A Trustee Has a Duty to Preserve Trust for Beneficiaries, Not to Ensure Payment of Alimony to Grantor’s Ex-Wife

An Iowa appeals court recently ruled that a trustee of his father’s trust is not liable for interference with a contract when he stopped paying his father’s ex-wife alimony because his duty was to preserve the estate for the beneficiaries of the trust, not to ensure that she received alimony. Brownell v. Johnson (Iowa Ct. App., No. 19-0847, Nov. 4, 2020).  The case is an excellent example of the complications that arise in planning, and the complexity of analyzing the legal duties of fiduciaries, in this case a son who acted as both a trustee and an agent under a power of attorney.  

Phillip Johnson and Kathleen Brownell were a married couple when Phillip was diagnosed with cognitive impairment. In anticipation of applying for Medicaid, Phillip transferred all of his assets to a trust with his son, Scott Johnson, as successor trustee. Ms. Brownell filed for divorce, and under the divorce settlement, Ms. Brownell agreed to have no interest in the trust and Phillip agreed to pay her alimony. 

Phillip suffered a farm injury in July 2015, which injury coincided with Phillip’s mental decline.  He transitioned to a nursing home that same month. He continued to live there at the time of the underlying trial in January 2019. Phillip was at first not eligible for nursing home compensation through Medicaid because the Johnson Farm Account Trust had been set up within five years. Phillip became eligible in July 2017—when the five-year lookback period expired. Phillip paid Ms. Brownell alimony until he entered a nursing home, at which point Scott began managing his affairs as agent under a power of attorney.

Ms. Brownell sued Scott for intentional interference with a contract for failing to make the alimony payments. Scott testified that his duty as trustee was to qualify Phillip for Medicaid and preserve the family real estate, not to pay Ms. Brownell who had, as a result of the divorce, become a creditor of Phillip. The parties stipulated that she was owed $25,200 in alimony as of the trial. Kathleen further testified that she borrowed $2500 from a daughter, $4500 from another daughter, and $7698 from her son to live on while she was not receiving her alimony payments. She also testified she incurred about $19,000 in attorney fees and had taken $15,000 in cash value from the life 6 insurance policy to keep the payments up to date on that policy. Kathleen asked for $74,000 in damages. A trial was conducted and the jury found for Ms. Brownell, awarding her damages. 

Scott appealed. 

It is interesting to note that on appeal, the Iowa Academy of Trust and Estate Counsel sought leave to file an amicus brief, which the Iowa Supreme Court granted.  The amicus’s stated purpose in filing an appellate brief was to “assure that [our] disposition of the appeal does not result in the adoption of a standard that the trustee of a trust owes any duty to the creditor of a beneficiary of a trust when the trustee is making distributions to other beneficiaries of the trust in compliance with terms of the trust.” Brownell at p. 2-3. The Iowa Court of Appeals reversed, holding that Scott cannot be held liable under an interference with contract theory as a matter of law. The court ruled that “Scott, acting as the trustee, had to make decisions that were best for the beneficiaries without concerning himself whether those actions interfered with Phillip’s ability to make his alimony payments.” The court similarly found that Scott’s motives of “preserving assets for his father’s care and upholding the estate plan” were not improper under his role as agent. 

The court wrote that 

"...the trust and trustee owed no duty to Kathleen as a creditor of a trust beneficiary (Phillip). “Persons who may incidentally benefit in some manner from the performance of the trust are not beneficiaries of the trust and cannot enforce it.” Restatement (Third) of Trusts § 48 cmt. a (Am. Law. Inst. Oct. 2020 Update). The Iowa Academy of Trust and Estate Counsel raised this concern. And the amicus implores us to find that Scott had no duty to Phillip’s creditors when he, acting in his capacity as trustee in compliance with the terms of the trust, decided what distributions to make and to whom. The undisputed duty of loyalty of a trustee is to the beneficiaries of the trust, not the creditor of any beneficiary. Restatement (Third) of Trusts § 78(1).

First, both Kathleen and Scott confirmed that the trust purpose was twofold. One purpose was to qualify Phillip for Medicaid benefits, which required Phillip to maintain a limited net worth of $2000 and a limited monthly income. The second purpose was to ensure that Phillip’s sons retained the family real estate. To effectuate this purpose, Kathleen admits in her brief that after all real estate was transferred to the trust she “disclaimed and surrendered any and all interest she may have in the Trust.” Also with those goals in mind, Scott maintains he fulfilled his obligations as trustee in the manner he was supposed to; he stopped making income distributions to Phillip so that his father could remain eligible for Medicaid nursing home coverage. Then after the qualification for Medicaid, he transferred the trust assets to the beneficiaries to preserve their interests in the family real estate. Scott notes that he relied on the advice of several attorneys in taking these actions.

.     .     . 

Kathleen acknowledged the trust goals that Scott followed. But at trial and in her brief, she argues in his role as trustee, his failure to pay her interfered with her contract between herself and Phillip. But Kathleen is not a creditor of the trust. Even the jury found the trust owed her nothing. Thus, Scott, operating as trustee, owed Kathleen no fiduciary duty. See Iowa Code §633A.4202(1) (“A trustee shall administer the trust solely in the interests of the beneficiaries, and shall act with due regard to their respective interests.”).

[Second], drilling down to the specific improper conduct of Scott as agent, Kathleen argues Scott “felt entitled to pick and choose which bills ultimately got paid.” It then follows, under Kathleen’s theme, Scott was not acting on behalf of or in Phillip’s best interest. And Kathleen emphasizes that Scott testified he did not like that his father was ordered to pay alimony because he thought it was unfair. So does refusing to pay the principal’s creditor amount to improper conduct by the agent under an interference-of-contract claim? If we step back from this case, we would plow new ground to hold that an agent acting under a power of attorney must pay all bills of the principal or risk a claim of interference with a contract by a creditor. An agent, acting for the principal, might decide to prioritize which bills to pay, and if a creditor finds the action wrongful, the remedy is breach of contract. The motives of Scott in preserving assets for his father’s care and upholding the estate plan, which all parties acknowledged in this case, is not improper under his role as agent. Scott exercised financial discretion to protect his father’s legal rights, and Kathleen failed to prove his sole motivation was to defeat the alimony contract. [citation omitted, emphasis added]. Thus, the record does not support a finding of wrongful conduct against Scott as an agent for Phillip.     

The court noted that Ms. Brownell still has a breach of contract claim for alimony against Phillip. 

Feds Fail to Unlock Nursing Home “SLUSH FUND” to Fight COVID19

A Gray Media investigation has blown the lid off of one the nursing home industry’s most guarded secrets—it’s called the Civil Monetary Penalty Reinvestment Fund.

Nearly half a billion dollars of federally collected nursing home fines have flowed into the fund and now these monies are reportedly languishing in state coffers, accruing interest instead of being used to battle the coronavirus pandemic.  

Families for Better Care’s executive director Brian Lee calls the fund nothing more than a “slush fund” for nursing homes.

He says owners tap into the fund so they can offset operational costs and pad profits all in the name of so-called improvement.  He recalled one instance when “a nursing home that had been fined hundreds of thousands of dollars received a $27,000 grant to buy a bread-making machine, to build a snack stand and to train staff on how to stock the shelves.”  Lee visited the facility and was surprised by what he discovered.  “I expected the aroma of fresh-baked break to greet me when I walked in the door. I got the exact opposite,” he said. “I was immediately bowled over by the smell of urine and feces.”

Lee argues that the fund should be unlocked immediately by the Trump administration so nursing homes can acquire molecular rapid testing machines to prevent COVID19 spread, not so they can be held in reserve for some unhatched profit scheme.  

And the industry largely agrees. 

Mark Parkinson, the American Health Care Association’s president and chief executive officer, told Gray Media that the funds “should be utilized to improve patient care.”  

Nursing home fines should become part of the pandemic solution by “curbing infection-related problems, residents' falls and accidents, and abuse and neglect” rather than, as Parkinson describes, “frivolous” improvement projects that “should have been paid for through the nursing homes’ annual budget.”

But, there is this: CMS last year approved grants to nursing homes to buy an antique popcorn machine, create song playlists for residents and build gardens.  Awesome.

Good Idea: Rhode Island Lifespan Respite Project Work Initiative Increases Access to Respite Care While Training Nursing Students

The Rhode Island Lifespan Respite Project at the Rhode Island Office of Healthy Aging implemented a workforce development initiative, CareBreaks, to match student nurses with low to moderate income families who have no access to subsidized respite care. This model provides free respite care with an increased supply of volunteer respite providers and offers important hands-on experience for nursing students approaching career field entry. The Project developed a Support Family Caregivers Toolkit to assist interested nursing programs and other organizations replicate a similar respite clinical experience program. Marketing materials include a flyer and a video. 

The project recently received national attention from recognition ARCH National Respite Network and Resource Center. Hopefully this type of program will soon be a common solution across the country. 

Music and Memory Program Means Fewer Meds, Better Behaviors

Photo 174795833 © Ljupco | Dreamstime.com

Researchers from the University of California, Davis documented in the August issue of JAMDA the impact of Music and MemorySM (M&M), a non-pharmacological intervention, on nursing home residents with dementia.

The Impact of Music and Memory on Resident Level Outcomes in California Nursing Homes studied 4,107 residents in 265 nursing homes over a three-year period. Debra Bakerjian, PhD, APRN, RN, and her team found that M&M was associated with reductions in psychotropic medications, reduced behaviors, improved mood, less pain, and fewer falls. It is the largest study of M&M to date.

The odds of antipsychotic use declined by about 11%, of antianxiety medications by 17%, and antidepressants by 9% per quarter. In addition, the odds of residents exhibiting aggressive behaviors declined by 20% per quarter, depressive symptoms by 16%, reported pain by 17%, and falls by 8%.

The authors found the reduction in antipsychotics to be “particularly noteworthy, given the documented significant reduction in the use of antipsychotics statewide before the start of this study.”

The M&M program advocates the use of personalized music for older adults with dementia and other cognitive or behavioral symptoms with the goal of improving their quality of life. According to the authors, “While there are a few proven non-pharmacological interventions, activities and music therapy have been shown to decrease overall agitation in nursing home residents.” They cited a 2018 systematic review and meta-analysis that found receptive music therapy, including listening to the participant’s favorite music, was more effective at decreasing agitation and behavioral problems than interactive music therapy.

The authors found that M&M was frequently housed within in the activities department “with limited involvement from other departments.” However, they noted, “Encouraging other departments, especially nursing, to use M&M with residents could increase the frequency and duration of use and overall successful sustainment of the program.”

The project was supported by the Centers for Medicaid & Medicare Services Civil Money Penalty funds as well as the National Institutes of Health’s National Center for Advancing Translational Sciences. It was sponsored by the California Association of Health Facilities.

Click here for more information on the findings above and more details about the study.

Judge Can Not Impose an ‘Unusual’ Condition on a Reversal of a Default Judgment in a Nursing Home Breach of Contract Lawsuit

Nursing homes are proficient in protecting themselves from risk of loss where Medicaid is concerned.  Spouses and children of the Medicaid applicants often find themselves being sued to recover for delays in seeking and obtaining Medicaid.

Courts and the law are often sympathetic to the cause of the nursing home, particularly when admission agreements include provisions making family responsible.  In a recent case, the "sympathy" crossed a line towards activism on behalf of the institution.  Fortunately, on appeal, the ship of equity was righted.

George Brown entered a nursing home and signed an admission agreement, agreeing to apply for Medicaid benefits to pay for his care. Mr. Brown did not submit the necessary information to complete his Medicaid application, so his application was denied. The nursing home sued Mr. Brown and his wife, Gloria Brown, for breach of contract and her for lack of spousal support. Ms. Brown appeared at the initial hearing and argued that Mr. Brown had dementia and did not knowingly sign the agreement. In addition, she claimed he was mistreated at the nursing home.

The judge informed Ms. Brown that she needed to file an answer to the nursing home’s complaint. Ms. Brown never filed an answer, and the judge entered a default judgment against her. Six months later, Ms. Brown filed a request to remove the default judgment because she had been in the hospital and therefore unable to answer the Complaint. The judge granted her request to vacate the default judgment on the condition that she waive any claims against the nursing home to the extent the monetary recovery amount exceeded the amount Mr. Brown owed to the nursing home. The court, in effect, protected the nursing home from any risk of losing more than it was owed! Ms. Brown refused the condition and appealed.

The Massachusetts Appeals Court reversed, holding that the condition imposed by the judge was inappropriate.   Care One Management, LLC v. Brown (Mass. Ct. App., No. 19-P-1165, Oct. 7, 2020). Because the judge did not find that the nursing home suffered any prejudice from the default or the delays, there existed no authority for the court to , in essence, protect the nursing home. According to the court, although the judge made passing reference to Ms. Brown’s delay in fighting the default judgment, the judge “did not explain how or why such factors impacted [the nursing home’s] claim, and did not evaluate and explain whether and to what extent [the nursing home] suffered any prejudice, before imposing the unusual condition on the removal of the default judgment.”

The legal system worked to restore balance in this case.  The wife, though, has attendant cost and expense for which she will never be compensated.  This is just one unavoidable cost of institutional care, dutifully protected by the legal system.