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Trusts and Estates

Gonzalez v. City National Bank

Cite as B284521
Filed June 24, 2019
California Court of Appeal, Second District

By Golnaz Yazdchi
Sheppard Mullin Richter & Hampton LLP
https://www.sheppardmullin.com

Headnote:  Special Needs Trusts – Medi-Cal Reimbursement

Summary:  Assets in a qualified special needs trust are subject to mandatory payback to the State from the trust’s remainder upon the beneficiary’s death for medical expenses incurred on the beneficiary’s behalf, regardless of whether the beneficiary was under 55 years of age when she received Medi-Cal benefits. 

Case Brief:

As a result of a settlement of a medical malpractice claim Brenda Gonzalez became the beneficiary of a special needs trust that was funded with Brenda’s $2.4 million settlement.  The purpose of placing the settlement funds in a special needs trust was to preserve Brenda’s eligibility for Medi-Cal benefits and shelter her settlement funds for her special medical needs that would not otherwise be covered by Medi-Cal.  The trust therefore included a mandatory “payback” provision which required reimbursement upon Brenda’s death to Medi-Cal for lifetime medical benefits paid on Brenda’s behalf.  Any remaining assets would be distributable to Brenda’s legal heirs.  Brenda died at 21, when $1.6 million remained in the trust.  The Department filed a creditor’s claim for $3.9 million in Medi-Cal payments made on Brenda’s behalf during her lifetime.  Plaintiffs, Brenda’s parents, petitioned for an order directing the trustee to distribute the remainder to Brenda’s heirs on the basis that the Department did not have a right to reimbursement because Brenda received services when she was under the age of 55.  The trial court denied plaintiffs’ petition and ordered the trustee to pay the Department’s creditor’s claim.

The Court of Appeal affirmed.  Assets in a special needs trust are not counted for determining a beneficiary’s eligibility for Medi-Cal as long as the special needs trust contains a mandatory payback provision that enables the state to be reimbursed for medical expenses incurred following the beneficiary’s death.  Specific federal statutes requiring reimbursement of Medicaid/Medi-Cal benefits from a special needs trust preempt any state statutes that may prevent reimbursement of benefits paid for a beneficiary under the age of 55.  A state’s entitlement to reimbursement from special needs trusts is not conditioned on the age of the beneficiary.  Moreover, a state’s right to recover from a special needs trust is independent from its right to recover from the same beneficiary’s estate.

https://www.courts.ca.gov/opinions/documents/B284521.PDF

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