Trust Is an Available Resource Despite Discretionary Language

The Minnesota Court of Appeals finds that a trust's principal and income are both available resources for Medicaid purposes even though the trust's language requires only payments of income to the beneficiary and gives discretion to the trustee to distribute principal. In The Matter of the Stephanie L. Wilcox Trust (Minn. Ct. App., No. A08-1458, May 19, 2009).

Stephanie Wilcox, a woman with Down syndrome, is the beneficiary of a trust holding close to $2 million in assets. The trust, which was set up by Ms. Wilcox's father, dictates that "the net income shall be paid to [Stephanie]; provided that if the trustee determines that [Stephanie] has adequate other income, the trustee may withhold all or any part of the net income . . ." In a separate paragraph labeled "Principal," the trust states that "[t]he trustee shall pay to any one or more of [Stephanie] and [Stephanie's] issue, from any principal not capable of being withdrawn pursuant to any right of withdrawal, such sums of principal (including all thereof) as the trustee deems advisable."

When Ms. Wilcox's guardian requested funds from the trust to meet Ms. Wilcox's monthly budget, the trustees petitioned the court to declare the trust a discretionary trust that was an unavailable asset and therefore not subject to a guardian's request for funds. The Minnesota commissioner of Human Services, which had already rejected Ms. Wilcox's Medicaid application because her income was too high, was brought in as an interested party and both the state and Ms. Wilcox's guardian opposed the trustee's petition.

The trial court issued an order declaring the trust's income an available asset, but the court also ruled that the trust's principal was not available because it was distributed only subject to the trustee's discretion. The state appealed the ruling, arguing that the language in the trust compelled the trustee to distribute principal if Ms. Wilcox's income was not adequate to meet her needs. The trustee claimed that there was nothing in the plain language of the trust requiring such distributions.

The Minnesota Court of Appeals overrules the trial court and concludes that Ms. Wilcox does have the ability to compel distributions of principal from the trust. The court reasons that since the language giving the trustee discretion to distribute principal follows the language requiring the trustee to provide adequate "income," the trustee must distribute principal if Ms. Wilcox's income is insufficient. The court goes on to explain that the "[u]se of 'shall' in [Ms. Wilcox's] trust does not support a finding that payment of principal is discretionary even though 'such [amounts] as the trustee[s] deem advisable' signals that the amount of such payments is discretionary, consistent with the purpose of the trust to provide 'adequate' income to [Ms. Wilcox]." (emphasis in original)

For the full text of this decision, go to: http://www.lawlibrary.state.mn.us/archive/ctapun/0905/opa081458-0519.pdf

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