A trust provision giving trustees discretion to terminate the trust if its continuation is contrary to the interest of the beneficiaries "by reason of legislation" renders the trust principal an available asset for Medicaid purposes.
In 1991, Gordon O. Allen established and funded an irrevocable trust with $137,000 of his assets, naming himself and his nephew, Roger A. Stone, as trustees. Mr. Allen's trust directed the trustees to pay him income necessary for his support during his life. Upon Mr. Allen's death, income and principal would be distributed to four named nephews and cousins. The trust contained the further provision that the trustees could terminate the trust and distribute the principal according to the trust's terms if "continuation of this trust is contrary to the best interests of the beneficiaries or any one of them by reason of (1) legislation . . . "
Mr. Allen entered a nursing home on September 9, 1993. On May 6, 1994, after the Department of Human Services found that Mr. Allen's trust was an available asset, the county court ruled that Mr. Allen could never receive any of the trust principal because the trustees could terminate the trust during Mr. Allen's lifetime only if there is a substantial change in legislation or if the trust assets fall to a level that makes the trust uneconomical or burdensome to continue. The court further ruled that, should the trust be terminated, any undistributed income and the principal would not be available to him. On May 26, 1994, Mr. Stone applied for Medicaid benefits on Mr. Allen's behalf. The Department denied the application on the ground that the trust principal was available to him to defray medical expenses. Mr. Allen appealed.
The court concludes that the trustees have the discretion to make the full amount of the Mr. Allen's trust available to him by terminating the trust and thus rules that all of the trust assets are available to Mr. Allen in determining his Medicaid eligibility. Noting that Mr. Allen gave the trustees the discretion to terminate the trust ''by reason of legislation,'' the court writes that "If Allen needs long term care that he is unable to pay for with his trust income or otherwise, and federal legislation makes him ineligible for Medicaid benefits to pay for the needed care, ''continuation of this trust is contrary to the best interests of Allen 'by reason of ... legislation.'" The court also disagrees with Mr. Allen's contention that if the trust terminates during his lifetime, the principal must be distributed to the four named beneficiaries. Because Mr. Allen did not specify who should receive the trust property if the trustees exercised their discretionary power to terminate the trust during his life, the court rules they would hold the property for Mr. Allen.
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