Clarence Gaines, as the Executor of the Estate of Janie Gaines, Deceased, Respondent,v.City of New York, et al., Defendants, Department of Social Services of the City of New York, Appellant.

Brief

N.Y.May 30, 2017

Reproduced on Recycled Paper To be argued by: MICHAEL PASTOR Bronx County Clerk’s Index No. 14471/03 New York Supreme Court Appellate Division: First Department CLARENCE GAINES as the Executor of the Estate of JANIE GAINES, Deceased, Plaintiff-Respondent, - against - CITY OF NEW YORK, NEW YORK CITY TRANSIT AUTHORITY, METROPOLITAN TRANSPORTATION AUTHORITY, MANHATTAN AND BRONX SURFACE3 TRANSIT OPERATING AUTHORITY, and EVERCARE HOME HEALTH SERVICES INC., Defendants-Respondents. -- DEPARTMENT OF SOCIAL SERVICES OF THE CITY OF NEW YORK Claimant-Appellant. REPLY BRIEF FOR THE CLAIMANT-APPELLANT DEPARTMENT OF SOCIAL SERVICES OF THE CITY OF NEW YORK FAY NG MICHAEL PASTOR of Counsel December 18, 2015 ZACHARY W. CARTER Corporation Counsel of the City of New York Attorney for the Claimant-Appellant 100 Church Street New York, New York 10007 212-356-0838 or -0843 mpastor@law.nyc.gov TABLE OF CONTENTS Page i TABLE OF AUTHORITIES ...................................................................... iii PRELIMINARY STATEMENT .................................................................. 1 ARGUMENT ............................................................................................... 3 RESPONDENTS FAILED TO REBUT THE POINT THAT THE GAINES TRUST IS A VALID SUPPLEMENTAL NEEDS TRUST ................................................................................. 3 A. The Gaines SNT is not a “Lifetime Trust.” ................................. 5 1. HRA’s reliance on EPTL § 1-2.20 which excludes trusts created by the court in its definition of “lifetime trusts” is proper. ................................................................................... 5 2. EPTL § 1-2.20 expressly excludes trusts established by a court from the definition of lifetime trusts. ......................... 6 3. A SNT established by a court pursuant to 42 U.S.C.S. § 1396p(d)(4)(A) and SSL § 366(2)(b)(2)(iii)(A) cannot be nullified by apparently conflicting State requirements. ...... 11 4. The lifetime trust rules are preempted by 42 USC § 1396p(d)(4)(a) and SSL § 366(2)(b)(2)(iii)(A), to the extent the lifetime trust rules pose an irreconcilable conflict. .................................................................................... 14 B. No Further Acts of the Trustee or Gaines’s Attorneys were Required to Make the Gaines SNT Valid. ....................... 17 1. The establishment of the Gaines SNT did not require execution of the trust by the designated trustee. ................. 17 TABLE OF CONTENTS (cont’d) Page ii 2. The July 2010 order funded the Gaines SNT with the proceeds of the underlying negligence action. ...................... 19 3. Actual delivery of funds to a particular account was not a necessary precondition to the trust’s validity .................... 21 C. All Apposite Authority Supports HRA, and Respondents’ Argument on Constructive Trusts is a Red Herring. ............... 26 D. Affirming the Supreme Court’s Decision Would Have Detrimental Impact Beyond the Present Litigation ................ 27 CONCLUSION ......................................................................................... 29 PRINTING SPECIFICATIONS STATEMENT ...................................... 30 TABLE OF AUTHORITIES Page(s) iii Cases Bishop v. Maurer, 73 A.D.3d 455 (1st Dep’t 2010) ............................................................ 22 Brown v. Spohr, 180 N.Y. 201 (1904) ........................................................................ 17, 21 Chateau D’If Corp. v. City of New York, 219 A.D.2d 205 (1st Dep’t 1996) ............................................................ 6 Matter of Doman, 68 A.D.3d 862 (2d Dep’t 2009) ....................................................... 24, 25 Grossman v. Schlosser, 19 A.D.2d 893 (2d Dep’t 1963) ............................................................. 20 Estate of Judith N. Doman, 2008 N.Y. Misc. LEXIS 6314 (Sur. Ct. Suffolk Co. 2008), affirmed sub nom., Matter of Doman, 68 A.D.3d 862 (2d Dep’t 2009) ......................................................................... 21, 22, 24, 25 Leon v. Martinez, 84 N.Y.2d 83 (1994) ........................................................................ 23, 24 Lewis v. Alexander, 685 F.3d 325 (3rd Cir. 2012) ................................................................ 15 Matter of McCloskey Family Revocable Trust, 2012 N.Y. Misc. LEXIS 5383, 2012 NY Slip Op 32814(U) (Sup. Ct. Suffolk Co. Nov. 13, 2012) .................................................... 21 Neary v. City Bank Farmers Trust Co., 260 A.D 791 (2d Dep’t 1940) ................................................................ 25 People v Miran, 107 A.D.3d 28 (4th Dep’t 2013) ........................................................... 16 TABLE OF AUTHORITIES (cont’d) Page(s) iv In re the Petition of Gold, 2002 N.Y. Misc. LEXIS 1084 (Sur. Ct. Kings Co. Aug. 7, 2002) ..................................................................................................... 18 Randy Stone Rubinberg v. Stone Jupiter Trust, 2013 N.Y. Misc. LEXIS 5853, 2013 NY Slip Op 33129(U) (Sup. Ct. Suffolk Co. Dec. 4, 2013) ...................................................... 21 Estate of Rothwell, 189 Misc.2d 191 (Sur. Ct. Dutchess Co. 2001) .................................... 22 In re Self-Petition of Gillette, 195 Misc. 2d 89 (Surr. Ct. Broome Cty. 2003) .............................. 12, 13 Wong v. Doar, 571 F.3d 247 (2d Cir. 2009) ................................................................. 15 Statutes 42 U.S.C.S. § 1396p(d)(4)(A) .................................................... 9, 11, 14, 16 42 U.S.C. § 1396a(a)(18) ........................................................................... 15 EPTL § 1-2.20 ............................................................................... 5, 7, 8, 14 EPTL § 7-1.12 ........................................................................................... 16 EPTL § 7-1.17 ................................................................................... passim EPTL § 7-1.18 ........................................................................................... 23 PRELIMINARY STATEMENT For the reasons stated in HRA’s main brief, the Supreme Court erred in concluding that provisions of State law governing lifetime trusts operate to preclude the validity of supplemental needs trusts such as the one established by court order in this case. Without belaboring this Court with repetition, HRA submits this reply brief solely in rebuttal to the arguments raised by respondents. Respondents’ briefs are founded on a flawed premise: that the Gaines SNT is invalid because it was neither executed by the grantor and trustee nor funded as ordinarily required by EPTL §§ 7-1.17 and 7- 1.18 for lifetime trusts (see, e.g., Brief for the Plaintiff-Respondent Estate, at 2). This contention does not withstand scrutiny. A fair reading of all the applicable provisions of federal and State law make clear that the July 2010 Order established and funded the Gaines SNT. To accommodate mentally competent disabled individuals without a parent or grandparent, federal and State rules were enacted to permit these persons to secure or maintain Medicaid eligibility through a trust established by a court. The provisions of New York law governing lifetime trusts were enacted four years after these federal and State 2 rules were adopted, and lifetime trusts were defined so as to exclude trusts created by a court. Respondents’ position thus lacks any basis in law. And were this Court to adopt it, the holding would have a detrimental impact that goes far beyond the present litigation. To hold that a supplemental needs trust’s validity requires its execution by the disabled individual is contrary to the intent of Congress and would impose an unreasonable demand upon an individual who may have an impairment that makes execution of the trust an undue hardship. And requiring execution of the trust by the trustee would introduce uncertainty as to the validity of the SNT, should the named trustee refuse or be unable to sign, with potential implications for the disabled person’s Medicaid eligibility and the claims of providers. Any uncertainty of this kind would also undermine HRA’s SNT Program more broadly. Respondents insist that the failure of the disabled individual and designated trustee to execute the trust agreement after the court establishes the trust renders the trust invalid. Under their analysis, a mentally competent disabled individual without a parent or grandparent would be prevented from sheltering assets and retaining 3 Medicaid eligibility if he or she were unable to “execute” the trust agreement or if the appointed trustee did not execute it. Such a result could not possibly have been the intent of either the federal or State legislatures when they enacted the SNT provisions for the Medicaid program. The applicable statutes, regulations and case law do not support respondents’ untenable position. To the contrary, a straightforward application of the pertinent statutes and regulations warrant reversal of the Supreme Court order, and this Court should hold that a valid Gaines SNT was established. ARGUMENT RESPONDENTS FAILED TO REBUT THE POINT THAT THE GAINES TRUST IS A VALID SUPPLEMENTAL NEEDS TRUST Distilled to its essence, respondents’ argument relies on Supreme Court’s erroneous belief that the Gaines SNT is governed by the provisions of “lifetime trusts created by leave of the Court” (R.18) and that “the July 26 order merely granted leave to the parties to establish the trust – it did not fund or execute the Trust, nor did it assign assets to the Trust with sufficient specificity.” (R.19.) Supreme Court 4 misapprehended the nature of the July 2010 Order, which granted the appropriate relief: it established and funded the trust under the controlling federal and conforming State statutes that contemplate the establishment of supplemental needs trusts by court order in the framework of traditional principles of trust law. Respondents rely on Supreme Court’s view and mischaracterize the July 2010 Order as having “granted plaintiff’s application and authorized establishment of” the Gaines SNT (see, e.g., Brief for the Plaintiff-Respondent J&M, at 3) (emphasis added), as if it was established by parent, grandparent, or legal guardian. Respondent J&M contends that “no Supplemental Needs Trust can exist despite an authorization therefor when the proposed trust was (…) unsigned, unexecuted, unfiled, unfunded and without a required trustee” due to the plaintiff’s untimely death (Brief for the Plaintiff-Respondent J&M, at 1-2) (emphasis added). Put simply, the July 2010 Order did not grant “leave” to create or “authorize” the establishment of the trust. Rather, the July 2010 Order with clear and unambiguous terms established the Gaines SNT and 5 funded the trust, consistent with both State and federal law, which explicitly permit courts to establish SNTs A. The Gaines SNT is not a “Lifetime Trust.” 1. HRA’s reliance on EPTL § 1-2.20 which excludes trusts created by the court in its definition of “lifetime trusts” is proper. As an initial matter, respondents contend that this Court should not consider the statutory definition for lifetime trusts in EPTL § 1- 2.20 in determining whether the Gaines SNT is valid because HRA’s reliance on that statutory provision constitutes a new argument raised for the first time on appeal. This contention is unavailing. The citation to this statute merely buttresses HRA’s overarching argument that lifetime trusts and supplemental needs trusts are different creatures of State law. And the formality surrounding the establishment of a supplemental needs trust by a court is the substantive equivalent of execution and acknowledgement requirements for lifetime trusts. In that the Supreme Court expressly relied on the 1997 chapter amendment on lifetime trusts, which included a definition for such trusts in EPTL § 1-2.20, HRA would be remiss not to analyze that statutory language on appeal. For this reason, case law cited by 6 respondents involving situations where appellants tried to proffer entirely new legal theories on appeal has no bearing here (see Br. for the Respondent Estate, at 12). Moreover, the analysis of the EPTL definition of lifetime trusts is a question of law that appears on the face of the record which, had it been brought to the attention of the Supreme Court, could not have been avoided and is determinative. It thus can and should be reviewed now. See Chateau D'If Corp. v. City of New York, 219 A.D.2d 205, 209 (1st Dep’t 1996). This is particularly true given that respondents had the opportunity to respond to the argument and have done so, belying any claim to prejudice. See id. (“In such circumstances, raising such an issue for the first time on appeal does not prejudice the opposing party's legal position in any respect.”). 2. EPTL § 1-2.20 expressly excludes trusts established by a court from the definition of lifetime trusts. The core of Supreme Court’s holding was that the statute enacted in 1997 on lifetime trusts was dispositive also with respect to the court- established Gaines SNT (R.18). Enacted in 1997, EPTL § 7-1.17 introduced the formalities that parties must take to establish trusts to 7 help the parties involved realize the serious nature of the instrument being executed and to reduce the potential for foul play. See Governor’s Bill Jacket, Ch. 133 of the Laws of 1997. No intent can be gleaned from either the text of the statute on lifetime trusts or its legislative history that the legislature intended to include SNTs established by a court within the scope of that provision. Indeed, although the legislature easily could have added a cross- reference to SSL § 366(2)(b)(2)(iii)(A) on the creation of SNTs at that time, it did no such thing. Nor did it add any language to the provisions on lifetime trusts making clear that supplemental needs trusts established by a court were meant to be covered under the definition. To the contrary, with respect to court-created trusts the legislature did the opposite. It enacted a definition of lifetime trusts which expressly excluded trusts that are “created by the judgment or decree” of a court. EPTL § 1-2.20. Respondents admit that if the Gaines SNT were “created” by “judgment or decree,” it would be exempt from the lifetime trust rules. (Brief for the Plaintiff-Respondent J&M, at 16). Respondents contend, however, that since the Supreme Court’s act that “established” the 8 Gaines SNT was an “Order” it is not “a trust created by the judgment or decree of a court.” This contention, which is form over substance, is unconvincing. The only plausible reading of the plain text in the EPTL definition is that court-established SNTs are not lifetime trusts. Nothing supports a legislative intent to exclude court “orders” from the category “judgment or decree of a court.” Respondents’ argument that EPTL § 1-2.20 is inapplicable because a “Court can only ‘establish’ the SNT, not create it” makes no sense. Indeed, in this context, “establish” is synonymous with “create” in the sense of actions directed at achieving the establishment or creation of the trust. It is clear that for purposes of EPTL § 1-2.20, a trust “created by” the judgment or decree of a court embraces a SNT “established by” a court.1 1 When EPTL § 7-1.17 was amended in 2010 to delete the phrases “initial creator” and “such creator” and replace them with “person establishing such trust” and “such person,” the bill sponsor’s memo clarified that “a lifetime trust must be executed by the person establishing such trust, who need not be the ‘creator’ of such trust as defined in EPTL § 1-2.2” and explained that the amendment was consistent with the reality that a trust may be created by the actions of “a person other than the person who contributes property to the trust”. This further differentiates lifetime trusts from SNTs. 9 Interpreting the EPTL to exclude from the requirements of lifetime trusts cases when a disabled person seeks to have a Court establish a trust for him or her makes sense. If it were possible for Gaines herself to establish a SNT for her benefit, she did not need to petition the Court. However, once a Court is involved, the enumerated formalities applicable to lifetime trusts are no longer needed. And how Gaines established her trust demonstrated the utmost formality. The petition filed on her behalf was made pursuant to federal and State law and was brought “under SSL § 366(2)(b)(2)(iii)(B) (sic) which provides for the establishment by a Court of competent jurisdiction of such a SNT for the benefit of a disabled individual” (R.135). The trust was “hereby established” in compliance with 42 U.S.C.S. § 1396p(d)(4)(A) and SSL § 366(2)(b)(2)(iii)(A) by the resulting July 2010 Order, the only method available to achieve the clearly expressed objective to which Gaines was entitled. Whether her application was artfully or inartfully drafted is of no moment; the court’s order establishing the trust is all the formality required for the trust to be valid. 10 Moreover, respondents’ own behavior belies the contention that they thought the trust was a lifetime trust. They acknowledge that after the July 2010 Order, Gaines personally endorsed the Transit Authority check and signed releases from the TA but note that Gaines did not also “execute” the trust agreement on that occasion. This suggests that her attorneys, Jacoby & Meyers, who had the file with the trust agreement, believed it was not necessary for her to sign it for its validity even though the opportunity to do so existed. If her attorneys honestly believed that execution by Janie Gaines and the designated trustee was required by EPTL § 7-1.17 for the trust’s validity – a condition of the utmost importance for Janie Gaines as it implicated her continued Medicaid eligibility – they would have acted accordingly. Finally, there is no dispute that Medicaid benefits continued to flow uninterrupted to her after the Court’s July 2010 order. Neither she nor any other party acted as though her benefits were at risk of interruption if a trustee or her attorneys did not take further ministerial steps with the respect to trust documents. This makes clear beyond any question that the parties believed that the Court’s order had established the SNT. 11 3. A SNT established by a court pursuant to 42 U.S.C.S. § 1396p(d)(4)(A) and SSL § 366(2)(b)(2)(iii)(A) cannot be nullified by apparently conflicting State requirements. HRA’s position here is fully consistent with the federal scheme which affords mentally competent disabled individuals with no available parent or grandparent the benefit of a SNT established by a court. Although the State retains authority to regulate trusts, it lacks the power to adopt an independent Medicaid SNT scheme that either conflicts with or is inconsistent with the provisions of 42 U.S.C. § 1396p(d)(4)(A) with respect to the establishment of SNTs. The governing federal and State statutes preclude the establishment of a SNT by the disabled person.2 It may be established only by a parent, grandparent or guardian of the disabled person, or by a court on behalf of the disabled person. If established by a court, the 2 The federal agency that oversees SNTs, the Social Security Administration, states in its manual that to qualify for the “special needs trust exception,” the assets of the disabled individual must be put into a trust established through the actions of the disabled individual’s parent(s); grandparent(s); legal guardian(s); or a court; and that, “[i]n the case of a trust established through the actions of a court, the creation of the trust must be required by a court order. Approval of a trust by a court is not sufficient.” POMS § SI 01120.203(B)(1)(f). The special needs trust exception “does not apply to a trust established through the actions of the disabled individual himself or herself.” Id. The manual is available at http://policy.ssa.gov/poms.nsf/aboutpoms. 12 order itself is sufficient for the trust’s validity, and whether or not the disabled person signs the trust agreement is irrelevant. The July 2010 Order with clear and unambiguous terms “established” the trust (R. 122) to achieve Gaines’ clearly expressed purpose. HRA’s position is also supported by a comparison between the provisions of State law governing SNTs (i.e., individual trusts funded with the assets of a disabled beneficiary under the age of 65) and SSL § 366(2)(b)(2)(iii)(B), which governs “pooled trusts” (established and managed by non-profit associations that maintain separate accounts for the benefit of disabled persons of any age). The separate trust accounts in a pooled trust may be “established (…) by such disabled individual, a parent, grandparent, legal guardian, or court of competent jurisdiction.” The obvious import of the different treatment in the same statute is that when a court establishes an SNT, no action by the disabled person is required. Respondents cite In re Self-Petition of Gillette, 195 Misc. 2d 89 (Surr. Ct. Broome Cty. 2003), for the proposition that their statutory construction is “upheld by New York law” (Br. for the Respondent Estate, at 17). This is incorrect. In Gillette, counsel for Mr. Gillette 13 submitted an unsigned SNT together with a proposed "Order Establishing a Supplemental Needs Trust." 195 Misc. 2d at 91. The Surrogate treated the petition as one requesting the court “to establish” the SNT and explained: “Even though the grantor is the disabled person, the court can entertain the petition and establish the trust by court order, so long as the creation of the trust has not been completed before the petition is submitted to the court.” Id. Respondents add their own gloss to Gillette by asserting inaccurately that the statutory framework contemplates that after “a court establishes the trust,” then “the grantor and trustee executes (sic) the trust pursuant to EPTL § 7-1.17” (Br. for the Respondent Estate, at 19). An SNT that is established by a parent, grandparent or guardian is established when the parent, grandparent or guardian executes the trust instrument; the disabled beneficiary does not execute the trust instrument. It would serve no purpose to require the disabled beneficiary to execute the trust instrument in only those cases where the SNT is established by a court. To the extent the purpose of the execution formality is to ensure that the parties understand the serious nature of the instrument being executed and to reduce the potential for 14 foul play, the court order that establishes the SNT has at least as much, if not more, protective value as the execution and acknowledgment by the parent, grandparent or guardian. As in those instances, execution by the beneficiary is not required. The only sensible way to read EPTL § 1-2.20, which reconciles the lifetime trust rules with the available methods for establishing SNT’s, is that when a court of law or equity establishes a SNT, whether by judgment, decree or order, the SNT need not be executed and acknowledged by the person for whom the SNT is established. 4. The lifetime trust rules are preempted by 42 USC § 1396p(d)(4)(a) and SSL § 366(2)(b)(2)(iii)(A), to the extent the lifetime trust rules pose an irreconcilable conflict. Furthermore, even if EPTL § 1-2.20 were read to make the EPTL § 7-1.17 execution requirement applicable to court-established SNTs, a strong argument would arise that EPTL § 7-1.17 is preempted by federal law. Respondents’ position, if it were upheld, would allow the State to redefine a concept that Congress has defined and would amount to an impediment to the availability of SNTs established by a court. 15 Medicaid is a joint federal-state program providing medical assistance to the needy. As a condition of the receipt of federal program funding, State Medicaid plans must conform with the statutory standards established by federal law and the regulations promulgated by the Secretary of Health and Human Services. Wong v. Doar, 571 F.3d 247, 251 (2d Cir. 2009) (citing 42 U.S.C. § 1396a(a)); SSL § 363- a(1). No State is obligated to join the program, but once a State elects to participate, it is subject to federal regulations governing the program’s administration. Lewis v. Alexander, 685 F.3d 325, 331-32 (3rd Cir. 2012) (citing Roloff v. Sullivan, 975 F.2d 333, 335 (7th Cir. 1992)). A State plan for medical assistance must comply with the provisions of 42 U.S.C. § 1396p with respect to liens, adjustments and recoveries of medical assistance correctly paid, transfers of assets, and treatment of certain trusts. 42 U.S.C. § 1396a(a)(18). The federal mandate expressed in 42 U.S.C. § 1396a(a)(18) suggests that preemption operates, inasmuch as the EPTL § 7-1.17 requirement of execution by the disabled person would stand as an obstacle to the accomplishment and execution of the full purposes and 16 objective of Congress. People v Miran, 107 A.D.3d 28, 38 (4th Dep’t 2013) (citing United States v. Locke, 529 U.S. 89 (2000). In 1993, the State Legislature enacted EPTL § 7-1.12 to provide a legislative framework for SNTs, defining them as discretionary trusts established for the benefit of a person with a severe and chronic or persistent disability. After the federal enactment of the Omnibus Budget Reconciliation Act of 1993, EPTL § 7-1.12 was amended to allow self-settled trusts that conformed to the requirements of SSL § 366(2)(b)(2), the State statute that implemented that federal law. Accordingly, EPTL § 7-1.12(a)(5)(v) specifies that SNTs may be funded with the trust beneficiary’s property if they meet the SSL § 366(2)(b)(2) requirements, including their availability limited to persons under 65 and establishment by the person’s parent, grandparent, legal guardian, or a court. Disabled individuals such as Gaines who would be eligible for Medicaid but who do not have a parent, grandparent or legal guardian should not be disadvantaged in exercising their right under 42 U.S.C. § 1396p(d)(4)(A) and SSL § 366(2)(b)(2)(iii)(A) by being required to execute the trust agreement. 17 These federal and state law provisions are the only ones relevant for purposes of evaluating the Gaines SNT, and respondents nowhere in their papers contend that these provisions were not complied with. B. No Further Acts of the Trustee or Gaines’s Attorneys were Required to Make the Gaines SNT Valid. 1. The establishment of the Gaines SNT did not require execution of the trust by the designated trustee. Respondents contend that the Gaines SNT is invalid also because it was not signed by the appointed trustee, a requirement imposed by EPTL § 7-1.17 for lifetime trusts. For the same reasons that the creation of a SNT by a court does not require execution of the trust by the disabled individual, its validity does not require the consent of the named trustee expressed by the trustee’s execution of the trust agreement. Inasmuch as the Gaines SNT is exempt from the “lifetime trust” rules, its validity is governed by traditional principles of trust law. One of the essential elements of a valid trust of personal property has been “a designated trustee, who must not be the beneficiary.” Brown v. Spohr, 180 N.Y. 201, 209 (1904). In applying the law as it existed before 18 EPTL § 7-1.17, the Surrogate’s Court, Kings County, held that a trust was not void ab initio even though the named trustee had not consented. In re the Petition of GOLD, 2002 N.Y. Misc. LEXIS 1084 (Sur. Ct. Kings Co. Aug. 7, 2002). The Surrogate noted that it was well settled that “a court of equity will not permit a devise in trust, which is valid in other respects, to fail for a want of a trustee” and that “[t]he instrument to create a trust is sufficient even though the trustee does not sign it.” Id. In her petition, Janie Gaines requested “that the Court appoint an independent trustee of the Supplemental Needs Trust,” since Gaines had no family member or acquaintance whom she would trust to assume this responsibility (R.130). The July 2010 Order “ORDERED, that Lorraine Coyle, Esq., be and she is hereby appointed Trustee of the Janie Gaines Irrevocable Supplemental Needs Trust” and further ordered that the net proceeds from the underlying personal injury action “shall be paid to Lorraine Coyle, Esq., as Trustee to fund the Janie Gaines Irrevocable Supplemental Needs Trust” (R.122). The July 2010 Order was served with Notice of Entry upon Lorraine Coyle, Esq., on August 23, 2010 (R.123). 19 Presumably Ms. Coyle had informed the parties of her willingness to act as trustee, justifying her appointment by the Court. The July 2010 Order obviated the need for Ms. Coyle to execute the trust agreement for the SNT’s validity. The July 2010 Order that established the SNT provided at least as much formality that EPTL § 7-1.17 now requires for “lifetime trusts.” In addition the July 2010 Order provided certainty of the SNT’s validity for Medicaid eligibility purposes regardless of the appointed trustee’s cooperation. Ms. Coyle’s failure to execute the trust even though she had notice of the July 2010 Order which directed J&M to deliver the net proceeds to her was not fatal to the creation of the trust. Ms. Coyle was not critical to establishing the Gaines trust, and Ms. Coyle was replaceable. 2. The July 2010 order funded the Gaines SNT with the proceeds of the underlying negligence action. Supreme Court found that the July 2010 Order “did not fund or execute the Trust, nor did it assign assets to the Trust with sufficient specificity” (R. 18). In support of its holding, Supreme Court also noted that “the Trust Agreement itself contained a blank Schedule A, which 20 was intended to set forth the amounts that would fund the Trust” (R. 19). Supreme Court’s reasoning was erroneous. In her Petition, Janie Gaines respectfully requested “that the net, after payment of attorney’s fees, disbursements, outstanding claims and the legal fee for the preparation of the Supplemental Needs Trust in the amount of $2,500.00, be used to fund a Supplemental Needs Trust for my benefit” (R.130). The Gaines SNT was funded when the July 2010 Order established it and ordered that the net proceeds from the underlying personal injury action “shall be paid to Lorraine Coyle, Esq., as Trustee to fund the Janie Gaines Irrevocable Supplemental Needs Trust” (id.). The nature of the property involved (i.e., the right to receive sufficiently identified sums from the settlement of a personal injury action) allowed Janie Gaines to dispose of it by transferring and assigning it to the trust. Grossman v. Schlosser, 19 A.D.2d 893, 893-94 (2d Dep’t 1963) (proceeds of negligence action may be assigned prior to its settlement or adjudication). As to respondents’ arguments with respect to a blank addendum to the trust documents (“Schedule A”), so long as a trust was funded, a completed Schedule A was not required. In reported cases where the 21 Schedule A was blank or defective, the validity of the trust was not at issue. See, e.g., Randy Stone Rubinberg v. Stone Jupiter Trust, 2013 N.Y. Misc. LEXIS 5853, 2013 NY Slip Op 33129(U) (Sup. Ct. Suffolk Co. Dec. 4, 2013) (undisputed that trust contained certain assets even though Schedule A was blank); Matter of McCloskey Family Revocable Trust, 2012 N.Y. Misc. LEXIS 5383, 2012 NY Slip Op 32814(U) (Sup. Ct. Suffolk Co. Nov. 13, 2012) (Schedule A blank and undated). 3. Actual delivery of funds to a particular account was not a necessary precondition to the trust’s validity Under traditional trust principles, a valid trust is created if it is funded by a clearly identifiable trust principal and there is actual delivery of the trust principal or a legal assignment thereof to the trustee, with the intention of passing legal title thereto to him as trustee. Brown v. Spohr, 180 N.Y. 201, 209 (1904). In Estate of Judith N. Doman, 2008 N.Y. Misc. LEXIS 6314 (Sur. Ct. Suffolk Co. 2008), affirmed sub nom., Matter of Doman, 68 A.D.3d 862 (2d Dep’t 2009), the Surrogate’s Court relied upon the language in EPTL 7-1.18 (“[a] lifetime trust shall be valid as to any assets therein to the extent the assets have been transferred to the trust”) as well as on the traditional 22 requirements for a trust’s validity. Those requirements include evidence of whether a fund or property is sufficiently identifiable to enable title to be transferred to the trustee(s); and whether there was a legal assignment or actual delivery of the fund or property to the trustee(s) with the intention of passing legal title. Those factors were present in Doman such that there was no basis to find the trust void ab initio. Estate of Judith N. Doman, supra. In contending that the Gaines SNT was not funded, respondents rely on Bishop v. Maurer, 73 A.D.3d 455 (1st Dep’t 2010), for the proposition that a recital of assignment is not sufficient to transfer assets to a trust (Brief for the Respondent-Estate [Stack], at 29). This is misleading, both because the Bishop case concerned real property and because the Gaines SNT was not funded by a mere recital of assignment in the trust instrument. Respondents also rely on Estate of Rothwell, 189 Misc.2d 191 (Sur. Ct. Dutchess Co. 2001), to argue that “[s]ince no portion of the monies have actually been deposited into the proposed Trust it does not, as a matter of law, exist” (Brief for the Respondent-Plaintiff [J&M], at 13). In Rothwell, however, the property comprising the trust corpus appears 23 to have been tangible personal property and cash. The nature of the property justified the holding in that case that under EPTL § 7-1.18 “[t]he grantor is obligated to actually transfer the assets.” 189 Misc.2d at 195. Here, the trust property is the right to receive the assigned proceeds of Gaines’ negligence action. While the property (Gaines’ settlement proceeds) was described with particularity, as required by both EPTL § 7-1.18 and traditional trust principles, the nature of the property made it incapable of having “actually been deposited.” Leon v. Martinez, 84 N.Y.2d 83 (1994), is additional authority that a trust can be funded by an assignment of assets, even under EPTL § 7- 1.18. Martinez ruled, “to effect an assignment, it is only required that there be a perfected transaction between the assignor and assignee, intended by those parties to vest in the assignee a present right in the things assigned” which may be “a future or conditional right which is adequately identified, such as the personal injury action recovery here.” 84 N.Y.2d at 88, n.1. Contrary to respondents’ contention, Martinez is not distinguishable on its facts. Just as a settlement agreement was sufficient to constitute a “perfected transaction” in Martinez, so is the court application and resulting July 2010 Order in this case a 24 transaction intended to vest in Ms. Coyle, as trustee, a present right in the net settlement proceeds. Although Martinez predates the enactment of the statutory provisions on lifetime trusts, it is instructive as to general principles of the funding of trusts, including non-lifetime trusts such as the Gaines SNT. Respondents also misinterpret the applicability of Matter of Doman, 68 A.D.3d 862 (2d Dep’t 2009), to the arguments presented herein. Specifically, they claim that Doman stands for the proposition that a trust need not be created and funded at the same time in order for it to be valid (Br. for the Respondent Estate, at 26-27). They rely on Supreme Court’s characterization of the Doman holding to be, “a Trust is not valid until it has a corpus.” Id. On the contrary, in Doman the trust was valid ab initio, not as of when Judith Doman assigned the proprietary lease to the trustees on January 29, 1999, six months after the trust was established on August 24, 1998. In sustaining the trust, the Surrogate’s Court took into account the nature of the property involved and the various ministerial steps necessary to effectuate the transfer. The Second Department in affirming stated: “There is no support for the petitioner's contention 25 that the Trust was invalid because the property which was the subject of the Trust was not delivered into the Trust until six months after the Trust was created.” 68 A.D.3d at 863 (emphasis added). Here, even though no funds were wired to a particular account, the combination of Gaines’ petition to the Court and the Court’s order directing payment of the net settlement proceeds to Lorraine Coyle as trustee effectuated a legal assignment of Gaines’ property. The trust was “funded” by the July 2010 Order, even though Gaines’ attorneys failed to deliver the net settlement proceeds to the trustee. The Second Department’s refusal in Doman to invalidate the trust ab initio because the property was not delivered into the Trust until six months after the trust’s creation supports HRA’s position, not respondents’.3 3 Ms. Gaines’ passing has no legal relevance. Once created, a trust is not affected by the death of the settlor, even before the trustee learns of the trust or accepts it. Restat 3d of Trusts, § 14 (d). Trustees have duties to the trust and remaindermen even after the death of beneficiaries. Neary v. City Bank Farmers Trust Co., 260 A.D 791 (2d Dep’t 1940) (“[U]ntil the trust is closed out [the trustee] has the duties and powers appropriate for a complete winding up. The trust is at an end when the trustee has finally accounted, conveyed the property to the persons entitled to it, and been discharged.”). 26 C. All Apposite Authority Supports HRA, and Respondents’ Argument on Constructive Trusts is a Red Herring. Unable to rebut HRA’s arguments in support of its appeal, respondents claim that HRA suggests that the court should recognize the Gaines SNT to be a constructive trust (Br. for the Respondent Estate, at 24). Any reference to and argument on “constructive trusts” demonstrates respondents’ failure to comprehend the nature of the July 2010 Order and the purpose of the governing statutes and serves to distract the Court from the authorities cited by HRA to support its position. This was not a constructive trust situation, but rather a valid SNT which was established and funded by the July 2010 Order, as Gaines intended. In a similar fashion, Supreme Court and respondents have on various occasions referred to HRA’s position in this case as “novel.” But it was the Supreme Court’s application of EPTL provisions on lifetime trusts to SNTs that has no precedent. In that regard, respondents cite not one decision that even discusses supplemental needs trusts in the pertinent context present here. 27 D. Affirming the Supreme Court’s Decision Would Have Detrimental Impact Beyond the Present Litigation Aside from the not insignificant immediate effect of preventing reimbursement of Medicaid from the Gaines SNT, affirming the Supreme Court’s decision would have a detrimental impact beyond the present litigation. To hold that a supplemental needs trust’s validity requires its execution by the disabled individual is contrary to the intent of Congress and would impose an unreasonable demand upon an individual who may have an impairment that makes execution of the trust an undue hardship. To require the designated trustee to execute a trust established by a court order would introduce uncertainty as to the validity of the SNT, should the named trustee refuse or be unable to sign, with potential implications for the disabled person’s Medicaid eligibility. And any uncertainty with respect to court-established SNTs could undermine HRA’s Supplemental Needs Trust Program more broadly. HRA depends upon its understanding of the effect of court-established trusts in order to ensure there is no interruption in benefits to the 28 beneficiary who has sought to have a court establish a trust to shield new income. Upholding respondent’s view would create situations wherein HRA would not be able to know if a trust was valid because its officials would lack knowledge as to what steps a trustee or a beneficiary’s attorneys may fail to take. HRA’s view of the law, on the other hand, benefits both HRA and the beneficiaries, who need not be concerned that the trust they petitioned to be established may some point down the line become invalid based on failures of third parties or the trustee. All these reasons further warrant reversing the Supreme Court’s decision. 29 CONCLUSION The Order appealed from should be reversed in its entirety, with costs. Dated: New York, NY December 18, 2015 FAY NG MICHAEL PASTOR of Counsel Respectfully submitted, ZACHARY W. CARTER Corporation Counsel of the City of New York Attorney for the Claimant-Appellant By: __________________________ MICHAEL PASTOR Assistant Corporation Counsel 100 Church Street New York, NY 10007 212-356-0838 mpastor@law.nyc.gov 30 PRINTING SPECIFICATIONS STATEMENT This brief was prepared with Microsoft Word 2010, using Century Schoolbook 14 pt. for the body and Century Schoolbook 12 pt. for footnotes. According to the aforementioned processing system, the portions of the brief that must be included in a word count pursuant to 22 N.Y.C.R.R. § 600.10(d)(1)(i) contain 6,058 words.