The Supreme Court of Iowa rules that a spendthrift provision in a "discretionary support trust" does not prevent the state Medicaid agency from recouping medical expenses from the trust corpus upon the death of the beneficiary. In Matter of the Estate of Elenore Gist (Iowa, No. 07-1142, March 27, 2009).
Elenore Gist was the sole beneficiary of a testamentary trust established in her parents' joint will. The terms of the trust provided that the trustee should pay as much principal or income from the trust as necessary to provide Ms. Gist with a "reasonable standard of living." Ms. Gist received Medicaid benefits until her death, at which point the state Medicaid agency assessed a lien against the trust for medical services provided during the previous 11 years. The trustees denied the state's claim but the probate court found that the trust was a discretionary support trust that should have been used to reimburse the state. The trustees appealed.
On appeal the trustees argued that the trust was not a discretionary trust with standards and that under the Iowa Trust Code a spendthrift provision in the trust prevented the state from seeking reimbursement from the trust. The state replied that the trust was indeed a discretionary trust with standards because Ms. Gist could compel the trustee to distribute funds necessary for her support, and, furthermore, that state common law applied in cases where the Trust Code was silent. The state alleged that in Ms. Gist's case the Trust Code was silent as to a "necessity exception" to the spendthrift clause, and therefore the common law allowed recovery despite the spendthrift clause because the state provided Ms. Gist with services or supplies for necessities.
The Supreme Court of Iowa permits reimbursement from the trust funds. The court determines that the trust is, in fact, a discretionary trust with standards because the trust allowed payments to provide Ms. Gist with a "reasonable standard of living." The court also finds that the spendthrift clause does not apply because of an exception for necessities found in the common law. The court says that "[t]he settlor of the trust intended for the trust to provide a reasonable standard of living for Ms. Gist, which includes the goods and services provided by the State. Additionally, because this was a discretionary trust with standards, the withholding of payment for the goods and services was not properly within the discretion granted the trustee by the instrument."
For the full text of this decision, go to: https://www.judicial.state.ia.us/Supreme_Court/Recent_Opinions/20090327/07-1142.pdf
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