In re DeLuca

Full title: In the Matter of the Petition of Jeffrey E. DeLuca, Public Administrator…

Court: Surr Ct, Nassau County

Date published: Jun 28, 2013

2013 N.Y. Slip Op. 51225 (N.Y. 2013)

Opinion

2010-359723/B

06-28-2013

In the Matter of the Petition of Jeffrey E. DeLuca, Public Administrator, as Guardian of the Property of Michele A. Krushnauckas, a/k/a MICHELE KRUSH, a Mentally Retarded Person Pursuant to SCPA 17A, For Leave to Establish a Supplemental Needs Trust Fund, Direct Funds into Said Trust and to Invest Funds.

Sandra M. Gumerove, Esq. (for petitioner) Daniel S. McLane, Esq. (Nassau County Dept. of Social Services) Mental Hygiene Legal Service Center for Developmental Disabilities, Inc. Mary P. Giordano, Esq. (guardian ad litem) Social Security Administration New York State Attorney General Nassau County Regional Office

Edward W. McCarty

Sandra M. Gumerove, Esq. (for petitioner)

Daniel S. McLane, Esq. (Nassau County Dept. of Social Services)

Mental Hygiene Legal Service

Center for Developmental Disabilities, Inc.

Mary P. Giordano, Esq. (guardian ad litem)

Social Security Administration

New York State Attorney General

Nassau County Regional Office

Edward W. McCarty, J.

Before the court is a petition by the Public Administrator as guardian of the property of Michele A. Krushnauckas (a/k/a Michele Krush) (hereinafter "Michele") for leave to establish a Supplemental Needs Trust (SNT) for Michele's benefit and for an order directing the Public Administrator to deposit funds into the SNT.

The Public Administrator was appointed the guardian of Michele's property pursuant to a decree of this court dated September 21, 2012. Michele is 56 years of age and is mentally retarded. She receives Supplemental Security Income (SSI) and Medicaid. Michele's mother, Adrienne Krush, died intestate on March 6, 2002. It appears that once the administration of her mother's estate is completed, Michele will receive approximately $400,000.00. As an SSI recipient, Michele may not retain resources greater than $2,000.00. Accordingly, the Public Administrator has petitioned the court to establish an SNT for Michele in the form annexed to the petition and asks that the court direct the assets representing Michele's share of her mother's estate to be distributed to the trustee of the proposed SNT.

Pursuant to the terms of the proposed SNT submitted, the income from the trust may be used to pay for those items of need not provided by governmental entitlements. The proposed trustee is Lewis I. Knopf, a money manager who petitioner asserts "is familiar with Medicaid rules and regulations." Mr. Knopf has been appointed as a trustee of SNTs by courts in the past and maintains fiduciary liability insurance. The assets will be maintained at Ameriprise Financial Services, Inc.

The petition was brought on notice to both the Nassau County Department of Social Services (DSS) and the New York State Attorney General's Office (on behalf of the New York State Office for People with Developmental Disabilities [OPWDD]), neither of which objected to the formation of the trust, but did object to several provisions of the proposed SNT.

DSS objected on the basis that the proposed SNT failed to include a bond requirement. In addition, the New York State Attorney General's Office filed objections to several provisions of the proposed SNT. As a result of objections being filed, a number of conferences were held before a member of the court's law department. All of the objections have been resolved, other than the Attorney General's objection to paragraph 4.1 of the proposed SNT entitled "Identity." The Attorney General objects to the following underlined language in said paragraph:

"The Trustee of this Trust shall be Lewis I. Knopf as Trustee. In the event the aforesaid Trustee shall resign or for any reason be unable to serve as Trustee, the Surrogate's Court of Nassau County, shall appoint a Trustee or may appoint a trustee for the purpose of transferring the principal and accumulated net income of this Trust to a trust established and managed by a non-profit association wherein (a) a separate account is maintained for each beneficiary of the trust, but for the purposes of investment and management of funds, the trust pools these accounts, (b) the accounts in the trust are established solely for the benefit of the individuals who are disabled."

The Attorney General's Office asserts that the underlined language is unnecessary and would create issues for Michele and OPWDD. Specifically, the Attorney General argues that the pooled trust would most likely not contain a payback provision and, therefore, OPWDD would lose its right to collect outstanding monies owed to it for payment of expenses for Michele as well as future expenses. Further, the Attorney General asserts that the use of a pooled trust after the age of 65 would create a transfer penalty to Michele.

In response, petitioner argues that the Attorney General's misgivings about the proposed language are misguided since pursuant to Social Services Law §366 (2) (b) (2) (iii) (B), pooled trusts are permitted depositories of funds. Petitioner points out that he could have petitioned the court to approve a transfer to a pooled trust in the first instance. With respect to the Attorney General's concern that a pooled trust would cause problems for Michele, petitioner asserts that the transfer is subject to the discretion of the court and an order would be required to effectuate any such transfer. The petitioner argues there is essentially no basis for the Attorney General's objection that "the discretion be left with the Judge to determine when and if a pooled trust is necessary" because the proposed language does in fact leave the transfer to the discretion of the court.

An SNT is a "discretionary trust established for the benefit of a person with a severe and chronic or persistent disability (EPTL 7-1.12 [a] [5]) that 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 [1997]; overruled on other grounds, as stated in Homan v County of Cattaraugus Dept. Of Social Servs., 24 Misc 3d 1243 [A], [Sup Ct, Cattaraugus County 2009]) [internal quotation marks omitted]; see also Matter of Abraham XX., 11 NY3d 429, 434 [2008]). It is a planning device authorized by federal and state law to shelter the assets of a severely disabled person "for the dual purpose of securing or maintaining eligibility for 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 NY3d 429, 434 [2008]). An SNT is designed to "address[] the unique and difficult situation faced by severely disabled individuals with assets that are sufficient to end their Medicaid eligibility but insufficient to account for their medical costs" (id. at 437).

Under 42 USC §1396p (d) (4) (A) and Social Services Law § 366 (2) (b) (2) (iii) (A), neither the corpus nor the income of an SNT is considered a resource or income available to the disabled trust beneficiary (see Abraham XX., 11 NY3d 429, 435 [2008]; Cricchio v Pennisi, 90 NY2d 296, 303 [1997]; overruled on other grounds, as stated in Homan v County of Cattaraugus Dept. Of Social Servs., 24 Misc 3d 1243 [A], [Sup Ct, Cattaraugus County 2009]) [internal quotation marks omitted]; Matter of Kennedy, 3 Misc 3d 907, 909-910 [Sur Ct, Nassau County, 2004]; Matter of Goldblatt, 162 Misc 2d 888, 889 [Sur Ct, Nassau County, 1994]). Such treatment is accorded to 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]). In addition, an SNT is exempted from the general rules governing available resources and Medicaid eligibility when the recipient is "disabled," as that term is defined in the Social Security Act (42 USC §1382c [a] [3]), and the SNT contains:

"[t]he assets of such a disabled individual [and] 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" (Social Services Law § 366 [2] [b] [2] [iii] [A]; see 42 USC § 1396p [d] [4] [A]).

The decision whether to establish or approve an SNT is a discretionary determination for the Surrogate (see Matter of Mental Hygiene Legal Serv. v Bishop, 298 AD2d 644, 646 [3rd Dept 2002]; Perez v Rodino, 184 Misc 2d 855, 857 [Sur Ct, New York County 2000]). The function of the Surrogate with respect to approving and supervising the establishment of SNTs has been articulated as follows:

"[I]t is appropriate for the [Surrogate] to seek assurance that a proposed [SNT] complies with the controlling law and rules regarding Medicaid eligibility This is consistent with the function of the [Surrogate] to assure that the best interests of the incapacitated person are promoted. It would be a clear dereliction of that duty for the [Surrogate] to deliberately overlook provisions of a proposed [SNT] if such provisions were inconsistent with statutory guidelines and thus would bar an incapacitated person from receiving Medicaid benefits by its establishment. To do so would permit the diverting of assets from the ownership or title of the incapacitated person to another legal entity with no consequent benefit to the incapacitated person (Matter of McMullen, 166 Misc 2d 117, 119, 632 NYS2d 401 [1995]; see Goldblatt, 162 Misc 2d at 890)" (Matter of Woolworth, 76 AD3d 160, 165 [4th Dept 2010]).

An SNT represents a "bargain struck between the SNT beneficiary and the State" (Abraham XX., 11 NY2d 429, 436 [2008]). The federal and state legislation governing the establishment and operation of SNTs allows a disabled person who receives a lump sum of money to maintain Medicaid eligibility by transferring the funds into an SNT, provided that, in exchange, the State is given a priority interest in the balance of the SNT upon the beneficiary's death (Abraham XX., 11 NY3d 429, 436 [2008]).

Pooled trusts are administered by not-for-profit charitable organizations and trust assets are pooled for purposes of investment and management (Matter of Adele Y., 35 Misc 3d 1226 (A) [Sup Ct, Bronx County 2012]). Each beneficiary has a separate account within the pooled trust, and pooled trusts typically permit the retention of the remainder by the organization, if any, on hand in a sub-account upon the death of the beneficiary (id.) "Retention of the remainder is designed to further the charitable purposes of the trust and is expressly permitted by federal and state law." (id.). In Matter of Smergut (31 Misc 3d 875 [Sup Ct, Nassau County 2011]), Justice Diamond relied upon the decision of the Honorable Martha L. Luft, Supreme Court, Suffolk County, in Application of Robert Cannatella (Index No. 8353/10). In both cases, the petitioner sought permission to deposit the funds into a Medicaid exception pooled trust, and in both cases, the New York State Attorney General, as counsel for OPWDD, opposed the application and proposed that the funds should rather be deposited in a payback supplemental needs trust. The basis for the objection was that there was a potential conflict created if the funds were to be deposited into a pooled trust operated by the incapacitated person's residential services provider. Although those cases centered around a conflict of interest, both courts discussed generally the payback trust vs. pooled trust issue. Justice Luft, in her decision, noted that there is no preference in Social Services Law § 366 (2) (b) (2) (iii) for either trust and stated as follows:

"the purported conflict identified by the state would exist in any case in which there is a choice to be made between a pooled trust and a payback trust. Nothing unique to the instant matter suggests that the potential for conflict perceived in this matter is different than would exist in any other matter in which an election is made to use a pooled trust
rather than a payback trust. Absent any showing of special circumstances, the Court declines to impose a gloss upon the existing statutory plan that would, as a matter of course, require the employment of a payback trust over a pooled trust whenever both options are available and no other special factors dictate a preference for the use of one over the other." (Matter of Application of Robert Cannatella, Sup Ct, Suffolk County, Martha L. Luft, J., Index No. 8353/10.)."

Justice Diamond stated that "[t]he use of pooled trusts and so called payback' trusts have been in existence since Article 81 of the Mental Hygiene Law was created and the Legislature has taken no action to limit their use in these circumstances. As Justice Luft pointed out in her decision, the Legislature has not expressed preference for either form. This court will not, on its own, impose any such limitation" (Matter of Smergut, 31 Misc 3d 875, 884 [Sup Ct, Nassau County 2011]).

Accordingly, the Attorney General's objection is without merit as the use of a pooled trust would be allowable in the first instance. As to the issue of the possible impact of the provision on Michele's eligibility at a future date, any such transfer would be subject to the court's discretion.

Based upon the foregoing, the petition is granted.

Settle decree.

EDWARD W. McCARTY III

Judge of theSurrogate's Court