Opinion
No. CV03-179900-S
September 14, 2006
MEMORANDUM OF DECISION
The facts in this case are not in dispute. The Ward in this matter, Janice Roach, is a disabled young lady suffering from cognitive impairment. As a result, she cannot, and in the future, will not be able to support herself or provide herself with the necessities of life, and may, in the future, require Medicaid and State aid in the form of financial assistance and other services available to the mentally retarded.
On January 26, 1999, Janice Roach was participating in an alternative high school program implemented and regulated by the State of Connecticut. On said date, while attending said program, Janice Roach was left unsupervised with an employee of the program who was a registered sex offender. As a result, Janice Roach was sexually assaulted, forced to engage in sexual acts, suffered severe psychiatric trauma, and contracted a sexually transmitted disease.
On April 6, 2001, the Probate Court for the District of Waterbury appointed Thomas Roach and Carol Roach plenary guardians of Janice Roach (Thomas and Carol Roach are the parents of Janice Roach). On May 8, 2001, Thomas Roach and Carol Roach were appointed Conservators of the Estate of Janice Roach. On May 8, 2001, the Conservators filed a lawsuit in the United States District Court, District of Connecticut, against the State of Connecticut and several other Defendants alleging that Janice Roach was sexually assaulted as a result of the malfeasance of several defendants including the State of Connecticut.
Thereafter, settlement negotiations with all Defendants, including the State of Connecticut, yielded an agreement that was subject to the approval of the Waterbury Probate Court and the United States District Court. The agreement provided that Janice Roach would be entitled to a gross settlement of $585,000 and a net settlement payment of $383,276.33, which was to be paid into a Medicaid Qualifying Trust established pursuant to 42 U.S.C. § 1396p(d)(4)(A). The Trust was to be approved by and its implementation supervised by the Waterbury Probate Court. Of the total settlement of $585,000, the state contributed $10,000.
All parties, including the State of Connecticut, approved the settlement agreement and entered into a stipulation. On March 10, 2003, the United States District Court, pursuant to the stipulation, approved the settlement and dismissed the action. By decree dated January 25, 2003, the Waterbury Probate Court approved the compromise and settlement of the claim, approved the establishment of a Medicaid Qualifying Trust for Janice Roach per the terms and conditions of the application and the $383,276.33 was deposited into the trust.
As required by the stipulated order, the Trust was established to comply with the section 42 U.S.C. 1396p(d)(4)(A) of the Omnibus Budget Reconciliation Act of 1993. The trust also provided that the property held in trust will not affect the beneficiary's eligibility for other assistance from public agencies and governmental bodies, other than Medicaid, to which the beneficiary may be entitled.
The Plaintiff/Appellant, the Department of Administrative Services of the State of Connecticut (hereinafter the "Department") acting by and through its Commissioner has appealed from the decree and order of the Probate Court for the District of Waterbury (hereinafter referred to as the ("Probate Court") authorizing the Defendant/Appellees, Carol Roach and Thomas Roach, in their capacity as Co-Conservators (hereinafter collectively referred to as the "Defendant Conservators") of the Estate of Janice Susan Roach, Ward, to establish a Trust for the benefit of their ward and daughter, Janice Susan Roach (hereinafter referred to as "Janice"), and to fund said Trust utilizing certain proceeds the Defendant Conservators received on account of their settlement of the personal injury claim of Janice asserted against certain third-party tortfeasors including the state. The Department has alleged in its Revised Reasons of Appeal that it is, pursuant to the provisions of General Statutes §§ 17b-93, 17b-95, 17b-223(c), 17b-224, 17b-230, 17b-260, 17b-265 and 42 U.S.C. § 1396p, a statutory priority creditor of Janice by virtue of medical public assistance benefits pursuant to the State of Connecticut's plan under Title XIX of the Social Security Act (hereinafter referred to "Medicaid") and cash public assistance benefits pursuant to the Assistance To The Disabled program that have been provided to, or in behalf of, Janice and also on account of Medicaid benefits presently being provided to, or in behalf of, Janice and also on account of aid or care anticipated to be received by Janice in the future from the State of Connecticut pursuant to the Medicaid program, other public assistance programs administered by the State of Connecticut and also other aid, care, treatment or support made available through the State of Connecticut to its citizens, such as Janice, on account of their disabilities, handicaps or needs through facilities or programs administered by the Department of Mental Retardation of the State of Connecticut and other similar state Agencies, as mentioned in General Statutes § 17b-222.
As stated in their Application seeking the Probate Court's authorization to establish and fund said Trust, the sole intent of the Defendant Conservators was to comply with 42 U.S.C. § 1396p(d)(4)(A) which is limited by its language to not affect the beneficiary's eligibility of Medicaid. Contrary to the intent stated in their Application, the language of the Trust proposed by the Defendant Conservators expresses an intent that goes beyond the limited purpose of maintaining Janice's Medicaid public assistance eligibility. Indeed the Trust document, in contravention of Connecticut law, states the Defendant Conservators' intent, as settlors of said Trust, to create and constitute a legally invalid spendthrift trust established and funded by the settlor (Janice) for the settlor's (Janice's) own benefit. As more particularly described in Paragraphs 11A through 11E of the Department's Revised Reasons Of Appeal, the Trust's language clearly and unequivocally expresses the intent to insulate or shelter Janice's own assets from the reach of her creditors, specifically including the Department, by diminishing and eliminating the availability of the Trust assets for payment of the Department's present and future statutory priority creditor's claims. The Trust language also impermissibly attempts to make the assets held by the Trustees unavailable for the use of Janice, with the intent to render Janice eligible for all forms of public assistance benefits and programs, other than and in addition to public assistance benefits under the Medicaid program, and also to render Janice eligible for the receipt of any other aid, care, treatment or support that may be available from the State of Connecticut to its citizens, such as services from the Department of Mental Retardation. All of these are legally impermissible Trust provisions that result in a financial detriment and loss to the Department.
In their defense the Co-Conservators urge that the cases cited by the plaintiff in support of its position do not address the issue in this case. They state at page 4 of their brief that:
The issue here is whether when the State is a Defendant in a tort claim brought by a Ward, and the State pays to settle the claim and agrees that the settlement funds are to be placed into a Trust, if the State can thereafter claim it is entitled to take credit for said funds when determining whether the ward qualifies for other State Aid.
First of all certain statements in the defendants' brief should be clarified. On page 3 of their brief the defendants claim, "The State contends that although it was a Defendant and paid the settlement funds that are the corpus of the Trust in issue in it is a statutory priority creditor to the Ward pursuant to . . ." The State did not fund the entire corpus of the trust. There were multiple defendants in this case and of the total settlement of $585,000, the State only paid $10,000.
The main thrust of the defendants' case is set forth in their Special Defense. Although there is only one Special Defense, they seem to have included four separate claims, 1) the State has waived its claim when it stipulated to the dismissal of the Federal action, 2) the State's public policy and the equitable maxim that a tortfeasor should not be permitted to profit from their wrong, 3) the doctrine of unclean hands, and 4) the State's effort to apply its statutory lien rights offends the Ward's constitutional right of redress protected by Article 1 § 10 of the Constitution of the State of Connecticut.
The defendants do not take issue with the cases cited by the plaintiff and what they stand for. Their position simply is that the added fact that the State was one of the settling tortfeasors in the underlying tort action changes everything. Let us begin by reviewing the cases acted by the plaintiff in support of its position.
The Connecticut Supreme Court in Greenwich Trust Company v. Tyson, 129 Conn. 211 (1942) first stated Connecticut's strong public policy prohibiting self-settled spendthrift trusts. Further, General Statutes § 45a-655(e)(4) specifically prohibits a probate court from authorizing the transfer of a ward's assets that will cause a ward to qualify for federal or state aid, except when the transfer is intended to qualify or maintain the ward's eligibility for Medicaid public assistance benefits. This exception is in accord with the provisions of Federal law, 42 U.S.C. § 1396p(d)(4)(A). Although General Statutes § 45a-655(e)(4), as mentioned above, prohibits transfers of assets that qualify a ward, such as Janice, for federal or state aid, that same statute also recognizes the authority of the federal statute and, therefore, permit the Probate Court to authorize the creation and funding of a trust that complies with the provisions of 42 U.S.C. § 1396p(d)(4). However, the authorization of the federal and state statutes only extends to Medicaid public assistance eligibility, and to no other purpose. Notwithstanding the stated intent of the Defendant Conservators in their Application to the Probate Court and the provisions of the relevant federal and state statutes, the Trust document submitted under such Application includes language that extends beyond those isolated terms or words related to Medicaid public assistance eligibility.
In Marjorie Parkhurst, Conservatrix v. Patricia Wilson-Coker, CV-02-0514874-S, 2003 Conn.Super LEXIS 1097, (Judicial District of New Britain, April 2, 2003), the Court (Murray, J.) ( 34 Conn. L. Rptr. 505) had the opportunity to review a trust containing pertinent language essentially the same as the objectionable language of the Trust which is the subject of this appeal. In considering the relevant provisions of that trust, the Court found that the trust's terms clearly extended beyond Medicaid eligibility and are "for the purpose of establishing or maintaining his eligibility to receive State supplemental assistance payments" and, therefore, the Court held that the trust violates State statute and is impermissible. Id. At 17-18. Because the Trust in this appeal also clearly intends to establish and maintain Janice's eligibility for all forms of State public assistance and other aid and care, it too violates those same statutes and is impermissible.
In Forsyth v. Rowe, 226 Conn. 818 (1993), our Connecticut Supreme Court held that the actions of a conservator are the actions of the conservator's ward. Therefore, when a conservator creates a trust utilizing the assets of the ward, it is the ward who is the settlor, and not the conservator. Id. At 826. In the instant case, the Defendant Conservators seek to fund the proposed Trust utilizing the proceeds derived from the settlement of Janice's claim against third-party tortfeasors. Therefore, as a matter of law Janice, and not the Defendant Conservators, is both the settlor and the beneficiary of the proposed Trust. These facts establish that the Trust proposed by the Defendant Conservators is a self-settled spendthrift trust.
This appeal does not involve the act of a private individual establishing the Trust in his or her attorney's offices. In the instate case the Probate Court, acting through its Defendant Conservators, is approving, establishing and creating this Trust. This appeal, in actuality, involves the actions of the Probate Court. A court of probate is a court of limited jurisdiction and has only those powers as are given to it by statute, or as may be reasonably inferred or implied in order to carry out its statutory powers. Department of Social Services v. Saunders, 247 Conn. 686, 708 (1999). Because it is a court of law, a probate court must insure that any trust it is called upon to review, for purposes of authorizing such trust's creation, complies with all laws, including the public policy of the State of Connecticut.
The plaintiff contends Congress and Connecticut's legislature have expressed their determination that trusts established by a settlor for the settlor's own benefit and funded with the settlor's assets are not allowed to shield those assets from reimbursement for public entitlement or assistance programs, except Medicaid. It is, therefore, the law in Connecticut that the broad and expansive language for this Trust is violative of Connecticut law and public policy. When considering the approval of the Trust, the Probate Court may not gloss over or ignore the existing law or public policy of the State of Connecticut nor may the Probate Court authorize the Defendant Conservators to do something which is contrary to the law, even though the Defendant Conservators wish it.
State of Connecticut v. Catherine Henneberry, CV-02-0098667-S, 2003 Conn.Super. LEXIS 3464, (Judicial District of Middlesex, December 16, 2003) ( 36 Conn. L. Rptr. 202) is a case squarely on point to the issues of this appeal. The Henneberry trust likewise contained language seeking to shelter the ward's assets in a self-settled spendthrift trust intended to enable the ward to be eligible for all forms of State assistance and also to insulate the ward's assets from the claims of his creditors including the State. The Henneberry trust, like the Trust in this appeal, was approved by the probate court and that approval was appealed. Joint motions for Summary Judgment were filed. In sustaining that appeal, the Henneberry court invalidated the trust holding that such trusts are contrary to law.
The court, Aurigemma, J., concluded that the proposed trust violates the Supreme Court's proscription against self-settled spendthrift trusts and violates CGS § 45a-655(e)(4)'s proscription against transfers which seek to qualify a ward for federal or state aid other than Title XIX medical assistance (Medicaid). The court will quote extensively from that opinion.
"Connecticut case law expresses the strong public policy that proscribes self-settled spendthrift trusts, and Connecticut General Statutes § 45a-655(e)(4) proscribes transfers which seek to qualify a ward for federal or state aid. The only exception to such proscription pertains to a transfer to a trust made to qualify or maintain eligibility for title XIX medical assistance (Medicaid)."
"The only intent which the defendant stated in her Application seeking the Probate Court's authorization to create and fund a Trust wan to maintain Kevin Henneberry's eligibility for Title XIX medical assistance (Medicaid), as is permitted by 42 U.S.C. § 1396p(d)(4)(A). The Probate Court is permitted by Connecticut General Statutes § 45a-655(e) to authorize the creation and funding of such a Trust if it complies with the provisions of 42 U.S.C. § 1396p(d)(4). The federal statute is solely concerned with Medicaid eligibility, and not with any other purpose."
"The plaintiff does not take issue with the Probate Court's approval of the terms related to Medicaid, rather, he objects to the fact that the Probate Court approved the entire Trust. The plaintiff points out that the Probate Court's decision dealt only with whether the Trust met the requirements of 42 U.S.C. § 1396p(d)(4)(A). It did not address any other objections to the Trust language. However, the Probate Court did not approve only that portion of the Trust that related to Medicaid, it approved the entire Trust as written."
"This Court, which is sitting as a Court of Probate for the purposes of this Appeal from Probate, is not bound in any way by the Probate Court's ruling, and is adjudicating this matter "de novo." Kerin v. Stangle, 209 Conn. 260, 264, 550 A.2d 1069 (1988). This court finds that the Trust included language that went far beyond that needed to maintain Kevin Henneberry's eligibility for Medicaid, and in so doing, violated Connecticut law and public policy."
"Section 2.1(1) of the proposed Trust, set forth above clearly states an intention to allow the ward, Kevin Henneberry, "to remain eligible for any and all state, federal and private entitlement or assistance programs . . . without jeopardizing the present or future eligibility of said Kevin for any such programs . . . without subjecting the Trust funds to liability for repayment respecting any past, present or future eligibility for any such program." (Emphasis added.)
"The foregoing language violates the provisions of Connecticut General Statutes § 45a-655(e), which provides:"
(e) Upon application of a conservator of the estate, after hearing with notice to the Commissioner of Administrative Services, the Commissioner of Social Services and to all parties who may have an interest as determined by the [Probate] court, the [Probate] court may authorize the conservator to make gifts or other transfers of income and principal from the estate of the ward in such amounts and in such form, outright or in trust, whether to an existing trust or a court-approved trust created by the conservator, as the court orders or for the benefit of individuals, including the ward, . . . Such gifts or transfers . . . shall be authorized only if the court finds that: . . . (4) the purpose of the gifts is not to diminish the estate of the ward so as to qualify the ward for federal or state aid or benefits.
"The provisions of 42 U.S.C. § 1396p(d)(4)(A) sets forth the provisions that must be included in a Trust in order for that Trust to appropriately possess a settlor's assets, and for the settlor to still be eligible for Title XIX medical assistance."
"The proposed Trust language also contravenes the long and well established public policy of Connecticut's law in that the proposed language purports to create a spendthrift trust with the settlor's own assets for the settlor's own benefit."
"The Trust in question could have been drafted to refer to and maintain just Medicaid eligibility as was the trust in Department of Social Services v. Saunders, 247 Conn. 686, 724 A.2d 1093 (1999). Had it been so drafted, the plaintiff would not have appealed. However, the plaintiff's failure to appeal from the Probate Court's approval of the Trust in question could have either removed or seriously impaired its ability to object to Kevin Henneberry's future attempts to qualify for social welfare programs funded by the plaintiff or to exempt the Trust assets from the plaintiff's claims as a creditor of the Estate of Kevin Henneberry."
Based on the cases cited the trust in question is illegal and contrary to state and federal law. The only thing that can save it would be the success of the Special Defense in any of its particulars. As with all Special Defenses the defendants have the burden of proof in establishing them. Although they are set forth in a single Special Defense, to which no motion or objections were made, there are actually four separate claims which the court will discuss separately.
The first claim is that the state by approval of the settlement agreement and the dismissal of the federal action has somehow waived its rights in this matter. That is certainly not what happened and the defendants have failed in their burden. All the state agreed to was a settlement and the creation of a trust that only protected the ward's eligibility for Medicaid benefits. That's not what it got.
The next two claims can be addressed together. The defendants claim that the state's effort to protect itself as a creditor for assistance provided to the ward other than Medicaid is precluded by the state's public policy, the doctrine of unclean hands and the equitable maxim that a tortfeasor should not be permitted to profit from their wrongdoing. These claims are premised on the fact that the state was a named defendant in the underlying tort action and contributed $10,000 to the overall settlement of $585,000.
The defendants cite several cases in support of these principles. All of the cited cases involved individual parties other than the State of Connecticut. The case that it seems to rely most heavily upon is Hutchings v. Hutchings, 93 CBAR-0179 (1993) an action involving a divorce and a tort action between husband and wife. The wife recovered damages for injuries caused to her by the husband. He thereafter attempted to claim some part of the victim spouse's tort recovery as part of the marital estate. The court determined that the tort recovery was to be classified as separate property and exempt from any claim by the spouse. No one could possibly disagree with that position.
The situation here is entirely different. Here the state is not an individual or entity trying to put money into its own pocket for its personal gain. The money it pay benefits from comes directly from federal and state taxpayers. The law should protect the State's interest when it comes to seeking reimbursement for benefits it paid to the ward herein, other than Medicaid payments. The court finds that this claim in the Special Defense has not been proven.
The final claim of the defendants is that Article 1. § 10 of the State constitution somehow chills their right to seek legal recourse. That is not so and that's not what happened in this case. Just the opposite happened. This element of the Special Defense has not been proven.
This court concludes that the material and substantive provisions of the Trust in question are contrary to federal statute, and the statutes, case law and public policy of the State of Connecticut and that this Trust cannot be legally sustained. The order of the Waterbury Probate Court which order granted the defendant's Application and authorized the creation and funding of the Lifetime Advocacy Trust for Janice Roach is hereby reversed. Said application is denied and the creation and funding of said Trust is disallowed.