January 6, 1994
Barbara D. Matula Director, Division of Medical Assistance North Carolina Department of Human Resources Kirby Building 1985 Umstead Drive Post Office Box 29529 Raleigh, North Carolina 27626-0529
RE: Advisory Opinion; U.S. Constitution, Art. VI, cl. 2; 42 U.S.C. § 1396p(d) [Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, Title XIII, Ch. 2, Subch. B, Part II, § 13611];
N.C. Gen. Stat. §§ 36A-59.10 to -59.20; N.C. Gen. Stat. § 36A-115(b).
Dear Mrs. Matula:
The following is in response to your request for an opinion as to whether or not the provisions of new 42 U.S.C. § 1396p(d) [OBRA 93 § 13611] encompass a trust created with court approval and with proceeds paid by an insurance company (presumably in settlement of a personal injury claim, or in payment of a judgment) directly into the trust. It is the opinion of this office that § 1396p(d) does encompass such trusts. This is because settlement or judgment proceeds are the property of the individual with the personal injury claim, whether or not the insurance company pays those proceeds into the trust. The person with the personal injury claim should be considered to have provided the proceeds with which the trust was created, and thus to have established the trust. This is so even though in form the trust is created by someone else, such as a guardian or a court. See Forsyth v. Rowe, 5 Medicare & Medicaid Guide (CCH) New Developments ¶ 41,777 (Ct. S. Ct., Aug. 3, 1993). The text of the new 42 U.S.C. § 1396p(d)(2)(A) appears to be premised upon this type of analysis.
You further inquired whether or not it is necessary to change North Carolina law in order to negate trust instrument provisions which prohibit the use of trust monies for Medicaid-covered expenses, or which forbid the use of trust funds in a fashion that would render the trust beneficiary ineligible for Medicaid. It appears that such restrictions on the use of trust monies are enforceable under North Carolina’s case law and statutes governing trust instruments, at least absent a conflict with federal Medicaid law.
N.C. Gen. Stat. § 36A-115(b) (1991) provides that a beneficiary’s interest in a discretionary, support, or spendthrift trust is neither voluntarily nor involuntarily alienable (i.e., transferable). A discretionary trust is one which provides that the amount, if any, of the trust funds to be received by the beneficiary is within the trustee’s discretion. A support trust is one that does not obligate the trustee to pay or distribute any particular amount, but only such sums as the trustee determines, in his discretion, are appropriate for the beneficiary’s support, education or maintenance. A spendthrift trust is one in which the creating instrument provides that the beneficiary’s interest shall terminate if the beneficiary alienates or attempts to alienate his interest, or becomes bankrupt or insolvent, or if the beneficiary’s creditors attempt to reach the beneficiary’s interest in the trust. It would seem that such an inalienable interest in a trust is not an available asset for Medicaid eligibility purposes. It further appears that a discretionary or support trust could include a restriction upon the trustee’s discretion to distribute trust funds for use for Medicaid-covered expenses, or to make trust funds available to the beneficiary in a fashion that would render the beneficiary ineligible for Medicaid. Indeed, in Lineback ex rel. Hutchens v. Stout, 79 N.C. App. 292, 339 S.E.2d 103 (1986), the North Carolina Court of Appeals held that provisions in a testamentary trust showed that the creator of the trust intended the trust funds to be used to supplement, rather than supplant, public assistance funds for the beneficiary. The beneficiary was a disabled nursing home resident who apparently had received Medicaid benefits to cover the cost of her care. Courts in other states have refused to enforce trust provisions of this nature as contrary to public policy, but such considerations apparently do not trouble the North Carolina courts.
It nonetheless may not be strictly necessary to alter North Carolina law in order to enforce the provisions of § 13611 of OBRA 1993. It seems that the provisions of N.C. Gen. Stat. § 36A115(b) and the holding in Lineback ought to have been equally problematic vis-a-vis the old Medicaid qualifying trust ("MQT") provisions of former 42 U.S.C. § 1396a(k). We are unaware, however, of any significant difficulty in enforcing the MQT provisions. We suspect this is because under the federal Supremacy Clause [U.S. Const., Art. VI, cl. 2] and N.C. Gen. Stat. § 108A-79(l), federal Medicaid law is controlling in the event that state law is in conflict with it. We nevertheless would recommend that North Carolina amend its Medicaid and/or trust statutes so as to conform with the dictates of OBRA 1993, as conflicts of the type that apparently exists can engender confusion and litigation.
Ann Reed Senior Deputy Attorney General
Jane T. Friedensen
Assistant Attorney General