January 27, 2017
Hon. John P. Asiello
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:
Appellant Department of Social Services of the City of New York
(HRA) respectfully requests the Court’s permission to submit this reply
under Rule of Practice 500.11(e). HRA also renews its request that this
appeal be heard with full briefing and argument.
Our opening letter established that the Appellate Division, First
Department erred in concluding that Janie Gaines’s trust was invalid.
Supreme Court formed the trust, and § 1-2.20 of the Estates, Powers
and Trusts Law (EPTL) confirms that the trust—“created by the
judgment or decree of a court”—is valid without the formalities
statutorily required for lifetime trusts. Yet the First Department
misinterpreted this EPTL provision in two different ways, adopting
distinctions that the Legislature and this Court have expressly rejected.
The First Department also gave short shrift to the policy implications of
its ruling, casting the validity of an untold number of supplemental
needs trusts in doubt and reintroducing uncertainty into a process
whose reliability courts, individuals with disabilities, and government
agencies have come to expect.
ZACHARY W. CARTER
Corporation Counsel
THE CITY OF NEW YORK
LAW DEPARTMENT
100 CHURCH STREET
NEW YORK, NY 10007
ERIC LEE
Phone: (212) 356-4053
Email: erlee@law.nyc.gov
The Estate's letter offers no meaningful defense of the First
Department's decision. Instead, it repeatedly admits that "creating" and
"establishing" a trust mean the same thing. It also concedes that
judicial edicts should be assessed by their substance and function, not
by their label as an "order" or a "judgment." Stripped to its essence, the
Estate's position depends on a formalistic interpretation of the statute
that finds no support in legislative intent or case law. This Court should
reverse.
ARGUMENT
A. Supreme Court's Order Formed the Gaines Trust.
1. As the Estate repeatedly concedes, creating and
establishing a trust are the same act.
The First Department held that EPTL § 1-2.20's exemption of
trusts created by the judgment or decree of a court did not apply here
because Justice Walker established the trust but never created it.
Gaines v. City of New York, 137 A.D.3d 673, 673 (1st Dep't 2016). This
holding is flawed: No such distinction between "creating'' and
"establishing'' a trust exists. The Estate's attempts to defend the
holding only reinforce how badly the First Department erred.
a. At the outset, the Estate's word play ignores the basic point of
EPTL § 1-2.20's exen1ption for court-created trusts. For if it were true
that a court could do no 1nore than "establish" a trust, and only the
person who contributes property to the trust could "create" the trust,
then the statutory exemption for court-created trusts would be
meaningless. This is reason enough to reject the Estate's argument.
But there is more: the Estate's purported distinction between
"creating" and "establishing'~ a trust is a result-driven invention
lacking any support in New York law. In fact, the Estate concedes that
treatises and New York courts (including this Court) use "create" and
"establish" interchangeably to mean the formation of a trust. Resp. Ltr.
at 7. Nevertheless, the Estate asserts thai the "arguably erroneous
interchange" of these "synonyms" "in a few cases and secondary
sources" does not undercut the purported bright-line distinction
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between these terms. Id. But the Estate overlooks the simplest
explanation for the robust pattern in usage. As we have explained, App.
Ltr. at 10-11, courts use the words interchangeably because they mean
the same thing.
To salvage its invented distinction, the Estate cites just one case,
Matter of Gillette, 195 Misc.2d 89 (Surr. Ct. Broome Cty. 2003). The
Estate reads this decision to describe a two-step process by which a
court "establishes" a supplemental needs trust and the beneficiary then
"creates" the trust~ Resp. Ltr. at 5-6. But Gillette does not discuss such a
process and instead supports HRA's position. In Gillette, the Social
Security Administration ended the petitioner's disability benefits after
discovering that he had created his supplemental needs trust himself
(without turning to the courts, a relative, or legal guardian as the law
had required). To recoup his lost benefits, the individual petitioned
Surrogate's Court to create his trust nunc pro tunc. Id. at 90. The court
refused, stating that it could not retrospectively form a trust by order
that had already been formed by the petitioner's own act. Id. at 91.
Gillette thus makes clear that the establishment and creation of a trust
are not distinct steps in the process of trust formation, as the Estate
proposes, but instead a single act that can be done either by an
individual or by a court.
Gillette further undermines the Estate's position by repeatedly
using the terms "establish" and "create" interchangeably. For example,
the court explained that the petitioner "established" the trust because
he "complet[ed] the acts necessary to create" it. Id. at 90. Similarly, the
court stated that if "all the requirements to create a trust" are not
completed, a trust is "not established." Id. at 91. Under the Estate's
interpretation, these sentences should make no sense because, in its
view, a court must establish a trust before an individual can create it.
Gillette's use of these terms as synonyms only proves that the Estate's
distinction is manufactured for this case.
b. The Estate also concedes that Ms. Gaines's attorney in Supreme
Court used the words interchangeably. Resp. Ltr. at 7-8. The Estate
attempts to soften this self-inflicted wound by insisting that these
"mistake[s]" h appened only "a few times." Id. Here again, the concession
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gives away the game. Her attorney repeatedly asked Supreme Court to
"create" or "establish" her trust because everyone understood she
wanted the court to form her trust.
To deflect, the Estate asserts that HRA's conduct supports the
Estate's position. Resp. Ltr. at 6. It does not. HRA's clerical request for
a copy of the executed trust agreement (a request that it makes in all
cases) has no bearing on the court's express authority to create
supplemental needs trusts and whether they fall within EPTL § 1-2.20.
The validity of a court-created trust, like the one here, simply does not
turn on whether the beneficiary executed the agreement.
c. The Estate ignores the significance of the legislative history
entirely. In its opening letter (at 12-14), HRA explained that in 2010,
the Legislature amended EPTL § 7 -1.17-w hich specifies the
formalities required of a lifetime trust- to replace the phrase "initial
creator" with the phrase "person establishing such trust" to describe the
person who must execute and acknowledge the trust instrument. The
Estate nonetheless insi~ts that despite the amendment, the Legislature
"did not intend the terms 'create' and 'establish' be used
interchangeably." Resp. Ltr. at 8.
The Estate's position is untenable. With the amendment, the
Legislature literally replaced a form of the word "create" with a form of
the word "establish." This act alone shows that the Legislature
considered the words synonymous. Removing all doubt, the Legislature
explained that "a literal reading" of the original statute-giving the
term "creator" a technical rather than a common sense meaning-would
have frustrated the statute's intended purpose and barred conduct
authorized by "well established" law. Bill Jacket, L. 2010, ch. 451 at 6.
d. The Estate argues that its statutory interpretation must be
correct because HRA's position treats court-created trusts "differently"
from parent-created trusts, exempting only the former from lifetime
trust requirements. Resp. Ltr. at 9. The Estate also faults HRA for
touting an interpretation that "[s]kew [s]" state law in favor of the
government. Id. at 15.
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This argument misses the point. HRA does not seek to alter the
statutory structure, but to enforce it. State law mandates different
treatment between court-created trusts and other trusts because a clear
statutory exception exists. As explained in our opening letter (at 14-15),
the law explicitly barred Gaines from creating her own supplemental
needs trust. She had to turn to the courts, or to a relative or legal
guardian, to enjoy the trust's unique benefits. And while a
supplemental needs trust created by a relative must comply with
lifetime trust requirements, EPTL § 1-2.20 excludes a trust created by a
court. As HRA has explained, this deliberately crafted structure is
rooted in the judiciary's long history with these trusts. App. Ltr. at 3-4.
e. ffitimately, the Estate has painted itself into a corner. It
confesses that the words are "synonyms" and that courts, treatises, and
Gaines's own attorney use them interchangeably. Resp. Ltr. at 7. And it
never rebuts HRA's point that the First Department's interpretation
turns the exclusion of trusts "created by the judgment or decree of a
court" into a dead letter and other EPTL provisions into nonsense. App.
Ltr. at 13-14. The Estate's sole pitch is that its interpretation of EPTL
§ 1-2.20 purportedly reflects the provision's "plain meaning," yet it
offers no evidence to support its stance. Resp. Ltr. at 7. The Estate's
head-in-the-sand position defies logic and law.
2. Supreme Court's ruling qualifies as a "judgment or
decree" under EPTL § 1-2.20. .
As HRA explained in the opening letter (at 15-17), EPTL § 1-2.20
exempts all court-created trusts, regardless of its denomination.
Substance, not labels, controls- a principle that the Legislature and
courts, including this one, have embraced in analogous instances.
The Estate concedes that "a ruling's substance controls and not
the label placed upon it." Resp. Ltr. at 12. Yet it nonetheless insists that
labels should carry the day in construing EPTL § 1-2.20 for two reasons.
First, it asserts that a "different standard" should not apply for disabled
individuals who lack a viable relative to create a trust. This argument
is just another attempt to nullify the express statutory carve-out for
court-created trusts. As explained in our opening letter and above, the
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statutory structure of the EPTL treats court-created trusts differently
by design. There is nothing "discriminatory'' about § 1-2.20's
exemptions. The Estate's hand-wringing about formality as a safeguard
against fraud, Resp. Ltr. at 13-14, is not a concern when a disabled
individual explicitly asks-as Ms. Gaines did here-a court to "creat[e]
... a supplemental needs trust" with her own assets (R. 130-31).
The second argument is unavailing too. The Estate asserts that
Judge Walker's edict should not be considered final and binding because
Gaines "at any time prior to signing'' had the "unfettered right to
change her mind." Resp. Ltr. at 10. But this begs the very question
whether Judge Walker formed the trust or not. The Estate's claim that
Gaines could have changed her mind about forming the trust is
groundless. As a low-income, disabled individual, Gaines was clear that
she wanted a supplemental needs trust to save her safety net: "I do not
want to lose my benefits. I depend on my benefits to live" (R. 130