young has neither. If the individual/beneficiary s access to the trust 13 First, Young's interest in the corpus of the trust is equitable 14 rather than legal. Maguire v. Trefry (1920), 253 U.S. 12, 16, 40 S.Ct. 15 417, 419, 64 L.Ed. 739, 751; Thornton v. Stanley (1896), 55 Ohio St. 16 199, 208, 45 N.E. 318. Second, the language of the trust gives the 13 1 trustee sole discretion over distributions made to Young (limited by the 2 proviso that the trustee may not make any distributions affecting 3 Young's Medicaid eligibility). We conclude, therefore, that because 4 Young has no control over the distributions that the trustee decides to 5 make for her benefit, she does not have the ability to use or dispose of 6 the resource. The Albright trust, thus meets neither the former Ohio 7 Adm. 8 requirements for countability. Code 5101:1-39-05(A)(8) nor former 5101:1-39-271(E) 9 Finally, we decline, as did the court of appeals, the invitation to 10 hold the Albright trust provision unenforceable on public policy 11 grounds. We prefer to rely on the plain regulatory language in effect at 12 the time this litigation arose. 13 The judgment of the court of appeals is affirmed. Judgment affirmed. 14 15 RESNICK, PFEIFER and COOK, JJ., concur. 16 PFEIFER, J., concurs separately. 14 1 DOUGLAS, J., dissents. 2 F.E. SWEENEY and STRATTON, JJ., separately dissent. 3 4 FOOTNOTE 5 1 The relevant language of the Ohio Administrative Code has 6 recently been amended and now expressly provides that exclusionary 7 clauses such as the one at issue here may no longer be considered in 8 determining whether the trust constitutes a countable resource. See 9 Ohio Adm. Code 5101:1-39-271(A)(2)(e), effective April 27,1995. 10 PFEIFER, J., concurring. I concur because of the limited effect 11 our decision today will have. The loophole exploited in this case has 12 been closed by the recently adopted Ohio Adm.Code 5101:1-39- 13 271(A)(2)(e). 14 constituted a nifty piece of legal craftsmanship, it would make for 15 unacceptable public policy were it applicable in many cases beyond 16 this one. the world of Medicaid eligibility is rife with enough duplicity While exclusionary clause in the Albright trust 15 1 and treachery without this court allowing a further opportunity for 2 abuse. 3 STRATTON, J., dissenting. I respectfully dissent from the majority 4 opinion. Where a child has reached the age of majority and the obligation 5 to support has ceased, I strongly believe it would be against public policy to 6 allow a parent to create a trust where the trust income or trust corpus can go 7 to the child at the discretion of the trustee, except when such distributions 8 would render the child ineligible for medical assistance from the 9 government. 10 The purpose of the trust, established by Young s father, was to 11 generously and liberally provide income to Young in all circumstances, 12 except where she might be entitled to receive Medicaid or Medicare 13 benefits. The trust contained the exclusionary provision which stated: 14 The Trustee shall pay such amounts of the net income and, if necessary, 15 principal of this Trust as she deems necessary for the benefit of JANET LEE 16 YOUNG, provided, however, that the Trustee shall not make any 16 1 distributions *** which shall render her ineligible or cause a reduction in 2 *** Medicare, and Medicaid [benefits]. 3 The obvious thrust of this language is an attempt to bar the trustee 4 from making any distribution that would render Young ineligible for public 5 assistance. Otherwise, however, distributions of the trust income or 6 principal were to be made liberally and generously. 7 Young entered a nursing home in August 1993. The trustee was billed 8 for Young s stay. The trustee, citing the trust language, refused to pay the 9 bill. The trust had a res of $53,000. Young then sought Medicaid eligibility 10 to pay the bill. Under the provisions of the trust, the remainder of the trust 11 corpus would pass to any of Young s surviving children upon her death. As 12 a result, Young had assets that were available to pay at least some of the 13 nursing home bill. However, pursuant to the trust, those assets would pass 14 to her children. The taxpayers were left with the burden of caring for 15 Young. 17 1 It would be a different scenario if such a child had already entered the 2 nursing home and a grantor chose not to give any of his assets to that child. 3 While certainly not commendable, a grantor is free to do with his 4 inheritance as he sees fit, as long as it is not contrary to public policy. 5 However, these assets had already transferred by trust to Janet Young and 6 were to be liberally and generously used for her benefit, unless the 7 government could pick up the tab. I would find that to allow a trust to 8 distribute income or principal for virtually any purpose except for purposes 9 that would eliminate or reduce Medicaid is against public policy because it 10 shifts the beneficiary s financial responsibility to the taxpayers despite the 11 fact the beneficiary has the financial means to pay for his or her own 12 medical expenses. Medicaid is a safety net for those who are destitute, not 13 insurance coverage for those who can pay their medical expenses like 14 Young. Obviously, the limiting language of this trust is against public 15 policy because it circumvents the purpose behind Medicaid. Where trust 16 language is against public policy, the court has a duty to nullify such trust 18 1 language. See Bob Jones Univ. v. United States (1983), 461 U.S. 574, 591, 2 103 S. Ct. 2017, 2028, 76 L.Ed.2d 157; United States. v. Taylor (N.D.Cal. 3 1966), 254 F. Supp. 752. 4 F.E. SWEENEY, J., concurs in the foregoing dissenting opinion. 19
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