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.
BRIEF FOR THE CLAIMANT-APPELLANT
DEPARTMENT OF SOCIAL SERVICES
OF THE CITY OF NEW YORK
FAY NG
MICHAEL PASTOR
of Counsel
October 5, 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
QUESTION PRESENTED ......................................................................... 5
STATEMENT OF THE CASE ................................................................... 5
A. The Medicaid Program and Supplemental Needs Trusts .......... 5
B. The Supreme Court Established a Supplemental Needs
Trust (“SNT”) so That Janie Gaines Could Avoid Losing
Her Medicaid and Disability Benefits. ....................................... 7
1. Janie Gaines Petitioned the Supreme Court to
Establish a SNT to Shelter Her Settlement Proceeds to
Retain Medicaid Eligibility. ..................................................... 7
2. The Supreme Court Established Gaines’s
Supplemental Needs Trust. ..................................................... 9
C. HRA’s Motions to Enforce the Trust ......................................... 10
1. HRA’s First Motion to Enforce the Trust in the
Supreme Court After the Party Holding the Settlement
Proceeds Refused to Comply With the Provisions of the
July 26, 2010 Order. ............................................................... 10
2. The Supreme Court’s October 11, 2011 Order Denying
HRA’s First Motion to Enforce the July 26, 2010 Order. ..... 12
3. This Court Vacated the October 11, 2011 Order for
Failure to Substitute a Party for the Decedent Janie
Gaines. .................................................................................... 13
TABLE OF CONTENTS (cont’d)
Page
ii
4. On Remand, HRA Moved the Supreme Court to
Enforce the July 2010 Order and Effectuate the Terms
of the Trust. ............................................................................ 13
D. The Supreme Court’s Order Now on Appeal, which
Denied HRA’s Application to Enforce the SNT ........................ 15
ARGUMENT ............................................................................................. 16
A. The Janie Gaines Supplemental Needs Trust, Which was
Established by Order of the Supreme Court, is Valid and
Enforceable. ................................................................................ 17
B. Affirming the Supreme Court’s Decision Would Upend
the Legislative Scheme and Undermine HRA’s Efforts to
Recover SNT Funds for the Benefit of Other Medicaid
Recipients. .................................................................................. 24
CONCLUSION ......................................................................................... 28
PRINTING SPECIFICATIONS STATEMENT ...................................... 29
TABLE OF AUTHORITIES
Page(s)
iii
Cases
Brown v. Spohr,
180 N.Y. 201 (1904) ............................................................................. 20
Fasano v. DiGiacomo,
49 A.D.3d 683 (2d Dep’t 2008) ............................................................ 22
In re Create a First Party Supplemental Needs Trust,
2006 N.Y. Misc. LEXIS 4505 (Sur. Ct. New York Co. 2006) ............. 19
In re Fiorillo,
2005 N.Y. Misc. LEXIS 4704 (Sur. Ct. New York Co. 2005) ............. 19
In re Francis,
2005 N.Y. Misc. LEXIS 4706 (Sur. Ct. New York Co. 2005) ............. 19
In re Self-Petition of Gillette,
195 Misc. 2d 89 (Sur. Ct. Broome Cty. 2003) ..................................... 19
Leon v. Martinez,
84 N.Y.2d 83 (1994) ............................................................................. 21
Matter of Abraham XX.,
11 N.Y.3d 429 (2008) ............................................................................. 6
Matter of Doman,
68 A.D.3d 862 (2d Dep’t 2009) ................................................ 20, 21, 23
Matter of Woolworth,
76 A.D.3d 160 (4th Dep’t 2010) ............................................................ 18
Perdomo v. Morgenthau,
60 A.D.3d 435 (1st Dep’t 2009) ............................................................. 25
TABLE OF AUTHORITIES (cont’d)
Page(s)
iv
Statutes
N.Y. Estates, Powers, & Trusts Law § 1-2.20 ......................................... 21
N.Y. Estates, Powers, & Trusts Law § 7-1.12 ................................... 17, 18
N.Y. Social Services Law § 104-b ............................................................... 9
N.Y. Social Services Law § 366(2)(b)(2)(iii)(a) ................................ passim.
N.Y. Social Services Law § 369(2)(b)(i)(B) ............................................... 16
42 U.S.C.S. § 1396p(d)(4)(A) .................................................................... 22
PRELIMINARY STATEMENT
The Medicaid program serves as a vital lifeline for people with
disabilities who might otherwise be left without medical care. But the
funding for the program does not derive from a bottomless well. For
that reason, Medicaid is only meant to assist individuals whose income
and other resources are insufficient to meet the cost of their medical
needs.
This appeal concerns the situation when an individual with a
disability who receives Medicaid benefits comes into a new income
source, such as recoveries from a personal injury lawsuit. Such funding
would in the normal course be considered a “resource” for Medicaid
eligibility purposes. If recipients accepted the funding right away, they
might immediately lose their Medicaid coverage, a consequence that can
be particularly problematic for recipients with disabilities.
Congress and the New York State Legislature addressed this issue
by enacting laws to authorize creation of “supplemental needs trusts.”
These trusts, which can be established by a parent, grandparent, legal
guardian of a person or by court order, shelter the new funds Medicaid
recipients have obtained so that they can remain eligible for Medicaid.
2
The law requires, however, that assets placed in such trusts revert to
the State once the beneficiary has passed away.1 Thus, the law strikes a
balance between stringent Medicaid eligibility requirements and
heightened needs of severely disabled individuals who receive lump
sum payments that end their eligibility for Medicaid.
In this case, Janie Gaines, an individual with a disability, received
over $1.3 million in Medicaid benefits from 1990 through her passing in
November 2010. But a settlement offer of $600,000 in early 2010 put
her at risk of losing the Medicaid benefits on which she direly depended.
To avoid this, she petitioned the Supreme Court to establish a
supplemental needs trust and fund it with her settlement proceeds, and
the Supreme Court established the trust by an order issued in July
2010.
After Gaines passed away, HRA requested that this order be
enforced and the funds paid to the trustee. But lawyers for Gaines
1 Claimant Department of Social Services of the City of New York (HRA) is
responsible for the administration of the Medicaid program within the City of New
York in accordance with Title XIX of the Federal Social Security Act, the New York
Social Services Law, and regulations promulgated thereunder. The State has
designated local social services districts, in this case Department of Social Services
of the City of New York, as the agent to collect all Medicaid liens and recoveries.
3
refused, claiming that the trustee of the trust had never executed it and
that the trust was not funded. The Supreme Court, Bronx County
(Sherman, S.C.J.), sided with the estate and the attorneys withholding
the settlement funds, holding that the trust was not valid because of the
unilateral failures of the trustee to take certain steps after the Supreme
Court established the trust in July 2010. The Supreme Court claimed
that the July 2010 order had merely authorized the creation of a trust,
not established it.
The decision and order should be reversed. By its plain text, the
July 2010 order, and the trust documents it incorporated by reference,
established the trust and identified the property that funded it. The
order fully complied with State and federal laws applicable to these
unique, statutory trusts. Neither the Supreme Court nor plaintiff
identified any apposite authority for the proposition that the
supplemental needs trust in this case was not valid and enforceable.
Instead, the Supreme Court cited provisions of the Estates,
Powers, & Trusts Law (“EPTL”) that are applicable to “lifetime trusts”
for its conclusion that the supplemental needs trust in this case was
either “not funded” or not properly executed. The EPTL, however,
4
expressly defines lifetime trusts to exclude trusts created by court order,
as was the trust in this case. Thus, the EPTL requirements concerning
“lifetime trusts,” and the case law construing them, are irrelevant in the
instant matter. Nor is there any validity to the claim that the trust was
invalid as “not funded,” given that the Court’s 2010 order effected the
assignment of the settlement funds to the trust. No bank check was
required to make this trust valid.
The Supreme Court’s holding is not only contrary to law. By
concluding that trustees or beneficiaries can subvert the intent of the
Court that ordered the trust’s establishment, the Supreme Court
upended the careful balance crafted by legislators at the State and
federal level. If upheld, it would hinder efforts by HRA and other social
services districts to recover trust funds in similar situations, to the
detriment of other Medicaid beneficiaries for whom such funds would be
used at a later time.
The Supreme Court’s ruling was legally erroneous and contrary to
the will of Congress and the State Legislature. It should be reversed.
5
QUESTION PRESENTED
Did the Supreme Court err in decreeing that the supplemental
needs trust established for Janie Gaines was null and void even when
the trust had been established by prior order of the Court in full
comportment with all applicable laws?
STATEMENT OF THE CASE
A. The Medicaid Program and Supplemental Needs
Trusts
Medicaid, which is jointly administered and funded by the federal
and State governments, provides medical assistance to millions of New
Yorkers every year, including many with severe disabilities. The
program is needs-based. It is meant only to be utilized as a last resort
for individuals who do not have any other means of affording health
care or disability assistance.
Thus, Medicaid assistance is contingent upon a person lacking
resources of their own. When a person receiving Medicaid comes into a
new source of revenue, such as a settlement payout, those proceeds are
counted as “available resources” and that person may lose eligibility for
Medicaid. This can be particularly problematic for Medicaid recipients
6
with severe disabilities, whose livelihood depends on the care they
receive through the Medicaid program.
Congress and the State Legislature passed laws in the early 1990s
to address this problem by authorizing the creation of “supplemental
needs trusts.” The New York Court of Appeals has described these
trusts as a “planning tool used to shelter a severely-disabled person’s
assets for the dual purpose of securing or maintaining state-funded
services, and enhancing the disabled person’s quality of life with
supplemental care paid by his or her trust assets.” Matter of Abraham
XX., 11 N.Y.3d 429, 434 (2008). Under these laws, the assets of a trust
established for an individual under 65 who is disabled will not count
towards Medicaid eligibility provided (a) the trust is “established for the
benefit of such individual by a parent, grandparent, legal guardian of
the individual, or a court of competent jurisdiction,” and (b) that the
State will receive all amounts remaining in the trust when the
individual dies, up to an amount equal to the total Medicaid assistance
the person received during his or her life. N.Y. Social Services Law §
366(2)(b)(2)(iii)(A).
7
Supplemental needs trusts play an important role in the City’s
Medicaid program. Over recent years, HRA has recovered millions of
dollars from these trusts. Frequently these recoveries amount to a mere
fraction of the total medical assistance provided to decedents during
their lifetime. But all the funds are earmarked for and reintegrated into
the local, state, and federal Medicaid budgets to pay for other needy
persons’ medical necessities.
B. The Supreme Court Established a Supplemental
Needs Trust (“SNT”) so That Janie Gaines Could
Avoid Losing Her Medicaid and Disability
Benefits.
1. Janie Gaines Petitioned the Supreme Court to
Establish a SNT to Shelter Her Settlement
Proceeds to Retain Medicaid Eligibility.
Janie Gaines received Medicaid benefits totaling over $1.3 million
dollars from 1990 through her passing in November 2010 (Record
[“R.”]107). After she sustained a personal injury in 2002, she brought a
tort action, and pursuant to a settlement reached in 2010, she was
slated to receive a $600,000 payment: $300,000 from the New York City
Transit Authority and $300,000 from Evercare Home Health Services
(R.108). Had she received the settlement payment, it would have
8
counted as an “available resource” and she would have lost her
supplemental security income (SSI) and Medicaid benefits (R.108).
On February 18, 2010, an attorney from the Jacoby & Myers firm,
which represented Gaines in the personal injury action, wrote a letter to
HRA expressing Gaines’s wish to create a supplemental needs trust
under SSL § 366. The letter specified that it was Gaines’s intent to put
her settlement funds in a SNT for the express purpose of not losing her
benefits under the Medicaid program (R.108).
Two months later, attorneys for Gaines filed a petition in the
Supreme Court asking the court to establish the supplemental needs
trust under the provisions of SSL § 366 for Gaines. The affirmation
attached to the petition explained the benefit Gaines would obtain by
establishing the trust (i.e., continuing to receive Medicaid benefits). It
also noted Gaines’s understanding that in exchange for this benefit, the
State, via HRA, would be reimbursed upon her death up to the total
amount of medical assistance she had received during her life (R.109).
This was the bargain struck between all the parties. The petition
filed in Supreme Court to effectuate this bargain was unopposed.
9
2. The Supreme Court Established Gaines’s
Supplemental Needs Trust.
In an order dated July 26, 2010, the Supreme Court found that it
would be in the “best interests of [Gaines]” to establish her
supplemental needs trust. As such, it ordered that the “Janie Gaines
Irrevocable Supplemental Needs Trust be and the same is hereby
established” (R.122). It incorporated by reference the trust agreement,
and ordered the appointed trustee to take certain steps after the order
was issued, such as filing a copy of the agreement with the clerk of the
Court (R.122).2
The trust agreement incorporated by reference stated that the
trust “is established pursuant to the Order of the Supreme Court of the
State of New York, County of Bronx” (R.139). It provided that the trust
was irrevocable and would terminate upon the death of Gaines (R.142).
It stated that the trustee “shall distribute any principal and
accumulated interest” to HRA to reimburse it for the total medical
2 The July 26, 2010 Order also directed that payment of any lien imposed in
accordance with SSL § 104-b be deferred until the termination of the SNT by virtue
of Janie Gaines’s death.
10
assistance provided to Janie Gaines (R.142).3 The July 26, 2010 order
was served upon HRA and the appointed trustee with Notice of Entry
dated August 23, 2010 (R.123).
C. HRA’s Motions to Enforce the Trust
1. HRA’s First Motion to Enforce the Trust in the
Supreme Court After the Party Holding the
Settlement Proceeds Refused to Comply With
the Provisions of the July 26, 2010 Order.
After the Court established the trust in July 2010, Gaines
continued to receive SSI and Medicaid benefits. In early 2011, however,
HRA learned that Gaines had passed away in November of 2010.
Neither Jacoby & Myers (the lawyers she had utilized to establish her
trust), the trustee of the supplemental needs trust, or anyone else
informed HRA when Gaines passed away in November 2010.
Upon learning of Gaines’s passing, HRA wrote a letter to counsel
at Jacoby & Myers stating that under the terms of the supplemental
needs trust HRA was entitled to the remainder in the trust for Medicaid
reimbursement, consistent with federal and State law (R.152). HRA
3 The Order erroneously cited the settlement amount as $300,000.
11
claimed reimbursement for the amount of $1,320,497 for the periods
March 1990 through November 2010 (id.).
Jacoby & Myers refused. Their counsel informed HRA that “Ms.
Gaines had died before the trust was funded” (R.188). It also claimed
that the trustee had failed to execute the trust documents. Counsel told
HRA that it was holding $300,000 of the settlement that it had received
from the New York City Transit Authority in escrow and expected to
receive $300,000 from the other defendant in the personal injury action,
Evercare (R.189), but had no intent to distribute it pursuant to the July
2010 order.
After Jacoby & Myers refused to comply with the July 2010 order,
HRA brought a motion in the Supreme Court to order compliance with
the Court’s July 2010 order and enter a restraining order that would
prevent Jacoby & Myers from distributing the settlement funds. In its
moving papers, HRA stated that “by seeking and obtaining the
establishment of the SNT for her benefit by order of a court of
competent jurisdiction, so that her assets would be sheltered, Ms.
Gaines irrevocably assigned to the trust the net settlement proceeds”
(R.190). HRA stated that to the extent the appointed trustee failed to
12
qualify as the trustee, this fact did “not operate to negate the funding of
the trust” (R.191). HRA asked that the court issue an order to
implement the court’s earlier order and “carry out the clear intent of the
parties who sought the Order” (R.192).
2. The Supreme Court’s October 11, 2011 Order
Denying HRA’s First Motion to Enforce the
July 26, 2010 Order.
The Supreme Court concluded that the trust was invalid because
the trustee had failed to execute the trust agreement and failed to
qualify as trustee (R.200).4 The Court also cited the trustee’s decision
not to post a bond as invalidating the SNT (id.) The Court found that
Gaines’s death had occurred before the trust was funded and thus
“wholly vitiated the order of this Court” that established the trust
(R.201).
4 The Justice who issued this order was different from the Justice who had issued
the order establishing the trust.
13
3. This Court Vacated the October 11, 2011 Order
for Failure to Substitute a Party for the
Decedent Janie Gaines.
HRA appealed the Supreme Court’s nullification of the trust to
this Court. However, this Court did not reach the merits. Instead, it
reversed and vacated the order, concluding that it lacked jurisdiction
over the appeal because no party had been substituted for the deceased
Janie Gaines. The order stated that it was without prejudice to further
proceedings once the estate representative had been assigned (R.204).
4. On Remand, HRA Moved the Supreme Court to
Enforce the July 2010 Order and Effectuate the
Terms of the Trust.
On remand, Gaines’s estate made a motion to substitute Clarence
Gaines as plaintiff. HRA cross-moved for an order, inter alia, directing
that the net settlement proceeds be paid to the appointed trustee and
that the trustee pay the remainder in the trust to HRA as per the trust
agreement and the July 2010 order. HRA asserted that the July 2010
order of the Supreme Court had established and funded the trust and
that by seeking and obtaining the order, Janie Gaines had irrevocably
assigned the settlement funds to the trust (R.114). Per the express
terms of the trust, those funds were owed to HRA up to $ 1,320,497.78,
14
the total amount of Medicaid assistance paid during her lifetime (R.107,
R.114). HRA noted that the record clearly evidenced that Gaines sought
the establishment of the SNT by the court and benefit from it by
continuing to receive her Medicaid benefits after the settlement
proceeds were paid over by the defendants in her personal injury action
(R.115).
In opposing the motion, counsel to the estate argued that the trust
was not valid because it had never been “executed or funded” (R.211).
The estate further contended that no assignment to the trust had
occurred. Counsel to Jacoby & Myers also opposed HRA’s motion.
Jacoby & Myers argued that failures on the part of the trustee to file
the trust agreement with the clerk or post a bond nullified the trust
(R.162). Jacoby & Myers asserted that to “take legal effect,” the trustee
needed to carry out certain steps in the trust agreement.
In reply, HRA reiterated that the court’s order “established” the
trust and funded the trust with the settlement payment, per Ms.
Gaines’s undisputed wishes. HRA argued that the failure of the trustee
to carry out her duties could not, as a matter of law, vitiate the trust
(R.274).
15
D. The Supreme Court’s Order Now on Appeal, which
Denied HRA’s Application to Enforce the SNT
The Supreme Court (Sherman, J.) denied HRA’s cross-motion to
enforce the SNT. Relying on provisions of the Estates, Powers, & Trusts
Law applicable to “lifetime trusts,” the Court held that the trust was
invalid due to the unilateral failures of the trustee to take certain steps,
such as posting a bond (R.16). The Court concluded that no valid SNT
was created by the Court’s July 2010 order because Gaines’s petition for
an SNT was merely a request for the authority to create a trust rather
than for an order establishing one (R.16-17). In so concluding, the Court
did not mention that Social Services Law provisions on SNTs do not
authorize the disabled individual to establish his or her own trust;
instead, the trust must be established by a parent, grandparent or legal
guardian (which did not occur here) or by a “court of competent
jurisdiction”.
The Court further determined that the trust was not enforceable
because it had not been funded and that the trust assets had not been
assigned to it (R.19). The Court disregarded cases cited by HRA,
including one from the New York Court of Appeals, because the Court
viewed provisions of the EPTL relating only to “lifetime trusts” as
16
applicable also to the trust at issue established by court order. The only
decisions cited in support of the holding were Second Department cases
that do not involve an SNT (R.18). Ultimately, the Court concluded that
because, in its view, the trust had neither been funded nor executed, it
was not valid and HRA was not entitled to the property Gaines
intended be paid to HRA upon her death (R.20).
ARGUMENT
The SNT established by the July 2010 order fully comported with
the applicable provisions of the Social Services Law, the EPTL, and the
U.S. Code. It was error to conclude that requirements for other types of
trusts have any bearing on this case, let alone that they should be
utilized to nullify the Gaines SNT. The order appealed from has no
basis in law. If the Supreme Court’s holding is upheld, it would
frustrate the legislative intent behind those who enacted provisions on
supplemental needs trusts and impede HRA’s ability to recover funds
from such court-established trusts. 5
5 In addition, SSL § 369(2)(b)(i)(B) specifically authorizes recoveries from the
estates of Medicaid recipients who were over age 55 or institutionalized when they
received Medicaid benefits. Janie Gaines died before age 55 and was not
institutionalized, thus HRA cannot recover from her estate.
17
A. The Janie Gaines Supplemental Needs Trust,
Which was Established by Order of the Supreme
Court, is Valid and Enforceable.
When Gaines and her counsel, in conjunction with HRA,
presented to the Supreme Court the proposed trust agreement and
petition to have a SNT established in her benefit, only one step
remained: the Court’s establishing of the trust. That occurred in the
July 2010 order, and unilateral failures of the trustee after the fact to
perform ministerial steps incidental to her duties are irrelevant to its
validity and enforceability.
Social Services Law § 366 spells out the specific requirements for
a SNT. It must be for the benefit of a disabled individual under the age
of 65; must be established by a parent, grandparent, legal guardian, or
a court of competent jurisdiction; and must provide that the State has a
remainder interest in all trust assets up to the total value of all medical
assistance paid upon the passing of the beneficiary of the trust. SSL §
366(2)(b)(2)(iii)(A). In addition, the legislature added a section to the
EPTL that governs SNTs. EPTL § 7-1.12 defines these trusts as
“discretionary trusts” established for the benefit of a disabled
individual. While EPTL § 7-1.12 sets out certain criteria for the trust,
18
those criteria are not directions to a court that establishes the trust;
rather, they are instructions to the beneficiary and to the trustee in
terms of limitations on their ability to utilize or access the trust assets.
See, e.g., EPTL § 7-1.12 (a)(5)(ii-iii). Nothing in either the SSL or the
EPTL provides that a trust will not be valid if a trustee fails to execute
the trust or that a trust agreement must be filed with the clerk of any
court. All that the trust must comply with is SSL § 366 and EPTL § 7-
1.12, and nothing more. See Matter of Woolworth, 76 A.D.3d 160, 163
(4th Dep’t 2010) (favorable treatment extended to the beneficiary of an
SNT “as long as the trust documents are in conformance with the
requirements of EPTL 7-1.12 (a) (5), . . . as well as the applicable
regulations of the Department of Social Services (see Social Services
Law § 366 [2] [b] [2] [iii], [iv]).”).
All of the requirements of the Social Services Law and the EPTL
were fully satisfied when the Supreme Court created the Gaines SNT.
Janie Gaines was an individual with a disability who requested that the
Supreme Court establish a SNT on her behalf to receive the net
settlement proceeds from her lawsuit. The order of the court established
the SNT and incorporated the trust agreement by reference. It also
19
specified that the assets remaining in the trust upon Gaines’s death
were owed to HRA upon Gaines’s passing. Upon the order’s issuance,
the trust was established and funded with Janie Gaines’s interest in the
settlement proceeds.
Unlike any other type of trust, this Court-established trust
requires no further formality, as might be required when an individual
sets out to create a trust by writing and execution of it on his or her
own. Here, it is the grantor’s intent that sets the wheels in motion, and
the Court’s act that establishes the trust. See In re Self-Petition of
Gillette, 195 Misc. 2d 89 (Sur. Ct. Broome Cty. 2003) (finding “no logical
reason” that the disabled person cannot be the grantor and petition the
court to establish the trust, as long as the trust has not been signed and
funded prior to submission to the court). For this reason, orders of New
York courts that consider such petitions specify explicitly that it is the
Court’s order itself that “establishes” the trust. In re Create a First
Party Supplemental Needs Trust, 2006 N.Y. Misc. LEXIS 4505, 1-4 (Sur.
Ct. N.Y. Co. 2006) (after adding a few revisions, the Court “approves
and establishes” the supplemental needs trust); In re Fiorillo, 2005 N.Y.
Misc. LEXIS 4704, 1-3 (Sur. Ct. N.Y. Co. 2005) (the Court “approves
20
and establishes” the trust); In re Francis, 2005 N.Y. Misc. LEXIS 4706
(Sur. Ct. N.Y. Co. 2005) (same).
The Supreme Court’s conclusion that the Gaines SNT should be
invalidated was based in part on its determination that the trust had
not been “funded.” This was error.
As a general rule, New York law requires that a trust contain four
components to be valid: (1) a designated beneficiary; (2) a designated
trustee, who must not be the beneficiary; (3) a fund or other property
sufficiently designated to pass title to the trustee; and (4) the actual
delivery of the fund or other property, 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); Matter of Doman, 68
A.D.3d 862 (2d Dep’t 2009). This fourth component makes clear that in
lieu of making mandatory that a trust receive “actual delivery” of funds
or other property, a legal assignment with the intent of passing legal
title is sufficient.
That is precisely what occurred here. The Court’s order which
directed that the net proceeds from the underlying personal injury
action “shall be paid to Lorraine Coyle, Esq., as Trustee,” effected the
21
assignment of the net settlement proceeds to the trust. The Court of
Appeals has made clear that an assignment need not be perfected
immediately to be valid but can relate to a conditional act that will be
performed after the assignment has occurred. See Leon v. Martinez, 84
N.Y.2d 83, 88, n.1 (1994) (“assignment may properly relate to a future
or conditional right which is adequately identified, such as the personal
injury action recovery here”). And the Second Department, in Matter of
Doman, stated that a trust was valid even though the property was
delivered to it six months after the trust was established. 68 A.D.3d at
863. This makes plain the error in the Supreme Court’s finding that the
failure of Jacoby & Myers to issue a check to the trustee invalidates the
trust all together.
The Supreme Court also refused to enforce the trust because it
purportedly did not comply with EPTL requirements applicable to
“lifetime trusts.” However, the legislature expressly defined “lifetime
trusts” to exclude trusts created by a “judgment or decree of the court…”
EPTL § 1-2.20. The Supreme Court erroneously compared the SNT at
issue with “lifetime trusts created by leave of court” (18). Here the July
22
26 2010 Order did not grant leave to create the trust. Rather, the Order
established the trust.
It is untenable to conclude that a SNT created by a court, which
by statutory definition is not a lifetime trust, should be invalid because
it does not comport with technical requirements that are only applicable
to lifetime trusts. This is particularly true given that when the
legislature adopted the provisions for lifetime trusts in 1997, it left the
provisions of the EPTL applicable to SNTs (enacted in 1993) completely
unaltered. The existing federal and State provisions that permit the
establishment of SNTs by the judgment or decree of a court under 42
U.S.C.S. § 1396p(d)(4)(A) and Social Services Law § 366(2)(b)(2)(iii)(A)
predate the adoption of provision for lifetime trusts. The federal statute
and conforming State law unquestionably prevail to the extent there
may be a conflict with EPTL requirements applicable to “lifetime
trusts.”
The only cases cited by the Supreme Court in reaching its decision
are inapposite. For example, in Fasano v. DiGiacomo, 49 A.D.3d 683 (2d
Dep’t 2008), the Court was not addressing or evaluating a SNT but a
lifetime trust for which other EPTL requirements would be applicable.
23
Thus, while issues of trust execution or whether the agreement was
filed with the clerk might be relevant in a case involving a lifetime
trust, those considerations have no bearing on the instant appeal. The
same is true for Matter of Doman, which is a case about a lifetime trust,
not an SNT.
That more formality might be required by the legislature for
lifetime trusts, in a situation where a court is not involved, makes
perfect sense. Given the important legal rights involved in trust
formation, the legislature must have believed that certain specific acts
should be taken by parties that create a trust without court supervision.
However, with a SNT established by a court, the formality that might
normally be required in the establishment of a trust by private parties
is replaced with judicial procedure, review and judgment or decree. The
service of moving papers, the trust document incorporated by reference,
and the notice of entry are of the utmost formality.6 Thus, the
6 In a situation where a SNT is established by a parent or guardian without any
court involvement, there might be greater cause to require further formality. That
issue is not presented in this case.
24
legislature has not found it necessary to add on further requirements
with respect to SNTs that are established by a court.
While the Court below claimed that HRA’s position is “novel,” it
actually cited no case about SNTs, either from New York or any other
jurisdiction. This lack of authority is telling. SNTs are unique creatures
of statutory law with their own requirements that differ from any other
kind of trust; and in particular, those that are established by a court are
even more special. It is those requirements that matter here, and all of
them were fulfilled.
B. Affirming the Supreme Court’s Decision Would
Upend the Legislative Scheme and Undermine
HRA’s Efforts to Recover SNT Funds for the
Benefit of Other Medicaid Recipients.
The crux of plaintiff’s position below, which the Supreme Court
appears to have adopted, is that whether the SNT at issue has been
validly established depends on the later actions of either the beneficiary
or the trustee. This position, taken to its logical conclusion, would allow
a disabled person to obtain the benefit of the SNT arrangement, i.e.,
Medicaid benefits, but leave HRA in a position to lose its remainder
interest by permitting accidents, such as the non-performance of
25
ministerial acts, to prevail over the essentials of the legal requirements
for validity, leading to the disastrous result in frustration of the
legislative scheme. The legislature could not possibly have intended
such a result. Perdomo v. Morgenthau, 60 A.D.3d 435 (1st Dep’t 2009)
(internal citation omitted) (“A court's primary consideration ‘when
presented with a question of statutory interpretation . . . is to ascertain
and give effect to the intention of the Legislature’”).
As the Court of Appeals discussed in Matter of Abraham, Congress
and the State had a two-fold intent in establishing supplemental needs
trusts. First, they wanted Medicaid recipients who came into a new
revenue source to have the option of retaining Medicaid and SSI, if they
chose. Second, in exchange for that arrangement, the social services
district would recover the trust assets once the person benefiting from
the SNT passed away.
Plaintiff’s proposed construct of the statute frustrates the latter
purpose. In plaintiff’s view, a beneficiary can benefit from a SNT by
remaining eligible to receive Medicaid benefits, but HRA cannot enforce
its statutory interest if a trustee fails to carry out some duty
unbeknownst to HRA. This makes no sense at all. If the trust is validly
26
established by the Court, trustees or beneficiaries should not be viewed
to have the power to nullify the Court’s order unilaterally.7
Upholding plaintiff’s argument and the Supreme Court’s adoption
of it would have broader implications than just this case. HRA relies
upon Court orders establishing SNTs in not taking individuals off the
Medicaid rolls. This means that HRA continues to make expenditures
for individuals who might otherwise be ineligible. HRA has no
independent means of knowing if a trustee or beneficiary has failed to
carry out the Court’s order establishing a trust, whether such failure
occurred in good faith or in bad faith. HRA’s ability to recover from
SNTs, which have provided millions to the Medicaid budget, would be
needlessly put in jeopardy by the Supreme Court’s holding, if it were
upheld.
The failure to recover SNT funds owed to HRA would harm not
just taxpayers, who fund the Medicaid program, but also Medicaid
7 Nor is it relevant whether a beneficiary of a supplemental needs trust passes away
within a year of its establishment or many years hence. The trade-off for obtaining
any continued disability benefits is that the social services district will receive the
trust remainder up to the amount of medical assistance paid out during the lifetime
of the recipient. That amount will frequently be far more than any trust assets, as
was the case with Ms. Gaines’s trust.
27
recipients. The funds recovered from SNTs are reintegrated into
federal, State and local budgets for those needy individuals. This would
be true for funds recovered from the Gaines SNT. If these recoveries are
diminished, the effects of that lost revenue on the Medicaid program
will be significant.
Fortunately, there is no basis to reach such a result. The law is
clear and warrants reversing the Supreme Court’s order.
28
CONCLUSION
The Order appealed from should be reversed in its entirety, with
costs.
Dated: New York, NY
October 5, 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
29
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SUPREME COURT OF THE STATE OF NEW YORK
APPELLATE DIVISION, FIRST DEPARTMENT
-------------------------- ---------------------------~----~- -------)(
CLARENCE GArNES as the Executor of the Estate of
JANIE GArNES, Deceased.
Plaintiff,
-against-
THE CITY OF NEW YORK, NEW YORK CITY
TRANSIT AUTHORITY, METROPOLITAN
TRANSPORTATION AUTHORITY, MANHATTAN
AND BRONX SURFACE TRANSIT OPERATrNG
AUTHORITY and EVERCARE HOME HEALTH
SERVICES rNC.,
Defendants.
---------------------------------- ---------------- ------------)(
(1) The' title ofthe action is captioned above.
Preargumcnt Statement
· (2) The original parties to this action were JANIE GAINES and the defendants named
· in the caption above. After this action was disposed, plaintiff iANIE GAINES
expired. The caption was amended to substitute "Clarence Gaines as the· Executor
of the Estate of Janie Gaines, Deceased" for the plaintiff Janie Gaines. The
DEPARTMENT OF SOCIAL SERVICES OF THE CITY OF NEW YORK
sought relief against JACOBY & MEYERS, LLP, as Escrowee and LORRAINE
COYLE, ESQ., as Trustee of a Supplemental Needs Trust
(3) . Counsel for Appellant the DEPARTMENT OF SOCIAL SERVICES OF THE
CITY OF. NEW YORK:
ZACHARYW. CARTER
Corporation Counsel of the City of New York
Attorney for Appellant
1 00 Church Street
New York; New York 10007
Telephone No.: (212)788-1010
(4) Counsel for Respo11dent ESTATE OF JANIE E. GAINES:
TAMARAL. s· ACK, ESQ.
261 Madison A venue, 18th Floor
New York, New York 100l6
Telephone No.: (2i2) 490-5688
(5) Counsel for Respondent JACOBY & MEYERS, LLP:
JACOBY & MEYERS, LLP
1279 Route 300
Newburgh, New York 12551
Telephone No.: (800) 890-3090
(6) Counsel for Respondent LORRAfNE COYLE, ESQ.:
COYLE & ASSOCIATES, LLP
5911 Riverdale A venue
Bronx, New York 104 71
Telephone No.: (718) 543-2200
(7) Counsel for Respondents NEW YORK CITY TRANSIT AUTHORITY
METROPOLITAN TRANSPORTATION AUTHORITY
MANHATTAN AND BRONX SURFACE AND TRANSIT
WALLACE D. GOSSETT, ESQ.
130 Livingston Street, 11th Floor, Room 1140
Brooklyn, New York 11201
Telephone No.: (718) 694-3860
(8) Counsel for Respondent EVERCARE HOME HEALTH SERVICES:
(9)
(10)
(11)
(12)
O'CONNOR, MCGUINNESS, CONTE, DOYLE,
OLESON, WATSON AND LOFTUS, LLP
One Barker Avenue, Suite 675
White Plains, New York 10601
Telephone No.: (212) 685-8095
The Court from which the appeal is taken is the SUPREME COURT OF THE
STATE OF NEW YORK, COUNTY OF BRONX.
NATURE AND OBJECT OF CAUSE OF ACTION: In disposing of the action
. ' .
for personal injuries, an order dated July 26, 2010, establish.ed a supplemental
needs trust for placement of the settlement proceeds recovered by the plaintiff.
Upon knowledge ofthe plaintiffs death, the Department of Social Services
sought ~nforcement of the 7/26/10 order by Order to Show Cause dated July 18,
2011. The trial court's order dated October 11, 2011 denied the Department's
motion. Th~ Appellate Division vacated the 10/11111 order since the trial court
had failed to direct substitution of the personal representative of the estate of the
deceased plaintiff. Upon a motion by Jacoby & Meyers to .amend the caption, the
Department cross-moved on April 23, 2013; for .relief similar to that sought by its
7/18/11 motion. This appeal is taken from the decision and order·denying the
Depar:tment's cross-motion. :
RESULT REACHED IN COURT BELOW: The Department of Social Services
sought an order directing delivery of the net settlement proceeds to the
supplemental needs trust and reimbursement of Medicaid from the remainder of
the trust. The escrowee and the estate objected, on the grounds that the trust was
neither established nor funded. In its Order dated August 18, 2014, entered
August 22, 2014, the Court held that the July 26, 2010, order neither established
nor funded the trust
GROUNDS FOR SEEKING REVERSAL: The Court misapprehended .New York
Social Services Law §366 (2)(b)(2)(iii) and 42 USC§ 1396p(d)(4)(A) which
conteq1plate the establislunent of supplemental needs trusts by a court of
competent jurisdiction. In failing to recognize Congress' intent, the Court
incorrectly characterized the July 26, 2010 order as granting leave for the plaintiff
to establish the trust, even though the July 26, 20 l 0 order explicitly ordered that
the trust "be and the same is hereby established." The Court's belief that the
plaintiff herself should have established the trust violates the plain meaning of the
governing statutes and creates uncertainty that ultimately hampers their
enforcement. The Court wrongly held that the trust was not-funded even though
the July 26, 2010, order identified the property and directed that it be delivered to
the trustee.
(13) THERE IS NO RELATED ACTION OR PROCEEDING NOW PENDING IN
ANY COURT OF THIS OR ANY OTHER JURISDICTION.
(14) THERE IS NO ADDITIONAL APPEAL PENDING IN THIS ACTION.
Dated: New York, New York
October 6, 2014,
ZACHARY W. CARTER
Corporation Counsel
Attorney for Claimant Department
of Social Services of the City ofNew York
1 00 Church Street
New York, New York 10007
(212) 356-2500