Supplemental Needs Trusts for the Settlement of Tort Claims, Estate Planning and Protection of Inheritances: A Nuts and Bolts Analysis. © 2003
Please note that Jay Sangerman is certified by the New York State Department of Insurance to give Continuing Education.
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. 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. Please see separate article on Medicare Set-Aside Trusts on the Firm's Web Page. Certain states have written checklists of what is required in a Supplemental Needs Trust.
Updates of this Article, and other information on Supplemental Needs Trusts and their Relationship to Structures can be found at www.sangerman.com.
Please see separate article on Medicare Set-Aside Trusts on the Firm's Web Page.
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.
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.
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. Parents of a disabled child (including an adult child), such as a psychiatrically disabled child, often are anxious not knowing whether their child will be appropriately taken care of after their deaths. One of the most difficult aspects of estate planning for the disabled is working with parents to give them the assurance that a properly crafted estate plan will help protect their child and assist in the continuation of a meaningful level of care. In order to maintain government benefits for the disabled individual (i.e., benefits which have eligibility restrictions relating to income and/or assets), these parents have the choice of disinheriting the disabled individual or placing funds into an SNT to benefit the child. With disinheritance, someone else receives the funds, with no guarantee that the funds will be utilized for the disabled individual. However, if the funds are placed into an SNT, the funds will remain set aside for the child. The inter vivos SNT permits the parents the opportunity to observe how the SNT provides for their child and his/her special needs, without endangering Medicaid and SSI eligibility.
2. Medicaid Planning.
(a) As an added benefit to the creation of an inter vivos SNT, should a parent need nursing home care, the parent's (or parents') assets can be transferred into the SNT, permitting the parent to become eligible for Medicaid to pay for the parent's nursing home care as of the month after the transfer without the imposition of a penalty period. As set forth in 42 U.S.C.A. §1396p(c)(2)(B):
(2) An individual shall not be ineligible for medical assistance by reason of paragraph (1) to the extent that
(B) the assets (i) were transferred to the individual's spouse or to another for the sole benefit of the individual's spouse, (ii) were transferred from the individual's spouse to another for the sole benefit of the individual's spouse, (iii) were transferred to, or to a trust (including a trust described in subsection (d)(4)) established solely for the benefit of, the individual's child described in subparagraph (A)(ii)(II), or (iv) were transferred to a trust (including a trust described in subsection (d)(4)) established solely for the benefit of an individual under 65 years of age who is disabled (as defined in section 1614(a)(3)) [42 USCS @. §1382c (a)(3)
See also NYCRR §360_4.4(c)(iii):
An individual will not be ineligible for Medical Assistance as a result of a transfer . . . if:. . .
(c)(1) the asset was transferred: . . .
(iii) to the individual's child who is blind or disabled, or to a trust established solely for the benefit of such child.....
Therefore, an estate plan with a disabled family member may include (i) the inter vivos SNT, (ii) a last will and testament that leaves additional funds into the SNT and (iii) a power of attorney which authorizes the agent(s) to distribute assets (a) in order to provide for the needs of the child from the parent's funds and (b) in order to transfer assets into the SNT to make the parent Medicaid eligible, saving the assets for the use and benefit of the disabled individual.
(b) In the tort context, should a parent on Medicaid receive a tort award and wish to remain on Medicaid, the parent can transfer all his/her assets either outright to a disabled child (whether adult or minor) or to a Supplemental Needs Trust for the sole and absolute benefit of the child and the parent will be Medicaid eligible, whether for community Medicaid or for institutional Medicaid. See 18 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. Because the Crummey powers give the beneficiary the right to the funds, it appears that it is the beneficiary, and not the donor (even though there is a "lapse" pursuant to IRC §2514), who ultimately places the funds into the SNT due to the beneficiary's having had a right to the funds. Therefore, it is likely that Medicaid would consider any funds which the disabled beneficiary had a right to, but left in the trust, to be the disabled individual's funds and, therefore, available to Medicaid at the death of the beneficiary, as would the funds in any First-party SNT. Therefore, it would appear that Crummey powers should not be included in any SNT. However, the draftsperson may consider whether there could be multiple beneficiaries of a trust in which all but the disabled individual would have Crummey powers and the SNT provisions would apply only to the disabled person.
(b) Even without the Crummey provisions, there still can be estate tax advantages to funding an SNT during the parents' lifetimes. By funding the SNT during the parents' lifetimes, any 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:
Rev. Rul. 76_270, 1976 C.B. 194, provides that an otherwise qualifying charitable remainder trust that makes distributions to a second trust whose only function is to receive and administer those distributions for the benefit of the named individual lifetime beneficiary of the charitable remainder trust is considered to have made the distributions directly to the individual and qualifies as a charitable remainder trust.
The Letter Ruling continues that the trust described in Rev. Rul. 76_270 into which the CRAT was paid was not required to distribute all income to the beneficiary. The payment to the trust qualified, however, because any amounts remaining in the trust were payable to the beneficiary's estate. In the case described in the Letter Ruling, the beneficiary had a general power of appointment over the assets in the SNT and, therefore, the trust would be includible in the beneficiary's estate.
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. Properly drafted (and properly funded), the death benefit value of the life insurance will not be included in the parents' (or other's) estates for calculation of estate taxes. 26 U.S.C.A. §§2035, 2042 (West Supp. 1998). Life insurance, as a vehicle to fund an SNT, 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. See, e.g., In re Gatison, N.Y.L.J., May 13, 1994, at 29, col. 1 (Sur. Ct. N.Y. Co.) (court authorized transfer of an estate’s settlement of personal injury action to a first-party SNT established for the adult retarded son of the decedent); In re Eubanks, N.Y.L.J., May 24, 1995, at 31, col. 4 (Sur. Ct. Kings Co.) (court authorized wrongful death proceeds and an intestate share to be placed into SNT for the adult mentally retarded son of the decedent).
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:
(iii) . . . in the case of an applicant or recipient who is disabled, as such term is defined in section 1614(a)(3) of the federal social security act, the department must not consider as available income or resources the corpus or income of the following trusts which comply with the provisions of the regulations authorized by clause (iv) of this subparagraph: (A) a trust containing the assets of such a disabled individual which 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; (B) and a trust containing the assets of such a disabled individual established and managed by a nonprofit association which maintains separate accounts for the benefit of disabled individuals, but, for purposes of investment and management of trust funds, pools the accounts, provided that accounts in the trust fund are established solely for the benefit of individuals who are disabled as such term is defined in section 1614(a)(3) of the federal social security act by such disabled individual, a parent, grandparent, legal guardian, or court of competent jurisdiction, and to the extent that amounts remaining in the individual’s account are not retained by the trust upon the death of the individual, the state will receive all such remaining amounts up to the total value of all medical assistance paid on behalf of such individual. Notwithstanding any law to the contrary, a not-for-profit corporation may, in furtherance of and as an adjunct to its corporate purposes, act as trustee of a trust for persons with disabilities established pursuant to this subclause, provided that a trust company, as defined in subdivision seven of section one hundred-c of the banking law, acts as acts as co-trustee
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 Social Security Income, Procedural Operations Manual at SI 01120.200, SI 01120.201, SI 01120.203 and EM-00067, which sets forth how a Supplemental Needs Trust is evaluated. See also www.sangerman.com for these rules. In part, the POMs state:
a. To qualify for the special needs trust exception, the trust must be established for the benefit of a disabled individual under age 65. This exception does not apply to a trust established for the benefit of an individual age 65 or older. If the trust was established for the benefit of a disabled individual prior to the date the individual attained age 65, the exception continues to apply after the individual reaches age 65.
b. However, any additions to or augmentation of a trust after age 65 are not subject to this exception. Such additions may be income in the month added to the trust, depending on the source of the funds (see SI 01120.201J.) and may be counted as resources in the following months under regular SSI trust rules. (Additions or augmentation do not include interest, dividends or other earnings of the trust or portion of the trust meeting the special needs trust exception
To qualify for the special-needs trust exception, the individual whose assets were used to establish the trust must be disabled for SSI purposes.
d. Established for the Benefit of the Individual
Under the special-needs trust exception, the trust must be established for the benefit of the disabled individual. (See SI 01120.201F.)
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 its termination up to the total value of all Medical Assistance paid on behalf of the beneficiary. However, in the instance of a minor, it may be impossible to ascertain whether she/he will be disabled upon reaching majority. The judiciary, generally, is reluctant to restrict a minor’s funds for her/his entire lifetime when it is possible that the minor will not be in need of any government assistance upon majority. Secondly, if the minor is later shown not to be disabled, then the individual does not come within the law providing for an SNT and the SNT may be invalid. Yet, there should be an attempt to protect the funds for the individual during the years of minority and, at least, up to the time that a determination can be made as to whether the disabled individual will require an SNT for lifetime. This was the issue before the New York State Surrogate's Court in In re Sutton, 641 N.Y.S.2d 515 (New York Co., Sur. Ct., 1996) in which the minor was to receive an inheritance. In Sutton, the Surrogate resolved the issue by directing the creation and funding of an SNT with the minor’s inheritance, but requiring that the SNT would continue only until age 21, unless otherwise extended by a court of competent jurisdiction. Sutton, therefore, permits the creation of a First-party SNT for a minor until the age of majority, leaving the ultimate issue of permanent disability of the individual (as defined by 42 U.S.C.A. Section 1382c(a)(3)) and the need for the SNT to the determination of the court at such future time. The Sutton SNT provides that Medicaid is reimbursed upon the SNT's termination, whether prior to or upon the beneficiary's death. In drafting a "Sutton" SNT, consider drafting provisions for the corpus to remain in trust for a period of time after the trust's termination as an SNT, should the SNT not be necessary. In such manner, the draftsperson may be able to create an appropriate distribution schedule to the beneficiary.
2. The Pooled Supplemental Needs Trust.
42 U.S.C.A. §1396p(d)(4)(C)
(a) 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.
(b) These trusts can be especially useful when there are no family members available to serve as Trustee and the assets to be placed into the trust are relatively small.
(c) The cost of establishing and administering a Pooled-SNT should be far less than that of a similar individually managed First-party SNT, particularly where the trustee would receive compensation.
(d) The beneficiaries of the Pooled-SNTs often receive social services and/or administrative support from an entity related to the nonprofit association establishing the Pooled-SNT. Trust management requirements for the Pooled-SNTs are:
(i) A separate account must be maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts;
(ii) Accounts in the trust must be established solely for the benefit of individuals who are disabled (as defined in section 1614 (a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court; and
(iii) 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 must pay 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.
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. Unless the matter pertains to an inheritance or to funds to be received by an individual who is mentally retarded or developmentally disabled, jurisdiction for the guardianship proceeding will be solely in the Supreme Court.
(a) By means of a guardianship proceeding pursuant to New York State Mental Hygiene Law §81.21(a)(6).
See, e.g., In re Devita, N.Y.L.J., Feb. 17, 1995, at 33, col. 5 (Sup. Ct. Suffolk Co.), reargued May 22, 1995, at 32, col. 2; In re Morales, N.Y.L.J., July 28, 1995, at 25, col. 1 (Sup. Ct. Kings Co.); In re Young, Index No. 500116/94 (Sup. Ct. New York Co., February 16, 1995); In re McMullen, 632 N.Y.S.2d 401 (Sup. Ct. Suffolk Co. 1995); In re Moretti, 606 N.Y.S.2d 543 (Sup. Ct. Kings Co. 1993), superseded by statute as stated in Link v. Town of Smithtown, 616 N.Y.S.2d 171 (Sup. Ct. Suffolk Co. 1994).
(b) By Means of the New York State Surrogate's Court Procedure Act Articles 17 or 17A.
(i) Article 17A of the Surrogate’s Court Procedure Act: See, e.g., In re Goldblatt, N.Y.L.J., Nov. 14, 1994 (Sur. Ct. Suffolk Co.); In re Bigajer, N.Y.L.J., May 27, 1994, at 28 (Sur. Ct. Kings Co.); In re Colon, N.Y.L.J., Oct. 2, 1995, at 29, col. 3 (Sur. Ct. Bronx Co.); In re Guardianship of Wade, N.Y.L.J., Nov. 28, 1995, at 28, col. 4 (Sur. Ct. Bronx Co.); In re Lopez, N.Y.L.J., Nov. 1, 1995, at 35, col. 2 (Sur. Ct. Nassau Co.); In re Guardianship of Farrington, N.Y.L.J., Feb. 8, 1995, at 29, col. 6 (Sur. Ct. Bronx Co.); In re Jennings, N.Y.L.J., June 28, 1995, at 29, col. 6 (Sur. Ct. Bronx Co.); In re Guardianship of Sender, N.Y.L.J., Feb. 1, 1995, at 29, col. 4 (Sur. Ct. Bronx Co.); Matter of Owenists, N.Y.L.J., June 23, 1995, at 26, col. 4 (Sur. Ct. N.Y. Co.); In re Guardianship of Ortiz, N.Y.L.J., Mar. 13, 1995, at 29, col. 6 (Sur. Ct. Bronx Co.); In re Guardianship of Moses, N.Y.L.J., Aug. 14, 1995, at 30, col. 6 (Sur. Ct. Bronx Co.); In re Misloski, N.Y.L.J., Aug. 14, 1995, at 33, col. 4 (Sur. Ct. Suffolk Co.); In re Voting, N.Y.L.J., Apr. 28, 1995, at 34, col. 2 (Sur. Ct. Suffolk Co.); In re Kane, N.Y.L.J., Apr. 19, 1995, at 31, col. 3 (Sur. Ct. Westchester Co.); In re Asuncion, N.Y.L.J., Feb. 16, 1995, at 29, col. 2 (Sur. Ct. N.Y. Co.); In re Schlesinger, N.Y.L.J., Aug. 4, 1995, at 27, col. 3 (Sur. Ct. Westchester Co.).
(ii) Article 17 of the Surrogate’s Court Procedure Act: See e.g., In re Sutton, 641 N.Y.S.2d 515 (Sur. Ct. N.Y. Co. 1996). In this matter, Stason Sutton was a minor who was normal mentally, although suffered from physical birth defects. Therefore, because an Article 81 proceeding was inappropriate, Sutton's attorney brought the requested relief within the Article 17 guardianship for the placement of his inheritance into an SNT should Sutton be a disabled individual upon his obtaining majority. At this time, Stason Sutton was receiving Medicaid benefits.
See also In re Garbo, 591 N.Y.S.2d 754 (Sur. Ct. Kings Co. 1992) (court authorized the creation of an irrevocable inter vivos trust from the funds of a conservatee for her lifetime benefit which contained provisions for the continuation of the trust upon her death in the form of a Third-party SNT (Escher-type) for the benefit of the conservatee's mentally retarded adult son).
3. By Means of the New York Civil Procedure Law and Rules.
In the Supreme Court, some judges who have the tort action before them will authorize the establishment and the funding of the SNT without the need for a guardianship. New York State Civil Procedure Law and Rules §§1206 and 1207 authorize the court to determine the disposition of assets, as well as settle an action, for a minor or mentally incapacitated individual without the need for a guardianship proceeding. Therefore, when jurisdiction is in the Supreme Court, depending upon the practice of that particular county or judge, there may be no need for an Article 81 guardianship proceeding if the proceeding is for the sole purpose of requesting the establishment of an SNT and the funding of the SNT from the tort proceeds. See, e.g., DiGennaro by DiGennaro v. Community Hosp. of Glen Cove, 611 N.Y.S.2d 591 (App. Div. 2d Dep’t 1994); N.Y. Civ. Prac. L. & R § 1206 (McKinney 1997). Establishing the SNT pursuant to §§1206 and 1207 saves substantial costs for the disabled individual, both in terms of legal fees and in terms of the Medicaid lien, if any, which continues to accrue until the receipt of a court order establishing the SNT. Another major advantage of establishing the SNT pursuant to the CPLR is that the necessity of the SNT will be decided by the judge who is familiar with the needs of the disabled individual and who often can best determine the appropriateness for the SNT and the provisions for the SNT.
V. Drafting Provisions for the Supplemental Needs Trust.
A. With the exception of the Medicaid reimbursement provisions, the language of the First-party and Third-party SNT is essentially the same.
B. 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 Medicaid requirements.
C. Provisions to Consider.
1. The Selection of the Trustee.
(a) General Issues to Consider:
(i) If the SNT requires court approval, what are the requirements of the court? If Medicaid must be noticed, what will Medicaid require? What is the size of the trust corpus? Do the family members have the financial sophistication to act as trustee? What are the ages of the family members in relation to the beneficiary? Are there any conflict of interests among the family members or between the family members and the beneficiary? Which selection of trustee(s) would best protect the beneficiary? Is it fair to ask a healthy sibling to be responsible for a disabled sibling? Who can be trusted? Should the SNT have co-trustee? If so, should one of the co-trustee be a corporate fiduciary? Would a corporate co-trustee together with a family member provide for better management of the trust? Would a corporate trustee protect the beneficiary in the same loving manner as a family member?
(i) Possible advantages of a corporate fiduciary are:
a. Long term trust: Individual fiduciaries might become unwilling or unable to serve, perhaps requiring a return to court to appoint appropriate successors. Where it is expected that the trust will continue for an extended period of time, the designation of a corporate fiduciary as trustee or co-trustee will ensure that there will be continuity of management.
b. Accountings: Annual accounting requirements can be difficult for an individual fiduciary. The detailed record-keeping maintained by a corporate fiduciary simplifies this process and ensures that all interested parties are able to access complete and accurate information about trust investments and transactions.
c. Investments: New York State's adoption of the Prudent Investor Act in 1995 has complicated a trustee's job by effectively requiring diversification of investment portfolios and by focusing on total return rather than a strict income approach. Individual fiduciaries sometimes retain an investment advisor, at additional cost to the trust, to enable them to adequately satisfy this standard. The designation of a corporate fiduciary with significant investment management experience provides the required investment expertise without additional expense.
d. Tax issues: These trusts frequently require analysis and review of tax issues both in the planning stages and throughout their existence. Annual tax filings may be required Investment issues may also be driven by tax considerations. A corporate fiduciary with access to in-house tax expertise facilitates the completion of the trustee's responsibilities.
e. Flexibility: Due to Medicaid's remainder interest in Supplemental Needs Trusts, Medicaid may carefully scrutinize the expenditures from the Trust. When there is a corporate trustee or a corporate co-trustee, Medicaid often considers that the corporate trustee has performed its due diligence and, therefore, scrutinize the expenditures from the Trust less.
(b) Specific First-Party SNT Issues to Consider.
(i) Courts are concerned about conflicts in appointing the ultimate remaindermen of the SNT as Trustees of the SNT.
See, e.g., DiGennaro by DiGennaro v. Community Hosp. of Glen Cove, 611 N.Y.S.2d 591 (App. Div. 2d Dep’t 1994) (conflict where the beneficiary’s parents sought to serve as trustees and were also named as the remaindermen of the SNT following reimbursement to the State); In re Devita, N.Y.L.J., Feb. 17, 1995, at 33, col. 5 (Sup. Ct. Suffolk Co.); (disallowed due to provisions which the Court viewed as a conflict of interest where same person would be trustee and remainderman); In re McMullen, 632 N.Y.S.2d 401 (Sup. Ct. Suffolk Co. 1995); (conflict having the potential remaindermen as co-trustees).
See also In re Morales, N.Y.L.J., July 28, 1995, at 25, col. 1 (Sup. Ct. Kings Co.) (no conflict found where beneficiary’s mother, a presumptive distributee, was serving as trustee and remainder paid to estate); Merer by Merer v. Romoff, 660 N.Y.S.2d 241 (Sup. Ct. N.Y. Co. 1997) (The court required the appointment of an independent trustee due to inherent conflict: "A person with an interest in the remainder of a supplemental needs trust has a conflict with the income beneficiary and ought not to be appointed as trustee. The infant's parents are potential remaindermen because . . . the remainder will be paid to the estate of the beneficiary. . . . In addition, the parents may wish to spend the trust assets during the child's life for luxuries that will also benefit the parents, thus reducing the assets ultimately available to satisfy the Department's lien.").
But see In re Matter of Michael Pace, 182 Misc. 2d 618; 699 N.Y.S.2d 257 (Suffolk Cty 1999) in which the petitioners were appointed as co-guardians of their son after a hearing. Petitioners 29-year-old son resided in a group home and attended day programs, both of which are funded through the Medicaid program. The department of social services' sole objection was to petitioners serving as co-trustees and successor trustee in that they stood to inherit the corpus of the trust after the DSS had been reimbursed for Medical Assistance provided. The court held that there is no blanket rule prohibiting all parents or relatives who are remaindermen from serving as trustees of Supplemental Needs Trusts, and that petitioners should not be excluded from serving as trustees.
(ii) In presenting the SNT to the court for approval, consider who should be proposed to serve as trustee. If the SNT is to be substantially funded with periodic payments from a structured settlement, then any conflict may be insubstantial if most of the payments coming into the SNT are being regularly used for the beneficiary. However, if the SNT is to be initially funded with a large lump sum, then there may be a substantial conflict between the needs of the beneficiary and the remainder benefits to the trustee who is also the remainderman. Careful drafting, however, may reduce the conflict, e.g., requiring court approval prior to any payments, other than designated payments pre-approved by the court. Consider a requirement for court approval prior to payment for attorney and accounting fees and the purchase of expensive items, such as a car, van, home or renovations to a home. Restrictive drafting and/or the use of a structured settlement could eliminate the need for an independent trustee and the associated costs. On the other hand, the appointment of a corporate fiduciary may permit more flexibility in the management of the SNT and preclude the need for as much court involvement in the management of the trust.
2. Designation of Successor Trustee(s) and/or Powers to
Remove/Add a Trustee.
(a) General Issues to Consider.
The SNT should always have a provision for the naming of a successor trustee, preferably the designation of a specific individual or corporate entity. The grantor may wish to give a family member the power to appoint a successor trustee by a written instrument, duly acknowledged, as well as, the power of removal. Such power should provide additional assurance to the grantor that the SNT will function well in the future. Many parents do not have any family member to appoint or who are willing to serve as trustee, but are concerned whether a corporate trustee will provide the care provided by an individual. By inclusion of the removal powers, parents may have additional security to know that the beneficiary will be properly provided for.
(b) Specific First-Party SNT Issues to Consider.
Unless a successor trustee is provided for in the trust instrument, there may be need to apply to the court for the appointment of a successor trustee. The SNT should provide for notice to Medicaid and to the court, if required, in the event of trustee resignation or inability to continue to serve. Some courts have left it up to Medicaid to monitor the trusts and to determine who shall be a successor trustee without further court involvement.
3. Restrictions of Trustee's Powers.
(a) General Issues to Consider.
Any SNT may have certain restrictions on the trustee's authority, e.g., the trustee needing to seek the approval of certain family members or certain social service agencies prior to certain decisions.
(b) Specific First-Party SNT Issues to Consider.
If a court order is necessary for the creation of the SNT, then the court may require restrictions on the trustee's discretion in the absence of further orders of the court. Inquire of the Judge's law secretary as to any specific restrictions the court will require. The court may require an application prior to payment for legal and accounting fees, the purchase or lease of a motor vehicle and a home. At least one judge requires the submission of an annual budget, the court approval of the budget, and no additional payments permitted except upon further approval of the court.
4. Power to Amend the Irrevocable of Trust.
(a) General Issues to Consider.
Pursuant to New York New York State Estates, Powers and Trusts Law Section 7_1.9, the amendment or revocation of an irrevocable trust requires the approval of the grantor, beneficiary and remainderpersons. See In re Siegel, 645 N.Y.S.2d 999 (Sup. Ct. Nassau Co. 1996) (court refused to allow the transfer of the assets of a First-party SNT to a Pooled-SNT for the benefit of the same beneficiary due to the failure of the petitioner to demonstrate compliance with EPTL §7_1.9, in that there was no evidence that the remaindermen had consented to the amendment). Therefore, it may be useful to include a provision which states that EPTL §7_1.9 does not apply under certain circumstances, although this author knows of no caselaw which states that such drafting would be effective. Such provision may seek to permit for amendment of the SNT in order to comply with New York State Estates, Powers and Trusts Law Section 7_1.12 and New York State Social Services Law Section 366(2)(b)(2)(iii) and any regulations promulgated with respect thereto, or such amendment provision may be broader. There should be a notice provision to the State Medicaid agency, as well as to the beneficiary.
(b) Specific First-Party SNT Issues to Consider.
In the instance of a court ordered SNT, any modification to the SNT should be made upon application to the court and notice to the stated individual or entities. See, e.g., In re Morales, N.Y.L.J., July 28, 1995, at 25, col. 1 (Sup. Ct. Kings Co.) (The Morales SNT form provides that the SNT can be altered, amended or revoked only with court approval); In re Sutton, 641 N.Y.S.2d 515 (Sur. Ct. N.Y. Co. 1996) (court authorized the beneficiary, his guardian or his trustee to apply to the court for the alteration, amendment, or revocation of the SNT upon the beneficiary’s eighteenth birthday); In re Goldblatt, 618 N.Y.S.2d 959 (Sur. Ct. Nassau Co. 1994) (SNT approved by the court provides that the trust is irrevocable and may not be amended except in order to maintain eligibility for governmental programs and any amendment is conditioned upon application to the court). As set forth above, in the instance of a plaintiff who is a minor and it is unknown whether the beneficiary will be competent upon his/her reaching majority, consider creating the SNT with the provision that the beneficiary or any interested party acting on his behalf can apply to the court to revoke the SNT. In such instance, Medicaid will be reimbursed for payments made during the duration of the SNT.
5. Accounting Provisions.
(a) General Issues to Consider.
The draftsperson should consider the assurances that accounting provisions may provide to the grantor of the trust and the benefits to the beneficiary. For instance, the grantor may desire the requirement for annual accountings or the provision for monthly or end of year financial institution statements to be provided to certain individuals. Consideration should be given as to whether a final accounting is to be required. Annual and final informal (non-judicial) accountings are not difficult and perhaps should be required. Such a requirement requires the trustee to maintain proper record keeping and provides an opportunity for the trustee to perform an appropriate financial analysis of the trust. The requirement also gives others the opportunity to review the trustee's trust management and can protect the trustee against future liability.
(b) Specific First-Party SNT Issues to Consider.
The court, and certainly Medicaid, will likely require an accounting provision, which may be consistent either with the New York State Surrogate's Court Procedure Act or with the New York State Mental Hygiene Law Article 81 provisions. However, generally, if a corporate fiduciary is serving either as sole trustee or co-trustee, the court may require only end of year account statements or the filing of annual income tax returns.
See, e.g., In re Goldblatt, 618 N.Y.S.2d 959 (Sur. Ct. Nassau Co. 1994) (court required that the trustee file annual accounts which include a budget for the ensuing year with the court); In re Devita, N.Y.L.J., Feb. 17, 1995, at 33, col. 5 (Sup. Ct. Suffolk Co.) (the court in DeVita found accounting provisions requiring a trustee of an SNT to account only to the guardian of the beneficiary of the SNT inadequate, where the trustee and the guardian were the same person. The court approved a provision providing that the father of the beneficiary (not a trustee or guardian) and the guardian would be served and submission of a copy of the federal fiduciary income tax return filed); In re Morales, N.Y.L.J., July 28, 1995, at 25, col. 1 (Sup. Ct. Kings Co.) (court required annual accounting provisions incorporating the requirements of Mental Hygiene Law Section 81.31 and for the annual accounts to be examined in the manner provided by Mental Hygiene Law Section 81.32. The court further stated that any trustee’s resignation shall be conditioned upon the filing of a final accounting in the form required by Mental Hygiene Law Section 81.33 and judicial approval of such accounting); In re Sutton, 641 N.Y.S.2d 515 (Sur. Ct. N.Y. Co. 1996) (provided that the trustee should file annual accountings with the court as a guardian would file under Surrogate’s Court Procedure Act Section 1719 and that “no trustee shall be released from office, except upon filing a final accounting in the form and manner provided by section 81.33 of the Mental Hygiene Law”).
6. Surety Bonding Provisions.
(a) General Issues to Consider.
Except in the instance of court-ordered trusts, most trusts exempt the trustee from a bonding requirement. Especially in the instance of a corporate fiduciary, there is no need for a bond.
(b) Specific First-Party SNT Issues to Consider.
(i) Independent Trustee.
Courts will generally require bonding for an individual trustee. See, e.g., In re Morales, N.Y.L.J., July 28, 1995, at 25, col. 1 (Sup. Ct. Kings Co.) (trust instrument must provide for a bond); In re Goldblatt, 618 N.Y.S.2d 959 (Sur. Ct. Nassau Co. 1994) (the trust instrument shall provide for a bond for the trustee, joint control with the guardianship clerk of the court or a custodial arrangement); In re Sutton, 641 N.Y.S.2d 515 (Sur. Ct. N.Y. Co. 1996) (required either joint retention of the SNT’s assets between the SNT’s trustee and the guardianship clerk of the court or a bond upon the trustee). Social Services Law Section 366 authorizes DSS to promulgate regulations which may, inter alia, “require the bonding of the trustee when the assets of such a trust equal or exceed one million dollars, unless a court of competent jurisdiction waives such requirement; and the bonding of the trustee when the assets of such a trust are less than one million dollars, upon order of a court of competent jurisdiction.” See N.Y. Soc. Serv. Law § 366(2)(b)(2)(iv) (McKinney Supp. 1998); In re Asuncion, N.Y.L.J., Feb. 16, 1995, at 29, col. 2 (Sur. Ct. N.Y. Co.) (court directed payment jointly to the SNT and the guardian clerk of the court).
(ii) Corporate Fiduciary.
A surety bond is generally waived for a corporate trustee.
7. A Spendthrift Provision.
(a) General Issues to Consider.
This provision states that the trust cannot be alienated nor assigned by the beneficiary or any guardian on behalf of the beneficiary. See EPTL §7_3.1(2). In the instance of a Third-party SNT, the trust can be protected from the beneficiary's creditors.
(b) Specific First-Party SNT Issues to Consider.
Under EPTL § 7_3.1(a), an individual cannot create a trust for his/her own benefit and protect the trust income and corpus from creditors. Therefore, the First-party SNT is not protected from the creditors of the beneficiary, except for Medicaid, until the termination of the SNT.
8. The Selection of a Social Service Agency.
Social service agencies are increasingly offering their services to trustees. Such services include advocacy on behalf of the beneficiary, entitlement advice and supervision of the provision of social and medical care. The grantor of the SNT may wish to name a specific social service agency to provide such services. If so, then removal powers, similar to those for a trustee, should be included in the SNT. Certain corporate entities refuse to serve as fiduciaries, except with the provision for the engagement of a specified social service agency to serve from the inception of the SNT.
9. No Liability Provisions.
The SNT may seek to protect the trustee from unnecessary extended liability, which will generally be unique to the SNT:
(a) Because the trustee will often need to engage assistance in the care of the beneficiary, consider inclusion of language in the trust that the trustee is not liable for the acts of third parties providing care to the beneficiary.
(b) Because of the complexity of entitlement planning and identifying entitlement, consider inclusion of a provision exonerating the trustee from any and all liability for any depreciation in the value of the SNT which results from any failure by the trustee to identify benefits potentially available to the beneficiary, provided the trustee's failure to identify benefits occurred in good faith.
10. Social Services Support.
The SNT can include a provision for the selection of a social service agency to provide for advocacy on behalf of the beneficiary, entitlement advice to the trustee and the rendering of social services to the beneficiary. In this manner, the trustee, especially if it is a corporate trustee, is not directly involved in the provision of social services and entitlement planning for the beneficiary. The social service agency may be specifically named in the body of the SNT. If the agency is specifically named, then the social service agency may execute a consent to serve and execute a contract outlining its services and the fees for such services. The draftsperson may include powers to remove the social service agency. The removal powers should be granted to someone other than the trustee, especially if it is a corporate trustee (thereby creating a check and balance on the management of the trust and the provision of care rendered to the beneficiary). Because of the parental concern that the care which the parents provided will be continued after their deaths or incapacity, the selection of a specific social service agency permits the parents the opportunity to work with the agency to develop a proper care plan.
11. Specific Issues Relating to the First-Party Supplemental
(a) Medicaid's Right to Reimbursement.
Due to Medicaid's right of reimbursement, Medicaid must be on notice upon any changes to the SNT ( e.g., change of trustee, significant expenditure, application to the Court to modify the SNT, death of the beneficiary and significant expenditures from the SNT). The regulations at 18 NYCRR 360_4.5 provide:
(d) 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:
(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 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;
(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, 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.
Consider including these notice provisions in the SNT in order to direct and provide guidance to the trustee to best assure compliance with the applicable law.
(b) 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.
See In re Goldblatt, 618 N.Y.S.2d 959 (Sur. Ct. Nassau Co. 1994) (upon the death of the disabled person, the balance of the trust remaining after payment to the Department of Social Services is payable to the estate of the disabled person); In re Lopez, N.Y.L.J., Nov. 1, 1995, at 35, col. 2 (Sur. Ct. Nassau Co.) (court took notice of its initial decision in In re Goldblatt, but cited an unreported modification in Goldblatt permitting the payment to be made pursuant to a power of appointment which might be exercised by the disabled person pursuant to a will, or in default thereof, payment would be made pursuant to the laws of intestacy, and authorized similar provision); In re Morales, N.Y.L.J., July 28, 1995, at 25, col. 1 (Sup. Ct. Kings Co.) (the Morales SNT form provides that if there are any funds remaining after reimbursement they are to be paid to the legal representative of the beneficiary’s estate); Merer by Merer v. Romoff, 660 N.Y.S.2d 241 (Sup. Ct. N.Y. Co. 1997) (court required provision that upon the death of the beneficiary, the trust will terminate and the State's lien for Medical Assistance will be paid, after which any remaining assets are to be paid to the beneficiary's estate).
c. Notice to Medicaid.
Medicaid should be on notice of any application to the court for the creation of the SNT, a procedural requirement imposed by most judges whether or not there is a known Medicaid lien. See, e.g., In re Devita, N.Y.L.J., Feb. 17, 1995, at 33, col. 5, reargued N.Y.L.J., May 22, 1995, at 32, col. 2 (Sup. Ct. Suffolk Co.) (requirement that a copy of any proposed Supplemental Needs Trust and any order or judgment which provides for its approval be served upon the Medicaid agency, who shall be a party to the proceeding); In re McMullen, 632 N.Y.S.2d 401 (Sup. Ct. Suffolk Co. 1995) (requirement for approval by State Medicaid agency prior to Court's ordering an SNT); In re Guardianship of Wade, N.Y.L.J., Nov. 28, 1995, at 28, col. 4 (Sur. Ct. Bronx Co.) (notice requirement to State and County)
VI. Evaluation of Whether A First-Party Supplemental Needs Trust is Appropriate.
A. An SNT is not always necessary for the placement of proceeds from tort litigation. Prior to establishing an SNT or requesting the court to order the establishment of an SNT, there should be an evaluation of the basic and special needs of the individual. See In re La Barbara, N.Y.L.J., April 26, 1996, at p. 36, col. 6. (court declined to approve SNT because court considered that the disabled individual had sufficient resources and income from the tort award to meet needs, including supplemental needs).
B. It is most useful to have a life care plan developed. Through such a plan, it is possible to evaluate the cost of future needs. If the tort award (whether entirely lump sum or paid through periodic payments) is sufficient to meet all anticipated needs of the disabled individual, as well as reasonable contingent needs, then there may be no need to utilize an SNT for the proceeds of the tort award. However, consideration should be given to the fact that unless the plaintiff is mentally competent, there is no downside to the plaintiff as a result of the placement of a tort award into an SNT. To the mentally competent plaintiff, however, there may be a downside to the placement of an award into an SNT due to his/her loss of control over the funds. The competent plaintiff, therefore, should give serious consideration to whether his/her control over the tort award is of greater value than exposing the entire award to payment of essential medical needs, leaving no funds for special needs. Among the costs to consider in evaluating whether an SNT is appropriate are the private-pay costs of services otherwise provided through a Medicaid waiver program; education; physical and occupational therapy; durable medical equipment, specially equipped van; companions; purchase of a home, structural changes to a home; homecare and residential placement; surgery (e. g., in the case of cerebral palsy, orthopedic surgery from time to time necessitated by damage to the bone structure caused by the uncontrolled movements of the disabled individual); and the many hidden costs, including costs of special and luxury needs to enhance the person’s quality of life. Prior to considering whether to approve an SNT, certain judges will require a budget of anticipated income and expenses showing the economic necessity for the SNT.
VII. Tort Settlements.
A. Medicaid Lien.
1. New York caselaw holds that Medicaid can enforce its full lien against the proceeds of the personal injury action, which must be paid prior to the establishment of the Supplemental Needs Trust. 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 2309 (N.Y., July 1, 1997). As set forth in Cricchio:
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 U.S.C.A. § 1396k [a]  [A]; § 1396a [a]  [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 US § 1396k [a]  [A]; 42 CFR 433.146 [c]; Social Services Law § 366  [h] ; 18 NYCRR 360_7.4 [a] ). 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]  [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  [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 ). The lien continues "until released and discharged by the local public welfare official" (§ 104_b ).
. . . . . . . . . . . .
This recoupment hierarchy follows necessarily from the assignment and subrogation scheme. As the Medicaid recipient's assignee (see, 42 USC § 1396k; Social Services Law § 366  [h] ), 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  [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 (see, Social Security Act § 1917 [a] [ 42 USC § 1396p (a)]; Social Services Law § 369  [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.
See also 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); Arvil Samerson et al., Respondents, v. Mather Memorial Hospital et al., Defendants, 90 N.Y.2d 870; 684 N.E.2d 271; 1997 N.Y. LEXIS 4809; 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).
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, 95 N.Y.2d 683; 746 N.E.2d 172; 723 N.Y.S.2d 117; 2001 LEXIS 526 (2001).
2. Prior to the creation of a First-party SNT to be funded with the proceeds of a tort award, the attorney should investigate whether there are any outstanding liens against the plaintiff. Third-party liens in their entirety, or a portion of such liens, may be required to be satisfied prior to the establishment of the SNT. The liens may be Medicaid liens, Medicare liens where the plaintiff is a recipient of Social Security Disability payments and/or liens by private insurance which paid for medical services and whose payments were included in the tort award. The attorney should also check whether state law provides for a reduction in the lien in proportion to the legal fees due for the recovery of funds.
3. In the instance of a Medicaid lien, the attorney should ascertain the amount of the lien and whether state law requires that such liens be paid prior to the funding of the SNT The attorney should not rely upon the amount of the lien given by Medicaid. For instance, where there is a possible Medicaid lien, the attorney should request a detailed computer printout describing each and every service for which Medicaid purportedly paid. Included in the Medicaid printout will be codes which describe the nature of the service rendered. The attorney should evaluate the codes to determine the exact service provided and whether such provision of care was related to the injury, such that Medicaid has the right of subrogation. The attorney should also ascertain whether the service listed was actually provided by the medical provider and whether the service may have been paid from a source other than by Medicaid, e.g., no fault insurance, employee insurance, defendant's insurance company and/or Medicare.
B. The Medicaid Lien.
The Medicaid lien negotiation often focuses on (i) whether the services were actually provided to the plaintiff, (ii) whether the medical provider properly billed Medicaid and (iii) the types of medical services provided. Even after Medicaid and the plaintiff agree on the amount of the lien, it may be possible to negotiate a reduction in the lien. Issues to present in negotiation are: the amount of legal fees attributable to the recovery of the Medicaid lien, the size of the recovery relative to the plaintiff's future needs and the speed with which Medicaid will receive its negotiated lien amount. In order to have additional negotiating powers, it is prudent for the attorney to obtain a life care plan to ascertain the future needs of the plaintiff and the anticipated costs of those needs.
C. Funding of SNT with Tort Proceeds.
1. Income Tax Advantages.
Under Section 104(a)(2) of the Internal Revenue Code, gross income does not include the amount of any damages received on account of personal physical injuries or physical sickness:
Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include__
104(a)(1) amounts received under workmen’s compensation acts as compensation for personal injuries or sickness;
104(a)(2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness;
2. Upfront cash.
Major advantages of sufficient lump sum payments are that (i) the disabled beneficiary will have sufficient resources to pay for his/her immediate needs (e.g., a specially equipped van, modifications to a house or the purchase of a house), without waiting for the accrual of the periodic payments and (ii) if the plaintiff dies relatively soon after the initiation of the periodic payments, there will be funds immediately available for the payment of the Medicaid lien and estate taxes, permitting the remaining funds in the structure to be paid tax free to the ultimate beneficiaries without delay.
3. Structured Settlements.
(a) Tort awards are often paid with a structured settlement into the SNT. A structured settlement is an instrument whereby the defendant purchases an annuity which makes periodic payments to the plaintiff over a course of years. The periodic payments may be for lifetime, a period of years or the greater of life or a period certain.
(b) The income tax exclusion applies whether the payment is by lump sum or periodic payments (i.e., a structured settlement). Therefore, the income earned within the “structure” is income tax free to the recipient.
(c) Excluded from this exemption are awards for punitive damages and damages received after August 20, 1996 (except for amounts received under any written binding agreement, court decree, or mediation award in effect on, or issued on or before, September 13, 1995) on account of a nonphysical injury or nonphysical sickness (e.g., age discrimination and injury to reputation). 1998 2 Stand. Fed. Tax. Rep. (CCH) ¶ 6662.01.
(d) The claim may be able to be settled for less as a result of the structure due the time value of money to the defendant and the attraction to the plaintiff of the income tax free earnings in the structure, creating a greater net recovery.
(e) The structure may consist of fixed monthly payments (possibly including an inflation hedge by increasing the fixed payments annually), and/or lump sum distributions at specified times. Such monthly payments make asset management simpler due to (i) the known payments, (ii) the elimination of the reinvestment risk and (iii) the amount of assets which need to be managed is less, thereby reducing the need and the cost for professional money management.
(f) A structured settlement can provide funds for the disabled individual until his/her death, eliminating the possibility that the disabled individual would outlive his/her life expectancy and his/her funds.
(g) A structured settlement alone without lump sums and/or cost-of-living adjustments ("COLA"), can have serious disadvantages: A structured settlement is not a liquid investment; it does not provide a hedge against inflation; and it does not provide for unforeseen changes in the health needs of the plaintiff. The payment is based on the interest rates in effect at the time the structure begins. If interest rates substantially increase, the buying power of the periodic payments is dramatically decreased. Therefore, the estate planner should build in liquidity for the plaintiff's future and unforeseen needs. The estate planner may include in the structured settlement a COLA and/or staggered lump sum payments, including a lump sum payment at the time of the tort award.
(h) In deciding whether and how to structure a tort award, the plaintiff’s attorney, in conjunction with a financial expert, should compare the income tax free benefits of the internal rate of return (i.e., the interest rate which generates the benefits schedule provided through a structured annuity) with the amount which the plaintiff could earn from a full cash payment in a taxable environment. The financial expert should analyze the net cumulative difference in economic value between a structured settlement and a full cash payment with individual management in the taxable environment.
(i) If a structured settlement is used in conjunction with an SNT, then the periodic payments and lump sum distributions, if any, should be payable directly and irrevocably into the SNT. Any order, therefore, must state that the payments are ordered to be made to the SNT. The agreement providing for the structured settlement should not provide for any contingent beneficiary. Rather, the SNT should control the ultimate disposition of the payments, if any, after the beneficiary’s death. Medicaid has the right of reimbursement upon the death of the beneficiary. Only after Medicaid is reimbursed from the funds remaining in the SNT, in addition to the future payments from the structure if the funds in the SNT are insufficient, can the remaining funds in the SNT and the remaining periodic payments from the structure be paid to the disabled individual's estate or to those named as remaindermen.
(j) A structured settlement may also be free of any future creditor rights. See In re: Daniel F. Terrance, Northern District Bankruptcy Court wherein the court allowed an exemption in bankruptcy for annuity contracts traceable to a personal injury settlement.
(k) Consider structuring the attorney fees, which may have certain income tax advantages to the plaintiff attorneys. See Child's v. Commissioner of Internal Revenue Service, 89 F.3d 856, 103 T.C. 634 (11th Circuit), where the court held that attorney fees can be structured and not includible in income under Section 81 of the Internal Revenue Code in the year in which the settlement agreements are effected, but reportable as income only when the amounts are actually received. See copy of decision on firm’s website
(l) Certain Medicaid districts now require commutation provisions in all structured settlements. The reason for Medicaid's requirement for a commutation provision is to have assurance that its remainder interest will be paid at the death of the beneficiary. As reported by Medicaid districts, some families have attempted to use the "structure" as a vehicle for "getting around" Medicaid's remainder rights upon the death of the beneficiary.
VIII. Income Tax and Estate Tax Implications of a Third-Party And First-Party Supplemental Needs Trust .
A. Third Party Supplemental Needs Trust.
1. The drafting provisions of an inter vivos SNT can have a direct impact upon the grantor's gift, estate and income taxes. If the grantor of the inter vivos Third-party SNT retains control over the income and principal of the SNT, the grantor will not incur gift tax caused by the gift to the SNT, but the trust corpus will be includible in the grantor's taxable estate upon his/her death. See IRC §2036 and §2038. For instance, CCH notes on 1998 Stand. Fed. Tax. Rep. (CCH) ¶4980.055. states:
The retention of income, possession or enjoyment of property will result in the inclusion of transferred property in a transferor’s gross estate at death. Even if the decedent did not retain such an interest, the transfer will be taxed if the decedent reserved or retained the right, either alone or in conjunction with any other person or persons, to designate the persons who shall possess or enjoy the property or the income therefrom. . . .
Even if the power may be exercised only by the trustee or trustees, taxability will occur if the decedent is a trustee. This is subject to the principle that, if the trustees’ powers are discretionary only, and if the exercise of their discretion is limited by standards which are determinable in a way which permits enforcement by the beneficiaries no matter who the trustee might be, the trusteeship of the decedent will not cause taxability.
Furthermore, it makes no difference whether the decedent’s power is over the income or corpus alone or over both__some or all of the property transferred will be taxed. Powers over income or corpus which will result in tax include those which permit the decedent to: name or change beneficiaries; change their shares; decide whether income should be accumulated or paid out immediately; or direct invasion of principal other than by following fixed and determinable standards.
2. Control by the grantor which can cause the SNT to be treated as a Grantor Trust can occur when the grantor retains: (i) a reversionary interest in the trust income or corpus; (ii) a power to control the beneficial enjoyment of the trust; (iii) various administrative powers, including powers over the trustee. Grantors may desire the power to remove the trustee. However, such power of removal may unwittingly cause the SNT to be includible in the grantor's taxable estate. See IRC Reg. §1.674(d)_2:
(a) A power in the grantor to remove, substitute, or add trustees (other than a power exercisable only upon limited conditions which do not exist during the taxable year, such as the death or resignation of, or breach of fiduciary duty by, an existing trustee) may prevent a trust from qualifying under section 674(c) or (d). For example, if a grantor has an unrestricted power to remove an independent trustee and substitute any person including himself as trustee, the trust will not qualify under section 674(c) or (d). On the other hand if the grantor’s power to remove, substitute, or add trustees is limited so that its exercise could not alter the trust in a manner that would disqualify it under section 674(c) or (d), as the case may be, the power itself does not disqualify the trust. Thus, for example, a power in the grantor to remove or discharge an independent trustee on the condition that he substitute another independent trustee will not prevent a trust from qualifying under section 674(c).
FINAL_REG, 1998 Stand. Fed. Tax. Rep. (CCH) ¶25,125, §1.674(d)_2. (iv) a power to revoke the trust or to return the corpus to the grantor; and (v) a power to distribute income to or for the benefit of the grantor. Internal Revenue Code §§671 et. seq.
3. A Third-party SNT with Grantor Trust tax consequences ("Defective Grantor Trust") can have beneficial tax consequences in an estate plan. For instance, if highly appreciated assets are placed into the third-party SNT which is a Defective Grantor Trust, there will be a step-up in basis to the date-of-death market value upon the grantor's death. A Defective Grantor Trust also will have income tax consequences: The trust income will be taxed to the grantor and not to the trust, a tax treatment which may be desirable for the grantor's over-all estate tax planning since this income taxation to the grantor would reduce the grantor's estate without the grantor incurring gift tax. For instance, the CCH notes at 1998 Stand. Fed. Tax. Rep. (CCH) ¶25,083.04 describe a defective grantor trust as follows:
Strangely enough, with the tax brackets for trusts now so highly compressed, a “defective” grantor trust can reduce the income tax liability for a client who wants to accumulate income in a trust for a minor. For example, for tax years beginning in 1997, the 15-percent tax rate only applies to up to $1,650 of a trust’s taxable income while the top tax rate of 39.6 percent kicks in at taxable income over $8,100. Since these rates make it very difficult to use trusts as a vehicle for saving a family’s taxes where trust income is accumulated, rather than distributed, a new tax planning twist has emerged-the “defective” grantor trust. This planning technique involves setting up a trust that will accumulate income for a child and will purposely give the parent-grantor a right or power that will cause him to be taxed on the trust’s income under the grantor trust rules. The power must not be one that would cause the trust property to be included in the grantor’s estate. The end result is that the trust’s income will be taxed at the parent-grantor’s presumably lower tax rates.
4. If the Third-party SNT which is a defective grantor trust is funded with life insurance, then the life insurance proceeds will be included in the grantor's estate, which could have been avoided if the grantor had not retained any control over the SNT. Because there are significant estate, gift and income tax implications caused by the manner in which the Third-party SNT is drafted, the practitioner should (i) consider the SNT as part of the grantor's over-all estate plan and (ii) consult with the grantor's tax professional prior to drafting the SNT.
B. First Party Supplemental Needs Trust.
1. Grantor Trust.
The First-party SNT is always a "grantor" trust under the Internal Revenue Code §§671 et. seq. and, therefore, the beneficiary is taxed upon the income of the SNT at the beneficiary’s income tax level. See IRC 673:
The grantor shall be treated as the owner of any portion of a trust in which he has a reversionary interest in either the corpus or the income therefrom, it , as of the inception of that portion of the trust, the value of such interest exceeds 5 percent of the value of such portion.
CCH, 99 FED ¶24,783.2952, §1.677(a)_1, FINAL_REG, 99FED ¶24,781, §1.677(a)_1). See also Rev. Rul. 83_15 which makes clear that a minor is treated as the owner of a trust created on the minor’s behalf by court order for the receipt of damages awarded as a result of a personal injury suit filed on his behalf. ( CCH, 99 FED ¶24,783.2952). Presumably, the same will be true of any First-party trust, whether the funds had been in the hands of the beneficiary prior to the funding of the SNT or funds to which the beneficiary had a right, whether individually or through a court order or a guardian.
See also CCH at ¶12,707, IRS Letter Ruling 9437034, June 20, 1994 which states:
A decedent’s gross estate included the value of property in an irrevocable trust that was established for his special needs and funded with the settlement proceeds from a personal injury law suit. Because the proceeds were paid to the trust pursuant to an agreement between the decedent as the plaintiff and the defendants, the proceeds were his property and he was the transferor, notwithstanding the trust’s designation of the decedent’s mother as trustor. In addition, the decedent retained the power to appoint the trust corpus to any person other than his estate, his creditors or the creditors of his estate pursuant to a special testamentary power of appointment over the trust. Accordingly, since the decedent retained the right to alter the disposition of the trust corpus at his death, the transfer of the funds to the trust constituted an incomplete gift and, thus, the trust corpus was includible in the decedent’s gross estate under Code Sec. 2038.
2. Avoidance of Incorrect Income Taxation Attributed to Grantor.
In order to avoid an accidental attribution of the Grantor Trust rules to the guardian or parent who established the SNT for the benefit of the disabled individual from the assets of the disabled individual, specific language should be included in the SNT to clarify that the beneficiary, and not the creator of the trust, placed the beneficiary’s funds into the SNT. To distinguish the Third-party SNT from the First-party SNT, it is useful to name the creator of the SNT differently in each form of SNT. For instance, the Third-party SNT creator may be called "settlor" and the first-party SNT creator called "grantor." To avoid needless confusion with the Internal Revenue Service, the draftsperson should be consistent in all documents, whether for SNTs, or not.
3. Payment of Estate Taxes.
(a) In the preparation of the First-party SNT, the estate planner should consider not only the Medicaid and health care benefits to the beneficiary, but also the estate tax consequences upon the beneficiary's death. Unless the First-party SNT remainder, including periodic payments from the structured settlement, are fully paid to the State Medicaid agency or the remainder is payable only to the beneficiary's spouse or to a charitable organization, there may be significant estate taxes payable upon the beneficiary's death. The estate planner should, therefore, at the creation of the First-party SNT, develop a plan for the payment of the estate taxes.
(b) If the disabled individual's spouse receives the remainder interest, then there will be an unlimited marital deduction and, therefore, there will be no estate taxation, unless the spouse wishes to renounce his/her interest for purposes of taking advantage of the disabled spouse's full death credit. If the healthy spouse receives the remainder interest of the First-party SNT, then the healthy spouse may have significant estate taxes upon his/her death. Therefore, the healthy spouse should consider the purchase of life insurance on his/her own life for the payment of estate taxes upon his/her death. To avoid inclusion of the life insurance into the estate of the healthy spouse and the life insurance policy should be owned by one other than the healthy spouse or by a life insurance trust. The healthy spouse should not have any incidents of ownership over the life insurance policy. See IRC §2042(2); Reg. §20.2042_1(c). If the disabled individual him/herself is insurable, then the estate planner should consider the purchase of life insurance on the life of the disabled individual, with a life insurance trust being the owner.
(c) Two other ways to pay estate taxes are (i) selling the annuity or (ii) including a commutation rider in the annuity agreement. The sale of the future value of the periodic payments will generally be at a significant discount off the present value of the future payments. Also, there may be a 20% excise tax on such transaction. See CCH REPORT-LETTER, ETR Report No. 366, February 20, 1998, President’s 1999 Budget Includes Excise Tax Proposals Twelve states (California, Georgia, Maine, Missouri, Illinois, Minnesota, Kentucky, Connecticut, Virginia, West Virginia, Pennsylvania and North Carolina) have passed consumer protection laws to restrict sale of structured settlements. Eight of them require court approval. A better alternative for the payment of estate taxes may be through the inclusion of a commutation rider. Pursuant to a Private Letter Ruling from the Internal Revenue Service, a commutation rider can now be offered by insurance companies with the sale of the periodic payments. Pursuant to this Private Letter Ruling dated December 18, 1997 and released on March 20, 1998, structured settlements (in states where such commutation provision is approved) can provide that, if the claimant dies within 10 years of the execution of the agreement, the commuted value of a specified portion of the remaining guaranteed payments will be paid in a lump sum. This ruling provides that the commutation provision does not affect the assignability of benefits, or the income tax free nature of the periodic payments or the lump sum payments. The commutation rider must be taken out at time of issue of the annuity. In addition to providing for the payment of estate taxes, the commutation provision can provide for the immediate payment of the Medicaid lien, giving the ultimate beneficiaries access to the remaining funds sooner. If the ultimate beneficiaries desire to receive the tax free payments, then they may decide to commute only a portion of the guaranteed payments, or none of such payments.
If the defendant can demonstrate that the plaintiff's needs can be appropriately met by placement of the award into an SNT, then the claim may be able to be settled faster and at lower cost to the defendant. On the other hand, after a settlement, the SNT can be a useful tool for the plaintiff to maximize the amount of the settlement or award through appropriate estate and entitlement planning.
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 New York State Bar Association Committee on Attorney Professionalism, 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 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.
JAY J. SANGERMAN, ESQ.