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TAMARA L. STACK
LAW OFFICES OF STACK & ASSOCIATES, PLLC
355 LEXINGTON AVENUE, SUITE 401
NEW YORK, NEW YORK 10017
ADMITTED TO NEW YORK, FLORIDA TELEPHONE (212) 490-5688
AND MASSACHUSETTS BARS FACSIMILE (212) 490-5687
Hon. John P. Asiello January 16, 2017
Chief Clerk and Legal Counsel to the Court
New York State Court of Appeals
20 Eagle Street
Albany, New York 12207-1095
Re: Gaines v. City of New York
APL-2016-000161
Dear Mr. Asiello:
In response to the letter brief by the Department of Social Services of the City
of New York (“HRA”, “DSS”) dated November 18, 2016 (“Appellant”), I submit
this letter brief on behalf of the Estate of Janie Gaines (“Estate”). The Estate requests
this Court deny Appellant’s appeal seeking to reverse the Appellate Division, First
Department’s decision and order affirming the order of Supreme Court, Bronx
County which twice held decedent Gaines’ Irrevocable Supplemental Needs Trust
invalid and denied HRA’s motion to compel distribution of the trust remainder to
HRA. The First Department’s decision should be affirmed.
STATEMENT OF THE CASE
This matter arises from a personal injury action eventually settled for
$600,000.00 before plaintiff’s November 8, 2010 death. $300,000.00 came from
defendant City and was deposited to Jacoby and Meyers escrow fund, and
$300,000.00 came from defendant Evercare and has not been disbursed, and is still
held in Evergreen’s escrow. On or about April 12, 2010 plaintiff moved for an order
establishing a supplemental needs trust (“SNT”), and appointing an independent
Trustee (R. 127). Plaintiff sought to invoke the protections afforded by Social
Services Law 66(2)(b)(iii)(B) and 42 U.S.C. § 1396p(c)(2)(B)(1)(v), § d(4)(A)).
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Thereafter, the Supreme Court issued an order dated July 26, 2010 (“July 26
Order”) which granted plaintiff’s application and authorized establishment of the
“Janie Gaines Irrevocable Supplement Needs Trust” (R. 120) (“Gaines’ SNT”) and
named Lorraine Coyle, Esq. as Trustee. The proposed SNT annexed to plaintiff’s
application (R. 121) was to be incorporated by reference, with payment of any other
lien asserted by the New York City Department of Social Services deferred until the
SNT terminates by virtue of her death. Any remainder after payment of all liens, etc.
was to be paid to the Executor or Administrator of her estate (R. 120-121). Plaintiff
Gaines unexpectedly died on November 8, 2010(R. 195).
Despite the legal nullity of the SNT, on or about July 18, 2011 Appellant DSS
tendered an Order to Show Cause seeking to amend the lower Court’s July 26 Order
“to implement its purpose” and deem Gaines’ SNT constructively funded with all
net settlement proceeds tendered to it (R. 182). Appellant’s argument was based on
the novel claim a SNT can be deemed to constructively exist even though it was
never signed, never filed with the Court as required, never funded and lacked a
qualified Trustee insofar as the requisite documents and bond were never completed
(R. 185-194).
Via an Order dated October 11, 2011 (R. 196) (“Sherman’s 2011 Order”), the
lower Court (Sherman, J.S.C.) denied appellant’s application and held no SNT in
existence given SNT beneficiary Gaines’ death prior to execution of the SNT
Agreement, lack of funding, Trustee’s failure to qualify and Trustee’s failure to file
a bond. The lower Court aptly noted numerous incomplete or otherwise unfinished
specific terms and conditions of the trust due to plaintiff’s death. Specifically, the
lower Court noted at R. 196 and 200-201 how the SNT Agreement was never
executed by both plaintiff and Trustee Coyle, nor was it filed with the Clerk of the
Court as directed. Also absent was the required “consent to act as trustee, oath and
designation as duly acknowledged” by attorney Coyle, and proof of bonding in the
amount of 110 percent of the fair market value of the assets held in the Trust required
to be sent to DSS upon funding of the Trust (R. 196, 198-201). Lastly, the lower
Court noted no settlement monies had been tendered to or received by the Trustee
prior to plaintiff’s death. Given plaintiff’s intervening death and resulting failure to
establish a SNT, the lower Court ruled it impossible as a matter of law to
constructively create a SNT as DSS urged.
Dissatisfied with the Sherman 2011 Order, DSS appealed to the Appellate
Division, First Department. Via a Decision dated March 28, 2013 (R. 202) the First
Department vacated Sherman’s 2011 Order, holding Plaintiff’s November 8, 2010
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death divested the Court of jurisdiction in the absence of proper substitution pursuant
to CPLR § 1015(a).
Thereafter, in accordance with the Court’s decision, on or about April 5, 2013
plaintiff moved for leave to amend the Complaint pursuant to CPLR § 3025(b) and
substitute “Clarence Gaines as Executor of the Estate of Janie Gaines, Deceased” in
place of deceased plaintiff Janie Gaines (R. 25). Via a cross-motion dated April 22,
2013 and making essentially the same arguments, DSS moved for an order directing
all settlement proceeds be paid to proposed Trustee Coyle, who would then render
an accounting and subsequently pay all monies to DSS. (R. 101) Via an Order dated
August 18, 2014 (R. 8) (“Sherman’s 2014 Order”) the lower Court again denied the
application and noted DSS’ arguments to be “substantially similar, although not
identical”, to those prior. As before, the lower Court specifically denied DSS’
attempt to deem Gaines’ SNT funded given the intervening and unexpected death of
the trust beneficiary, failure to execute the trust agreement, failure to fund the trust
and trustee’s failure to both qualify and file a bond (R. 16). Despite DSS’
contentions, the lower Court again held there can be no order directing a net
settlement be paid to an individual in her capacity as nominated trustee and further
took issue with “. . . the still lingering claim by DSS that the death of plaintiff ‘was
not an event that required substitution’ in view of the unambiguous finding of the
Appellate Division, First Department in this case that, indeed it did”. The lower
Court again rejected DSS’ claim regarding the purported establishment of an SNT
despite such being specifically prohibited by EPTL §§ 7-1.17 and 7-1.18 (R. 18).
Again dissatisfied with not one, but two adverse rulings, DSS again appealed
to the First Department. For the first time, and in an attempt to get around EPTL §§
7-1.17 and 7-1.18, DSS argued EPTL § 1-2.20, “the term ‘lifetime trust’ shall mean
an express trust . . . and shall not include; . . . a trust created by the judgment or
decree of a court”. Via a Decision dated March 29, 2016 the First Department (“First
Department’s 2016 Order”) held “[a]lthough a trust ‘created by [a] judgment or
decree of a court’ is not considered a lifetime trust [EPTL § 1-2.20], that exception
does not apply here, because the order ‘establish[ing]’ the SNT is not a judgment or
decree of a court.” The Court further ruled the “motion court correctly denied the
motion, because decedent’s failure to complete the formalities associated with
setting up the SNT prior to her death was fatal to the SNT’s existence”.
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I. Appellant’s new and novel argument is improper. Applicable law fully
supports the finding by both the Supreme Court and First Department.
A. Janie Gaines’ SNT is a “Lifetime Trust”. The Exception Language in
EPTL § 1-2.20 Does Not Apply.
1. Justice Walker’s July 26 Order merely “established” Gaines’s
SNT. It did not “create” it.
Gaines’ SNT was not “created” by the July 26 Order as Appellant urges.
Rather it was “established” by the Court. This is a critical and dispositive distinction.
In pertinent part, the July 26 Order, states it is “Ordered that the Janie Gaines
Irrevocable Supplemental Needs Trust be and the same is hereby established;”
(emphasis added) (R. 122). This language comports with SSL § 366(2)(b)(2)(iii)(A),
which permits courts to “establish” a SNT if the disabled person does not have a
parent or grandparent alive, or if the person has capacity and does not need a
guardian.1 Gaines’ parents and grandparents were deceased and she had capacity.
Thus, she had no need for a guardian. In these circumstances, the only avenue for
Gaines to “establish” a SNT was to petition the court herself.
SSL § 366(2)(b)(2)(iii)(A) merely permits the court in its discretion to
“establish” an SNT subject to applicable statutory mandates and conditions. It does
not “create” one. That there may or may not be less than optimal language in the
Order used by a drafting attorney does not alter or waive the statute’s applicability.
Judge Sherman fully recognized such in his 2014 Decision, which holds, “[t]here
was no application before the Court seeking leave for the Court itself to be the creator
of the Trust, and any language which seems to indicate otherwise in the July 26
Order was simply a mis-characterization of this application. The Trust document
itself identifies Janie Gaines as the Creator of the Trust, not the Court” (R. 18-19).
The established procedure Judge Sherman refers to is mandatory compliance with
EPTL § 7-1.12 and SSL § 366(2)(b)(2)(iii)(A). Judge Sherman held 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. His
ruling was and remains the only correct interpretation of the law. (R. 19)
1 The relevant section of Social Services Law § 366 (2)(b)(2)(iii)(A) states that a “(s)upplemental needs trust is a trust
containing the assets of a disabled individual which was established for the benefit of the disabled individual while
such individual was under sixty-five years of age by a parent, grandparent, legal guardian, or court of competent
jurisdiction, if upon the death of such individual the state will receive all amounts remaining in the trust up to the
total value of all medical assistance paid on behalf of such individual.” (emphasis added)
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After the Court established Gaines’ SNT, EPTL § 7-1.12 applies and
specifically defines Gaines as the “creator” of Gaines’ SNT. EPTL § 7-1.12(a)(5)(iv)
states: “If an inter vivos trust, the creator of the trust is a person or entity other than
the beneficiary. . . .” (emphasis added) Taken alone, this language supports the
proposition that Gaines could not be the creator of the trust, since she is the
beneficiary. The next subsection, EPTL § 7-1.12(a)(5)(v) carves out an exception
for a person who can be both creator and beneficiary if the trust complies with SSL
§ 366(2)(b)(2)(iii)(A). The statute states, in pertinent part, “Notwithstanding
subparagraph (iv) of this paragraph, the beneficiary of a supplemental needs trust
may be the creator of the trust if such trust meets the requirements of subparagraph
two of paragraph (b) of subdivision two of section three hundred sixty six of the
social services law…” (emphasis added). EPTL § 7-1.12 and SSL §
366(2)(b)(2)(iii)(A) permits “establishment” of a SNT by the court. More
specifically, the court approves and establishes the trust under EPTL § 7-
1.12(a)(5)(v). The disabled person is the creator provided the trust meets the
requirements of SSL § 366(2)(b)(2)(iii)(A).
It is un-refuted Gaines’ SNT met the requirements of both statutes: Gaines
petitioned the Court in accordance with statutory mandates. She included
appropriate payback language and met all remaining statutory requirements. SSL §
366(2)(b)(2)(iii)(A) and EPTL § 7-1.12 make it clear that Gaines, and not the court,
is the “creator.” EPTL § 7-1.12 also correctly allows this as an option if the trust is
an “inter vivos” trust, which is another name for and synonymous with “lifetime”
trust.
This statutory construction is upheld by applicable case law. In In re Self-
Petition of Gillette, 195 Misc.2d 89 (Surr. Ct. Broome Cty. 2003), an agent for a
disabled person created a self-settled SNT by executing and funding it without first
“establishing” it via a parent, grandparent, guardian or the court, in contravention of
the statute (see, SSL § 366(2)(b)(2)(iii)(A)). The petitioner sought to have the Court
approve and establish the SNT “nunc pro tunc” to avoid conflict with the Social
Security Administration. The Court refused, holding “[i]t had already been
established by Mr. Gillette when the trust was signed by him and the trustee and
funded, thus completing the acts necessary to create a trust. The court cannot by an
order nunc pro tunc correct an act done which was improper when done.” (emphasis
added). Gillette supports Gaines’ position a SNT is not created until after the Court
both reviews and approves the trust agreement to ensure compliance with EPTL §
7-1.12 and SSL § 366(2)(b)(2)(iii)(A)). In short, it merely “establishes” the trust per
SSL § 366(2)(b)(2)(iii)(A). As was held in Gillette, “there is no logical reason that
the disabled person cannot be the grantor and petition the court to establish the trust,
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as long as the trust has not been signed by the trustee and funded before submission
to the court” (emphasis added) (Gillette, at 91). Gillette clarifies and tracks the
sequential process required to establish a SNT in more detail: Petitioner (the
“grantor/creator”) petitions the court for approval and confirmation that the trust
agreement complies with the requirements of EPTL § 7-1.12 and SSL §
366(2)(b)(2)(iii)(A)). Pursuant to SSL § 366(2)(b)(2)(iii)(A), the court then
“establishes” the trust. Thereafter, the petitioner, as grantor (another word for
creator) executes the trust by order of the court.2 The trustee then executes the trust
(per EPTL § 7-1.17). Finally, the trust is funded per EPTL § 7-1.18. Here, Gaines’
untimely death prevented her from completing the crucial and non-discretionary
final steps required. She never executed it. The trustee similarly did not execute it
and, finally, the trust was never funded. The bottom line is irrefutable: there is no
trust nor can one be constructively deemed to exist.
Moreover, the Human Resource Administration department’s, the Medicaid
agency, in New York City (hereinafter “HRA”) actions support Gaines’ arguments
regarding necessary statutory prerequisites outlined above. It is a standard procedure
for HRA to review and approve SNT trust agreements prior to execution. See, Maria
Vardaros letter (R. 234-235). After review of the proposed trust, HRA required
Gaines to include specific language in her trust agreement prior to formal
establishment by the Court, so as to comply with HRA’s requirements. If HRA truly
believed it was not necessary for Gaines to execute the SNT in compliance with
applicable lifetime trust rules, why did HRA not require Gaines’ attorney to strike
the signature and notary block? Further, in this same letter (R. 234-35), why would
Ms. Vardaros require Gaines’ counsel to return a copy of the executed trust
agreement to HRA? The answer is as simple as it is fatal to Appellant’s position:
Court-established SNTs must comply with lifetime trust rules regarding execution
and funding. Here, HRA is making a disingenuous argument to reach assets not
lawfully obtainable. Its arguments are in contravention of both the law and its own
practices, all of which support New York’s statutory mandate that lifetime trust rules
apply to all self-settled SNTs. Appeals to emotion or the alleged financial condition
of DSS are neither proper nor relevant. Gaines did not create the statutory framework
and requirements therein. She merely followed them. Appeals by DSS to disregard
applicable law because it wants money must be ignored.
2 See, Gillette at 91 (“The new trust recites that the grantor is Richard Gillette ‘pursuant to an order
of the Surrogate’s Court, County of Broome.’ This is the exact method recommended by Judge
Kasoff’s treatise for an individual who has no parent or grandparent and thus requires a court
order to establish the trust. (Kasoff and Robert, Elder Law and Guardianship in New York §
8.90, at 8-47.)”).
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a. Interchange of the words “create” and “establish” in case law
and treatises does not change statutory requirements.
Appellant incorrectly argues there is no distinction between “creating” and
“establishing” a trust under New York law, largely due to occasional, yet erroneous
interchange of these terms in a few cases and secondary sources. In Matter Of
Abraham XX 11 N.Y.3d 429, 436 (2008), this Court opined that “due to the limited
case law,” as here, courts “are left with the plain meaning of the statute and the policy
behind it enactment. The words of the statute are clear and absolute”. Here, as in
Matter of Abraham XX, there is little case law, yet the statute is nonetheless clear
and absolute: A Court simply establishes a SNT. The beneficiary can also be the
creator. Occasional and arguably erroneous interchange of “create” and “establish”
in dicta and/or various secondary sources does not alter the law. Erroneous or in-
artful interchange of synonyms cannot change the plain meaning of applicable
statutes particularly when, as here, the meaning is clear and absolute.
b. Interchange of the words “create” and “establish” in Gaines’
documents requesting “establishment” of her SNT does not alter
or render moot applicable statutory requirements governing
self-settled SNTs.
Gaines’ petition and supporting documents requested the lower Court
“establish” her SNT. She is clearly listed in the proposed SNT as the creator
(Grantor). The mere fact Gaines’ counsel mistakenly interchanged the terms “create”
and “establish” a few times in her petition neither alters nor nullifies statutory
mandates. Neither can such effect the July 26 Order and specific language of Gaines’
SNT Agreement. HRA’s misguided interpretations do not serve as grounds to ignore
applicable law merely because counsel may or may not have used less then optimal
language in a client’s petition and affidavit submitted to the Court.
Judge Sherman’s second trial decision of August 18, 2014 (R. 8) fully
recognized this when it rightfully declined to adopt Appellant’s “constructive trust”
argument which claimed Judge Walker’s July 26 Order somehow “created” the
Trust.3 Judge Sherman aptly stated “[t]he Court is not impressed by DSS’s reliance
on the conflicting wording in the July 26 Order, which initially states, accurately,
that the application before the Court was a motion seeking leave for the plaintiff to
establish a Supplemental Needs Trust. There was no application before the Court
seeking leave for the Court itself to be the creator of the Trust, and any language
3 As stated above, Appellant’s new argument, that the statutory exclusion language of EPTL § 1-
2.20 excepts Gaines’s SNT from the lifetime trust rules, was not made at the trial level.
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which seems to indicate otherwise in the July 26 Order was simply a mis-
characterization of the application. The Trust document itself identified Janie Gaines
as the Creator of the Trust, not the Court. A Trust cannot be created through the
inclusion of language poorly chosen by the counsel who drafted the order, in obvious
contradiction to the established procedures followed in this Court, and in this
specific proceeding.” (R. 18-19) Despite Appellant’s attempt to re-argue its position
based on what was then a new and novel argument before the First Department
regarding the exception language in EPTL § 1-2.20, the Appellate court was un-
persuaded.
c. The Legislature did not intend the terms “create” and
“establish” be used interchangeably.
In 2010, EPTL § 7-1.17 was amended to expand the category of persons who
could execute and acknowledge a lifetime trust. There was no intent to alter the
statutory framework of the existing EPTL governing SNTs (1994 N.Y. Laws 170)
(the “2010 Amendment”) (See, Bill Jacket, L. 2010, ch. 451, at 6). In Matter of
Abraham XX, supra, this Court reaffirmed the legal tenet wherein “due to the limited
case law”, as here, “courts are left with the plain meaning of the statute and the policy
behind its enactment”… (Matter of Abraham XX, at 436). Enactment of the 2010
Amendment was intended to expand the class of persons able to create a lifetime
trust and include executors and persons holding a power of appointment. (See, Bill
Jacket, L. 2010, ch. 451, at 6). There was no intent to limit or otherwise restrict
application of lifetime trust rules to other trusts under the EPTL. This amendment
simply broadened the list of persons able to create a lifetime trust. It did not change
the existing statutory framework of the court establishing the Trust under SSL §
366(2)(b)(2)(iii)(A), nor did it affect a beneficiary’s ability to be the creator of the
SNT under EPTL § 7.1-12. If HRA truly believed the 2010 Amendment and other
statutory law removed the ability for the beneficiary to be the creator of their own
court-established SNT, why would HRA approve a SNT where Gaines herself was
identified as the Grantor/Creator of the Trust, not the Court? Why would HRA
request a copy of the executed Trust Agreement? HRA’s own actions do not match
Appellant’s novel argument invented solely to recover funds it has no right to under
the law.
d. There is no conflict between the First Department’s holding and
either Federal or State law.
Federal and state law are consistent with each other and the First Department’s
holding at issue. New York enacted the conforming statute under SSL §
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366(2)(b)(2)(iii)(A) when 42 U.S.C. § 1396p(d)(4)(A) was enacted. SSL § 366
(2)(b)(2)(iii)(A) is consistent with Federal law. It precisely follows it. Federal law
directs what is needed for “establishment” of a SNT and not the “creation” of them.
State law mirrors this by using the term “establishment.” Appellant is incorrect when
it argues the EPTL creates inconsistency. Federal and state statutes under SSL §
366(2)(b)(2)(iii)(A) and 42 U.S.C. § 1396p(d)(4)(A) merely mandate
“establishment” of the SNT in order for such trust to qualify as an exempt resource
under Medicaid laws.
In addition to their establishment under N.Y. law, EPTL § 7.1-12(a)(5)(v)
permits the beneficiary to be the “creator” provided the trust complies with SSL §
366(2)(b)(2)(iii)(A). They do not, as Appellant erroneously urges, create
inconsistency under either Federal or State law. Instead, they merely establish the
steps needed under New York trust law for self-settled SNT trusts to be considered
valid. Under Appellant’s flawed reasoning, court-established, self-settled SNTs
would not be subject to lifetime trust rules, yet parent-established SNTs would, thus
creating a dichotomy wherein court-established SNTs are treated differently
depending on who commences a formal action to “establish” one.
In conclusion, the first phrase of the language creating exceptions to the
definition of “lifetime trusts” in EPTL § 1-2.20, where the court is the creator, does
not apply. Thus, the lifetime statutory requirements to execute and acknowledge a
SNT (EPTL § 7-1.17) and both transfer and fund the SNT (EPTL § 7-1.18) fully
apply. They are neither optional nor discretionary.
2. Supreme Court’s July 26 Order was not a “judgment or decree”
under EPTL § 1-2.20. It is neither a “binding judicial edict” nor
“final adjudication.”
Appellant mistakenly interprets the second phrase of EPTL § 1-2.20 in its
assertion Gaines’ SNT is an exception to the definition of lifetime trusts. More
specifically, it argues the statute contains an implied exception wherein a “lifetime
trust … shall not include …… a trust created by the judgment or decree of the court”
(emphasis added). The July 26 Order was an “order.” Despite Appellant’s
contortions such is not a “judgment or decree,” both of which have specific and
controlling definitions. CPLR § 105(k) defines “judgment” to be a final or
interlocutory judgment. Such most certainly does not describe the July 26 Order
which merely established a proposed SNT, which was incomplete under the law and
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detailed the many steps yet to be performed by petitioner and trustee alike before it
would be signed and final.
The other reference in EPTL § 1-2.20 is to a trust created by a “decree,” which
is defined by SCPA § 601 as the “determination of the rights of the parties to a
special proceeding in the [Surrogate’s Court] is a decree.” A decree is similar to a
judgment in that it constitutes a final adjudication between or among parties. These
terms are not the same as “Order.” In the first footnote of In re Estate of Carroll,
100 A.D.2d 337 (2nd Dept. 1984), the Court clarified language used by the lower
court in holding: “1. The decree is incorrectly denominated an order. The Surrogate’s
determination constitutes a final adjudication of the rights of the parties to a special
proceeding and, therefore, is properly terminated by a decree (SCPA 601; Matter of
Slobodin-Edelson, 44 Misc. 273, 275).” See also, In re Estate of Zalaznick, 94
Misc.2d 988 (Supreme Ct. Bronx Cty. 1978), In re Estate of O’Brien, 204 A.D.2d
983 (4th Dept. 1994) and In re Hoyt’s Will, 186 Misc. 272 (Supreme Ct. Westchester
Cty. 1945). Under no reasonable interpretation of these definitions could one
construe the July 26 Order to be a “judgment or decree.” Again, the July 26 Order
only established Gaines’ SNT under governing statutes. In no way did it “constitute
a final adjudication of the rights of the parties” under the Second Department’s
rationale in Carroll, supra.
An “Order” is issued by a court after a party petitions it requesting a
determination or direction for a particular step in a proceeding. Gaines went to court
and got what she asked for: an Order granting her leave to establish a SNT. Apart
from her untimely and unforeseen death, at any time prior to signing the SNT, Gaines
had the unfettered right to change her mind. If she so chose and failed to both execute
and fund her SNT as established by the court, HRA’s only recourse would have been
to terminate her Medicaid. There is no way HRA could have obtained a court order
compelling Gaines to execute and fund her trust based solely on an Order which
merely “established” her SNT. SSL § 366(2)(b)(2)(iii)(a) permits the court to
“establish” the trust. It does not compel execution and funding. At any time up until
it was signed Gaines alone owned the assets at issue and had sole right to execute or
not execute the SNT. If the court during Gaines’ lifetime lacked the power to compel
her to execute and fund the trust, how could the same Court compel Gaines’ Estate
to do so now posthumously? In short, the Court simply does not have that right. As
Judge Sherman twice held, there is no statutory authority for this novel request. (R.
20). In fact, statutory authority supports Gaines’ contention she alone owned the
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settlement funds during her lifetime. Only after her death would assets pass to her
estate. (See, EPTL § 7-1.7 4)
a. The July 26 Order was not a “binding judicial edict.” Appellant
mistakenly relies on wholly distinguishable cases.
Appellant argues the July 26 Order was a “binding judicial edict” (Appellant
Brief, p. 25) which would be exempt from the formalities of a lifetime trust. As
detailed above, Gaines petitioned the court to establish her SNT trust as a sole,
unopposed party. The resulting Order was not a “binding judicial edict” (Appellant
Brief, p. 25) between opposing parties, nor was it in any way intended to apply as
an order that is “final to the trust” (Appellant Brief, p. 16), nor a “court order that
fully resolves the claim” (Appellant Brief, p. 17). Gaines requested such relief
because such was the only way she could “establish” a self-settled, qualifying
Medicaid-exempt SNT.
Given Gaines property rights in her settlement proceeds, the July 26 Order
cannot be deemed a “binding judicial edict” either stripping her of her rights or
otherwise a final and irrevocable determination. Gaines sought leave of the Court to
establish a self-settled trust in the only way open to her. Appellant’s mistaken
reliance on cases where parties entered into stipulations of settlement so as to finally
resolve contested or otherwise litigated matters is unavailing and not at all analogous
to the facts here. In the cases cited by Appellant, an order was a final adjudication
between opposing parties after litigating opposing positions before the trial court.
(Appellant Brief, p. 17, citing Matter of N.Y. State Crime Victims Bd. V Gordon, 66
A.D.3d 1213, 1216 (3d Dep’t 2009); DiBella v. Martz, 58 A.D.3d 935, 937 (3d Dep’t
2009); See also, State v. Wolowitz 96 A.D.2d 47, 54 (2d Dep’t 1983)) The resulting
orders were definitive and binding resolutions involving adverse parties. Gaines’
sole option was to petition the Court to establish a SNT which, again, under the
statute merely allowed her to “establish” a SNT; the resulting Order was not a
“binding judicial edict.” Gaines had the right to change her mind any time between
issuance of the Order and her death. All personal injury settlement funds belonged
to Gaines alone until her death, whereupon they passed to her Estate. Her application
to the court for leave to establish a SNT did not magically transfer her property rights
to the court or HRA. At all times relevant and up until her death Gaines property
could only be considered a Medicaid-exempt resource once executed and funded.
Parenthetically, and although this question is not currently before the court, had
4 EPTL § 7-1.7 states that “[e]very legal estate and interest not embraced in an express trust and
not otherwise disposed of remains in the creator.”
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Gaines changed her mind after the issuance of the July 26 Order and declined to
execute or fund her SNT, the court lacked the power to compel execution and
funding. Under this scenario, HRA’s only recourse would have been to terminate
her Medicaid benefits, and/or place a lien against her assets for improperly paid
Medicaid benefits. (96 ADM-8, p. 14)
Appellant’s citation to In re Zhou Ping Li, 2005 N.Y. Misc. LEXIS
3592 (Sup. Ct. Kings Co. Nov. 1, 2005), a Supreme Court, Kings County case, in an
attempt to imply the July 26 Order was tantamount to a “judgment” or “decree”
(Appellant’s Brief, p. 16) is misplaced. The circumstances surrounding the Zhou
Ping Li court’s final “decision, order, and judgment” included multiple issues, was
litigated by adverse parties, and involved a stipulated settlement agreement. As to
the SNT, the court ordered “the establishment of a supplemental needs trust” (Zhou
Ping Li, at 23). Appellant completely misquotes the holding of In re Fiorillo, 2005
N.Y. Misc. LEXIS 4704, at 3 (Sur. Ct. N.Y. Co. Oct. 12, 2005) by referencing the
“decree creating supplemental needs trust” (emphasis added) (Appellant’s Brief, p.
16). In fact, Fiorello’s decree actually bolsters Gaines’ claim. It states the “court
approves and establishes the supplemental needs trust for the benefit of David
Fiorillo”. (emphasis added) (Fiorello, at 3) The court did not “create” the SNT. It
merely established the right to consummate one.
Although Appellant is correct a ruling’s substance controls and not the label
placed upon it, the law does not support Appellant’s grossly inflated interpretation.
Under no colorable interpretation can one deem Gaines’ SNT subject to select
provisions of EPTL § 1-2.20 exempting a “trust created by the judgment or decree
of the court.” Appellant’s attempt to equivocate the terms “judgment or decree” and
“order,” does not change the clear language of the statute and in no way can be
construed to exempt Gaines’ SNT from these requirements. Her SNT was a lifetime
trust, thus rendering EPTL § 1-2.20 inapplicable. Gaines, like any other applicant
seeking a lifetime trust, was required to comply with EPTL §§ 7-1.17 and 7-1.18.
Should this Court transform the “order” at issue into a “judgment or decree,”
Gaines would be held to a different standard than disabled persons who, unlike her,
had a parent, grandparent or guardian to establish the trust without a court order.
Under such circumstances, Appellant could not make this statutory exception
argument simply because a living parent or grandparent or a guardian was available.
The end result would be both a facially discriminatory dual standard and bifurcation
of the statute. Basic rules of both fairness and statutory construction require statutes
to be applied fairly and equally. Nothing in the law or its legislative intent indicates
13
different standards should be applied to those with or without qualifying
relatives/guardian.
3. Exceptions to Lifetime Trusts set forth in EPTL § 1-2.20 do not
apply. Instead, Lifetime Trust rules control.
Gaines’ SNT squarely falls under the definition of “lifetime trusts,” and thus
subject to the execution and funding requirements of EPTL §§ 7-1.17 and 7-1.18.
As Judge Sherman found in both his 2011 Decision (R. 244) and 2014 Decision (R.
8), the lack of execution and funding prior to Gaines’ unexpected death nullifies the
trust.
Despite Appellant’s contortions, the First Department correctly affirmed
Judge Sherman’s decision and reasoning. Gaines’ inability to complete necessary
and un-waivable prerequisites are fatal to the SNT’s existence. Neither decedent nor
the putative trustee executed or acknowledged the proposed trust agreement, nor was
the SNT funded with settlement proceeds (see EPTL §§ 7-1.17, 7-1.18; Fasano v
DiGiacomo, 49 AD3d 683, 684-685 [2d Dept 2008], lv denied 11 NY3d 710 [2008];
See also Matter of Bishop v Maurer, 73 AD3d 455, 455 [1st Dept 2010]). EPTL § 7-
1.17 states that “[e]very lifetime trust shall be in writing and shall be executed and
acknowledged by the person establishing such trust and . . . by at least one trustee
thereof.” (emphasis added) The reasoning behind enactment of this statute is set forth
by the Second Department in Fasano v. DiGiacomo, supra, which holds:
EPTL 7–1.17 was enacted in 1997 to impose certain formal
requirements for the creation . . . of lifetime trusts . . . . Until the passage
of this statute in 1997, New York, a state with strict and rigid
requirements for wills . . . did not have any formal requirements for
lifetime trusts . . . . In enacting the statute, the Legislature recognized
that a “degree of formality helps the parties involved realize the serious
nature of the instrument being executed and reduces substantially the
potential for foul play” (Senate Introducer Mem. in Support, Bill Jacket,
L. 1997, ch. 139, at 8) . . . .
Under Fasano v. DiGiacomo, supra, no valid trust was created where it was
“undisputed that the trust agreement was never executed by . . . the designated
trustee, in accordance with the requirements set forth in EPTL 7-1.17(a) for the
creation of a lifetime trust”. EPTL § 7-1.17 clearly states the trust must be executed
with this bright line requirement. Such was not done here. These mandates are not
ministerial or optional. They are essential and un-waivable.
14
EPTL § 7-1.18 states that “[a] lifetime trust shall be valid as to any assets
therein to the extent the assets have been transferred to the trust.” (emphasis added)
The First Department has held this language is clear. Mere “recital of assignment,
holding or receipt” is insufficient for transferring assets to a trust, Bishop v. Maurer,
73 A.D.3d 455, 455 (1st Dept. 2010). In Bishop, The Surrogate thus correctly found
that because a deed was required under EPTL § 7-1.18, the real property at issue had
never been conveyed to the trust.” See also, In re Estate of Rothwell, 189 Misc.2d
191, 197 (Surr. Ct. N.Y. Cty. 2001) (“Simply attaching a schedule which recites that
certain assets belong to the trust is not sufficient. The grantor is obligated to actually
transfer the assets . . . . Here, the decedent/grantor only ‘lists’ the property which
forms the corpus of the lifetime trust.”). Even if the grantor has properly executed a
trust agreement, the trust is not be valid until a transfer of corpus has occurred. See,
Doman, at 863. In addition, the Legislators’ revision notes on the bill for the EPTL
§§ 7-1.18 section includes the following:
Mistake, mischief and unnecessary litigation might result if self-settling
creators are informal in their funding practices. Since the asset will
eventually pass without the formalities of a will, the declarant should
be required to initiate the legal formalities of re-registration or other
transfer of a gift. Accordingly, this bill would require that trusts must
be funded to be valid as to particular assets.
1997 N.Y. Laws § 7-1.18: L. 1997, ch. 139 (June 25, 1997). Taken to its logical
conclusion, Appellant’s arguments would muddy what assets have been transferred
to a trust and render an otherwise clear and unambiguous statute anything but. Judge
Sherman recognized this by citing Fasano v. DiGiacomo and Matter of Doman,
when he held the “Supplemental Needs Trust in this matter was not executed by
either the creator of the trust i.e. the late Ms. Gaines, or by the Trustee, nor was it
funded. Accordingly, the un-executed and un-funded Trust is invalid and
unenforceable. A Trust is not valid until it has a corpus; even had the Trust been
executed, the failure to fund it would have invalidated it under the statute.” (R. 18).
Thus, to be valid, a trust must be executed, acknowledged, and funded.
Also applicable is SSL § 366(2)(b)(2)(iii)(A) which states, in relevant part,
“the state will receive all amounts remaining in the trust . . . .” Here, there are no
amounts remaining in the trust nor could there be, since it was never funded.
Accordingly, there can be no “amounts remaining” in the SNT. Moreover, EPTL §
7-1.7 states “[e]very legal estate and interest not embraced in an express trust and
not otherwise disposed of remains in the creator.” Thus, any interest remains with
15
the trust’s creator until and unless such interest is effectively transferred to the trust.
In other words, all un-transferred property belonging to a deceased creator, passes
unencumbered to the creator’s estate. There is no legal mechanism permitting
posthumous transfer of interests or property to a trust. Not only does Respondent’s
novel argument ignore these EPTL provisions, it also ignores relevant Social Service
Law.
Judge Sherman’s 2014 Decision (R. 8) upheld by the First Department
confirmed application of lifetime trust rules set forth in EPTL §§ 7-1.17 and 7-1.18,
by holding “[f]or a lifetime trust, such as a Supplemental Needs Trust to be valid,
the Trust must be executed and acknowledged by the person establishing the trust
and by at least one trustee thereof” (R. 17-18). In his both his 2011 Decision and
again in his 2014 Decision, Judge Sherman properly acknowledged the significance
of these statutory requirements by holding there is “no authority for Respondent's
novel request” (R.20). The lower court was similarly correct in holding “the death
of the plaintiff, which occurred before the Trust was funded or even executed, and
before the Trustee qualified, was of enormous significance, and it wholly vitiated
the order of this Court dated July 26, 2010.” (R.20) This holding fully and properly
applied EPTL §§ 7-1.17 and 7-1.18 requiring formal execution and funding, and
SSL 366(2)(b)(2)(iii)(A), which requires a trust contain assets before DSS may
satisfy any lien. The July 26 Order and the terms of Gaines’ SNT were again upheld.
B. The First Department’s holding comports with New York’s Legislative
statutory framework.
Appellant argues affirmation of the First Department’s decision would upend
the legislative scheme (Appellant’s Brief, p. 20). The argument lacks both
foundation and substance. In order for Appellant to prevail this court would need to
(i) Disavow five (5) New York statutes and one Federal statute, (ii) Create ambiguity
in otherwise bright line New York trust law; (iii) Effectively bifurcate Social
Services Law §366 (2)(b)(2)(iii)(A) by discriminatorily applying one standard to
disabled persons who apply to the court and another to those with a surviving parent
or grandparent; (iv) Obviate application of Federal statute, 42 U.S.C. §
1396p(b)(1)(B), wherein no estate recovery is permitted by DSS for persons under
55 who live in the community; and (v) Skew the balance fashioned by the Legislature
in favor of the State, to the detriment of Gaines’ Estate. Respondent must point out
the Fourth Department’s holding in Matter of Woolworth, 76 A.D.3d 160, 903
N.Y.S.2d 218 (4th Dep’t 2010) which held it an abuse of discretion to skew the
balance fashioned by the Legislature to petitioner’s detriment in favor of the State.
16
II. New Federal law permits SNT beneficiaries to “establish” self-settled
SNTs without judicial intervention.
A. New Federal law eliminates the need for court-establishment of a SNT
for disabled beneficiaries with capacity.
DSS vaguely argues upholding the First Department’s ruling will create
unspecified complexity with respect to administration of Medicaid benefits for
court-established SNTs. Their argument is at best illusory and contrary to established
practice, DSS generally monitors these SNTs based on its historically consistent
requests for copies of executed trusts, whether court ordered or established by
another party. This is all soon to become moot, however. On December 13, 2016,
President Obama signed the 21st Century Cures Act, which includes the Sec. 5007
Fairness in Medicaid Supplemental Needs Trusts section (the “21st Century Cures
Act”) (P.L. 114-255) into Federal law, effective immediately. Under this new law,
self-settled SNTs may be established by the disabled individual themselves without
judicial intervention, thus giving them the same rights as those with a parent,
grandparent, or guardian. No longer will a disabled individual without family etc. be
required to obtain a court order to establish a SNT. New York will, of course,
comply. Governor Cuomo is expected to address the New York enabling regulations
in his forthcoming budget. Any confusion implied by HRA which might result from
use of court-established SNTs, which never really existed in the first place, shall
soon be moot.
17
CONCLUSION
For the reasons stated above, the plaintiff respectfully requests this Court to
affirm the Appellate Court’s Decision in all respects and dismiss this appeal.
Respectfully submitted,
TAMARA L. STACK
Law Offices of Stack & Associates PLLC
Attorney for the Plaintiff/Respondent
ESTATE OF JANIE GAINES
355 Lexington Avenue, Suite 401
New York, New York 10017
By: _____________________________
TAMARA L. STACK
James W. Shuttleworth, III
Finkelstein & Partners, LLP
Of Counsel, Jacoby & Meyers, LLP
1279 Route 300
Newburgh, New York 12551
cc: Hon. Zachary W. Carter
Corporation Counsel, City of New York
Attention: Eric Lee, Esq.
100 Church Street, Room 6-195
New York, New York 10007
CERTIFICATE OF COMPLIANCE
I hereby certify that this letter brief was prepared using Microsoft Word, and
according to that software, it contains 6,784 words in the body of the submission.
______________________________
TAMARA L. STACK
STATEMENT OF INCORPORATION OF ARGUMENTS
I hereby state that, in accordance with Rule 500.11(e), I hereby incorporate all
arguments contained in the Estate of Jaine Gaines’ Appellate Division Brief, dated
November 4, 2015.
______________________________
TAMARA L. STACK