Opinion
801-P/06.
Decided January 22, 2008.
Rivkin Radler, LLP, (Albert W. Petraglia, Esq., of Counsel) for Irving Newman, petitioner.
Alan Rabunski, Esq., Guardian ad Litem for Estelle Newman.
This is a proceeding by the decedent's son as successor trustee to reform a will dated July 18, 1973, so that the testamentary trust created by Article SECOND for the benefit of the decedent's daughter alleged to be under a disability is converted into a supplemental needs trust (SNT) for her benefit in conformity with EPTL 7-1.12. The remaindermen of the Article SECOND trust are the petitioner and the decedent's other living issue. The guardian ad litem appointed for the daughter opposes the application, contending that the petitioner has a conflict of interest as a remainderman and the testator intended that the entire trust principal be available for any of the daughter's needs, including those covered by governmental benefits.
The decedent died testate on September 10, 1988. The decedent's distributees were the daughter under a disability and three sons. Two sons have post-deceased and the remaining son, the petitioner, is now the successor trustee. Jurisdiction was acquired over all interested parties, including the remaindermen of the Article SECOND trust and the New York City Human Resources Administration.
Article SECOND of the will directs that the residuary be held in trust, with the net income of the trust to be used for the daughter's benefit during her lifetime and, with respect to the trust principal, states that:
"the trustee may at any time and from time to time, pay or apply to the use of my said daughter, so much of the principal of the trust as my trustee may deem proper for the more adequate support and maintenance of my said daughter or to defray the expenses of any sickness, physical or mental, accident or other emergency of my said daughter. The trust shall terminate on the death of my said daughter and the trust property then remaining shall be distributed to and among my issue who survive her, in equal shares, per stirpes." (emphasis in original).
The medical proof adduced indicates that the daughter is presently under a severe, chronic or persistent disability. The daughter lived with the decedent until his death in 1988, when she was approximately 60 years of age. Thus, at the time he executed the will, the decedent was aware that his daughter had developmental, cognitive and physical disabilities which prevented her from being educated past the third grade. After the decedent's death, the daughter temporarily lived on her own but, subsequently, she became unable to live independently and, in March, 2006, she moved to an adult facility in the Bronx where she now resides. At or around the time of her move to the adult facility, the daughter applied for Medicaid and received a notice of acceptance of her application which, apparently, precipitated the commencement of this proceeding. At the time of the decedent's death the trust corpus had a value of $378,348.56, and has a present value of $500,000.
Generally, reformation of testamentary instruments will be granted only where it effectuates the testator's intent (see Matter of Snide, 52 NY2d 193). The testator's intent is to be gleaned from a sympathetic reading of the instrument in its entirety and not from a single word or phrase (Matter of Fabbri, 2 NY2d 236, 240).
Pursuant to EPTL 7-1.12(a)(5), enacted in 1993, a testamentary SNT may be created where: (1) the person for whose benefit the trust was established suffers from a "severe or chronic or persistent disability;" (2) the trust evidences the intent that the assets be used to supplement, not supplant, government benefits; (3) the trust prohibits the trustee from using assets in any way that may jeopardize the beneficiary's entitlement to government benefits or assistance; and, (4) the beneficiary does not have the power to assign, encumber, direct, distribute or authorize distribution of trust assets. Public policy encourages the creation of supplemental needs trusts for statutorily qualified persons (Matter of Kamp, 7 Misc 3d 615, 622; Matter of Hyman, 14 Misc 3d 1232 [A] [2007]) as a supplemental needs trust is "designed to enhance the quality of the disabled individual's life by providing for special needs without duplicating services covered by Medicaid or destroying Medicaid eligibility" (Cricchio v Pennisi, 90 NY2d 296, 303).
Matter of Escher ( 94 Misc 2d 952, affd sub nom Matter of Gross, 75 AD2d 531, affd 52 NY2d 1006) is the first case to explicitly recognize that most testators who establish discretionary trusts would prefer that the trustees decline to exercise their discretion in favor of using trust funds to pay expenses for care that, otherwise, would be covered by governmental benefits. However, in subsequent cases allowing the reformation of a testamentary trust to create a SNT, the courts have not focused upon whether the decedent's will was executed before or after either the decision in Matter of Escher ( 94 Misc 2d at 952) or the enactment of EPTL 7-1.12 (see Matter of Longhine, 15 Misc 3d 1106 [A] [2007] [the will was executed 12 years after the enactment of EPTL 7-1.2]; Matter of Hyman, 14 Misc 3d at 1232[A] [the will was executed the year after Matter of Escher, 94 Misc 2d at 952]). Similarly, the courts have permitted testamentary trusts to be reformed to create a SNT notwithstanding the fact that the trusts have been operative for many years prior to the reformation application (see Matter of Kamp, 7 Misc 3d at 715, and Matter of Hyman, 14 Misc 3d at 1232[A], where the respective testamentary trust was in existence for more than 20 years prior to its reformation.)
Here, Article SECOND of the will, in granting the trustee the discretion to invade trust principal for the "more" adequate support and maintenance of the daughter and "to defray" her medical and other expenses, clearly evinces the testator's intent to supplement, rather than supplant, any insurance, government or other benefits that the daughter under a disability might receive during her lifetime. Thus, contrary to the contention of the guardian ad litem, the language of the will fails to demonstrate that the testator intended to exhaust the trust principal for the daughter's medical, maintenance and other needs that are covered by governmental benefits (see Matter of Roberts, 61 NY2d 782). It is also noted that the testator, by nominating each of his sons as either the original or a successor trustee, believed that they would use their discretion in the best interest of their sister, notwithstanding the potential conflict that they have as the presumptive remaindermen of the trust.
Furthermore, reformation of the trust in the manner requested does not interfere with or disrupt the dispositional plan under the will and, instead, the creation of the SNT is necessary to preserve that plan (Matter of Longhine, 15 Misc 3d at 1106[A]; Matter of Hyman, 14 Misc 3d at 1232[A]). Preservation of the trust principal through the creation of the SNT will ensure that most of the daughter's needs will be paid by government benefit, and, in the discretion of the trustee, trust income and principal will be available for any "luxury items" that might benefit her and are not covered by governmental benefits. Absent the creation of the SNT, the daughter is in danger of being relegated to living solely on available government benefits, a result which clearly is contrary to the testator's expressed intent.Accordingly, this case falls within the line of cases where courts reformed a testamentary trust into a SNT, based upon the presumption that the testator would have utilized that device had the testator known that it would be possible to prevent exhaustion of the trust on expenses covered by governmental benefits (Matter of Kamp, 7 Misc 3d at 615; Matter of Longhine, 15 Misc 3d at 1106[a]; Matter of Hyman, 14 Misc 3d at 1232[a]; Matter of DeRosa, NYLJ, Apr. 29, 2006, at 30, col. 2; Matter of Ciraolo, NYLJ, Feb. 9, 2001, at 31, col. 4). The restrictive analysis adopted by the guardian ad litem, as set forth in Matter of Rubin ( 4 Misc 3d 634), has been criticized by other courts (see Matter of Kamp, 7 Misc 3d at 615; Matter of Longhine, 15 Misc 3d at 1106[A]) and is not adopted by this court.
Accordingly, the petition is granted and the trust embodied in Article SECOND of the will is to be reformed to constitute a supplemental needs trust for the benefit of the daughter. The court has reviewed the terms of the proposed supplemental needs trust and finds that it comports with EPTL 7-1.12. The decree to be settled hereon shall require the trustee to report to the court annually as to the income and principal spent, if any, on behalf of the daughter. The first report shall be filed by May 15, 2009 and shall cover the period from the entry of the decree hereon through March 31, 2009. Each subsequent report shall be filed by May 15th for the fiscal year April through March. In the event that there have been no expenditures, the report shall contain a statement setting forth the reason why the trustee exercised his discretion in favor of not utilizing any of the trust fund for the daughter's benefit.
Settle decree.