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Dep't of Mental Health v. Phillips





Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County, the Hon. Richard L. Curry, Judge, presiding.


The Department of Mental Health and Developmental Disabilities (Department) filed a petition in the circuit court of Cook County seeking reimbursement from Kevin E. Phillips (respondent) as the trustee of a spendthrift trust established for the benefit of his brother, Steven, a mentally handicapped young man. Following the filing of cross-motions for judgment on the pleadings, the circuit court granted the Department's motion for summary judgment and denied the motion of the respondent. The court denied also the respondent's petition for reformation of the trust, which, if allowed, would have explicitly created a fund for Steven's maintenance and care supplemental to the care provided at State expense. The appellate court reversed, holding that reformation of the trust was warranted because the occurrence of an unforeseen contingency had operated to frustrate the intent of the settlor. (133 Ill. App.3d 337.) We granted the Department's petition for leave to appeal under our Rule 315 (94 Ill.2d R. 315(a)).

Steven Phillips, who is now 31 years of age, has required institutional care throughout his life. Since November 1976 he has resided at the Waukegan Developmental Center, where all his educational, medical and general welfare needs have been provided by the Department. As of June 1, 1983, the total expenditure by the Department for Steven's support was $73,474.40, and these expenditures continue at a rate of $948 per month.

On February 15, 1974, Sue Phillips established an inter vivos trust for the benefit of Steven, her son. At that time Steven was 18 years old and under our law legally an adult. The trust, where it is pertinent here, provides:

"2.01 Use of Income and Corpus. The Trustee is authorized, in his sole and absolute discretion, at any time and from time to time, to pay to or apply or expend for the benefit of STEVEN so much or all of the income and corpus of STEVEN'S TRUST as the Trustee deems necessary or advisable for the beneficiary's education (including a college or a professional education), maintenance, medical care, support, general welfare and comfortable living. Upon STEVEN'S death the Trustee, subject to the provisions of Paragraph 2.02 hereof shall distribute STEVEN'S TRUST to the then living issue of my former husband EDWARD PHILLIPS, per stirpes."

At present, Steven's two brothers, one of whom is Kevin Phillips, the trustee, and Steven's two minor nephews are the only remaindermen. The trust contains a spendthrift clause which generally would protect the trust income and corpus from the claims of creditors or legal process.

Trustee Phillips has not disbursed funds from the trust to the Department to compensate for the services provided Steven. All income from the trust corpus has been reinvested, and the unaccumulated income and corpus of the trust amounted to approximately $75,000 at the time the Department filed this action.

The Department argues that, under section 5-105 of the Mental Health and Developmental Disabilities Code (Ill. Rev. Stat. 1983, ch. 91 1/2, par. 5-105), the estate of a recipient of Department services is subject to a services charge at a rate determined in accordance with the Code and, the Department says, the trust assets should therefore be used to reimburse the Department for Steven's care at the Waukegan Developmental Center. The respondent's answer to this is that the trust is not part of Steven's estate for purposes of section 5-105, and he asserts that, in any event, it was not an abuse of the absolute discretion given him in the trust instrument to refuse to disburse trust funds to the Department.

Section 5-105 states:

"Each recipient of services of the Department, and the estate of such recipient, is liable for the payment of sums representing charges for services to such recipient at a rate to be determined by the Department in accordance with this Act. If such recipient is unable to pay or if the estate of such recipient is insufficient, the responsible relatives are severally liable for the payment of such sums, or for the balance due in case less than the amount prescribed under this Act has been paid. * * * No parent is liable under this Act for the services charges incurred by a child after such child reaches the age of majority." Ill. Rev. Stat. 1983, ch. 91 1/2, par. 5-105.

In Department of Mental Health & Developmental Disabilities v. First National Bank (1982), 104 Ill. App.3d 461, the appellate court held that, under section 5-105, the beneficial interest of a spendthrift trust is to be considered part of the estate of a recipient of Department services. A settlor's purpose in establishing a spendthrift trust is to provide for the support and care of the beneficiary while protecting him from his own improvidence. It is sensible to hold that the expense to the Department of caring and supporting a recipient of its services should be a sound ground for a claim by the Department against the beneficiary of a spendthrift trust. We agree with the court's determination that a spendthrift trust may be considered under the section as part of the estate and observe that such a holding is consistent with the "long-standing policy in this State to seek payment for its costs from those recipients of services who can afford to pay and thereby to lessen the burden on taxpayers." 104 Ill. App.3d 461, 466. See also Kough v. Hoehler (1952), 413 Ill. 409, 418-19.

Too, the court in First National Bank rejected the contention that a trustee may avoid paying for or contributing to the support of a beneficiary under section 5-105 simply because the terms of the trust grant the trustee absolute discretion in distributing the income and corpus of the trust. (104 Ill. App.3d 461, 464-65.) The court cited with approval Estate of Lackmann v. Department of Mental Hygiene (1958), 156 Cal.App.2d 674, 320 P.2d 186, where it was stated that "`such discretion is not an arbitrary one and one which would permit the trustee to provide no support whatever for [the beneficiary] and to throw him on the charity of others or of the State.' 156 Cal.App.2d 674, 678, 320 P.2d 186, 188-89." 104 Ill. App.3d 461, 465.

As an alternative position, trustee Phillips filed a petition for reformation of the trust so that, as reformed, the trust would provide that the trust assets are not "made available to provide primary support for Steven," but rather would be reserved to finance care for Steven beyond that provided by public funds. Specifically, the respondent seeks to amend paragraph 2.01 to grant the trustee discretion to distribute funds to procure specialized medical or dental treatment unavailable through the Department facilities, to seek private rehabilitative and educational training, to provide recreational ...

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