New York a Party Has Standing to Seek Judicial Review of an Administrative Determination
Administration of Special Needs Trusts: Development of an Improved Approach (Part II)
3.ten.2020
This is the second installment of an commodity that appeared in the March 2019 Effect of the NYSBA Journal.
The authors wish to express thanks to NAELA Fellow Ron M. Landsman for his willingness to offer insight and comment on the ideas expressed in this commodity. His article in the Spring 2014 outcome of the NAELA Journal, When Worlds Collide: State Trust Police force and Federal Welfare Programs, NAELA Periodical Vol. 10, No. 1 (Spring 2014), remains one of the most important writings in the area of special needs trust practise in many years.
In Part I we discussed the different standards of review courts utilise to assess the work of supplemental needs trust (SNT) trustees. One derives from guardianship do (a "best involvement" assessment), another from do good program eligibility (a "government benefit" assessment). Both comprise important considerations when analyzing a distribution from a supplemental needs trust, only neither represents an appropriate standard for judicial review in determining whether a trustee properly exercised its discretion.
The advisable standard of review for a distribution from a supplemental needs trust is the same i that applies to any discretionary trust: abuse of discretion. That standard provides the flexibility and protection afforded the trustees of other discretionary trusts so long equally the trustee follows the unremarkably accustomed rules of fiduciary conduct, as supplemented by additional steps that acknowledge the beneficiary's disability and eligibility for government benefits.
To obtain the protection afforded to trustees of other discretionary trusts, the SNT trustee should acknowledge and address 3 aspects of SNT administration that are not at result in the assistants of other discretionary trusts:
1. A casher's cognitive disability may prevent reliable communication with the trustee;
2. Programs and services bachelor to back up the casher in the community represent an additional resource to be considered earlier using trust funds to purchase a good or service; and
3. Traditional, informal means of settling accounts may be insufficiently protective.
Effective SNT administration requires the trustee to institute a means of advice with the beneficiary or a beneficiary's representative, a protocol for assessing programs and services, and a plan for regular accounting and periodic settlement. If followed, and presuming that the trustee has satisfied the other, traditional obligations of fiduciary carry, the trustee's reasonable exercise of discretion should be supported upon judicial review under an corruption of discretion analysis, fifty-fifty if the court would accept made a different decision on the aforementioned set of facts.
Basic rules of fiduciary conduct applicative to all trustees
All trustees must follow the basic rules of fiduciary behave, requiring them to apply income and principal in accordance with the terms of the governing document, 1 account for the application of principal and income, two invest prudently and in accord with the terms of the trust, 3 gear up and file tax returns, iv and go on beneficiaries informed of how trust funds are being invested and/or utilized. 5
Exercising discretion
Trustees of discretionary trusts must practise judgment when making distribution decisions. In New York, example police force follows a few common lines of inquiry in determining whether a trustee properly exercised discretion:
ane. Does the trustee have an established process for review and consideration of beneficiary requests? half-dozen In other words, is there show that the trustee is making informed decisions?
2. Did the trustee follow its own established policies in making distribution decisions, and did it document the basis for those decisions? 7
3. Did the trustee exercise independent judgment rather than deferring to a beneficiary or a beneficiary'southward representative? 8
4. Does the document require the trustee to consider whether the beneficiary had other avails and resources that could be used in lieu of using funds from the trust, and if so, did the trustee do so? 9
five. For meaning or long-term expenditures, did the trustee balance the immediate needs of the beneficiary with probable time to come needs? ten
If the trustee can answer these questions in the affirmative, courts will typically support the trustee's discretionary decisions even if the gauge or another political party to the proceeding might have made a dissimilar decision on the same set of facts. In the realm of discretionary trusteeship, the process of proactive administration protects the fiduciary and beneficiary alike. When the trustee follows the process of communication, investigation, consideration and documentation, the beneficiary receives the benefits of the fiduciary organisation. In exchange, the trustee is protected from subsequently challenge to its distribution decisions simply because another might have reached a dissimilar conclusion.
This quid pro quo assumes that both the trustee and the beneficiary are capable of self-advocacy. But when a beneficiary has a cognitive inability, she is at a disadvantage. Courts struggle to discover the right balance between oversight for the benefit of those who cannot fully advocate for themselves and the well-established trunk of law that protects a fiduciary's authority to brand discretionary decisions.
Disability and discretion
Supplemental Needs Trusts are discretionary trusts xi for a reason. These trusts oft have to last for the lifetime of a beneficiary with a disability. Circumstances change, and the authority to practice discretion allows the trustee to reply to changes in need.
Where a beneficiary is unable to fairly advocate for herself because of a cognitive disability, courts have a responsibility to provide oversight. 12 In proceedings for the establishment of supplemental needs trusts in New York, this equitable authority is often cited equally justification for imposing administrative obligations on the trustee that are to a higher place and beyond what the federal and land statutes would otherwise require. xiii So, for example, fifty-fifty though there is no statutory or regulatory or authoritative requirement that the trustee of a supplemental needs trust gear up annual accountings, guardianship courts frequently impose such a requirement in order to protect a beneficiary who is incapable of self-advocacy.
No ane would question the courts' parens patriae responsibleness to protect the interests of those who cannot protect themselves. But only reciting the obligation does not provide whatsoever practical administrative guidance to the trustee of a discretionary trust. In the context of SNT administration, the question is non whether a court has the authority to protect the interests of a casher with a disability. The question is how that protection is provided.
Court reluctance to substitute judgment
Courts typically do not substitute their judgment for that of a trustee so long every bit the trustee's do of discretion was reasonable, consistent with the terms of the trust, and fabricated in adept faith. 14 Courts often pass up to provide guidance when the trust certificate gives the trustee the responsibility to make a discretionary decision. xv This narrow office for the courts is codified past statute in New York, where courts return "advice and direction" in a limited number of enumerated situations. sixteen
This construction breaks down when cognitive disability enters the picture. Courts are reluctant to defer to the discretion of the trustee and oftentimes substitute their judgment when reviewing discretionary distributions. 17 The net event is that trustees – unsure of how their discretionary decisions will be measured – are often reluctant to make any significant distributions, or decline to exercise so without regular input from a court.
This is precisely the type of micromanagement that a discretionary trust is intended to avert. eighteen A beneficiary'south disability is no reason to deviate from the standard practice of deferring to the trustee'south judgment, so long every bit the trustee has non abused its discretion. Nether an "abuse of discretion" analysis, if the trustee of an SNT follows the traditional rules governing trustee acquit, the trustee's exercise of discretion should exist upheld fifty-fifty if a court would have made a different conclusion on the aforementioned fix of facts.
Establishing a protocol for communication with a beneficiary
Trustees need information to make informed discretionary decisions. In a typical administration, the trustee tin can communicate directly with an adult beneficiary, and in the case of a small a trustee tin communicate with a legally responsible adult such every bit a parent. Communication is relatively straightforward and unencumbered.
SNT beneficiaries may lack the ability to communicate. They may not take court-appointed guardians or voluntarily designated agents under ability of chaser. They may lack informal supports similar family unit members and friends, or those informal supports may be unreliable or quack.
These practical challenges defy elementary solution. If a beneficiary with a developmental disability needs a winter glaze, the trustee may have the authority to purchase the glaze, and the purchase may exist an appropriate practise of discretion. But how would the trustee know that the beneficiary needs a coat? How does the trustee purchase an appropriate coat? How does the trustee get the data it needs to appropriately practise its discretion and facilitate the buy?
Family members might be able and willing to do so. But what if the beneficiary has no reliable family members (or no honest family members), no court appointed guardian, and no other reliable, informal advocates?
SNT beneficiaries might take Medicaid-funded staff to provide this information, simply the continued erosion of Medicaid funding for this type of service has made this a less reliable option. Medicaid-funded care managers have increased caseloads, and disability provider agencies face high staff turnover (or are but unable to locate staff in the get-go place). Every bit a upshot, the trustee's affirmative obligation to make informed discretionary decisions 19 ofttimes cannot be met through advice with Medicaid-funded staff alone.
If in that location are no credible family supports, no court-appointed guardian, and no reliable Medicaid-funded staff, the trustee should consider retaining a private intendance manager, social worker or other advocate to serve as its "boots on the basis" to obtain information that the trustee tin can consider when making a distribution conclusion.
Recommendation
In determining whether a trustee of a supplemental needs trust reasonably exercised discretion, judicial review should consider whether the trustee established an effective protocol for communication and a credible means of obtaining reliable information about the beneficiary's needs.
Upon being appointed, the trustee should undertake the following analysis:
1. Is the beneficiary competent to correspond and abet direct? Many SNT beneficiaries with physical disabilities are fully capable of communicating straight with the trustee.
2. If the beneficiary cannot communicate directly, is there a court-appointed guardian or agent under ability of attorney who is able to speak reliably on behalf of the beneficiary and provide important information and documentation? xx
three. Is the beneficiary supported past reliable 21 family members, friends or other informal advocates? While the trustee may be precluded from sharing information about the trust with individuals who lack legal authority to admission it, the trustee is complimentary to receive information from any credible source, supplementing whatever other data the trustee receives.
4. Does the beneficiary have program staff who could aid communicate requests for goods and services to supplement what government do good programs provide?
5. Tin the trustee rent a private care manager or other advocate to provide periodic assessments and recommendations for distributions.? 22
Developing a process for assessing and reviewing programs and services
Professional trustees are required to have a basic knowledge and understanding of the rules governing investments, income taxes, and other financial issues mutual to all fiduciary appointments. Most institutions take a process in identify to review these issues on a regular footing.
When an outcome falls outside of a trustee's traditional area of expertise, trust documents are typically written to permit the trustee to retain exterior professionals and to pay those professionals with trust funds. For example, fiduciaries often retain outside professionals to address complicated taxation questions. The reasonableness of the fee paid is always field of study to review on an accounting, merely the authority to retain outside expertise is well established. 23
SNTs – past their terms and by statute – crave a trustee to consider factors that are outside the traditional realms of trustee expertise: the availability of public benefits and the means-tested goods and services they provide, the adequacy of those goods and services, and the potential bear upon of a distribution on continuing eligibility. 24
This requirement is a variation on a common theme found in cases analyzing a trustee'southward exercise of discretion. Government benefit programs represent a valuable source of funding for goods or services that the trustee must consider before making a discretionary distribution. 25 To adequately consider these other sources, the trustee must respond a few questions.
Determining whether Medicaid (or another program) pays for a skilful or service
This requires more than only request, "Is the beneficiary Medicaid eligible?" Medicaid is a payment source for certain goods and services, but the question for the trustee is whether Medicaid will pay for the specific good or service that the beneficiary needs. It is not uncommon for a beneficiary to be eligible for Medicaid (meaning that the Medicaid programme is willing to pay for a expert or service), but the adept or service itself may be unavailable. This dilemma is frequently seen in the area of Medicaid funded staffing, where the hourly charge per unit paid to community-based staff is so depression that service providers either cannot find people to fill up the positions, or they are forced to hire individuals with minimal experience. 26
Medicaid-funded waiver 27 programs offer a broad range of services to beneficiaries, some with more than generous housing supports, and others with better hourly reimbursement rates for staff. Just it is the responsibleness of the beneficiary (or the beneficiary's family or staff) to ensure that those services are being fully utilized. In our experience, parents and other family members spend so much fourth dimension and endeavor merely managing the affairs of the person with the disability that they have neither the fourth dimension nor the inclination to develop a comprehensive understanding of program requirements. And if staff are overworked, underpaid or inexperienced, they will be minimally resourceful. Available services often go underutilized.
Assessing whether the regime-funded option is adequate, or whether trust funds should be used to supplement or replace information technology
In order to comply with the terms of the trust and (in New York) the language of the governing statute, the trustee of a supplemental needs trust must determine whether funds in the trust should exist used to supplement (or supersede) an available proficient or service.
Consider a casher in need of a wheelchair. Medicaid pays for a bones wheelchair, but the beneficiary might do meliorate with a more expensive wheelchair that is a better fit for her needs – safer, more comfortable, with more sophisticated positioning systems and other controls. The trustee might exist able to acquire the chair immediately and without having to get through the Medicaid programme's administrative review and approval process. The trustee has the discretion to pay for the better chair.
Consider a casher with Medicaid-funded staffing in the home. A beneficiary may exist approved for three hours per day, two days per week. But the beneficiary and her family would rather not work with inexperienced Medicaid-funded staff, or they may want more than hours of coverage. If there are funds in the trust to pay, and then the trustee has the discretion to purchase those actress hours, or rent other, more experienced staff.
Before using trust assets to supplement (or supplant) a regime-funded good or service, the trustee should have some procedure in place to confirm what the program is providing, and some means of documenting that the beneficiary would benefit from other or additional goods or services.
Determining whether using trust funds used to pay for a good or service volition negatively impact benefit program eligibility
Programs such as the Supplemental Security Income (SSI) and Supplemental Nutritional Assistance Program (SNAP) provide straight financial benefits to their participants. Others – like Medicaid – provide a payment source for goods and services, just do not make payments directly to a beneficiary.
The aforementioned distribution from an SNT can impact different programs in dissimilar means. For example, the payment of hire from a trust will take no impact on Medicaid 28 but may effect in a reduction in a monthly SSI payment and an increase in the hire paid for HUD-subsidized housing. 29
The trustee is charged with knowing which benefit programs a beneficiary is participating in at the time of the distribution, understanding that many beneficiaries migrate in and out of different do good programs based on changes in family composition, financial status, and other circumstances, and knowing how the proposed distribution might impact those benefits. xxx
If a trustee exercises discretion and uses funds in the trust to pay rent so that the casher can move into a nicer neighborhood, the trustee must empathise the touch on of its discretionary distribution on the SSI benefit, and document why the beneficiary would exist better off with less monthly income only a better place to live.
Recommendation
In determining whether a trustee of a supplemental needs trust has reasonably exercised discretion, judicial review should consider whether the trustee adult a protocol for assessing authorities benefits and available services, and a process for periodic review and update.
Upon being appointed, the trustee should promptly develop a programme to ostend authorities benefit eligibility and bachelor goods and services, to assess whether those services and supports are adequate, and to review that information on a regular basis. The trustee should consider the following resources and suggestions:
1. For beneficiaries participating in a waiver plan, disability service providers gear up periodic reports (called Service Plans or Life Plans in New York) 31 which include data on a beneficiary's preferences, wellness, family supports, and professional person providers. Different programs have different reporting requirements, just almost publicly funded programs will require a summary report of some type. These reports can oft provide useful information on what services might exist bachelor through a government benefit program. 32 The trustee should regularly obtain these reports.
2. If a beneficiary has proactive and well-informed family members, they may exist able to provide the trustee with information needed to determine whether a government benefit program is providing an adequate level of goods and services.
3. The trustee tin rent a private care managing director or other advocate to conduct a comprehensive review of do good eligibility and available services and provide options for supplementing those benefits and supports. 33
Preparing annual accountings and periodically seeking judicial settlement
At some point, every trustee seeking to be discharged must account to its beneficiaries. If those beneficiaries are competent and willing, they can "settle" the trustee's accounting voluntarily and without court order. This is ofttimes not an option for SNT trustees.
What is an "accounting"?
We utilize the term "accounting" to refer to a summary of fiscal activity over a given time period, presented to the beneficiaries of a trust to keep them informed about trust activity. Sometimes they are filed with a court, sometimes non.
Some courts provide forms that trustees must use in summarizing financial activeness. Some courtroom forms are very unproblematic, requesting only opening and ending balances and a summary of distributions made over the accounting year. Others are more elaborate and runway unrealized gain and loss, allocate expenses to primary and income, and allow the trustee to provide additional information on explanatory schedules.
Used hither, the term "informal accounting" refers to accountings which are filed with a court or presented to a beneficiary for informational purposes. In some cases, they are required by statute, past court order or by the terms of the trust document. In others they are not required but are prepared voluntarily past a trustee to proceed the beneficiaries informed of trust activity.
In New York, many SNT trustees are required to file annual informal accountings when the trusts were established and funded by courtroom order in a guardianship proceeding or personal injury action. These informal accountings are reviewed by an examiner or fiduciary clerk, only they volition not receive formal judicial review. We refer to them as informal accountings even though they are filed with a court.
The format used for an informal accounting can vary. A year-end financial statement that a trustee provides to a casher could be considered an informal bookkeeping. A checkbook ledger and accompanying bank statements might be appropriate in some circumstances. If a trustee is required to account by court society and the court has a preferred form, then the trustee volition use that form. If there is no court filing requirement, a trustee wishing to continue its beneficiaries informed of trust activity can use whatsoever grade it deems appropriate. Some trustees may send financial statements, others may use a more elaborate format similar to what would exist used in an estate accounting.
A proceeding for "judicial settlementa' involves a petition to a court request for review and approval of the trustee'south accounting. These proceedings are filed with notice to all interested parties. In New York, the form of the accounting that must back-trail the petition is promulgated by the Chief Ambassador of the State of New York and is comprehensive. 34
Accounting requirements for SNTs vary by state
There is no requirement nether the federal or many state supplemental needs trusts statutes that a trustee fix annual accountings of any type or with any frequency. Such is the example in New York, where at that place is no statutory, regulatory or administrative requirement that a trustee of an SNT set annual accountings. 35 Every bit a result, many outset party and third party SNTs in New York and elsewhere are administered without ongoing oversight. If the trustee wants to resign during the beneficiary's life or seeks to have its accounts settled upon the beneficiary's death, the trustee's discretionary decisions volition be discipline to second-guessing inherent in proceedings for judicial settlement of multi-year accountings, a process familiar to trustees of discretionary trusts.
The proactive trustee tin mitigate the risk of belated challenge past keeping the beneficiaries regularly informed of trust activity, but the effectiveness of this approach will be determined in part past the accounting format used, the frequency of the disclosure, and the capacity of the beneficiary.
Financial statements alone provide bereft disclosure
In a traditional trust administration, the trustee provides a beneficiary with monthly, quarterly or annual fiscal statements. These statements keep the beneficiaries informed and can serve as the basis for an informal settlement of the trustee'due south accounts when the trust terminates or when a trustee is otherwise seeking to exist released.
This level of informality is inappropriate in the context of SNT assistants for at to the lowest degree four reasons:
1. A beneficiary with a cerebral disability may not take the ability to review and understand financial statements and therefore would be unable to provide informed consent to the settlement of a trustee's business relationship. While a trust could be drafted to permit a third party (similar a parent or guardian) to review and approve a trustee'southward accounts, courts tend to frown on informal settlements by guardians, 36 specially in cases where the guardian has a disharmonize (such as when the parent-guardian resides in a domicile owned by and financially supported by the trust).
two. Evidence that a fiduciary has provided all beneficiaries with copies of fiscal statements, tax returns and other trust activity volition not forestall a afterward challenge in a proceeding for settlement of the fiduciary's account, peculiarly where a beneficiary has a cerebral inability. 37
iii. Relying solely on the commitment of financial statements presents even greater risk for the trustee of a get-go political party supplemental needs trust, where the Medicaid program is entitled to be repaid upon the death of the beneficiary and is thus an interested political party in any proceeding for settlement of the trustee'due south accounts. Financial statements reviewed as part of a Medicaid application or redetermination practise not bind the agency and do not forestall a later proceeding to recover incorrectly paid Medicaid. 38 Nor exercise they address the prospect that the trust remainder may not be sufficient to satisfy the Medicaid claim upon the casher'southward death to recoup correctly paid Medicaid. Medicaid program representatives insist on formal judicial settlement for a fiduciary to be released when a trust is terminating, payment of the Medicaid recovery is due, and the recovery cannot be fully satisfied by the trust remainder.
4. Information presented on complex financial statements can be confusing and difficult to sympathize. If the data is not clear and complete, a release based on that information may be unenforceable. 39
Traditional accountings do non address the unique responsibilities associated with SNT administration
Some trustees provide informal accountings to their beneficiaries on an annual or other periodic basis. The format and level of detail vary, but these informal accountings rarely place and address issues that would be the subject area of research past the agencies administering the Medicaid or SSI programs. 40
Accountings prepared by corporate trustees frequently combine reimbursements for various items into a single "discretionary distribution" rather than split them by category. Thus, a reimbursement to a family fellow member might include items that would touch SSI (such as groceries) likewise as items that would non (such every bit a cell phone bill). Supplemental needs trust accountings should segregate distributions by the type of expense and apply the informational schedules to identify distributions that may impact public benefits.
Similarly, these informal accountings may not identify transactions that provide a derivative benefit to third parties or may not address those transactions in the explanatory schedules. 41
Consider a trustee who, after consulting with a beneficiary and her guardian, decides to use funds in an SNT to pay rent and then that the beneficiary and her guardian tin can move into a decent apartment. That payment would exist reflected on the informal accounting. An accompanying notation in the explanatory schedule would ostend that the guardian is paying his portion of the rent, that payment from the trust is being fabricated with the understanding that in that location will be an offset to the beneficiary's monthly SSI payment, and that the casher and her guardian have reported the ongoing payment to the SSI plan in apprehension of the adjustment. By doing so, the informal bookkeeping will reflect that the trustee has made an informed decision and that the trustee has considered the impact of the distribution on regime benefits.
Filing an breezy accounting is not the same every bit petitioning for judicial settlement
When an SNT is funded by court order, the society volition frequently require that an annual accounting exist filed with the court for review past an examiner or fiduciary clerk. Accounting format varies, and the review is more of a financial reconciliation to ensure that the accounts balance and that distributions were made in compliance with any restrictions or limitations that may take been imposed by the court.
This administrative review does non formally settle the trustee'south bookkeeping. 42 As such, these ex parte submissions do non protect a trustee from later challenge by a residuum beneficiary or, in the case of a first party SNT, by the Medicaid program. 43 In order for the trustee to be formally released from any further liability for information independent in the bookkeeping it would take to petition for judicial settlement with service on all interested parties. 44
This lack of a binding determination presents a particular run a risk for trustees of first party supplemental needs trusts. Eventually these trusts will end and the trustee will demand to formally account, a process that includes the determination of the Medicaid program'south repayment amount. Increasingly, land Medicaid programs are hiring national for-profit entities known as "Medicaid Recovery Audit Contractors" to pursue their recovery rights. 45 These companies take their own proprietary procedure for review and interpretation of the responsibilities of the trustee of a supplemental needs trust and would not be bound by informal filings with a state court.
Finally, the telescopic of a trustee's responsibility to the Medicaid program upon the death of the casher remains unclear. The Social Security Assistants takes the position that the trustee of a trust where the beneficiary is receiving an SSI benefit is responsible to ascertain and resolve repayment obligations to every state in which a beneficiary has always resided, 46 although the linguistic communication of the federal supplemental needs trust statute contains no such affirmative obligation. If a deceased beneficiary lived in a number of states, will service on the Medicaid plan representative in the state where the beneficiary last received Medicaid be sufficient to demark the Medicaid program? There are apparently no reported decisions on this issue. 47
Annual proceedings for advice and direction or judicial settlement would be impractical and cost ineffective
The aspects of SNT administration highlighted hither – advice challenges, unfamiliar regime benefit programs, and the inability to informally settle accounts – present unique risks for SNT trustees.
Given these risks, a prudent trustee might exist inclined to seek judicial blessing of its actions on a regular – and perhaps an almanac – basis. The trustee could petition for judicial settlement of its accounting or could seek "advice and direction" on a proposed distribution plan. Both proceedings nowadays risks of their own, and neither arroyo – if undertaken annually – would exist cost constructive.
A trustee could present a formal accounting for judicial settlement on an annual basis. 48 Where the beneficiary has a cognitive inability, and regardless of whether a holding guardian has been appointed, most courts will appoint a guardian advertizement litem, especially where a court-appointed guardian resides with the beneficiary and has indirectly benefitted from the use of trust funds. Some guardians advertising litem are attorneys with significant experience in special needs planning and disability benefits, but many are not. Inexperienced guardians advertizing litem tin can complicate a proceeding for settlement.
Because the Medicaid program is considered to accept a remainder interest in a start political party supplemental needs trust, 49 the Medicaid program representative will be a necessary party to the proceeding for judicial settlement. The Medicaid program representative will then have an unfettered opportunity to claiming discretionary distributions appearing on the accounting, focusing on distributions which would accept an bear upon on "benefit eligibility" fifty or reduce the amount available for post-mortem recovery.
Alternatively, a trustee could seek "communication and management" on an almanac basis: courtroom approval for a distribution programme developed in conjunction with the beneficiary (or the beneficiary's guardian), a care manager, or others involved in the beneficiary'south life. By having a distribution plan approved in accelerate, the trustee would be insulated from challenge then long as a after accounting showed that distributions were made in compliance with the court canonical programme.
Yet courts regularly refuse to entertain petitions for advice and direction when a affair is considered to be within the discretion of a trustee or guardian. 51 Moreover, this arroyo would require a return to court whenever a plan needed to be modified based on changes in wellness, household limerick or other factors that are incommunicable to predict with certainty. And equally with a petition for judicial settlement of the trustee's accounting, the Medicaid agency volition be a necessary party to the proceeding and volition take continuing to dispute the proposed plan of care or the budgeted corporeality, or otherwise seek to limit distributions and increment the amount available to satisfy the Medicaid program's recovery upon the beneficiary'south death. 52
Recommendation
In social club to manage and mitigate risk, the trustee should accept the post-obit steps:
1. The trustee should set up an informal bookkeeping of trust activity on an annual ground, and provide copies of the accounting to the casher with the inability (if competent, or to the court-appointed guardian or agent under power of attorney if non) and to the Medicaid program representative if the trust is a start political party SNT. 53 If the beneficiary is a modest, the casher's parents should besides receive a copy.
The informal accounting should clearly delineate distributions which would have an impact on benefit eligibility or which provide a derivative do good to third parties, and should include clarifying data in the explanatory schedules every bit appropriate.
Finally, the breezy accounting should be prepared in the aforementioned format that would be required in a proceeding for judicial settlement so that the trustee tin can move apace to accept its accounts settled if whatsoever party receiving a copy raises an consequence. This is especially important for first party supplemental needs trusts where the Medicaid plan will exist a necessary political party to any settlement proceeding.
2. On a periodic footing, the trustee's accounts should be judicially settled. Even if a trustee is providing comprehensive breezy accountings on an almanac basis to all beneficiaries and none of the beneficiaries enhance an issue, the trustee should however petition for judicial settlement after a number of years in order to wipe the slate clean. Frequency will depend on a number of factors. If a trustee is making regular and significant distributions from a well-funded trust, it might petition for judicial settlement every few years. If the trust is modestly funded and relatively inactive, it might petition less frequently.
This recommendation is non limited to SNT trustees. Circumstances that tin can complicate the settlement of a trustee's accounting (whether informally by agreement or past courtroom gild) are familiar to attorneys who represent trustees in contested accounting proceedings. Older financial records are lost or unavailable, a common occurrence in an era of bank consolidation. Trust officers retire, taking with them the first-hand noesis of a beneficiary's circumstances and the basis for certain discretionary distributions. Relationships with beneficiaries may sour over time, increasing the likelihood of objections.
For trustees of SNTs, there are additional variables and uncertainties. Government do good plan rules change over fourth dimension, and a distribution that might have had no impact on a particular benefit nether a prior policy may now outcome in a penalization. New programs might emerge that provide funding for services the trustee has been paying for with trust funds for many years. Finally, attorneys who correspond the Medicaid program in proceedings for judicial settlement also retire, and their replacements may take a much more adversarial arroyo in settlement proceedings. Periodically seeking judicial settlement puts all parties on notice – the casher with the disability, the Medicaid plan (for first party SNTs), and the remainder beneficiaries – and requires them to nowadays their objections for review by the court.
3. For significant transactions or transactions that would clearly result in a derivative do good to someone other than the casher, the trustee should seek prior courtroom approval. In New York, this is typically washed through a petition for advice and direction.
Acknowledging the deviation from standard practise
This approach – comprehensive informal annual accountings, regular petitions for judicial settlement, and periodic applications for court approval – is antithetical to traditional manor planning, where attorneys endeavour to limit administrative expense and judicial oversight when drafting trusts, and where trustees try to avoid interaction with the courts. Inability advocates may be concerned over the fiscal impact of this approach on individuals with disabilities who take trusts of more limited amounts. We sympathise these concerns.
On the other mitt, attorneys and other advocates exercise a disservice to SNT beneficiaries and trustees when they neglect to explicate the level of exposure faced past the trustee of an SNT (particularly a first party SNT), or when they endeavour to draft effectually the formalities associated with trust administration. If all trust beneficiaries are competent and capable of cocky-advocacy, estate planners can draft documents to minimize authoritative responsibilities and the associated costs. If a trustee cuts corners in keeping records, providing fiscal statements, or filing tax returns, the beneficiaries may decide to look the other way rather than endure the time and expense of a formal accounting.
Only such informal settlement is typically not an selection for SNTs, specially kickoff political party SNTs where the Medicaid program is i of the interested parties. Medicaid's priorities are opposite to those of the beneficiary with the disability and the remainder beneficiaries. The less the trustee spends during the beneficiary's life, the more that this statutory creditor will recover upon the casher's expiry.
Breezy accountings prepared and presented on an annual basis create a record of total disclosure that may serve every bit a basis to defend against objections in a proceeding for judicial settlement, 54 periodic judicial settlement limits the trustee's ongoing take chances, and petitions for advice and management protect hereafter distributions from later challenge.
Part 3: Revisiting In re J. P. Morgan and In re Liranzo
The next and final installment of this commodity volition review how the courts in two of import and highly publicized New York cases involving supplemental needs trust assistants approached the standard of review, and will consider whether the implementation of some of the procedural recommendations outlined here might accept impacted the decisions.
1. New York Estates Powers & Trusts Law (EPTL) 11-ane.1(a)(2).
2. In re Francis, 19 Misc. 3d 536 (Sur. Ct., Westchester Co. 2008).
3. EPTL 11-2.3 ("Prudent Investor Act").
4. New York Tax Law § 651(a)(two).
5. In re Spacek, 45 Misc. 3d 1210(A) (Sur. Ct., Nassau Co, 2014), aff'd. 155 A.D.3d 747 (2d Dep't 2017).
half-dozen. In re Ralph Manny, 2010 N.Y.L.J. LEXIS 4508 (Sur. Ct., Westchester Co. 2010).
vii. In re: Judicial Settlement of the Account of Bank of Am., Due north.A., 2013 Northward.Y.L.J. LEXIS 2388 (Sur. Ct., N.Y. Co. 2013).
viii. In re Hammerschlag, 2001-3772, N.Y.L.J. 1202597358371 (Sur. Ct., North.Y. Co. 2013).
9. In re Levison'south Will, 29 Misc. 2nd 697 (Sur. Ct., Rockland Co. 1961); In re McDonald (Luppino), 100 A.D. 3d 1349 (2012).
10. Estate of T. Harry Glick, 2005 Northward.Y. Misc. LEXIS 7336 (Sur. Ct., Kings Co. 2005).
xi. New York's statute defines a supplemental needs trust equally "a discretionary trust established for the benefit of a person with a severe and chronic or persistent disability." EPTL 7-1.12(a)(5).
12. In re Goldblatt, 162 Misc. 2nd 888 (Sur. Ct., Nassau Co. 1994); Cano five. Shmonie Corp., 2004 Northward.Y.L.J. LEXIS 3059 (Sup. Ct., Bronx Co. 2004). The decision in Cano is a good illustration of the difficulty that courts have in drawing a line of demarcation between guardianship oversight and discretionary trusteeship.
xiii. In re Morales, 1995 N.Y. Misc. LEXIS 726 (Sur. Ct., Kings Co. 1995); Cano 5. Shmonie Corp., supra n.13.
14. "The rule is so well established that information technology may be said to be primal and elemental that courts volition not substitute their judgment for the discretion adequately exercised which is lawfully reposed in officials, courts or tribunals. This rule has long been applied to the office of executor and trustee." In re Estate of Messer, 34 Misc. 2d 416 (Sur. Ct., Cattaraugus Co. 1962) at p. viii; see besides Estate of T. Harry Glick, supra north. 10; In re William M. Kline Revocable Trust, 196 Misc. 2d 66 (Sur. Ct. Fulton Co. 2003); In re: Judicial Settlement of the Account of Banking company of Am., N.A., supra n.seven.
15. In re Sheppard, 147 A.D.3d 1239 (3d Dep't 2017).
16. New York Surrogate's Court Procedure Human activity (SCPA) 2107.
17. Run across Cano v. Shmonie Corp, supra n.12. See too Liranzo v. LI Jewish Education /Research (Northward. Y. Sup. Ct., Kings Co. No. 28863/1996, June 25, 2013). In Liranzo, the court did not specifically articulate a standard of review; rather, the authors read the conclusion every bit applying a substituted judgment analysis, as diverse criteria are cited in the conclusion. 1 may likewise read decisions allowing for the review of counsel fees paid by trustees of SNTs equally undermining the trustee's discretion considering of a casher's disability. Run across, eastward.g., In re Exam of the Annual Inventory & Account of Susan Felice & the Bank of N.Y., 2003 Northward.Y. Misc. LEXIS 990 (Sup. Ct., Suffolk Co. 2003).
eighteen. Some transactions should require court blessing, such every bit the employ of funds in a trust for a minor to purchase a dwelling where the minor will live with the family. But in New York, this transaction is contemplated in our advice and direction statute, based on the potential conflict of interest.
nineteen. "In one case the trustees were required to make themselves knowledgeable well-nigh [the beneficiary's] status and his needs, and the availability of services that would enable them to provide for those needs, they began, and go along to utilize funds from his trust for the purposes [the testator] anticipated and then deeply desired. . ." In re JP Morgan Chase Bank N.A. (Marie H.) (also referred to herein as "In re JP Morgan"), 38 Misc. 3d 363 (Sur. Ct., N.Y. Co. 2012) at 376.
20. If all else fails, a trustee has the potency (in New York) to use to a courtroom for the engagement of a professional guardian who would have authorization to obtain information and provide documentation that a trustee would need to make informed decisions. N.Y. Mental Hygiene Law 8 ane.06(a)(4).
21. Whether a family fellow member is "reliable" is also a judgment call.
22. This was the recommendation of the court in In re JP Morgan, supra n.19. It is important to note that the beneficiary resided in a residential programme with 24-60 minutes Medicaid-funded staffing. JP Morgan, 38 Misc. 3d at 369. The case illustrates the fact that a trustee'south obligation to remain informed goes across merely ensuring that a beneficiary is participating in a Medicaid funded program, and requires independent cess and review.
23. In re U.S. Bank N.A., 51 Misc. 3d 273 (2015).
24. New York'southward statute defines a supplemental needs trust as a discretionary trust which, by its terms prohibits the trustee from expending or distributing trust assets in whatever way which may supplant, impair or diminish regime benefits or assistance for which the beneficiary may otherwise be eligible or which the beneficiary may be receiving; provided, withal, that the trustee may be authorized to make such distributions to third parties to meet the beneficiary's needs for food, wear, shelter or wellness intendance merely only if the trustee determines . . .that the beneficiary'due south bones needs will be ameliorate met if such distribution is made . . . EPTL vii-one.12(a)(5)(ii).
25. In re Levison'southward Volition, supra north.9. Decisional law in this surface area focuses on the trust creator'southward intentions in determining whether the trustee should consider a beneficiary'south other resources when making a discretionary distribution. At that place is no ambiguity with an SNT, as the requirement to consider other resources (government benefits) is written into the New York statute and the language of the document.
26. In New York the event has reached critical proportions. See testimony of Mark Van Voorst, Executive Managing director of NYSARC, before the New York Country Legislature alarm of the impending crunch, https://bfair2directcare.com/2019/02/07/the-arc-new-york-executive-managing director-mark-van-voorst-asks-new-york-state-do-we-need-a-tragedy-to-occur-before-y'all-will-fund-a-living-wage-for-direct-support-professionals/..
27. Medicaid Waiver programs provide services to people who would otherwise exist in an establishment, nursing home, or infirmary, allowing them to receive Medicaid-funded long-term care in the customs, https://www.medicaid.gov/medicaid/hcbs/authorities/1915-c/alphabetize.html..
28. 18 N.Y.C.R.R. § 360-4.3(e).
29. POMS SI 01120.200E.ane.b; run across likewise The Bear on of Special Needs Trusts on Eligibility for Subsidized Housing, The Vocalism, Book 5, Effect iv (March 2011), https://www.specialneedsalliance.org/the-vocalization/the-touch on-of-special-needs-trusts-on-eligibility-for-subsidized-housing-2/..
30. New York's statute makes clear that "neither principal nor income held in trust shall be deemed an bachelor resource to the beneficiary under any program of regime benefits or assistance; however, actual distributions from the trust may be considered to be income or resources of the beneficiary to the extent provided by the terms of any such program." EPTL 7-1.12(b)(three) (emphasis added).
31. For individuals served by the NYS Role of People With Developmental Disabilities, come across Administrative Directive 18 ADM 06, "Transition to People Get-go Care Coordination" (June 26, 2018).
32. A word of caution is warranted hither. Those with feel reviewing Life Plans (formerly chosen "Individualized Service Plans" or "ISPs") know that these documents often incorporate outdated and inaccurate information, largely a result of staff having too many reports to prepare and not enough fourth dimension and feel to prepare them in a thorough and detailed manner.
33. In 2016, the New York State Bar Clan Trusts and Estates Section Subcommittee Reviewing Changes to EPTL 7-i.12 recommended that the statute be modified and so every bit to crave the trustee of a supplemental needs trust to investigate the demand for a instance manager, to retain a case director where necessary, and to pay the example manager from trust funds. See Memorandum dated March 30, 2016, from Nina P. Silfen, Esq. Stephanie Hamberger, Esq., and Jonathan Byer, Esq. to Michael Schwartz, Esq., Chair of the Trust and Manor Administration Commission of the Trusts and Estates Section of the New York Land Bar Association.
34. SCPA 106; Official Course JA-four, "Trust Accounting With Instructions."
35. In re Kaidirmouglou, Northward.Y.L.J., Nov. 5, 2004, p. 28 (Sur. Ct. Suffolk Co. 2004); In re KeyBank, 58 Misc. 3d 235 (Sur. Ct., Saratoga Co. 2017); In re Feuerstein, 147 A.D.3d 688 (1st Dep't 2017).
36. 7 Warren's Heaton on Surrogate'due south Court Practice § 94.02(2)(a) (2019).
37. In determining whether an informal business relationship past a trustee is adequate, "the court must consider that [the casher] is an adult under no disability." In re Spacek, supra north.v at 8.
38. Due north.Y. Soc. Serv. L. § 366(2)(b)(2)(v); Oxenhorn v. Fleet Trust Co., 94 N.Y.2d 110 (1999).
39. In re Spacek, supra n.5.
40. Lewis, Kristen M., Esq. and Lowder, Janet L., Esq., SNT Beneficiaries on the Move: Issues with SNT Portability, at p. 7 (Stetson University Higher of Constabulary 2017 National Conference on Special Needs Planning and Special Needs Trusts).
41. See recent revisions to the Social Security Administration'south Program Operations Manual Arrangement (POMS) SI 01120.200–203, constructive Apr 30, 2018, which adopted the "primary benefit" test for SNT distributions. New York has utilized the primary benefit test since 1996. Encounter OBRA 93 Provisions on Transfers and Trusts, NYS Department of Social Services Administrative Directive, 96 ADM 8 (March 1996), at (4)(7)(b)(ii).
42. In some counties the examiner'south approval will be accompanied by an club acknowledging its submission and approving the examiner'southward fee, only the informational accounting is notwithstanding an ex parte submission and will not have the same legal effect as an social club obtained in a proceeding for judicial settlement of the trustee's accounts.
43. In re Salvati, 90 A.D.3d 406 (lst Dep't 2011).
44. Comm'r. of the NYC Dept of Social Services v. New York Presbyterian Infirmary, Chi Young Lee and BNY Mellon, N.A., 47 Misc. 3d 1204(A) (Sup. Ct., N.Y. Co. 2015).
45. Lewis and Lowder, supra northward. 41. See also http://hms.com/special-needs-trust-recovery-services/..
46. POMS SI 01120.203(B)(ten).
47. The POMS are not statute or regulation, and the agency's interpretation of this statutory reimbursement requirement should exist given limited weight in a land courtroom proceeding for the settlement of a trustee' s accounts.
48. SCPA 2208(3)(b).
49. N.Y. Soc. Serv. L. § 366(2)(b)(2)(five).
50. Meet In re Tinsmon (Lasher), 169 A.D.3d 1305 (3d Dep't 2019), where a representative from New York's Medicaid program argued against an otherwise permissible distribution from an SNT based on its interpretation of the SSI program rules, a program that the agency had no authority to administer, and no particular expertise to interpret. Both the lower courtroom and the appellate courtroom disposed of the agency'south arguments in short order, only the trustee however had to spend the time and coin in litigation.
51. In re Hagadorn, 176 Misc. 233 (Sup. Ct., N.Y. Co. 1941); In re Meenan, 46 N.Y.Southward.2nd 282 (Sur. Ct., Westchester Co. 1944); In re William Chiliad. Kline Revocable Trust, 196 Misc. 2nd 66 (Sur. Ct., Fulton Co. 2003).
52. In re Tinsmon (Lasher), supra n.l.
53. In our first party supplemental needs trust practice we provide copies of annual accountings to the Medicaid program representatives, and to other remainder beneficiaries when possible and practical.
54. In New York, the failure to object may exist considered 'ratification' and serve as a basis for a motion to dismiss the objections of an informed remainderman. Rajamin v. Deutsche Bank Nat'l Trust Co., 757 F.3d 79 (2d. Cir. 2014). Would the Medicaid program be similarly bound? Ane might argue that a government agency cannot be estopped. Run into Oxenhorn five. Armada, supra n.38. This position fails to recognize that in New York, the Medicaid program is named as a beneficiary past statute (Due north.Y. Soc. Serv. L. § 366(2)(b)(two)(v)). In a country court proceeding for settlement of a trustee'south accounts, the Medicaid program'south interest should exist no greater and no less than that of whatsoever other residue beneficiary.
Source: https://nysba.org/administration-of-special-needs-trusts-development-of-an-improved-approach-part-ii/
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