In McGee v. State Dep’t of Health Care Servs., 2023 Ca. App. LEXIS 409 (Cal. Ct. App., 3d Dist. 5/24/2023), Diana McGee established a special needs trust under the provisions of 42 U.S.C. § 1396p(d)(4)(A). This followed a malpractice action and settlement. Dianna suffered from short bowel syndrome, which impaired her ability to care for herself.

Initially, the trustee submitted accountings that were approved by California’s Medicaid agency. However, when successor trustee, Daniel McGee, filed accountings beginning in 2016, the Department objected to a number of expenditures. The trial court focused on one sentence in the trust stating that which are related to and made reasonably necessary by the Beneficiary’s disabilities, ignoring the phrase “including without limitation.”

The Court of Appeals found that reference to the trust itself is paramount. When a trustee’s discretion is challenged, the basic inquiry is always whether the trustee acted in a state of mind contemplated by the trustor. The trustor’s intent is discerned from the trust instrument. The trustor’s intent “as expressed in the instrument controls the legal effect of the dispositions made in the instrument.”

Interpretation of a trust is a legal question reviewed de novo. The trust document supplies the trustor’s intent and the court stated “[w]e interpret the instrument to give every expression some effect and not render any expression inoperative.” “We construe all parts of the instrument in relation to each other to form, if possible, a consistent whole.” “We give the instrument’s words their ordinary and grammatical meaning unless the intention to use them in another sense is clear and their intended meaning can be ascertained.”

The Court founds the trustor’s intent was to construe special needs broadly, citing commentary supporting that interpretation. A California treatise stated: “he term ‘special needs’ is distinguished from ‘basic needs,’ that is, needs for food, shelter, and medical care, which public benefits like SSI and Medi-Cal are intended to cover. ‘Special needs’ then encompasses the very broad range of everything else a human being needs in order to live, thrive, and realize his or her potential in life.”” The Court also found its interpretation consistent with the POMS, specifically POMS SI 01130.40C.1.

The case was remanded with instructions to address allegations of the Trustee’s abuse of discretion in light of the Court’s finding that “special needs should be broadly interpreted consistent with the entire trust instrument.