Trust Instrument and Essential Terms
“As a general rule, for a trust to arise, there needs to be property, an intention to impress a trust on the property, a purpose, beneficiaries that are ascertained or ascertainable within the period of the rule against perpetuities, title in the trustee, and an absence of merger.”[1]
Medicaid Trusts are express trusts,[2] and are subject to the law of trusts.[3] An initial concept often overlooked is that public benefits rules, like those within the Medicaid program, do not alter the law regarding trusts, property or contract rights. Public assistance rules simply indicate the circumstances under which government assistance is, or is not, available.
In Georgia, an express trust shall be created or declared in writing.[4] The written instrument creating the trust must be signed by the settlor or by an agent for the settlor acting under a power of attorney containing express authorization.[5] The trust instrument must include (i) an intention by the settlor to create a trust;[6] (ii) trust property;[7] (iii) a beneficiary who is reasonably ascertainable;[8] (iv) a trustee;[9] and (v) trustee duties specified in writing or provided by law.[10] Although the law creates certain default rules for trusts, most default provisions can be altered in the trust instrument.[11] When a trust is used in Medicaid planning, it should clearly state the intention of the settlor and should clearly set forth terms and conditions, where applicable, to (i) achieve benefits eligibility for the settlor; and/or (ii) maintain eligibility for the beneficiary.
As a general rule, a trustee is not required to produce the trust instrument to prove the existence of the trust. A certification of the trust is sufficient for that purpose.[12] A person making demand for the entire trust instrument, in addition to the certification, is liable for damages, including court costs and attorney’s fees, if the demand was not made in good faith.[13]
Notes:
1. C. Rounds, Loring – A Trustee’s Handbook (Aspen Pub. 2005), at 20.
2. O.C.G.A. § 53-12-20; O.C.G.A. § 53-12-2(3); O.C.G.A. § 53-12-1(a).
3. Equity, a legal concept originating with church law, equity applies to trusts. In Georgia, jurisdiction over most trust matters is in the superior court. See O.C.G.A. § 53-12-6. The Restatement provides that, with certain express exceptions, the remedies of a beneficiary against the trustee are exclusively equitable. Restatement (Second) of Trusts, § 197. The exceptions where a legal remedy exists are when the trustee has a duty to pay money or to transfer a chattel immediately and unconditionally. Restatement (Second) of Trusts, § 198.
4. Except where the Statute of Frauds is triggers, the common law authorized oral trusts. See Restatement (Second) of Trusts, § 39. In the Medicaid context, oral trusts are not recommended. Although no formal words are necessary to create a trust, see O.C.G.A. § 53-12-21(a), careful drafting is necessary to create those rights and duties necessary to achieve the planning purposes of a Medicaid Trust. See Restatement (Second) of Trusts, § 17, regarding the methods of creating a trust.
5. O.C.G.A. § 53-12-20(a); UTC, § 103(19). In 2011, the Georgia Act was amended to provide that an agent creating a qualified income trust pursuant to 42 U.S.C. § 1396p(d)(4)(B) need not have express authority in the power of attorney to create or declare a trust.
6. Restatement (Second) of Trusts, § 23. The manifestation of intent to create a trust may be by written or spoken words, or conduct; no particular words are required. See Restatement (Second) of Trusts, § 24. The intent to create a trust must be present; intent to create a trust at some subsequent time does not create a trust. See Restatement (Second) of Trusts, § 26.
7. Restatement (Second) of Trusts, § 66 and § 74.Any property that an owner could voluntarily transfer can be held in trust. Restatement (Second) of Trusts, § 78; the corollary is property which cannot be transferred cannot be held in trust. Id. at § 79. This includes personal interests and interests which cannot be transferred for public policy reasons, like Social Security payments. The interest held in trust must currently be in existence. Id. at § 75. It must be definite or definitely ascertainable. Id. at § 76. Partial interests in property, such as life estates or a joint tenancy, may be transferred to trust. Id. at § 77. Interests which are contingent (Id. at § 85) or subject to divestment (Id. at § 84) may be held in trust.
8. Restatement (Second) of Trusts, § 3(4) and §66. No notice of or acceptance by the beneficiary is required to create the trust. Restatement (Second) of Trusts, § 36.
9. “The person holding property is the trustee.” Restatement (Second) of Trusts, § 3(3). Although a trustee is required, no notice to the trustee or acceptance by the trustee is required to create the trust. Restatement (Second) of Trusts, § 35.
10. O.C.G.A. § 53-12-20(b). Although no formal words are necessary to create a trust, they must be sufficiently imperative to show the settlor’s intention to impose enforceable duties on a trustee. O.C.G.A. § 53-12-21(b); Restatement (Second) of Trusts, § 25. Where the property owner creates a trust by declaration or conveyance, consideration is not required. Restatement (Second) of Trusts, §§ 28 and 29. Consideration is required to enforce a promise to create a trust in the future. Restatement (Second) of Trusts, § 30. In some States, a passive trust is subject to the Statute of Uses; however, the Statute of Uses does not apply to active trusts. See Restatement (Second) of Trusts, §§ 67 to 69.
11. In Georgia, O.C.G.A. § 53-12-7 provides that a trust instrument may alter the effect of the trust code except: (1) requirements relating to the creation and validity of express trusts; (2) the effect of rules relating to spendthrift trusts; (3) the power of beneficiaries to modify trustee compensation; (4) the duty of a trustee to administer the trust and exercise discretionary powers in good faith; (5) the effect of a provision relieving a trustee from liability; and (6) the periods of limitation. See also UTC, § 105(b).
12. O.C.G.A. § 53-12-280. The certificate must be signed by each trustee, must state that the trust has not been revoked, modified or amended in any manner that would cause the representations contained in the certification to be incorrect; and need not contain the dispositive provisions of the trust. O.C.G.A. § 53-12-280(c). Subsection (d) provides that a recipient may require excerpts from the trust that designate the trustee and that confer power on the trustee to act in a pending transaction.
13. O.C.G.A. § 53-12-280(g). The certificate is recordable with the Clerk of Superior Court. O.C.G.A. § 53-12-280(i).
