Drafting Error in Trust Leads to Loss of Medicaid

The Supreme Court of North Dakota finds that the proceeds from the sale of a home held in an irrevocable trust are a countable asset for Medicaid purposes because the trust failed to properly specify how the proceeds were to be distributed upon the sale of the home. Oyloe v. N.D. Department of Human Services (2008 ND 67, April 17, 2008).

In 1993, Clifford and Ruth Oyloe transferred their home into an irrevocable trust. The trust gave the trustee discretion to sell the home if both Clifford and Ruth no longer lived there, which the trustee did in 2006 after the couple moved to a nursing home. The trust required the trustee to "immediately distribute the proceeds from the sale in accordance with the terms of paragraph 1.(d) of this Agreement" (emphasis added). However, due to a drafting error, the trust did not contain a paragraph 1.(d).

The North Dakota Department of Human Services subsequently denied the Oyloes' Medicaid application, asserting that the proceeds from the sale of the home were a countable asset. The Department relied on a prior North Dakota case, Allen v. Wessman 542 N.W.2d 748 (N.D. 1996), which held that when a trust does not contain a dispositive provision, the assets in question revert back to the grantors and are available for their use. The Oyloes argued that it was their clear intent to distribute the sale proceeds to their children and, absent language to the contrary, the trustee should hold the proceeds in trust for the remainder beneficiaries.

The Supreme Court of North Dakota upholds the Department's decision. The court finds that there is a clear discrepancy between the language of the trust, which calls for an immediate distribution (even if the trust does not specify who will receive the funds), and the Oyloes' interpretation calling for the funds to remain in trust. The court writes that "because the distribution provision . . . failed, a resulting trust arose in favor of the Oyloes, and all proceeds from the sale reverted to the Oyloes. The result would not differ if the trustee had not exercised his discretion to sell the home."

For the full text of this decision, go to: https://www.court.state.nd.us/_court/opinions/20070251.htm

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