SEE:   NEW SUPPLEMENTAL NEEDS DECISION.  This is the first known published decision setting forth the extent of Medicaid’s remainder interest in supplemental needs trusts.   Upon reading the decision, one will note the importance of the decision to case settlement.   Ruben N., Appellate Division, New York State, Second Department, September 16, 2008.

 

Supplemental Needs Trusts for the Settlement of Tort Claims, Estate Planning and Protection of Inheritances.
© 2007

by: Jay J. Sangerman, Esq.

Please note that although this Outline includes New York State law in addition to federal law, the general issues presented here are applicable under the laws of most jurisdictions.  It is important to always check the laws of the jurisdiction in which the trust is being created, as well as the jurisdiction in which the beneficiary resides and/or intends to reside in the future. 

A Detailed Outline, including caselaw from various jurisdictions, is available for our clients at www.sangerman.com.  or by clicking here.  The detailed outline will require submission of the password.
 

 Introduction.

 A.   Purpose of a Supplemental Needs Trust.

    1.   A Supplemental Needs Trust (“SNT”) is an important estate planning tool that permits the maximization of funds to be made available to a disabled individual without being counted as a resource for Medicaid and Supplemental Security Income eligibility, except in so far as funds are distributed directly to the beneficiary or the trustee pays food, clothing and/or shelter for the beneficiary.  See Social Security Income, Procedural Operations Manual at SI 00835.510; SI 01120.200; SI 01120.201, SI 01120.203 and EM-00067 (see www.sangerman.com for copies of the SSI rules and procedures) N.Y. Est. Powers and Trusts Law § 7_1.12.  In tort actions, without the placement of the award into an SNT, a plaintiff with high medical and personal expenses may receive no real economic benefit from the tort award because of the need to use the award to pay for benefits the government previously provided.  This outline is intended to offer a "nuts and bolts" analysis of the use of SNTs and to encourage their use in estate planning and in the settlement of tort actions whenever a plaintiff may be permanently disabled and does not have sufficient funds to pay for his/her future needs.

    2.   The funds in an SNT, subject in certain instances to court approval, may be used for educational and cultural programs, social services, companions and aides, purchase of a residence for the disabled person,  home modifications, a specialized van for transportation and medical care should the Trustee determine that the provision of care from Medicaid is insufficient.  SNTs can enhance the quality of a disabled person's life.  In the absence of an SNT, a tort award or large inheritance may be fully depleted by medical and personal care needs, leaving the disabled individual with no source of funds to maintain and/or enhance his/her quality of life, except for those services provided by government programs to the indigent.  See 42 U.S.C.A. § 1396 (West 1992) and N.Y. Soc. Serv. Law § 366(2)(b)(iii) (McKinney 1992 & Supp. 1998), which state that Medicaid cannot consider as available income or resources the corpus or income of such a trust.

 B.   Basic Types of Supplemental Needs Trusts.

      1.   Third-Party SNT. SNTs which are funded by one other than the beneficiary (e.g., by a parent, grandparent, sibling, whether inter vivos or testamentary), herein referred to as “Third-party SNTs”); and

    2.   First-Party SNT. SNTs funded with a Beneficiary's own funds, e.g., savings, inheritance, lawsuit proceeds, herein referred to as “First-party SNTs.” There are two primary types of First-party SNTs:

      (a)   Those established for a disabled individual under the age of 65 where the State has a right to be reimbursed for Medical Assistance paid upon the death of the beneficiary.  See 42 U.S.C.A. § 1396p(d)(4)(A); N.Y. Soc. Serv. Law § 366(2)(b)(iii) (McKinney 1992 & Supp. 1998); and

      (b)   Those established for a disabled individual with a nonprofit association where a separate account is maintained for each beneficiary of the trust, but for purposes of investment and management, the trust pools the funds in these accounts (hereinafter referred to as a “Pooled-SNT”).  To the extent that any amounts remaining in the Beneficiary's account upon the death of the Beneficiary are not retained by the Pooled-SNT, the State has a right to be reimbursed for medical assistance paid upon the death of the Beneficiary.  See  42 U.S.C.A. § 1396p(d)(4)(C).  Unlike the (d)(4)(A) trust, the (d)(4)(C) pooled trust can be funded by an individual 65 years or age or greater; however, such funding will be treated as a transfer for purposes of determining Medicaid eligibility.  The "pooled trusts" are especially appropriate for the under 65 person at a time that the funds in the trust are quite small.

The essential difference between the Third-party SNT and the First-party SNT is that in the case of the First-party SNT, Medicaid must have a right of reimbursement against the remaining corpus of the SNT upon its termination (ordinarily at the death of the beneficiary) up to the amount expended by Medicaid.  See New York State Social Services Law §366(2)(b)(ii)) and 42 U.S.C.A. §1396p(d)(4)(A).  This is not the case with the Third-party SNT, in which the Grantor can designate any person or entity as the ultimate remainderman of the SNT.

II.   Third-party Supplemental Needs Trusts.

 A.   Codification.

    1.  The Third-party SNT was first recognized by the New York State courts in 1978 (see Matter of Escher, 94 Misc. 2d 952 (1978); 75 A.D.2d 531; 426 N.Y.S.2d 1008 (1980); aff’d. 52 N.Y.2d 1006; 438 N.Y.S.2d 293 (1981)) and courts of most other states have since recognized such Third-party trusts to be excludable sources of funds for disabled persons with regard to public benefit eligibility.  In Matter of Escher, the Court of Appeals affirmed a decree of the Surrogate's Court holding that the trustee of a testamentary trust did not abuse her discretion as a matter of law in refusing to invade the corpus of a discretionary trust to pay the claim of a psychiatric facility, where both courts below found that the testator's intent was that the corpus be invaded only for health related emergencies and that routine expenses for day-to-day care be paid only from income.

    2.   Matter of Escher was codified in New York in 1993.  See N.Y. Est. Powers and Trusts Law § 7_1.12 (5)(i)(McKinney Supp. 1996), which contains excellent drafting language for SNTs, useful in any jurisdiction.  See also Social Security Income, Procedural Operations Manual at SI 00835.510; State Medicaid Manual, Part 3 ((HCFA Pub. 453) at §3259.7, entitled Exceptions to Treatment of Trusts Under Trust Provisions.

 B.  Basic Principles of the Third-Party Supplemental Needs Trust.

    1.   Any individual, other than the beneficiary, can place funds into a properly drafted Third-party SNT for the special and luxury needs of a disabled beneficiary without affecting such beneficiary’s eligibility for government benefits.  42 U.S.C.A. §1382c (a)(3) defines disability as follows:

    An individual shall be considered to be disabled for purposes of this subchapter if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for continuous period of not less than twelve months (or, in the case of a child under the age of 18, if he suffers from any medically determinable physical or mental impairment of comparable severity).

    2.   The Third-party SNT can be inter vivos (i.e., established during the grantor 's lifetime); provided, however, that a spouse cannot create a Third-party SNT for the other spouse for whom s/he is legally responsible.  The Third-party SNT can be testamentary for any individual (i.e., established under the grantor's last will and testament), in which case there are no restrictions upon a spouse's creating an SNT for the other spouse.  See 42 U.S.C.A. §1396p(d)(2)(A):

      (d)   Treatment of trust amounts.  (1) For purposes of determining an individual's eligibility for, or amount of, benefits under a State plan under this title [42 U.S.C.A. @ 1396 et seq.], subject to paragraph (4), the rules specified in paragraph (3) shall apply to a trust established by such individual.  (2) (A) For purposes of this subsection, an individual shall be considered to have established a trust if assets of the individual were used to form all or part of the corpus of the trust and if any of the following individuals established such trust other than by will:  (i) The individual.  (ii) The individual's spouse.  (iii) A person, including a court or administrative body, with legal authority to act in place of or on behalf of the individual or the individual's spouse.  (iv) A person, including any court or administrative body, acting at the direction or upon the request of the individual or the individual's spouse.

                         (Emphasis added).

    3.   Neither the beneficiary's (nor the beneficiary’s spouse’s) funds should be placed into a Third-party SNT.  If the beneficiary's funds are placed into a Third-party SNT, the State will have a right to recoup monies expended from part of the corpus of the Third-party SNT upon the beneficiary's death.  Moreover, the State may argue that it has the right of reimbursement against the entire trust upon the termination of the trust up to amount expended by Medicaid because it is, in fact, a First-party trust.   

C. Advantages of an inter vivos SNT over a testamentary SNT.

    1.   General Benefits.

    Maintenance of Medicaid and SSI benefits.  Opportunity to have SNT effective during lifetime of parents.

    2.   Medicaid Planning.

    Creates opportunity for Medicaid planning by parents of disabled child.  No penalty periods applied for transfers into an SNT for legally disabled child (adult or minor) (as defined in section 1614(a)(3)) [42 USCS @. §1382c (a)(3).  See also NYCRR §360_4.4(c)(iii):

    3.   Estate Tax Planning. 

    The inter vivos SNT can be a useful mechanism in estate tax planning.  See 2001 Tax Act.

      (a)   Although under Crummey (Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968), a donor can receive an annual exclusion for a gift into a trust, so long as the trust beneficiary has a right of withdrawal for a sufficient period of time of the funds, such Crummey powers may not be appropriate for an SNT.

      (b)  Appreciation of assets will be removed from the parents' estates, thereby reducing any estate taxes.

      (c) The SNT can be made the beneficiary of a Charitable Remainder Trust.  See  Letter Ruling 199903001, October 19, 1998, CCH IRS Letter Rulings Report No. 143, 01_27_99, which states:

4.   Life Insurance. 

    The SNT can be funded with life insurance, so as to create a source of funds for the disabled individual upon the parents' (or other's) deaths, which can be especially appropriate for families of moderate means.

III.   First-Party Supplemental Needs Trusts.

 A.    Funds to which the Beneficiary is Entitled.

    A First-party SNT is one in which the beneficiary's own funds (e.g., from a tort award, inheritance or funds in the beneficiary’s name, e.g., pension monies or other savings) are placed into the trust.  This generally will occur when (i) the disabled individual is to receive an award in a tort action or (ii) the disabled individual is to receive an inheritance and no provision was made by the testator for the placement of the funds into a Third-party SNT.

B. Supplemental Needs Trust Enacting Legislation.

    Federal legislation authorizing the First-party SNT is found in the Omnibus Budget Reconciliation Act of 1993.  See 42 U.S.C.A. § 1396p(d)(4) (West Supp. 1998).  In 1994, New York State enacted enabling legislation, consistent with the federal law.  N.Y. Soc. Serv. Law § 366(2)(b)(iii) (McKinney 1992 & Supp. 1998) states:

SSI Rules Effective for Trusts After January 1, 2001SSI

On December 14, 1999, the President signed into law the Foster Care Independence Act of 1999.  Although SNTs were previously permitted under the SSI rules, this law, which becomes effective for trusts established after January 1, 2001, codifies the SNT rules for SSI.  Pursuant to this law, the Social Security Administration set forth in its Procedural Operating Manual its regulations pertaining to Supplemental Needs Trusts.  The Social Security Administration also set forth the mechanism to evaluate when a Supplemental Needs Trust conforms to the rules and, therefore, excludable as an asset for purposes of eligibility.  See also www.sangerman.com for these rules.  In part, the POMs state:

C. The Two Basic Types of First-Party Supplemental Needs Trusts.

    1. The Supplemental Needs Trust for one under 65 Years of Age.   42 U.S.C.A. §1396p(d)(4)(A); and   N.Y. Soc. Serv. Law §366(2)(b)(iii)  (McKinney 1992 & Supp. 1998)                             .

       (a)   Unlike the Third-party SNT, to the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount up to the total amount of Medical Assistance paid on behalf of the beneficiary under the State plan.  See 42 U.S.C.A. §§ 1396p (d)(4)(A)

      (b)   Although the First-party SNT contains the assets of the disabled beneficiary, the legislation requires that it be established by a parent, grandparent, legal guardian of the individual or a court.  Under federal and state law, the First-party SNT cannot be established by the beneficiary him/herself, but it can be directly funded by the beneficiary.  See 42 U.S.C.A. §§ 1396p (d)(4)(A).

      (c)   As to qualification for Medicaid eligibility, there is no period of ineligibility imposed for a transfer into a First-party SNT when the beneficiary is under 65 years of age at the time of the transfer.

      (d)   Duration of Supplemental Needs Trust:  Pursuant to federal and State laws (see 42 U.S.C.A. §1396p(d)(4)(A)), a valid First-party SNT requires that Medicaid receive all amounts remaining in the SNT at the death of the beneficiary, up to the total value of all Medical Assistance paid on behalf of the beneficiary.  However, it may be possible to draft the trust to terminate prior to death of the beneficiary.

      2.  The Pooled Supplemental Needs Trust.

    42 U.S.C.A. §1396p(d)(4)(C)          

    Must be established and managed by a nonprofit association.  Unlike the (d)(4)(A) trust (the under 65 year old SNT), the (d)(4)(C) pooled SNT can be funded by an individual 65 years of age or greater; however, in the case of a beneficiary over the age of 65 years, the transfer into the trust will be considered a transfer for no consideration, creating a period of ineligibility for institutional Medicaid.

IV. Establishment of The First-Party Supplemental Needs Trust for a Minor or Mentally Incapacitated Individual         .           .

A.   No Court Order Necessarily Required.

    If the prospective beneficiary is a competent adult and has a parent or grandparent willing and able to be the creator of the SNT, then there should be no need to make an application to a court to order the creation of the SNT and to transfer assets into the SNT. 

B.   Court Order Required.

    1.   In the case of a minor or mentally incapacitated individual, whether or not the parents are living and are the natural guardians of such individual, a court order is always required to transfer the individual's assets, including a transfer into an SNT.    If there is no living parent or grandparent, a court order is necessary in order to create a Supplemental Needs Trust irrespective of whether the beneficiary is competent or not.

      2.  Prior to seeking the establishment of an SNT within a guardianship proceeding, the practitioner should ascertain whether jurisdiction is properly within the Supreme Court or Surrogate's Court. 

      (a)   By means of a guardianship proceeding pursuant to New York State Mental Hygiene Law §81.21(a)(6).

      (b)   By means of a special proceeding for a competent beneficiary without the requisite relative to create the trust.

      (c)   By Means of the New York State Surrogate's Court Procedure Act Articles 17 or 17A.

      (d)   By Means of New York State Civil Procedure Law and Rules §§1206 and 1207.

V.   Drafting Provisions for the Supplemental Needs Trust.

A.   General Provisions: 

With the exception of the Medicaid reimbursement provisions, the language of the First-party and Third-party SNT is essentially the same.

B.   Statute:

The New York State Estates, Power and Trust Law Section ("EPTL") 7-1.12 provides the essential provisions for inclusion in an SNT.  Although the language provided in EPTL 7-1.12 is not required, it is useful to consider the use of such language in the drafting of the SNT.  Judge Leone, in Matter of Morales, N.Y.L.J., July 28, 1995, at 25, col. 1 (Sup. Ct. Kings Co.), presented a fully drafted First-party SNT, which is required, without change, by certain courts.  It is this author's position that any SNT must be customized for each situation, taking into account the medical status and age of the beneficiary, the family circumstances, the choice of trustee, the requirements of the Medicaid agency of the particular county and the requirements of the court.  However, technically, Matter of Morales, presented to the Court without change, complies with the law, but may not comply with the individual Medicaid district’s wishes for the provisions of a Supplemental Needs Trust.

Specific Issues Relating to the First-Party Supplemental Needs Trust.                                                           

    1.   Medicaid's Right to Reimbursement.

      The regulations at 18 NYCRR 360-4.5 provide:

      A trustee of a trust described in subparagraph (i) of this paragraph, in order to fulfill his or her fiduciary obligations with respect to the State’s remainder interest in the trust, must:

       (i)   notify the appropriate social services district of the creation or funding of the trust for the benefit of an MA applicant/recipient;

       (ii)   notify the social services district of the death of the beneficiary of the trust;

       (iii)   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 up to $500,000; 10 percent for trusts valued over $500,000 up to $1,000,000; and 15 percent for trusts over $1,000,000;

       (iv)   notify the social services district in advance of any transactions involving transfers from the trust principal for less than fair market value; and

       (v)   provide the social services district with proof of bonding if the assets of the trust at any time equal or exceed $1,000,000, 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, if required by a court of competent jurisdiction.

    2.   Remainder Interest.

    Courts generally require that the remainder interest in the SNT, after payment to the State Medicaid agency, is to the beneficiary's estate and not to any named persons.

VI.   Tort Settlements.

 a) Federal Law.

     1. Collection of the Lien.

Under the federal law, a Medicaid recipient must assign his/her rights to the recovery of medical expenses paid by Medicaid.  The Medicaid recipient must assist Medicaid, as a condition of eligibility, in seeking recovery of payments from third parties.  The federal law, at 42 U.S.C. §1396k, states:

For the purpose of assisting in the collection of medical support payments and other payments for medical care owed to recipients of medical assistance under the State plan approved under this title, a State plan for medical assistance shall--

(1) provide that, as a condition of eligibility for medical assistance under the State plan to an individual who has the legal capacity to execute an assignment for himself, the individual is required--

(A) to assign the State any rights, of the individual or of any other person who is eligible for medical assistance under this title and on whose behalf the individual has the legal authority to execute an assignment of such rights, to support (specified as support for the purpose of medical care by a court or administrative order) and to payment for medical care from any third party;

    • - - - - - -
    • (C) to cooperate with the State in identifying, and providing information to assist the State in pursuing, any third party who may be liable to pay for care and services available under the plan, unless such individual has good cause for refusing to cooperate as determined by the State agency in accordance with standards prescribed by the Secretary, which standards shall take into consideration the best interests of the individuals involved; and
    • (b) Such part of any amount collected by the State under an assignment made under the provisions of this section shall be retained by the State as is necessary to reimburse it for medical assistance payments made on behalf of an individual with respect to whom such assignment was executed (with appropriate reimbursement of the Federal Government to the extent of its participation in the financing of such medical assistance), and the remainder of such amount collected shall be paid to such individual.

The Richardson Memorandum states that the placement of funds derived from a third-party settlement into an SNT is a violation of the individual's duty to cooperate.  In relevant part, the Richardson Memorandum states:

 

  • Federal law at section 1902(a)(25)(A) of the [Social Security] Act requires States to take all reasonable measures to ascertain the legal liability of third parties to make payments which Medicaid would otherwise have to make.  A third party is defined in the regulations at 42 CFR 433.136 as an individual, entity, or program that is or may be liable to pay all or part of the expenditures for medial assistance furnished under the State plan.  Where such a legal liability exists, section 1902(a)(25)(B) requires a State to seek reimbursement for medical assistance payments already made. 
  • All individuals, at the time of application and as a condition of eligibility for Medicaid, must assign to the State their rights to payment for medical care from any third party and, subject to several exceptions, must cooperate with the State in its pursuit of any third party who might be liable for such payment as required by section 1912(a)(1) of the Act and 42 CFR 433.145 of the Medicaid regulations.
  • Thus, if an individual is already Medicaid eligible at the time he or she receives a third party settlement or judgment, the State has claim to any portion of the proceeds which were intended to pay for medical care for the individual that is covered by Medicaid.  If the individual negotiates with the third party to place these amounts in a trust or otherwise fails to help make the amounts available to the State, then that individual has violated a condition of eligibility in section 1912 which requires the individual to cooperate with the Sate in obtaining payments for medial care fro a third party.  The individual would lose eligibility, regardless of the trust provisions and exceptions in sections 1917(d)(4)(A) and (C) [,which are those provisions in the federal law providing for the creation of payback Supplemental Needs Trusts].

See also Sullivan v. County of Suffolk, et. al., in which the U.S. Court of Appeals for the Second Circuit held that the Medicaid lien needed to be paid prior to the establishment of the Supplemental Needs Trust; Norwest Bank of North Dakota, N.A. v. Doth, U. S. Court of Appeals for the Eighth Circuit.

 

 2. Compromise of the Lien.

 

The federal law, at 42 CFR 433.139 (f), states that if the reduction in the Medicaid lien would be "cost effective," then the State can reduce the amount of the Medicaid lien.  "Cost effective" may mean that the underlying tort litigation cannot be settled unless the Medicaid lien against the proceeds is reduced.  42CFR 433.139 (f) states:

 

  • (f) Suspension or termination of recovery of reimbursement. (1) An agency must seek reimbursement from a liable third party on all claims for which it determines that the amount it reasonably expects to recover will be greater than the cost of recovery. Recovery efforts may be suspended or terminated only if they are not cost effective.
  • (2) The State plan must specify the threshold amount or other guideline that the agency uses in determining whether to seek recovery of reimbursement from a liable third party, or describe the process by which the agency determines that seeking recovery of reimbursement would not be cost effective.
  • (3) The State plan must also specify the dollar amount or period of time for which it will accumulate billings with respect to a particular liable third party in making the decision whether to seek recovery of reimbursement.

(b) State Applications of the Federal Laws.

 

  •   Set forth below are some examples from various States pertaining to their rules and regulations on the collection of liens against personal injury recoveries.  As will be noted, some States have enacted statutes, while other states relay upon caselaw.  In New York State, there have been bills presented to the legislature, seeking legislation to prevent the collection of any Medicaid lien in situations where funds are placed into Supplemental Needs Trusts until the death of the plaintiff/beneficiary of the trust.  The last proposed bill failed to pass last year.
  • 1. Collection of the Lien. 
    • New York.
    • The Court of Appeals of the State of New York has ruled that:
      • a. Medicaid can enforce its full lien against the proceeds of personal injury actions;
      • b. Where a Supplemental Needs Trust is being established, the Medicaid lien must be paid prior to the establishment of the Supplemental Needs Trust;
      • c. All settlement proceeds (not just those allocated to medical expenses) are available to satisfy Medicaid liens; and
      • d. The Medicaid lien is payable irrespective of the age of the plaintiff.  Some of the litigation had involved the issue of whether a minor's award in a personal injury matter can have a lien placed against it.
  • Set forth below are some of the "key" cases in New York State:
  • a. Cricchio v. Pennisi, 90 N.Y.2d 296, 660 N.Y.S.2d 679, amended sub nom. Link v. Town of Smithtown, 1997 N.Y. LEXIS (N.Y., July 1, 1997), which stated:
        • The recoupment of Medicaid funds from responsible third parties is accomplished by Federal directives that the State plan include assignment, enforcement and collection mechanisms (42 USC § 1396k [a] [1] [A]; § 1396a [a] [25] [I]).  Specifically, as a condition of eligibility, an applicant must assign to DSS any rights he or she has to seek reimbursement from any third party up to the amount of medical assistance paid (42 USC § 1396k [a] [1] [A]; 42 CFR 433.146 [c]; Social Services Law § 366 [4] [h] [1]; 18 NYCRR 360-7.4 [a] [6]).  Additionally, a Medicaid recipient must "cooperate with the State in identifying, and providing information to assist the State in pursuing, any third party who may be liable to pay for care and services available under the plan," unless good cause exists for his or her refusal to cooperate (42 USC § 1396k [a] [1] [C]; see also, Perry v Dowling, 95 F3d 231, 234 [2d Cir 1996]).
        •         New York's statutory scheme provides that DSS "shall be subrogated, to the extent of [its] expenditures ... for medical care furnished, to any rights such person may have to medical support or third party reimbursement" (Social Services Law § 367-a [2] [b]).  To enable the public welfare official to enforce its substantive right to pursue repayment from responsible third parties (see, Matter of Costello [Stark] v Geiser, 85 NY2d, at 108-109, supra ), the New York Legislature enacted Social Services Law § 104-b, which authorizes DSS to place a lien for public assistance on personal injury claims and suits against third parties to the extent of the expenditures made on the recipient's behalf.  Once the statutory notice and filing requirements are met, the public welfare official's lien attaches to any verdict, judgment or award in any suit respecting such injuries, "as well as [to] the proceeds of any settlement thereof" (Social Services Law § 104-b [3]).  The lien continues "until released and discharged by the local public welfare official" (§ 104-b [7]).
        • . . . . . . . . . . . .
        • This recoupment hierarchy follows necessarily from the assignment and subrogation scheme.  (emphasis added). As the Medicaid recipient's assignee (see, 42 USC § 1396k; Social Services Law § 366 [4] [h] [1]), DSS obtains all of the rights that the recipient has as against the third party to recover for medical expenses, including the ability to immediately pursue those claims against the third party.  Because the injured Medicaid recipient has assigned its recovery rights to DSS, and DSS is subrogated to the rights of the beneficiary (Social Services Law § 367-a [2] [b]; Matter of Costello [Stark] v Geiser, 85 NY2d 103, supra), the settlement proceeds are resources of the third-party tortfeasor that are owed to DSS.  Accordingly, the lien on the settlement proceeds attaches to the property of the third party, and thus does not violate the statutory prohibition against imposing a lien against a beneficiary's property until after his or her death (emphasis added) (see, Social Security Act § 1917 [a] [ 42 USC § 1396p (a)]; Social Services Law § 369 [2] [a]).  The flaw in plaintiffs' theory that the lien cannot be satisfied until the recipient's death is that it fails to appreciate this critical distinction between the assets of a responsible third party and assets belonging to the Medicaid recipient.
      • b. Robin K. Calvanese v. Anthony J. Calvanese et. al.  Suffolk County Department of Social Services, Respondent; Patricia Callahan, Appellant. 93 N.Y.2d 111; 710 N.E.2d 1079 (1999).  The Court held that all settlement proceeds were available to satisfy Medicaid liens, and that transfer of settlement funds from a tort recovery to a supplemental needs trust could be made only after the liens were paid.
      • c. Arvil Samerson et al., Respondents, v. Mather Memorial Hospital et al., Defendants, 90 N.Y.2d 870; 684 N.E.2d 271; 661 N.Y.S.2d 822 (1997).  The Medicaid lien must be established prior to the establishment of the Supplemental Needs Trust with settlement proceeds before satisfying a Medicaid lien.
      • d. Gold v. United Health Services Hospitals, Inc. 95 N.Y.2d 683; 746 N.E.2d 172; 723 N.Y.S.2d 117; 2001 LEXIS 526 (2001).. The recovery of the Medicaid lien prior to the finding of the Supplemental Needs Trust also applies to infants.  See the joined appeals before the New York State Court of Appeals, (i) Abraham Gold, an Infant, by Kathleen A. Gold, His Mother and Natural Guardian, et. al., Appellants, v. United Health Services Hospitals, Inc., et. al., Defendants.  New York State Office of Mental Retardation and Developmental Disabilities, et. al., Respondents, and (ii) Kimberly Santiago, an Infant, by Benital Santiago, Her Mother and Natural Guardian, et. al., Appellants, v. Craigbrand Realty Corp. et. al, Defendants.  New York City Department of Social Services, Respondent,

    Florida

    • Florida has a Medicaid third-party liability act (409.910) which is not dissimilar to the New York caselaw and, in part, states:
      •      (1)   It is the intent of the Legislature that Medicaid be the payor of last resort for medically necessary goods and services furnished to Medicaid recipients.  All other sources of payment for medical care are primary to medical assistance provided by Medicaid.  If benefits of a liable third party are discovered or become available after medical assistance has been provided by Medicaid, it is the intent of the Legislature that Medicaid be repaid in full and prior to any other person, program, or entity. Medicaid is to be repaid in full from, and to the extent of, any third-party benefits, regardless of whether a recipient is made whole or other creditors paid.  Principles of common law and equity as to assignment, lien, and subrogation are abrogated to the extent necessary to ensure full recovery by Medicaid from third-party resources.  It is intended that if the resources of a liable third party become available at any time, the public treasury should not bear the burden of medical assistance to the extent of such resources.
      • (6)   When the agency provides, pays for, or becomes liable for medical care under the Medicaid program, it has the following rights, as to which the agency may assert independent principles of law, which shall nevertheless be construed together to provide the greatest recovery from third-party benefits:
        • (a)   The agency is automatically subrogated to any rights that an applicant, recipient, or legal representative has to any third-party benefit for the full amount of medical assistance provided by Medicaid.  Recovery pursuant to the subrogation rights created hereby shall not be reduced, prorated, or applied to only a portion of a judgment, award, or settlement, but is to provide full recovery by the agency from any and all third-party benefits. Equities of a recipient, his or her legal representative, a recipient’s creditors, or health care providers shall not defeat, reduce, or prorate recovery by the agency as to its subrogation rights granted under this paragraph.
      • 7.   No release or satisfaction of any cause of action, suit, claim, counterclaim, demand, judgment, settlement, or settlement agreement shall be valid or effectual as against a lien created under this paragraph, unless the agency joins in the release or satisfaction or executes a release of the lien. An acceptance of a release or satisfaction of any cause of action, suit, claim, counterclaim, demand, or judgment and any settlement of any of the foregoing in the absence of a release or satisfaction of a lien created under this paragraph shall prima facie constitute an impairment of the lien, and the agency is entitled to recover damages on account of such impairment.  In an action on account of impairment of a lien, the agency may recover from the person accepting the release or satisfaction or making the settlement the full amount of medical assistance provided by Medicaid.  Nothing in this section shall be construed as creating a lien or other obligation on the part of an insurer which in good faith has paid a claim pursuant to its contract without knowledge or actual notice that the agency has provided medical assistance for the recipient related to a particular covered injury or illness. However, notice or knowledge that an insured is, or has been a Medicaid recipient within 1 year from the date of service for which a claim is being paid creates a duty to inquire on the part of the insurer as to any injury or illness for which the insurer intends or is otherwise required to pay benefits.
      • (9)   The department shall deny or terminate eligibility for any applicant or recipient who refuses to cooperate as required in subsection (8), unless cooperation has been waived in writing by the department as provided in paragraph (8)(f). However, any denial or termination of eligibility shall not reduce medical assistance otherwise payable by the department to a provider for medical care provided to a recipient prior to denial or termination of eligibility.

        •    Colorado

         

    •     130 CMR 520.007
      •      (3)  If medical assistance is furnished to or on behalf of a recipient pursuant to the provisions of this article for which a third party is liable, the state department has an enforceable right against such third party for the amount of such medical assistance, including the lien right specified in subsection (4) of this section. . . . .
      • (4)(a)  When the state department has furnished medical assistance to or on behalf of a recipient pursuant to the provisions of this article for which a third party is liable, the state department shall have an automatic statutory lien for all such medical assistance.  The state department’s lien shall be against the amount of the judgment, award, or settlement in a suit or claim against such third party and shall be payable after deducting from the judgment, award, or settlement for the recipient’s attorney fees and reasonable litigation costs incurred in the preparation and prosecution of the action or claim.
      • (b)  No judgment, award, or settlement in any action or claim by a recipient to recover damages for injuries, where the state department has a lien, shall be satisfied without first satisfying the state department’s lien. Failure by any party to the judgment, award, or settlement to comply with this section shall make each such party liable for the full amount of medical assistance furnished to or on behalf of the recipient for the injuries that are the subject of the judgment, award, or settlement.
  • The Colorado statute explicitly states that any statutory lien pursuant to Section 26-4-403(4) must be satisfied prior to funding of the trust and approval of the trust. 8.110.5
  • .

    •    New Jersey

    The New Jersey statute was enacted last year.  This statute sets forth exactly what must be included in the drafting of the Supplemental Needs Trust.  As to the Medicaid lien, the statute states:

      • If the Trust is established with funds from the proceeds of a settlement or judgement subsequent to the brining of a legal cause of action, Medicaid’s claim for its expenditures that are related to the cause of action shall be repaid immediately upon the receipt of such proceeds and prior to the establishment of the trust.
    • N.J.A.C. 10:71-4.11.

VII.   Funding of The Supplemental Needs Trust.

    May be funded with a lump sum of case or structured settlement annuity or combination of both.                                                                   .

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A Detailed Outline, including caselaw from various jurisdictions, is available for our clients at www.sangerman.com.
or by clicking here.

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          Jay J. Sangerman's firm, Jay J. Sangerman, PLLC, is a boutique law firm which practices in the areas of trusts and estates and elder law.  The firm is listed in The Bar Register of Preeminent Lawyers published by Martindale-Hubbell.  The practice includes estate planning, estate administration and estate litigation; Supplemental Needs Trusts; Medicare Set-Aside Trusts; assisting in the settlement of tort claims by maximizing the settlement through effective estate planning; guardianship proceedings; Medicaid planning and eligibility; and hospital discharge planning and nursing home placement.  The firm performs fiduciary accountings for bank trust departments, executors and trustees and guardians.  Our clients include individuals, hospitals and nursing homes, banks and stock brokerage companies and insurance companies.  The firm practices law in New York, Florida and New Jersey.

          Jay J. Sangerman, PLLC has successfully argued landmark cases in elder law and estate planning and has been responsible for changes in the law, e.g., In re Klapper, in which the Court permitted the transfer of an incapacitated person’s assets by Court order; In re Sutton, in which the Surrogate’s Court authorized a Supplemental Needs Trust for a minor where it was unclear what the minor’s future medical needs would be; In re McCullough, in which the Surrogate’s Court permitted the late renunciation by a guardian of an incapacitated individual’s interest in an estate and the reversal of the deed to real property which had been previously transferred; The Commissioner of the Department of Social Services of the City of New York v. Fishman, in which an action against a community spouse for Medicaid paid for the institutionalized spouse was dismissed for reasons that Medicaid fails to follow basic elements of contract law in such suits, changing the manner in which Medicaid must litigate such cases.  Fishman was reversed on appeal by DSS to the First Department and is currently before the First Department on reargument.  The firm has also successfully changed both federal and state Medicaid laws relating to the exemption of Holocaust Reparations; and In the Matter of the Appointment of a Guardian of the Person and Property of Claire Spingarn, an Alleged Incapacitated Person, in which we represented the alleged incapacitated person to avoid the appointment of petitioner as guardian.  This case is a landmark case pertaining to the award of attorney’s fees in a guardianship matter.

          Jay J. Sangerman teaches Estate Planning and Gift Taxation at New York University School of Continuing and Professional Studies.  Mr. Sangerman speaks extensively on Estate Planning, Elder Law and planning for disabled adults and children.  His audiences include bar and trade associations, as well as hospital, medical and social work staffs, and various social, educational, professional and philanthropic groups.  Mr. Sangerman's articles have been published by the Practicing Law Institute, the New York State Bar Association, the National Academy of Elder Law Attorneys, the CPA/Law Forum and the Central Conference of American Rabbis.  His hospital discharge article is cited in 42 U.S.C.A §1395x.  Mr. Sangerman contributed an article in “Alzheimer’s Disease, Questions and Answers,” published by Merit Publishing International.

          Among Mr. Sangerman’s professional memberships are the  the Supreme Court Committee of the New York County Bar Association, New York State Bar Association Section on Trusts and Estates, the Association of the Bar of the City of New York Committee on Legal Problems of the Aging and the National Academy of Elder Law Attorneys.  Mr. Sangerman is a founding member of the Elder Law Section of the New York State Bar Association, served on its board and was Chair of the Elder Law Section Committee on Practice and Ethics.  Mr. Sangerman a Trustee of the Jewish Board of Family and Children's Services, Inc. and the Post Graduate Center for Mental Health.  He is a Fellow of the Brookdale Center on Aging.

          Mr. Sangerman graduated cum laude from Yeshiva University's Benjamin N. Cardozo School of Law, where he was a member of Law Review, and an Alexander Fellow which provided him the opportunity to be a fulltime student clerk to Chief Judge Jack B. Weinstein of the United States District Court, Eastern District of New York.  Upon graduation, Mr. Sangerman worked for Fried, Frank, Harris, Shriver & Jacobson, where he handled complex litigation matters.  Before attending law school, Mr. Sangerman was a practicing Reform Rabbi.  Mr. Sangerman was ordained in 1971 from the Hebrew Union College  Jewish Institute of Religion in Cincinnati, Ohio.  Mr. Sangerman earned his Bachelor of Arts Degree in Philosophy from the University of Illinois in 1968.  Mr. Sangerman is admitted to practice in New York, Florida and New Jersey.

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    JAY J. SANGERMAN, ESQ.
    Jay J. Sangerman, PLLC
    171 East 84th Street, Unit 21B
    New York, New York 10028
    212-922-0711
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