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SIEGAL v. KIZER

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Court of Appeal, Second District, Division 7, California.

Judith SIEGAL, as Executrix, etc., Plaintiff and Appellant, v. Kenneth W. KIZER, as Director, etc., Defendant and Respondent.

No. B062390.

Decided: January 11, 1993

Marc M. Stern and William M. Hensley, Los Angeles, for plaintiff and appellant. Daniel E. Lungren, Atty. Gen., Robert L. Mukai, Chief Asst. Atty. Gen., Charlton G. Holland, III, Asst. Atty. Gen., John H. Sanders, Supervising Deputy Atty. Gen., and William G. Schuberth, Deputy Atty. Gen., for defendant and respondent.

Judith Siegal, as Executrix of the Will of Rose Siegal, appeals from the judgment entered denying a petition for writ of mandate to compel Kenneth W. Kizer, Director of the Department of Health Services, to set aside his decision denying Medi–Cal benefits.  (Code Civ.Proc., § 1094.5.)   Appellant contends Rose Siegal had no ownership interest in the principal of a trust, and the principal, therefore, was not available property in determining Medi–Cal eligibility.

PROCEDURAL HISTORY

Siegal suffered from Alzheimer's disease which progressively worsened and about August 1988 moved into a long-term care facility.   On March 3, 1989, Judith Siegal, one of Siegal's daughters applied for Medi–Cal benefits on Siegal's behalf.   The Department of Public Social Services denied the application for benefits stating that Judith Siegal, in her capacity as trustee for the Rose Siegal Trust, refuses to release the principal of the trust that appears by the terms of the trust to be available to meet the medical needs of Siegal.   Judith Siegal, thereafter, requested a fair hearing.   Following the hearing, the administrative law judge issued a decision which was adopted as the final decision of respondent, that the March 3, 1989 application for Medi–Cal benefits was correctly denied in that an estimated $184,938 principal in a trust was available for meeting Siegal's medical need.1

Siegal died on August 13, 1990 and on December 12, 1990, Judith Siegal, as Executrix of Siegal's Will, filed a Petition for Writ of Administrative Mandate in the superior court.2  The superior court denied the petition on the ground that the trust provided for medical care and the trust assets were available to the applicant.   Additionally, the court found that the deletion of Section A2.02 of the Trust, requiring the trustee to pay medical expenses from the principal, was made after the application for benefits.

STATEMENT OF FACTS

The facts are undisputed.   On December 24, 1973, Siegal's three daughters, Marilyn Nordenberg, Susan Donner and Judith Siegal, as grantors, established a Living Trust for Siegal.   Donner and Judith Siegal were the trustees.   The principal of the trust was the daughters' 60% interest in a Chicago apartment building.3  The provisions of the trust in relevant part were that Siegal was entitled to the income of the trust until her death, that in the event of an emergency in the life of Siegal, such as accident, illness or the like, the trustees were required to pay to or for Siegal, so much of the principal of the trust estate as the trustees deemed necessary or appropriate to meet such emergency, that upon the death of Siegal, the entire balance of the principal of the trust was to be paid to the three daughters.   The exercise of discretion by the trustees was final and not subject to question by any person.   The trust was irrevocable but, with certain exception, the trustees had the right and power to modify, alter or amend any of its terms.4

In 1985, the Chicago apartment was sold by the trustees and the trust principal was converted to a 60% interest in a note payable with an original face amount of $195,392.80.   As of March 1989, the note payable had total balance due of $187,604.27.

DISCUSSION

 In reviewing decisions denying applications for Medi–Cal disability benefits, the superior court is required to exercise its independent judgment on the evidence.  (Cooper v. Kizer (1991) 230 Cal.App.3d 1291, 1298, 282 Cal.Rptr. 492.)  “[A]buse of discretion is established if the court determines that the findings are not supported by the weight of the evidence.   [Citation.]  The review of the record by this court on appeal is then limited to a determination of whether there exists any substantial evidence in support of the trial court's judgment.  [Citations.]  All conflicts in the evidence must be resolved and all inferences drawn in favor of the judgment.   [Citations.]  This limitation, however, does not apply to resolution of questions of law where the facts are undisputed.   In such cases, as in other instances involving matters of law, the appellate court is not bound by the trial court's decision, but may make its own determination.  [Citations.]”  (Anthony v. Kizer (1991) 230 Cal.App.3d 990, 993, 281 Cal.Rptr. 516, internal quotes omitted.)

Pursuant to Title XIX of the Social Security Act, Congress provided a statutory program known as Medicaid “to provide medical assistance to persons whose income and resources are insufficient to meet the costs of necessary care and services.  [Citation.]  The Federal Government shares the costs of Medicaid with States that elect to participate in the program.   In return, participating States are to comply with requirements imposed by the Act and by the Secretary of Health and Human Services.  [Citations.]”  (Will v. Kizer (1989) 208 Cal.App.3d 709, 715, 256 Cal.Rptr. 328.)

Welfare and Institutions Code § 14006, subdivision (c) provides for purpose of determining Medi–Cal eligibility “resources shall be determined, defined, counted, and valued in accordance with the federal law governing resources under Title XIX of the federal Social Security Act (42 U.S.C. Sec. 1396 et seq.).   Resources exempt under Title XIX of the federal Social Security Act (42 U.S.C. Sec. 1396 et seq.) shall not be considered in determining eligibility.”

The regulations governing eligibility for Medi–Cal benefits are set out at 22 California Code of Regulations sections 50000 et seq.5

The property reserve for one eligible Medi–Cal recipient in 1989 could not exceed $2,000.  (§ 50420.)   Property which was not available could not be considered in determining eligibility.  (§ 50402.)   Words have their usual meaning unless the context or a definition clearly indicates otherwise.   Shall is mandatory.   May is permissive.   Should is suggested or recommended.  (§ 50000.)

Section 50489 relates to evaluation of property held in trust and provides:

“(a) Real or personal property held in trust for the applicant or beneficiary shall be exempt if the applicant or beneficiary cannot obtain access to the principal of the trust.

“(b) To determine whether the trust is available, the applicant or beneficiary shall take whichever of the following actions is appropriate within 30 days of being advised by the county department of the responsibility to do so.

“(1) Request the trustee to release the funds.

“(2) Request that the trustee petition the court for the release of the funds.

“(3) Petition the court directly if the trustee refuses to take the action specified in (1) or (2).

“(c) The trust shall be exempt pending completion of the action specified in (b).

“(d) The trust shall be included in the property reserve or considered as other real property, under either of the following conditions:

“(1) The applicant or beneficiary refuses to initiate the action specified in (b).

“(2) The court determines that the trust is available to the applicant or beneficiary.

“(e) The provisions of this section shall not apply if the trust agreement clearly specifies that the applicant or beneficiary is the income-beneficiary only and has no ownership interest in the corpus of the trust.”

 According to the written terms of the trust at the time of the application for Medi–Cal benefits Siegal was only the income beneficiary and had no ownership in the corpus of the trust.   While the trust provided in the event of an emergency in the life of Siegal, such as an accident, illness or the like, the trustee was required to pay to or for Siegal so much of the principal of the trust estate as the trustee deemed necessary or appropriate to meet such emergency, this language did not create a trust estate for Siegal or make a fund available for her support.  (See Estate of Hinckley (1961) 195 Cal.App.2d 164, 170, 15 Cal.Rptr. 570.)  “Under a discretionary trust the beneficiary has at most a mere expectancy [citations]․”  (Estate of Johnson (1961) 198 Cal.App.2d 503, 510, 17 Cal.Rptr. 909.)

We conclude that since Siegal was the income beneficiary of the trust with no ownership in the corpus and had only restricted access to the principal, the corpus of the trust was, therefore, not an available resource in determining Medi–Cal eligibility.6  While there appears to be no California decision interpreting these Medi–Cal regulations relating to access to trust funds, our conclusion is consistent with out-of-state decisions which have held that discretionary trust funds in which the beneficiary's access to the principal is restricted are not available property in determining Medicaid eligibility.  (See e.g. Alabama Medicaid Agency v. Primo (Ala.Civ.App.1991) 579 So.2d 1355, 1358.)

DISPOSITION

The judgment is reversed and the matter is remanded to the trial court to enter a judgment granting the petition for writ of mandate.   Appellant to receive costs on appeal.

I dissent.   I would affirm the judgment denying the relief requested in the petition for writ of mandate.   In reviewing the proceedings before Administrative Law Judge Fidencio Salazar and before the Honorable William Huss, Judge of the Los Angeles County Superior Court, I conclude that the trust corpus was available for the support of Rose Siegal and that regulation section 50489, subdivision (e) does not operate to circumvent the determinations made below that the trust corpus was available for the support of Rose Siegal.

Initially, I observe when Rose Siegal, the applicant (through her daughter Judith Siegal, who was a trustor/trustee) applied for benefits, section A2.02 of the Rose Siegal Living Trust (“Trust”) required the trustee (mandatory language of “shall” is employed) to invade the corpus of the Trust for the benefit of Rose Siegal as to her needs in an emergency.   The provision for a required invasion was mandatory.   Only the extent of the invasion was discretionary.1  Before the hearing was completed on Rose Siegal's application for Medi–Cal benefits, Judith Siegal, acting in accordance with section A3.06(B) of the Trust, unilaterally modified the Trust to remove the provision for the emergency care of Rose Siegal under section A2.02 of the Trust.

The record reflects that at the time the application was made, the trust corpus contained a 60 percent interest in a note with a face value of $187,604.27, which would have been available to provide for the medical needs of Rose Siegal.   The note apparently had its source in a 60 percent interest in an apartment building in Chicago which Rose Siegal's husband transferred to their three daughters in 1961.   As noted by the majority, it appears that at one time, Rose Siegal had an interest in that apartment building.

The record of the administrative hearing is unambiguous.   The declared intent of the trustee in modifying the Trust was to thrust the burden of Rose Siegal's care on the shoulders of the State by removing from consideration the ample coffers of the trust corpus.2  The threshold observation that I make is that the action taken to modify the Trust followed the date of the initial application for benefits.   Under the clear wording of the applicable statute, the modification would not have any affect upon eligibility since the date of application is determinative for assessment of assets and not subsequent events.3

The Welfare and Institutions Code provides:

“The value of property holdings shall be determined as of the date of application and, if the person is found eligible, this determination shall establish the amount of such holdings to be considered during the ensuing 12 months except a new determination to govern during the succeeding 12 months shall be made on the first anniversary date of the application or such alternate date as may be established following the acquisition of additional holdings as provided in the following paragraph and on each succeeding anniversary date thereafter.”  (Emphasis added.)  (Welf. & Inst.Code, § 14006, subd. (h).)

The majority relies on Estate of Hinckley (1961) 195 Cal.App.2d 164, 170, 15 Cal.Rptr. 570;  Estate of Johnson (1961) 198 Cal.App.2d 503, 510, 17 Cal.Rptr. 909;  and Alabama Medicaid Agency v. Primo (Ala.Civ.App.1991) 579 So.2d 1355, 1358 for the proposition that a discretionary duty of invasion by a trustee constitutes a mere expectancy on the part of a beneficiary, and therefore such an expectancy should not be considered in evaluating eligibility for public assistance.   I find all three cases to be distinguishable.

Hinckley, Johnson, and Alabama Medicaid Agency all involved a true discretionary power in the trustee to invade the trust corpus for the benefit of the trust beneficiary (the word “may” or “might” was used in each instance).   As previously stated, the mandatory word “shall” was used in the Trust to describe the trustees' duties with respect to invasion of the corpus.4  Lastly, I disagree with the interpretation given to subsection (e) of regulation section 50489 by the majority under the facts of this case.   Regulation section 50489 reads in its entirety as follows:

“(a) Real or personal property held in trust for the applicant or beneficiary shall be exempt if the applicant or beneficiary cannot obtain access to the principal of the trust.

“(b) To determine whether the trust is available, the applicant or beneficiary shall take whichever of the following actions is appropriate within 30 days of being advised by the county department of the responsibility to do so.

“(1) Request the trustee to release the funds.

“(2) Request that the trustee petition the court for the release of the funds.

“(3) Petition the court directly if the trustee refuses to take the action specified in (1) or (2).

“(c) The trust shall be exempt pending completion of the action specified in (b).

“(d) The trust shall be included in the property reserve or considered as other real property, under either of the following conditions:

“(1) The applicant or beneficiary refuses to initiate the action specified in (b).

“(2) The court determines that the trust is available to the applicant or beneficiary.

“(e) The provisions of this section shall not apply if the trust agreement clearly specifies that the applicant or beneficiary is the income-beneficiary only and has no ownership interest in the corpus of the trust.”  (Emphasis added.)

Subsection (e) does not manifest what the word “only” is intended to convey in the subsection.   The preferred definition of the word given by The American Heritage Dictionary (2nd college ed. 1985) at page 869, is:  “1.   Alone in kind or class;  sole.”

Even the quickest perusal of the Trust in question reveals that Rose Siegal was more than only an “income-beneficiary” of the Trust.   Another “kind or class” of rights given to Rose Siegal under the Trust instrument, before self-serving modifications by the trustor/trustee, was that of a mandatory beneficiary of the corpus of the Trust under certain conditions, e.g., illness (Rose Siegal suffered from Alzheimer's disease).

I interpret subsection (e) to be inapplicable in this instance since the Trust instrument creates a right in the beneficiary to the corpus of the Trust derived from the duty of the trustee to invade the corpus by the use of mandatory language (shall) instead of confining the beneficiary to trust income only.   In my view, the Trust instrument operated to eliminate the application of regulation 50489, subsection (e) and its “income beneficiary only” exclusivity when Rose Siegal was given the dual capacity of income beneficiary AND mandatory corpus beneficiary under stated conditions.

I would affirm the judgment.

FOOTNOTES

1.   Even if respondent was correct in his assertion that the principal of the trust was available, the record establishes that the principal in March 1989 was a 60% interest in a note with a face value of $187,604.27.   This, however, would also still have far exceeded the resource limit for Medi–Cal eligibility.

2.   The petition alleged that because Siegal was denied Medi–Cal benefits, she was forced to borrow money from her trust to avoid eviction from her long-term care facility and that the amount of benefits she was denied was $40,000 plus interest.

3.   The daughters received a 60% interest in the apartment building in 1961.   While respondent does not dispute the inconsistencies, the verified petition for writ of mandate states the daughters acquired the interest in the building in 1961 following the death of their father.   Appellant's Opening Brief states that in the early 60's the daughters received the interest in the building shortly after the death of Siegal's father.   The transcript of the administrative hearing appears to reflect that in 1961, Siegal and her husband transferred the interest in the building to their daughters and the daughters established the trust for Siegal in 1973 when she had financial problems.

4.   The trust provided:“Section A2.01.  The Trustee shall pay and distribute to [Siegal], the entire net income of the Trust Estate at convenient intervals not less frequently than quarter-yearly, commencing from the date hereof and until [Siegal's] death.”“Section A2.02.   Whenever there shall occur some emergency in the life of [Siegal];  such as accident, illness or the like then the Trustee shall pay to or for [Siegal], from time to time, so much of the principal of the Trust Estate as the Trustee may deem necessary or appropriate to meet such emergency.   The Trustee shall be fully protected in determining the need and the amount of any such payment and the decision of the Trustee shall be final, binding and not subject to question.”“Section A3.04.   The exercise by any Trustee of each and every discretion granted or determination permitted to such Trustee shall be final, binding, absolute and conclusive and shall not be subject to question by any person.   This Section shall apply as fully as if it were repeated in the provision for each such discretion, decision or determination.”On June 14, 1989 co-trustee executed an amendment to the trust deleting section A2.02.

5.   All further references to these regulations are to title 22 of the California Code of Regulations unless otherwise stated.

6.   The income Siegal received from the trust was always used to determine her Medi–Cal eligibility.

1.   To anticipate an argument that the mandatory invasion of the trust corpus might yield an inadequate quantity (i.e., $1.00) through the unreasonable exercise of discretion by the trustee, Coberly v. Superior Court (1965) 231 Cal.App.2d 685, 689, 42 Cal.Rptr. 64 holds that:  “A grant of absolute discretion to a trustee to administer assets does not mean it can do as it pleases ․ The trustee is still required to avoid arbitrary action and use its best judgment.”

2.   Since Rose Siegal is deceased, the $40,000 claimed as a benefit would inure to the benefit of Rose Siegal's trustor/trustee daughters who have the reversionary interest in the trust corpus.

3.   It is conceded that if the trust corpus was required to be taken into consideration in this case then Rose Siegal would be ineligible for benefits.

4.   Borrowing from rules of statutory construction, “It is a well-settled principle of statutory construction that the word ‘may’ is ordinarily construed as permissive, whereas ‘shall’ is ordinarily construed as mandatory․”  (Emphasis added.)  (Cf. Common Cause v. Board of Supervisors (1989) 49 Cal.3d 432, 443, 261 Cal.Rptr. 574, 777 P.2d 610.)

LILLIE, Presiding Justice.

JOHNSON, J., concurs.

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