Opinion
09-25-2017
In the Matter of the Application of KEYBANK NATIONAL ASSOCIATION, Kenneth F. Tyrrell and Polly E. Tyrrell, Pursuant to SCPA § 2101.
Edward V. Wilcenski, Esq., Clifton Park, Attorneys for Petitioners (KeyBank National Association, Kenneth and Polly Tyrrell). Hugh G. Burke Esq., Saratoga County Attorney's Office, Ballston Spa, Attorneys for Objectant, Saratoga County Department of Social Services.
Edward V. Wilcenski, Esq., Clifton Park, Attorneys for Petitioners (KeyBank National Association, Kenneth and Polly Tyrrell).
Hugh G. Burke Esq., Saratoga County Attorney's Office, Ballston Spa, Attorneys for Objectant, Saratoga County Department of Social Services.
RICHARD A. KUPFERMAN, S.
Against the backdrop of a myriad of complex Federal and State statutes and regulations governing Medicaid eligibility, this case analyzes the extent and limitations of the authority of a local department of social services in an application to modify or reform a supplemental needs trust.
Kevin J. Tyrrell (the "Beneficiary") was the plaintiff in a personal injury/medical malpractice action commenced on his behalf by his parents, Kenneth F. Tyrrell and Polly E. Tyrrell in Albany County Supreme Court. By Stipulation of Settlement dated January 15, 2001 the underlying litigation was settled in the Albany County Supreme Court. Thereafter, by Agreement dated February 15, 2001 a Special Needs Trust ("SNT") was established for the benefit of the Beneficiary by his parents as lawful grantors. A review of the original SNT at the time of its creation establishes the Beneficiary's parents as co-Trustees along with KeyBank as the third (corporate) Trustee and repository of the Trust assets. Further, the beneficiary of the SNT
(Kevin J. Tyrell) was (and remains) under sixty-five (65) years of age and (2) was (and remains) an individual with a disability thus eligible for the establishment of a SNT, and that (3) the SNT was being established by the beneficiary's parents and (4) the SNT provides the State as a Medicaid remainderman beneficiary upon the death of the Beneficiary. Thus, there appears to be no issue that the SNT as originally written comports with and had no negative effect upon the trust beneficiary's eligibility for Medicaid and is thus a lawfully created SNT.
By Order dated February 27, 2001 the Albany Court Supreme Court approved the terms of the above-referenced settlement and directed that the Beneficiary's share of the settlement be periodically paid into the SNT as established above. Pursuant to the terms of the Order, on March 20, 2001 the parties executed a Stipulation of Discontinuance and filed same with the Albany County Supreme Court. Upon the filing of the Stipulation of Discontinuance, the matter in the Albany County Supreme Court was concluded and the parties (the Beneficiary and his parents) had no further dealings in the Albany County Supreme Court and relocated soon thereafter to Saratoga County.
By Verified Petition dated January 5, 2017 to this Court, Kenneth and Polly Tyrrell (the Beneficiary's parents, Grantors and Trustees) as well as KeyBank National Association commenced the instant action seeking permission to amend the terms of the February 27, 2001 SNT pursuant to Surrogate's Court Procedure Act Section 2101. Specifically, the SNT provides under Article II that upon the death of the Beneficiary, the Trust will terminate and the Trustee shall divide and distribute the remaining principal and accrued and undistributed income in the Trust Estate as follows:
A. In the event that the probate estate of Kevin J. Tyrrell shall contain insufficient assets to cover all funeral expenses and debts of Kevin J. Tyrrell, administration expenses of his Estate, or applicable estate taxes, the Trustee is authorized to distribute from the Trust Estate herein, to the extent of such insufficiency, such amounts as are necessary to pay said funeral expenses, debts, administration expenses and estate taxes of Kevin J. Tyrrell.
B. The Trustee shall reimburse the State of New York and/or any other state which has provided
Medicaid assistance to Kevin J. Tyrrell during his lifetime, in an amount equal to the Medicaid assistance rendered to or paid on behalf of Kevin J. Tyrrell by such state or states. If Kevin J. Tyrrell received Medicaid assistance in more than one state, then the amount distributed to each state shall be based upon each state's proportionate share of the total amount of Medicaid assistance paid by all states on behalf of Kevin J. Tyrrell.
As written, the provision that permits the payment of funeral expenses after death of the beneficiary and prior to reimbursement to the State is now inconsistent with 42 U.S.C. Section 1396p(d)(4)(A), which authorizes the use of a SNT by Social Security and Medicaid recipients. See also, Social Security Administration's Program Operations Manual ("POMS") Sections SSI SI 01120.203(B)(3)(a). The SNT in its current form renders the Beneficiary ineligible to receive Supplemental Security Income (SSI).
Thus, in order to render the Beneficiary eligible to qualify for SSI, the Petitioners have made this application seeking amendment of Article II of the SNT. Specifically, the Petitioners seek to amend the language of Article II to provide that upon the death of the Beneficiary that the Trustee may only pay those expenses enumerated in the Social Security Administration's Program Operations Manual ("POMS") Sections SSI SI 01120.203(B)(3)(a) prior to reimbursement to the Medicaid program for all medical assistance provided to the Beneficiary during his lifetime. After receiving the instant Petition, the Court issued a Citation returnable on January 31, 2017 to the parties and to the local social services district; e.g. the Saratoga County Department of Social Services (the "Department"). Upon return of the Citation on January 31, 2017, counsel for the Petitioners appeared as well as the Saratoga County Attorney's Office on behalf of the Department. At this appearance, the Department asked for additional time to review the instant petition and trust. The Court then directed the Department to submit any objections (if so inclined to object) to the relief requested within thirty (30) days and then the Petitioner would have seven (7) days within receipt upon which to respond.
Thereafter and by letter dated February 13, 2017, the Department provided its objection to the Petition and its request to amend the terms of the SNT. Specifically, the Department objected to the proposed language relative to the prepaid funeral expenses, and proceeded to make several " observations" and requests to amend the language of further sections of the Trust document. In support of its position, the Department posited that the filing of the application to amend an existing SNT subjects the language of the entire document to modification.
While not captioned as formal objections, the Court chose to accept the Department's February 13, 2017 letter as such.
In response thereto, by letter dated February 22, 2017, counsel for the Petitioners submitted a reply to the specific objection of the Department, as well as replies to the Department's "observations" and requests to amend language as well as the Department's position relative to its right to have a seat at the drafting (or in the instant case, redrafting) table of the SNT. Specifically to address the Department's objection to the language of the pre-paid funeral expenses, the Petitioners identified that the language of the existing SNT rendered the Beneficiary ineligible for SSI and the proposed amendment merely brought the language into the eligibility standards set forth in the Social Security Administration's Program Operations Manual ("POMS") and under relevant federal and state guidelines for SSI eligibility. In its reply, the Petitioners acknowledged that the Department does have a role in the formation and reformation of an SNT, but that role is limited to that which is specifically laid out in federal and state statutes. Specifically, to review a SNT to confirm that it meets the statutory criteria under 42 U.S.C. Section 1396p(d)(4)(A) and N.Y. Social Services Law Section 366(2)(b)(2)(iii) and to confirm that the SNT is being administered (and that the State's right as a remainderman under the terms of same is being upheld) consistent with statutory law and Social Services regulations.
The Petitioners identify that nothing in the Department's objections or observations suggests that the instant SNT as written (pre and post amendment) fails to comply with the federal and state statutory language governing same. The Petitioners likewise identify that nothing in the authority governing the drafting and approval of a SNT enlarges the role and responsibility of the Department beyond that which is expressly codified.
Thereafter, correspondence flowed between the parties, and the Court encouraged counsel for both parties to work collaboratively at resolving the issues and disagreement between them. By letter dated April 19, 2017, counsel for the Petitioners submitted a proposed Decree to the Court with a request for the Court to sign same and accompanying therewith a letter which outlined that the parties had yet to reach common ground on certain issues and identified the remaining issues of disagreement. The Court then scheduled a conference on the issues raised above and directed the parties to submit Memoranda of Law detailing their respective positions. Counsel for both sides submitted Memoranda of Law. The Court held a telephone conference on May 11, 2017 whereupon counsel for the Department acknowledged that issues remained in disagreement, that he objected to the terms of the proposed Decree and for the first time raised the issue that the entire proceeding in the Saratoga County Surrogate's Court was improperly venued.
With the issue of venue having been raised for the very first time at the May 11, 2017 telephone conference, the Court directed counsel for the Department to file (should he so choose to do so) a Motion for Change of Venue by May 31, 2017 and a response (by Cross–Petition or Answer) to the relief requested in the Petition by May 17, 2017. Counsel for the Petitioners was given until June 21, 2017 to respond to both the Department's Motion for Change of Venue and Answer/Cross–Petition.
Counsel for the Department filed an Answer and Cross–Petition and Motion to Change Venue and for dismissal of the Petition for failure to recite grounds for relief under CPLR Section 2214(a) en toto on May 17, 2017. The Court thereafter instructed counsel to segregate his papers into a Motion to Change Venue and an Answer with Cross–Petition as had been previously directed at the May 11, 2017 telephone conference. Counsel for the Department thereafter filed a Notice of Motion and Affirmation in Support of Motion to Change Venue on May 31, 2017 along with amendments to its original submission which the Court shall consider as its Answer and Cross–Petition for affirmative relief to enable the Court to implement its (the Department's) recommendations to the SNT.
In its Notice of Motion, the Department asserts that the Petitioners' application should properly be venued in Albany County as the court of original and continuing jurisdiction from the initial 2001 drafting of the SNT. The Department moved for a transfer of proceedings pursuant to SCPA §§ 207, 209, 501 ; CPLR § 503(b) and for dismissal of the Petition on jurisdictional grounds for failure to recite grounds for relief sought under CPLR § 2214(a).
Upon return of the Motion at oral argument on July 19, 2017, the Department conceded that the Court has jurisdiction to hear and preside over the matter, thus rendering the CPLR argument to dismiss relative to jurisdiction moot. In view of the same and of the Department's acknowledgment of jurisdiction, the Court will consider the issue of jurisdiction settled and will not address the Department's motion to dismiss and will consider it withdrawn.
Further, in its Answer and assuming that the Court retains venue over the matter, the Department nevertheless requests that the Court implement the modifications asserted in the Cross–Petition as set forth in its correspondence of February 13, 2017. In response thereto, counsel for the Petitioner filed papers in opposition to the Department's motion to transfer and dismiss, and also filed a Cross–Motion seeking Attorney's Fees pursuant to 22 NYCRR § 130–1.1(c)(3). Thereafter, counsel for the Department filed a Cross–Motion seeking sanctions against Petitioners pursuant to 22 NYCRR § 130–1.1(c)(1).
Oral argument was held on July 19, 2017 before the Court. After significant argument by counsel for both parties, the Petitioner's motion for an award of Attorney's fees pursuant to 22 NYCRR § 130–1.1(c)(3) and the Department's motion for sanctions were dismissed, leaving before the Court the issue of venue as well as the Department's role in the drafting and reformation of the SNT. The Court shall first address the question of venue, and then consider the authority or lack thereof to modify or reform a SNT in turn herein.
In its Motion for Change of Venue, the Department asserts that the petition is improperly venued in this Court. At the oral argument of July 19, 2017, counsel for the Department acknowledged and stipulated that jurisdiction was not in contest, merely venue. In support of its position, the Department first identifies that the institutional trustee (KeyBank) is listed as having its principal place of business in Albany County and that the location of the assets of the trust are thus in Albany County as well. The Department further avers that as the original proceeding giving rise to the instant SNT began in Albany County Supreme Court, the proper venue is with Albany County. The Petitioner objects, and notes that the Beneficiary and the Grantor/Trustees (the Beneficiary's parents) all reside in Saratoga County, that there is no pending matter in the Albany County Supreme Court upon which to continue venue and/or jurisdiction, and that venue and jurisdiction has been properly acquired by the Saratoga County Surrogate's Court upon the commencement of the instant proceeding under Sections 201, 203 and 207 of the Surrogate's Court Procedure Act.
As it relates to the Saratoga County Surrogate's Court as an appropriate venue, Surrogate's Court Procedure Act Section 207(1) states that;
a proper venue for a proceeding is (a) the county where the assets of the trust are located, (b) the county where the grantor is domiciled at the time of the commencement of a proceeding or (c) the county where a trustee then acting resides. NY SCPA Section 207(1)
There is no argument that the Grantors/Trustees (the Beneficiary's parents) reside in Saratoga County, and did so at the commencement of the instant proceeding. A proceeding has been commenced concerning the Trust and the Grantors/Trustees are domiciled in Saratoga County, thus making the Saratoga County Surrogate's Court an appropriate venue pursuant to N.Y. SCPA Sections 207(1)(b) and (c).
Here, the Court acknowledges that the institutional Trustee (KeyBank) has its principal place of business located within Albany County and which would make Albany County an appropriate venue under N.Y. SCPA Section 207(1)(c) as the Department suggests. The Court finds no merit in the Department's position that Albany County is an appropriate venue under SCPA Section 207(1)(a) because the "assets of the trust" are located at the office of the institutional Trustee in Albany County. The Court takes note that KeyBank is a national banking and lending institution with offices and branches throughout Saratoga County and specifically in Clifton Park, the town of residence for the Grantor/Trustees. The Court likewise notes that the "assets of the trust" are funds deposited into the trust account, and given the electronic nature of modern banking readily accessible at other locales as opposed to solely from the Albany County branch.
Even if the Court were to find the assets to be located in Albany County, in Matter of Myers, 45 A.D.3d 955, 845 N.Y.S.2d 510 (3rd Dept.2007), the Appellate Division Third Department reconciled a similar question of venue. In that case, the subject property of the trust was located in Steuben County and the trustee resided in Chemung County. The Appellate Division found that venue for the proceeding was properly in Chemung county as the county of residence of the trustee (as opposed to the location of the assets of the trust) under SCPA Section 207(1)(c). NYS SCPA Section 207(1) ; See also, Matter of Kelly, 17 A.D.3d 791, 794 N.Y.S.2d 458 (3rd Dept.2005).
Two of the three Trustees (the Beneficiary's parents) reside in Saratoga County, the third and corporate Trustee (KeyBank) while having its principle office physically located in Albany County has joined in filing the instant application. In view of the same, Saratoga County is a proper venue under N.Y. SCPA Section 207(1)(c).
Under the facts of the instant case, venue would appropriately be in both Saratoga County and Albany County. Accordingly, the analysis must then turn to a reading of N.Y. SCPA Section 207(2).
Ignoring, parenthetically, that the Albany County Trustee joined in the Petitioner's request for the petition and proceeding to be held in Saratoga County.
In the instant proceeding, there exists before the Court a duly filed Petition and commensurately proper proceeding under SCPA Section 203. As set forth above, the Court acknowledges that both Albany County and Saratoga County are proper venues for the filing of this petition under SCPA Section 207(1). Under SCPA Section 207(2)"where proper venue may lie in more than one county under the provisions of subdivision one, the court where a proceeding is first commenced with proper venue shall retain jurisdiction" (emphasis added).
In Surrogate's Court, all proceedings are special proceedings commenced by the filing of a petition and pursuant to New York Surrogate's Court Procedure Act Section 203. In addition, N.Y. SCPA Section 301(a) provides that a proceeding is commenced with the filing of a petition, provided process is issued and service on all respondents is completed within 120 days. See, Matter of DeMaio, 13 Misc.3d 190, 819 N.Y.S.2d 648 (Sup.Ct., Kings Co.2006).
Here, a Verified Petition was filed with the Court on January 5, 2017, and the Department having been duly served and appeared before the Court on the return date of January 31, 2017. The Court having acknowledged jurisdiction over the matter without objection from either party, including the Department. In view of the same, the instant matter represents an active and pending proceeding before the Saratoga County Surrogate's Court, and is the first and only proceeding seeking to address the relief requested in the Petition. There is no pending proceeding in the Albany County Supreme Court and there has never been a commensurate proceeding commenced in the Albany County Surrogate's Court.
Even assuming, arguendo, that there was an open proceeding or that the proceeding remained open in the Albany County
Supreme Court, the law is well settled that a supreme court will defer to the surrogate's court on matters where the surrogate's court has expertise. H & G Operating Corp. v. Linden, 151 A.D.2d 898, 542 N.Y.S.2d 868 (3rd Dept.1989). The review and administration of trusts is one of the experiential hallmarks of a surrogate's court. Even assuming (again, arguendo ) that a subsequent proceeding were to be commenced in the Albany County Surrogate's Court, the Saratoga County Surrogate's Court would still retain possession of the matter as the "first" court upon which the proceeding was commenced. See, N.Y. SCPA Section 207(2). Accordingly, the Court finds that the Saratoga County Surrogate's Court is the proper venue for this matter and that there is no basis to remove this proceeding from the Saratoga County Surrogate's Court and transfer it to the Albany County Supreme Court. Therefore, the Department's motion for a change of venue is hereby denied.
The Court now directs its analysis to the true issue in contention between the Petitioner and the Department, specifically what, if any authority the local social services district has to seek modification or reformation of an existing SNT.
To begin, the Court notes that a 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 N.Y.2d 296, 660 N.Y.S.2d 679, 683 N.E.2d 301 (1997) ; Matter of Abraham XX., 11 N.Y.3d 429, 871 N.Y.S.2d 599, 900 N.E.2d 136 (2008). A SNT is a planning device authorized by federal and state law to insulate assets of a chronically ill and severely disabled individual "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." Abraham XX, 11 N.Y.3d at 434, 871 N.Y.S.2d 599, 900 N.E.2d 136 ; see also Matter of Morales, 1995 N.Y. Misc. LEXIS 726, 214 N.Y.L.J. 19 (N.Y. Sup.Ct. Kings Co. July 28, 1995).
Under the pertinent statutes, 42 U.S.C. § 1396p(d)(4)(A) and Social Services Law § 366(2)(b)(2)(iii), neither the corpus nor the income of a SNT is considered a resource or income available to the beneficiary. See, Abraham XX., 11 N.Y.3d at 435, 871 N.Y.S.2d 599, 900 N.E.2d 136, Cricchio, 90 N.Y.2d at 303, 660 N.Y.S.2d 679, 683 N.E.2d 301 ; see also 18 NYCRR 360–4.5(b)(5)(i)(a). Rather, the 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, 871 N.Y.S.2d 599, 900 N.E.2d 136 ).
Such treatment is extended to a SNT as long as the trust documents setting up same conform to the language and the requirements of EPTL 7–1.12(a)(5) as well as the applicable regulations of the Department of Health. see Cricchio, 90 N.Y.2d at 303, 660 N.Y.S.2d 679, 683 N.E.2d 301, see also Social Services Law § 366(2)(b)(2)(iii),(iv). Specifically, a SNT is exempted from the general rules governing available resources and Medicaid eligibility when (1) the recipient is "disabled" as that term is defined at 42 USC § 1382c(a)(3), and (2) the SNT contains the following provision:
The 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).
The relationship between the SNT, its beneficiary and the State is set forth in its clearest form by the Court of Appeals decision of Abraham XX., specifically that:
The SNT is available only to applicants under the age of 65 with severe disabilities as defined by statute. Unless the
applicant placed excess assets in the Medicaid SNT for supplemental care, he or she would no longer be eligible for Medicaid, thus relieving the State of a substantial financial burden. In order to further Medicaid's purpose of providing medical assistance to needy persons, the State agrees to continue paying Medicaid costs, in instances where it would otherwise be relieved of this obligation, in exchange for the possibility of reimbursement upon the recipient's death. The State in a sense is like an insurer calculating risk. For every recipient who depletes the trust before death, the State can expect some trusts to have sufficient assets upon a recipient's death to offset the additional cost of continuing Medicaid payments
for these severely disabled individuals who otherwise would be ineligible. Moreover, the State's right to reimbursement occurs only upon the death of the beneficiary, at a time when the life-enhancing purpose of the trust can no longer be effectuated. The Medicaid SNT reflects a policy decision to balance the needs of the severely disabled and the State's needs for funds to sustain the system. Abraham XX., 11 N.Y.3d at 436–437, 871 N.Y.S.2d 599, 900 N.E.2d 136.
The State thus has a statutory role within the establishment and maintenance of a SNT. Specifically, the State's role is twofold; first to determine the SNT beneficiary's continued eligibility for Medicaid by ensuring that the proposed SNT comports with existing Federal and State Medicaid Law and second by protecting the State's ultimate remainder interest.
Under the Federal Medicaid statute, it is the individual state departments of health that are tasked with this particular review. In New York State, it is the Department of Health that is bound by these regulations, and the responsibility for its administration falls to the local social services district of each county as the individual Medicaid provider. Specifically, the local social services district (through the Department of Social Services) is to evaluate an applicant's interest in irrevocable trusts for purposes of Medicaid eligibility.
To this end, within the framework of the SNT statutes, there are safeguards are in place to protect both the beneficiary and the remainder interest. Specifically, Social Services Law § 366(2)(b)(2)(iv) clearly seeks to protect ‘the remainder interest’ of the State by authorizing the promulgation of regulations to assure fulfillment of the trustee's fiduciary obligations. Further, Social Services Law § 366(2)(b)(2)(iv) directs in relevant part that "the department [of health] shall promulgate such regulations as may be necessary to carry out the provisions of this [section, and such] regulations shall include provisions for assuring the fulfillment of fiduciary obligations of the trustee with respect to the remainder interest of the department or state; monitoring pooled trusts; applying this [section] to legal instruments and other devices similar to trusts, in accordance with applicable federal rules and regulations." In addition to the aforementioned, there are numerous other safeguards and oversights prescribed under the Surrogate's Court Procedure Act, the Estates Powers and Trusts Law, the Social Services Law and Executive Law Section 63.
It is important to distinguish at this point in the analysis that the New York State Department of Health is a distinct and separate entity from the Department. That the Department in and of itself has no independent authority to promulgate regulations absent the procedures found in NYS Social Services Law Section 20(3)(a).
The statutory safeguards outline the responsibilities and procedural remedies of the State in its review of proposed SNTs. The role of the State is clearly defined and relates specifically to the review of proposed SNTs for its comport to the relevant statutes, Medicaid eligibility and protection of the State's remainder interest. There is nothing in the Federal Medicaid statute, the New York State Social Services law and regulations that expands the responsibility of the State or its local social services departments beyond its statutory role, e.g. the assessment and determination of an applicant's initial and continuing eligibility for Medicaid. The State and its local social services departments are responsible for the review of a SNT and have not been granted any formal authority in the drafting of a SNT, as such responsibility is left with the creators of the SNT.
For as the State has a statutory role in the establishment and maintenance of the SNT, so to do the trustees and fiduciaries responsible for the SNT. The responsibilities of these individuals are set forth in Article 11 of the Surrogate's Court Procedure Act and at 18 NYCRR § 360–4.5(b)(iii) and require a trustee of a SNT to fulfill not only their fiduciary obligation to the SNT beneficiary but also their concomitant fiduciary obligations with respect to the State's remainder interest in the trust. Specifically, under 18 NYCRR § 360–4.5(b)(iii) the trustee must, by way of example;
a. notify the appropriate social services district of the creation or funding of the trust for the benefit of an MA applicant/recipient;
b. notify the social services district of the death of the beneficiary of the trust;
c. notify the social services district in advance of any transactions tending to substantially deplete the principal of the trust, in the case of a trust
valued at more than $100,000; for purposes of this clause, the trustee must notify the district of disbursements from the trust in excess of the following percentage of the trust principal and accumulated income: five percent for trusts over $100,000.00 up to $500,000; 10 percent for trust valued over $500,000.00 up to $1,000,000.00; and 15 percent for trusts over $1,000,000.00;
d. notify the social services district in advance of any transactions involving transfers from the trust principal for less than fair market value; and
e. provide the social services district with proof of bonding if the assets of the trust at any time equal or exceed $1,000,000.00, unless that requirement has been waived by a court of competent jurisdiction, and provide proof of bonding if the assets of the trust are less than $1,000,000.00, if required by a court of competent jurisdiction.
Thus, the SNT represents a "bargain struck between the SNT beneficiary and the State" whereby the eligibility rights of the SNT beneficiary for social services are preserved, and the pecuniary remainder rights of the State are protected. See, Matter of Abraham XX., 11 N.Y.3d 429, 871 N.Y.S.2d 599, 900 N.E.2d 136 (2008).
In addition to the roles of the State and the SNT parties, the Court likewise has a role in this process. The Court's role is to strike a balance to protect both the beneficiary and the State's remainder interest, thereby seeking also to protect public interest to fulfill "the ultimate goal of Medicaid [is] that the program ‘be the payor of last resort.’ " See, Cricchio, 90 N.Y.2d at 305, 660 N.Y.S.2d 679, 683 N.E.2d 301.
As it relates to the Court's role and responsibilities regarding a SNT, the following opinion most clearly defines same, specifically that:
"It is appropriate for the court to seek assurance that a proposed supplemental needs trust complies with the controlling laws and rules regarding Medicaid eligibility. This is consistent with the function of the court to assure that the best interests of the incapacitated person are promoted. It would be a clear dereliction of that duty for the court to deliberately overlook provisions of a proposed supplemental needs trust 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 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, 632 N.Y.S.2d 401 (Sup Ct. Suffolk Co., 1995).
"These provisions, however, should not be read as obviating any additional controls required by the court since the regulations promulgated by the State are for the protection of its own remainder interest whereas the court is primarily concerned with the protection of the disabled person and likewise to assure fulfillment of the establishment of a SNT, in the inherent exercise of its power, the court may fashion or condition the exercise of that privilege in such manner as it believes will sufficiently protect the interest of the disabled person." In Re Goldblatt, 162 Misc.2d 888, 618 N.Y.S.2d 959 (Sur Ct. Nassau Co., 1994).
Turning to the instant matter, the Petitioners have come before this Court and seek the approval of a modification with respect to the SNT for Kevin Tyrrell. The Department has reviewed the proposed modification to the SNT and has presented certain "observations" relative to same, as well as requests to modify certain language within the SNT. The Department has not raised any challenge that the SNT as written has any negative effect upon the beneficiary's financial eligibility for Medicaid, nor that the application and SNT should be denied.
In court and on the record, the Department has repeatedly supported the proposed modification to the SNT (although desires that different language be used) and has stated that there would be no financial harm to the Department as a remainderman by the Court's acceptance of same.
There is no dispute that the beneficiary (Kevin Tyrrell) is disabled and under sixty-five (65) years of age. Likewise, the Petitioners, as parents of the beneficiary, are lawful grantors under Social Services Law § 366(2)(b)(2)(iii) and possess the requisite skill and competency to serve as Trustees. The language of the proposed SNT is in conformance with EPTL §§ 7–1.12, 7–3.1 ; SSL § 366(2)(b)(2)(iii) and 42 USC §§ 1396(p)(d)(4)(A) ; 1382b(e)(5) and provides the State of New York (e.g. Saratoga County Department of Social Services) with the remainder interest as described in and required by Social Services Law § 366(2)(b)(2)(iii)(A).
There likewise appears to be no dispute that the SNT as written comports with, and has no negative effect upon, the trust beneficiary's eligibility for Medicaid. Thus, the Court finds that (1) the beneficiary of the SNT (Kevin Tyrrell) is under sixty-five (65) years of age and (2) is an individual with a disability thus eligible for the establishment of a SNT, and that (3) the SNT is being established by the beneficiary's parents and guardians and (4) the SNT provides the State as a Medicaid remainderman beneficiary upon the death of Kevin Tyrrell. The Department's papers and accompanying brief avers that the terms to modify the SNT must be guided by EPTL 7–1.9(a), and specifically "upon the written consent, acknowledged or proved in the manner required by the laws of this state for the recording of a conveyance of real property, of all the persons beneficially interested in a trust of property, heretofore or hereafter created, the creator of such trust may revoke or amend the whole or any part thereof." The Department believes that their consent as a beneficially interested party is necessary for the grantor to amend the trust. In support of its position, the Department relies on EPTL 7–1.9(a) and cites the case of Perosi v. LiGreci, 98 A.D.3d 230, 948 N.Y.S.2d 629 (2nd Dept.2012) in its papers. The Court acknowledges that the Department is a person beneficially interested in a trust of property for purposes of EPTL 7–1.9(a) and therefore their consent to amend said trust would be necessary.
However, the Department's reliance on EPTL 7–1.9(a) is inapposite with regard to this specific SNT. EPTL 7–1.9(a) does not apply in this case, because Article VI of the SNT states that; "this Agreement and Trust created hereby are irrevocable. The Grantor shall have no right in any respect to later, amend, revoke, or terminate this Agreement or the Trust created hereby without approval by a court of competent jurisdiction " (emphasis added). Likewise, the holding in Perosi can be readily distinguished. In Perosi, the approval of the local social services department was required to amend the terms of the trust because the subject trust was silent on the issue of amendment. Here, Article VI of the subject SNT does set forth an amendment procedure by application to a court of competent jurisdiction for approval of same.
The Petitioners have exercised the specific procedure laid out in the SNT to seek an amendment by the filing of the instant proceeding with the Court. Therefore, taking this grant of express authority to amend the SNT, the Court will now set upon the analysis of judicial powers and limitations with regard to modification or reformation of a SNT. Reformation is generally available to correct mistakes in inter vivos instruments so that the written instrument accurately expresses the settlor's actual intent. As the court noted in Matter of Dickinson v. Bates (N.Y.L.J., Aug. 4, 1999, at 22, col. 6, affd. 273 A.D.2d 89, 709 N.Y.S.2d 69 [2000] ), reformation may not be used to change the terms of a trust to effectuate what the settlor would have done had the settlor foreseen a change of circumstances that has occurred.
Similar to the facts in Dickinson, the Petitioner herein seeks to correct an element of the trust so as to allow the Beneficiary to maximize the availability of benefits. Courts have the power not only to ascertain the "validity, construction or effect" of language in a testamentary instrument ( N.Y. SCPA Section 1420 ), but also to reform such instrument and to add, excise, change or transpose language to effectuate a decedent's intent. See e.g., Matter of Snide, 52 N.Y.2d 193, 437 N.Y.S.2d 63, 418 N.E.2d 656 (1981).
Whether construction and/or reformation is sought in the context of an estate, the paramount duty of the court is to determine the intent of the testator from a reading of the will in its entirety Matter of Bieley, 91 N.Y.2d 520, 673 N.Y.S.2d 38, 695 N.E.2d 1119 (1998) ; Matter of Snide, 52 N.Y.2d 193, 437 N.Y.S.2d 63, 418 N.E.2d 656 (1981). Courts have reformed instruments so that estates could take full advantage of available tax deductions and exemptions, but only if the literal application of an instrument's provisions would frustrate testator's actual intent as reflected in the court's review of the entire document. In re Estate of Martin, 146 Misc.2d 144, 549 N.Y.S.2d 592 (Sur.Ct. New York Co., 1989) ; Matter of Choate, 141 Misc.2d 489, 533 N.Y.S.2d 272 (Sur.Ct. New York Co., 1988) ; In re Estate of Lepore, 128 Misc.2d 250, 492 N.Y.S.2d 689 (Sur.Ct. Kings Co., 1985).
Of specific relevance to the Court's instant analysis is the holding of In re Estate of Lepore, 128 Misc.2d 250, 492 N.Y.S.2d 689, supra . In Lepore, the court permitted the reformation of a will so that certain "inadvertently excluded words" could be added to the document's definition of the marital deduction ( id. at 253, 492 N.Y.S.2d 689 ). In Lepore, the original will defined the marital deduction under prior law, which had limited the amount of the marital deduction to the greater of $250,000 or one-half the adjusted gross estate, instead of the unlimited marital deduction under current law. The court found that the complete reading of the will made it clear that the testator had intended to give his wife the largest possible bequest by use of the maximum available marital deduction, and in view thereof the court allowed reformation of the instrument to ensure that the entire residuary estate would qualify for the unlimited marital deduction.
In this case, the Petitioner's intent in seeking a modification to the terms of the SNT is clearly to ensure that the Beneficiary receives and is eligible for the maximum government entitlements, namely Medicaid and SSI, that are available to him. In re Estate of Lepore, 128 Misc.2d 250, 492 N.Y.S.2d 689 (Sur.Ct. New York Co., 1985) ; Matter of Carcanagues, 2016 WL 4410650, 2016 N.Y. Misc. LEXIS 3436 (Sur.Ct. New York Co., 2016).
Explicitly throughout the Department's moving papers and oral argument was reliance on the concept of the "bargain" as espoused in Abraham XX. to elevate its status in the drafting and redrafting process of the SNT. It appears to the Court that through its "observations" and requests to amend the language of certain provisions of the SNT, the Department seeks to expand its role beyond that of Medicaid eligibility review and into the actual drafting process of the SNT. The Department posits that as a result the "bargain" between the beneficiary and the State as a Medicaid eligibility remainderman that it is due a seat at the drafting table.
The Department's interpretation of the Court of Appeal's rationale of a how the SNT represents a "bargain" is misguided. The bargain in an SNT represents the priority interest in the balance of the SNT upon the beneficiary's death in exchange for the Beneficiary's receipt of Medicaid. This is contrary to the Department's assertion that the Court of Appeals language in Abraham XX. should be read to expand and somehow broaden the "bargain" and thereby authorize the Department to require additional modifications/reformations beyond the relief sought by the Petitioners. The Department's interpretation is also contrary to the plain language of Abraham XX. and of the statutory authority governing SNTs.
Further, that the Department considers a SNT to be a "special" type of trust and thus seeks to broaden its authority into the dictation of the terms of a SNT or for that matter insert itself into the drafting process is likewise misplaced. This Court shares the opinion of Surrogate Czygier in "that a supplemental needs trust trustee should not be treated differently than a testamentary or inter vivos trustee there are safeguards in place to protect the lifetime beneficiary and DSS."
Matter of Kaidirmouglou, N.Y.L.J. November 5, 2004 at Page 28 (Sur. Ct. Suffolk Co., 2004) There is nothing "special" about an SNT that would separate it from other types of trusts and thus grant an expansion of the authority of the State and its local social services department beyond that which is already provided for. To treat a SNT differently from similarly fashioned trusts without the authority to do so would setting same upon the precipice of a slippery slope towards an overreach of State authority.
The Court observed from its review of Abraham XX. that nothing within that decision suggests an intention to deviate from established state law of trusts or to expand the rights given to the state agency in court proceedings. Likewise, the Court notes that there is nothing in the authority governing a SNT (the Federal Medicaid statute, the New York State Social Services law and regulations) that increases or broadens the role of the Department beyond one of assessment and determination of an applicant's initial and continuing eligibility for Medicaid. The clearly defined role of the Department is to determine whether the SNT as written comports with and affects the trust beneficiary's eligibility for Medicaid.
The State and its local social services department cannot exceed that authority which has been set forth in its own regulations. The local social services department is subordinate to the State Department of Health. DOH is authorized to "supervise the local social services department and in exercising such supervision shall approve or disapprove rules, regulations and procedures made by local social services officials within thirty days after filing of same with the commissioner; such rules, regulations and procedures shall become operative immediately upon approval or on the thirtieth day after such submission to the commissioner unless the commissioner shall specifically disapprove said rule, regulation or procedure as being inconsistent with law or regulations of the department." See, NYS Social Services Law § 20(3)(a).
The Court can not reach the Department's position that a local social services department, acting without the approval of the Department of Health, would have the unilateral authority to make its own rules and regulations. To do so would invite every local social services district across the State to implement rules that may not necessarily be cohesive or comport with existing regulations promulgated by the Department of Health.
As observed by the Court of Appeals in the matter of Beaudoin v. Toia, 45 N.Y.2d 343, 408 N.Y.S.2d 417, 380 N.E.2d 246 (1978), "inasmuch as the local commissioners are agents of the State Department they may not substitute their interpretations of the regulations of the State Department for those of the State Department or the State Commissioner. To recognize any such right would be to undermine the supervisory authority of the State commissioner and to invite administrative chaos." Matter of Samuels v. Berger, 55 A.D.2d 913, 390 N.Y.S.2d 445 (2nd Dept.1977) ; Matter of Bonfanti v. Kirby, 54 A.D.2d 714, 387 N.Y.S.2d 461 (2nd Dept.1976) ; Matter Barbaro v. Wyman, 32 A.D.2d 647, 300 N.Y.S.2d 856 (2nd Dept.1969).
The Department misinterprets its role in this proceeding. The Department has no authority to impose demands for reformation for that which is neither mandated by statute and regulations nor in keeping with the grantors' intent. To echo the opinion of Surrogate Preminger in Matter of Rubin, 4 Misc.3d 634, 781 N.Y.S.2d 421 (Sur.Ct. New York Co., 2004), "to reform the trust in the manner requested would stretch the doctrine of reformation beyond recognition."
Here, as the SNT meets the statutory requirements for approval as written, the Court will not consider and review each and every one of the Department's "observations" and requests for modification relative to same. The Court notes that none of the Department's proposed changes to the SNT has anything to do with the Beneficiary's eligibility (or ineligibility) for Medicaid. Many of the Department's requested modifications are duplicative to the language of the SNT, unnecessary as already covered under statute or in direct contravention to existing authority. It is not necessary to mandate that which is not required by statute and regulations.
The Department requests that Article VIII be amended to reflect that the Trustees are required to file a formal accounting for judicial approval and settlement with the Court. The SNT as drafted already provides that the Trustees are required to submit a final accounting for judicial settlement and the proposed amendment is duplicative.
The Department requests that Article V be modified to reference that the Trustees are liable as per EPTL 11–1.7 and not exonerated for failure to use reasonable care. The existence of the statute already imposes said liabilities.
The Department requests that Article II(b) be modified to provide notice to the local social services district within thirty (30) days of the beneficiary's death. 18 NYCRR 360–4.5(b)(iii)(b) directs that a trustee must notify the local social services department of the death of the trust beneficiary within a reasonable time. The Department has no authority to mandate that the SNT exceed or further define that which is already in the regulation.
The Department requests that Articles IX(b), IX(d) and XI be modified to require that all trustees (including the corporate Trustee) acquire and serve with a bond. 18 NYCRR 360–4.5 directs that no bond is required from the trustees. The Department has no authority to mandate that the SNT exceed that which is already set forth under the regulation or requested by the grantor.
It is well settled that New York courts have historically been reluctant to reform or modify the terms of a trust other than in very limited circumstances. Because a proceeding such as this seeks to modify documents which were established by a grantor based upon a set of facts and circumstances that existed at the time of creation, a court should use this form of relief sparingly. Modification, although intended to be used sparingly, is appropriate to achieve a specific objective. Matter of Carcanagues, 2016 N.Y. Slip Op. 31765(U), 2016 WL 4410650 (Sur.Ct. New York Co., 2016). Here, modification of the terms of the SNT are appropriate to achieve the specific intent and objective sought by the Petitioners, specifically the maximization of the Beneficiary's eligibility for benefits.
In view of the same, the Court will direct that Article II(A) of the SNT be modified to require the Trustee to pay those administrative expenses enumerated in the Social Security Administration Programs Operations Manual System (POMS) SI 01120.203(B)(3)(a).
Further, in the Court's discretionary role to "balance" the interests of the State with that of the Beneficiary, the Court directs that Article VII be modified to require that the Trustee shall prepare an annual accounting of the Trust and file same with the local social services district, or other appropriate Medicaid entity, responsible for determining the Beneficiary's Medicaid eligibility at the time of the accounting. See, Matter of Goldblatt, 162 Misc.2d 888, 618 N.Y.S.2d 959 (Sur.Ct. Nassau Co., 1994) ; Matter of Morales, N.Y.L.J., Jul. 28, 1995 at 25, col. 1 (Sur.Ct. Kings Co., 1995). The SNT as written directs the Trustee to file its annual accounting specifically with Albany County, and the Court will amend the SNT accordingly to permit the Trustees to file their annual accounting with their local social services department or other appropriate Medicaid servicing entity.
It is therefore so
ORDERED, that Article II, paragraph (A) of the Trust Agreement for the Benefit of Kevin J. Tyrrell dated February 15, 2001 be modified as follows: "(A) The Trustee shall pay those administrative expenses enumerated in the Social Security Administration Programs Operations Manual System (POMS) SI 01120.203(B)(3)(a); and it is further
ORDERED, that Article VII of the Trust Agreement for the Benefit of Kevin J. Tyrell dated February 15, 2001 be modified as follows: "The Trustee shall prepare an annual accounting of the Trust and file same with the local social services district, or other appropriate Medicaid entity, responsible for determining Kevin J. Tyrell's Medicaid eligibility at the time of the accounting; and it is further
ORDERED, that all other motions not specifically addressed herein are dismissed; and it is
SO ORDERED.