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Donna G. v. Nebraska Department of Health and Human Services

Supreme Court of Nebraska

December 14, 2018

Donna G., as mother and next friend of Eric S.. A MINOR CHILD, APPELLANT,
v.
NEBRASKA DEPARTMENT of Health and Human Services and Calder A. Lynch, director, Division of Medicaid and Long-Term Care, appellees.

         1. Administrative Law: Judgments: Appeal and Error. A judgment or final order rendered by a district court in a judicial review pursuant to the Administrative Procedure Act may be reversed, vacated, or modified for errors appearing on the record.

         2. ___: ___: ___. When reviewing an order of a district court under the Administrative Procedure Act for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable.

         3. Judgments: Appeal and Error. Whether a decision conforms to law is by definition a question of law, in connection with which an appellate court reaches a conclusion independent of that reached by the lower court.

         4. Trusts: Intent. Whether a testamentary trust amended by a probate court order pursuant to Neb. Rev. Stat. §§ 30-24, 123 and 30-24, 124 (Reissue 2016) remains a testamentary trust is a question of law.

         5. Trusts: Medical Assistance: Intent. When a testamentary trust is modified by a court-approved compromise agreement, the question whether it retains its testamentary character for purposes of determining a beneficiary's Medicaid eligibility will depend on both the nature of the parties' agreement and the court's order approving it.

         6. ___: ___: ___. When analyzing the terms of a testamentary trust to determine if the trust corpus is "available" for purposes of Medicaid eligibility, courts look to whether the trust is a support trust or a discretionary trust.

         [301 Neb. 839] 7. Trusts: Medical Assistance. When a testamentary support trust allows a beneficiary to compel distributions of income, principal, or both, for expenses necessary for the beneficiary's support, the trust may be considered as an available asset when evaluating Medicaid eligibility.

         8. ___: ___. When a testamentary trust grants the trustee uncontrolled discretion over payments to the beneficiary, it is considered a discretionary trust for purposes of Medicaid eligibility. Because the beneficiary of a discretionary trust does not have the ability to compel distributions from the trust, only those distributions of income, principal, or both actually made by the trustee may be considered as available assets when evaluating Medicaid eligibility.

          Appeal from the District Court for Lancaster County: Andrew R. Jacobsen, Judge.

          Randy Fair, of Dudden & Fair, P.C., L.L.O., for appellant.

          Douglas J. Peterson, Attorney General, and Ryan C. Gilbride for appellees.

          Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke, Papik, and Freudenberg JJ.

          STACY, J.

         The Nebraska Department of Health and Human Services (DHHS) terminated the Medicaid benefits of Eric S., and the district court affirmed. Eric's court-appointed guardian and conservator appeals. The primary issue on appeal is whether the corpus of a trust is available to Eric for purposes of determining his Medicaid eligibility. For the reasons set forth below, we reverse, and remand with directions.

         I. BACKGROUND

         Eric is a young man with cerebral palsy. Before July 1, 2016, he was receiving "Aid to the Aged, Blind or Disabled'' Medicaid waiver services.[1] The date Eric began receiving such services is not clear from the record.

         [301 Neb. 840] In 2012, Eric's grandmother, Lois Branting, executed her last will and testament. Branting's will devised all of her property, in equal shares, to her grandchildren living at the time of her death. The will further provided that "should any of my grandchildren be under the age of thirty (30) years at the date of my death, then all of my property shall instead be distributed to my Trustee to be held pursuant to the provisions of paragraph 5 below." Paragraph 5 of the will was titled "Grandchildren's Trust" and provided in pertinent part:

5.1 My trustee shall hold all property devised to my trustee for the benefit of my grandchildren who shall survive me and of the then living issue of any of my grandchildren who shall not survive me, upon the following terms and conditions:
5.2 During the term of this trust, my trustee shall apply such part of the net income and principal of this trust as shall from time to time be necessary or appropriate to the support, care, maintenance, medical expense, educational expense and general welfare of my trust beneficiaries in such amounts and proportions as my trustee, in the sole and uncontrolled discretion of my trustee, shall deem advisable, and shall accumulate and add to principal any net income not used for such purposes.
5.3 At such time as my youngest living grandchild shall reach the age of thirty (30) years, this trust shall terminate and all principal and accumulated income, after the payment of closing expenses, shall be distributed in equal shares, to my then living grandchildren and the then living issue of any grandchild of mine who shall then be deceased, so that there shall be one such equal share for each living grandchild of mine and one such equal share for the then living issue of any grandchild of mine who shall then be deceased to be shared by said issue by right of representation.

         When Branting died on November 29, 2014, she was survived by four grandchildren, all of whom were minors.

         [301 Neb. 841] In December 2015, the parents of Branting's grandchildren entered into a written agreement with Branting's personal representative to split the Grandchildren's Trust into two separate trusts: one solely for the benefit of Eric (Eric's Trust), and another for the benefit of the remaining three grandchildren. That agreement recited in part:

[T]he four grandchildren . . . who are the beneficiaries of the . . . Grandchildren's Trust ... are in very different situations and will have very different needs in the future. [The parents] have further determined that it would be best for the grandchildren ... if the [Grandchildren's Trust] was separated into one Trust for the benefit of [Eric] and another separate Trust for the benefit of [the other three grandchildren]. Specifically, [Eric] would be best benefitted if his separate Trust had special needs provisions which would enable for him to receive property from the [Branting Estate] without significantly reducing the benefits which he receives from various government agencies as a result of his physical and mental disabilities. They have further determined that it would be best for the beneficiaries of the two new Trusts if the Trust for the Benefit of [Eric] were to receive the 25% of the Estate to which he is entitled in cash to the fullest extent possible, and the Trust for [the other three grandchildren] would receive the Real Estate still owned by the Estate which includes the residence in which they have been and will be raised together with any remaining assets together totaling 75% of whatever assets remain in the Estate on the date of distribution.

         Beyond referencing "special needs provisions" for Eric, the agreement did not include additional trust terms for the split trusts, but merely recited the pertinent provisions of Branting's will, including the sections establishing and setting out the terms of the Grandchildren's Trust.

         After the agreement was reached, Branting's personal representative petitioned the probate court, pursuant to Neb. Rev. [301 Neb. 842] Stat. § 30-24, 124 (Reissue 2016), to approve the agreement and split the Grandchildren's Trust. The probate court did so in an order entered December 28, 2015, which provided:

Pursuant to the provisions of Neb. Rev. Stat. §30-24. 124 the Court finds that the effect of the provisions of the Agreement upon the interests of the interested persons is just and reasonable and therefore the Agreement is . . . approved, and the Petitioner as Personal Representative of the Estate shall make all further disposition of the Estate in accordance with the terms of the Agreement.

         After the probate court's order was entered, the separate trusts were funded in accordance with the agreement and separate trustees were appointed for the two trusts. The probate court's order was not appealed, and no party to the instant appeal has questioned the provisions of the probate order or the procedure followed in the probate court.

         The balance of Eric's Trust was $512, 380.39 as of May 16, 2016. DHHS regulations establish that the maximum available resources one may own and still be considered eligible for Medicaid is $4, 000.[2] Eric's mother, Donna G., serves as his court-appointed guardian and conservator.

         In April 2016, Donna informed DHHS that Eric had what she referred to as a "Special Needs Trust." One month later, DHHS determined that the entire corpus of Eric's Trust was an available resource for purposes of determining his Medicaid eligibility. In June, DHHS mailed a notice of action advising that Eric's Medicaid coverage and Medicaid waiver services would end effective July 1, 2016, because he was ineligible for Medicaid due to excess resources.

         In response to the notice of action, Donna requested and was given an administrative hearing, after which DHHS affirmed its decision terminating benefits. Donna timely filed a petition for judicial review in the Lancaster County [301 Neb. 843] District Court, challenging DHHS' decision pursuant to the Administrative Procedure Act.[3]

         The district court affirmed DHHS' decision to terminate benefits, finding that the entire corpus of Eric's Trust was an available resource for purposes of determining his Medicaid eligibility. The court first considered the nature of Eric's Trust. The court concluded it was not a testamentary trust, reasoning it was the product of action taken in the probate court. And it concluded Eric's Trust was not a special needs trust, because it lacked the necessary special needs provisions. Thus, by process of elimination, the court found Eric's Trust was properly characterized as an "irrevocable trust created after August 11, 1993."[4]

         The court next considered the DHHS regulation governing treatment of such a trust, which provides:

If there are any circumstances under which payment from the trust corpus could be made to or for the benefit of the client ... the portion of the corpus from which payment to or for the benefit of the client . . . could be made must be considered a resource available to the client.[5]

         Applying this standard, the district court found there were circumstances under which the trust corpus could be paid to Eric, and thus concluded the corpus was an available resource for purposes of determining his Medicaid eligibility[6]

         Alternatively, the district court reasoned that even if Eric's Trust was a testamentary trust, it would still be considered an available resource for purposes of determining his Medicaid eligibility.[7] The court noted the language of Eric's Trust had elements of both a support trust and a discretionary trust, and concluded it was the type of hybrid '"discretionary support [301 Neb. 844] trust'" this court discussed in Smith v. Smith[8] In Smith, we held that "the trustee of a discretionary support trust can be compelled to carry out the purposes of the trust in good faith."[9]Applying this principle, the court reasoned that if Eric could compel his trustee to carry out the purpose of Eric's Trust in good faith, he could also compel the trustee to make distributions from it for his medical expenses. Thus, the court concluded that even if Eric's Trust was considered testamentary, the entire corpus was still an available resource for purposes of determining his Medicaid eligibility.

         Donna timely appealed the district court's judgment, and we moved the case to our docket on our own motion.[10]

         II. ASSIGNMENTS OF ERROR

         Donna assigns, restated, that the district court erred when it included Eric's Trust as an available resource for purposes of determining his Medicaid eligibility, because (1) the trust is testamentary and (2) the trust is discretionary.

         III. STANDARD OF REVIEW

         A judgment or final order rendered by a district court in a judicial review pursuant to the Administrative Procedure Act may be reversed, vacated, or modified for errors appearing on the record.[11]

         When reviewing an order of a district court under the Administrative Procedure Act for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent ...


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