Medicaid Can Recover From a Trust After Beneficiary’s Death

Case summary for Elder Law Answers.The Court of Appeals of Iowa affirms a lower court’s order requiring a trustee to pay the Medicaid debt of the trust’s beneficiary. In the Matter of the Trust Under the Will of Walter Riessen, Ronald Riessen (Iowa Ct. App., No. 22-0048, December 7, 2022).

When he died in 1972, Walter Riessen left his property to his four children in equal parts. He placed his daughter Joan Riessen's share in a trust and appointed his son Ronald Riessen as the trustee, with Ronald Riessen having the discretion to distribute funds for his sister’s benefit. Walter Riessen gave his son the authority to go into the trust’s corpus to provide for his daughter.

The trust never funded her medical care, and Ms. Riessen enrolled in Medicaid. After Ms. Riessen passed, Medicaid brought an action for reimbursement from the trust. The lower court ordered Ronald Riessen to use money from the trust to repay Medicaid for Ms. Riessen’s expenses. Ronald Riessen appealed.

Iowa Code Section 249A.53(2) requires the repayment of debts incurred to Medicaid from a person’s estate after death. The recovery rule applies to the trust Walter Riessen established. Despite Ronald Riessen's assertion that the instrument was a discretionary trust without standards, it was a discretionary trust with standards because its purpose was to support the beneficiary. Even though Ronald Riessen could choose when to make payments, the terms required him to provide his sister with funds.

Under Section 633A.4702 of the Iowa Code, when a trust has language giving the trustee discretion while also suggesting that the beneficiary has a legally enforceable right to payments, the provisions pointing to the trustee’s discretion prevail in determining the kind of trust. Critically, however, this statute only applies to trusts created after 2004, and Walter Riessen made the trust before that date. When it enacted section 633A.4702, the legislature did not intend to alter existing trusts.

Considering Walter Riessen’s intent, nothing in the trust’s terms suggests that he prioritized keeping family property together over meeting his daughter’s needs. He gave the trustee the power to take from the trust's corpus to benefit his daughter, indicating that he valued providing for his daughter over keeping his estate whole.

Because the trust was discretionary, Ms. Riessen had the right to receive money to support herself. She had the legal ability to force the trustee to withdraw from the trust for her support. Before her death, nothing interfered with her ownership interest.

As Ms. Riessen had a legal right to the funds, her creditors – such as Medicaid – also could access them. Since Ms. Riessen’s interest in the trust was subject to Iowa’s Medicaid recovery rule, the trustee must pay the reimbursement claim.

Read the opinion in full.