FEBRUARY 28, 2011 VOLUME 18 NUMBER 7
The issue arises with some regularity. A married couple, perhaps in their second marriage. Adult children. One spouse becomes ill — often, but not always, demented. The other spouse, unable to cope, turns the care of the ill spouse over to one of the children. That child figures out that, financially, at least, the ill spouse would be better off divorced. That way, control of the ill spouse’s share of the couple’s property could be managed for the sole benefit of the ill spouse, and care could be assured. But can the guardian file a divorce petition?
In most states, the answer is not clear. A handful of states have explicitly addressed the question, with mixed results. The latest state court to face the issue is the Supreme Court of Vermont.
Catherine and Philip Samis had been married for almost a quarter century when Mrs. Samis began to show signs of dementia. Mr. Samis, a Canadian citizen, withdrew across the border to one of the couple’s homes, taking most of their personal effects with him. Mrs. Samis’ son from a former marriage stepped in, secured a guardianship of his mother’s person and estate (in Arizona we would call it a guardianship and conservatorship), and began overseeing her care.
Mrs. Samis is a U.S. citizen, and would be entitled to Social Security benefits under her first (now deceased) husband’s account if she were not married. Since Mr. Samis is a Canadian citizen, there are no Social Security benefits payable to her while she remains married. Her son decided it would be in her best interest — financially, at least — to get divorced, and to divide the couple’s property so that he could control how her share was spent.
Once a divorce proceeding was filed, however, Mr. Samis objected. He argued that Vermont law did not permit a guardian to petition for divorce on behalf of a ward. As with most states, the Vermont statutes were silent on the subject; there was a single reference in Vermont court rules to guardians signing divorce petitions, but no indication how the Vermont legislature felt about the possibility.
After the divorce court denied Mr. Samis’ objection, granted the divorce, divided the couple’s property and ordered Mr. Samis to make a lump-sum support payment of about $300,000, he appealed. The Vermont Supreme Court was thus faced with determining whether Mrs. Samis’ guardian had the authority to initiate the proceeding in the first place.
Ruling that a guardian’s powers are limited to those spelled out in the guardianship statutes, the state’s high court reversed the divorce court’s orders. The justices considered the holdings in a handful of states, including Arizona, and concluded that most do not permit guardians to file divorces.
The ability to file for divorce is intensely personal, said the justices. The only Vermont precedent that addressed the issue at all, an 1877 Supreme Court case, agreed; in that case, a person who had been placed under a guardianship of the estate (what would be a conservatorship in Arizona) was permitted to file his own divorce proceeding despite the guardianship. Now it is clear that in Vermont, at least, the guardian can not file the divorce petition for a ward who has become incompetent.
What about the other states? The Vermont decision cites several that agree with its holding, including appellate courts in Kentucky, New York and South Carolina. Courts in Massachusetts and New Hampshire have allowed guardians to petition for divorce, but have done so based on specific state statutes. According to the Vermont justices, only two states, Arizona and Washington, have permitted guardians to file for divorce even without the support of statutes clearly authorizing the action. Samis v. Samis, February 18, 2011.
As the Vermont Supreme Court notes, Arizona is one of the minority of states clearly permitting the guardian to file a divorce proceeding, even without express statutory authority. That is the holding of the Arizona Court of Appeals in the 1993 case of Ruvalcaba by Stubblefield v. Ruvalcaba, which we reported on at the time (yes, Virginia, there was an Elder Law Issues in 1993/1994), and which we have since described in more detail for our readers.
AUGUST 23, 2010 VOLUME 17 NUMBER 27
It really is unfortunate that we didn’t see this problem coming. Those of us who pioneered special needs trust planning back in the 1980s should have realized that we were setting up everyone (including ourselves) for confusion. We should have just given the two main kinds of special needs trusts different names. But we didn’t, and now we have to keep explaining.
There are two different kinds of special needs trusts, and the treatment and effect of any given trust will be very different depending on which kind of trust is involved in each case. Even that statement is misleading: there are actually about six or seven (depending on your definitions) kinds of special needs trusts — but they generally fall into one of two categories. Most (but not all) practitioners use the same language to describe the distinction: a given special needs trust is either a “self-settled” or a “third-party” trust.
Why is the distinction important? Because the rules surrounding the two kinds of trusts are very different. For example, a “self-settled” special needs trust:
Must include a provision repaying the state Medicaid agency for the cost of Title XIX (Medicaid) benefits received by the beneficiary upon the death of the beneficiary.
May have significant limitations on the kinds of payments the trustee can make; these limitations will vary significantly from state to state.
Will likely require some kind of annual accounting to the state Medicaid agency of trust expenditures.
May, if the rules are not followed precisely, result in the beneficiary being deemed to have access to trust assets and/or income, and thereby cost the beneficiary his or her Supplemental Security Income and Medicaid eligibility.
Will be taxed as if its contents still belonged to the beneficiary — in other words, as what the tax law calls a “grantor” trust.
By contrast, a “third-party” special needs trust usually:
May pay for food and shelter for the beneficiary — though such expenditures may result in a reduction in the beneficiary’s Supplemental Security Income payments for one or more months.
Can be distributed to other family members, or even charities, upon the death of the primary beneficiary.
May be terminated if the beneficiary improves and no longer requires Supplemental Security Income payments or Medicaid eligibility — with the remaining balance being distributed to the beneficiary.
Will not have to account (or at least not have to account so closely) to the state Medicaid agency in order to keep the beneficiary eligible.
Will be taxed on its own, and at a higher rate than a self-settled trust — though sometimes it will be taxed to the original grantor, and sometimes it will be entitled to slightly favorable treatment as a “Qualified Disability” trust (what is sometimes called a QDisT).
So what is the difference? It is actually easy to distinguish the two kinds of trusts, though even the names can make it seem more complicated. A self-settled trust is established with money or property that once belonged to the beneficiary. That might include a personal injury settlement, an inheritance, or just accumulated wealth. If the beneficiary had the legal right to the unrestrained use of the money — directly or though a conservator (or guardian of the estate) — then the trust is probably a self-settled trust.
It may be clearer to describe a third-party trust. If the money belonged to someone else, and that person established the trust for the benefit of the person with a disability, then the trust will be a third-party trust. Of course, it also has to qualify as a special needs trust; not all third-party trusts include language that is sufficient to gain such treatment (and there is a little variation by state in this regard, too).
So an inheritance might be a third-party special needs trust — if the person leaving the inheritance set it up in an appropriate manner. If not, and the inheritance was left outright to the beneficiary, then the trust set up by a court, conservator (or guardian of the estate) or family member will probably be a self-settled trust.
That leads to an important point: if the trust is established by a court, by a conservator or guardian, or even by the defendant in a personal injury action, it is still a self-settled trust for Social Security and Medicaid purposes. Each of those entities is acting on behalf of the beneficiary, and so their actions are interpreted as if the beneficiary himself (or herself) established the trust.
Since the rules governing these two kinds of trusts are so different, why didn’t we just use different names for them to start with? Good question. Some did: in some states and laws offices, self-settled special needs trusts are called “supplemental benefits” trusts. Unfortunately, the idea didn’t catch on, and sometimes the same term is used to describe third-party trusts instead. Oops.
We collectively apologize for the confusion. In the meantime, note that the literature about special needs trusts sometimes assumes that you know which kind is being described and discussed, and sometimes even mixes up the two types without clearly distinguishing. Pay close attention to anything you read about special needs trusts to make sure you’re getting the right information.
Want to know more? You might want to sign up for our upcoming “Special Needs Trust School” program. We are offering our next session (to live attendees only) on September 15, 2010. You can call Yvette at our offices (520-622-0400) to reserve a seat.
OCTOBER 14, 2002 VOLUME 10, NUMBER 15 Walter and Geraldine Brown had filed for divorce before first Mr. Brown and then Mrs. Brown became incapacitated. When guardianship proceedings were initiated for both of them, the divorce proceeding was simply dismissed.
Mr. and Mrs. Brown lived in Indiana, where the language of guardianship is a little different from Arizona. What Arizonans would call a conservator is referred to as a “guardian of the estate” in Indiana. Two separate banks were appointed as guardians of Mr. and Mrs. Brown’s respective estates.
During the first months of the divorce action Mr. Brown had been ordered to pay spousal maintenance (better known as alimony) to his wife. After the dismissal of the divorce the bank handling Mrs. Brown’s estate asked the probate court to order the bank responsible for Mr. Brown’s estate to continue to make monthly payments. Mr. Brown was ordered to pay $1,600 per month to Mrs. Brown’s guardian.
Mr. Brown had been married before, and he had two sons from that marriage. Mrs. Brown had no children. Mr. Brown’s will left one-third of his personal property and a life estate in one-third of his real estate to his wife, and the balance of his estate to his two sons.
Mr. Brown died shortly after the spousal maintenance award was entered. His sons filed a probate proceeding, divided the estate in accordance with his will and began the process of closing the estate.
At that point Mrs. Brown’s guardian filed a claim against the estate for spousal maintenance that might be due for the rest of her life. After a hearing the probate court agreed and, considering Mrs. Brown’s life expectancy of 13.9 years, set the amount due from Mr. Brown’s estate at just over $160,000.
Mr. Brown’s sons appealed the judgment. Mrs. Brown’s guardian pointed out the Indiana statute (Arizona has a similar law) that allows child support payments to be reduced to a lump-sum claim against a deceased parent’s estate. In these circumstances, argued Mrs. Brown’s guardian, the court should make a similar calculation for spousal maintenance.
The Indiana Court of Appeals disagreed. In reversing the award the Court noted that there is no statute authorizing such a calculation for surviving spouses, and that the state legislature presumably could have created such a claim if legislators thought it necessary. Mrs. Brown’s spousal maintenance award, however, ended with her husband’s death. Estate of Brown v. Estate of Brown, October 2, 2002.
Although Arizona uses “conservator” rather than “guardian of the estate,” the laws of the two states are similar in other respects. The same result should be expected in Arizona, especially where no divorce proceedings have been finalized.
