Disinheritance Problem Solved – Part 2

Solution

New York law permits a person making her estate plan to cut a pre probate deal with the person who will be cut out.  More specifically, this includes before the testator’s or parent’s death or lack of capacity.  This means that the person to be cut out can be dealt with directly by the testator or parent during the testator’s or parent’s life and on the testator’s own terms.  There are many benefits to this.  First, the person being cut out is required to deal directly with the testator or parent during the testator’s life – rather than fighting with siblings after the testator has died.  The strategy can reduce family strife after the decedent has died.  The commonly asked “why question” in connection with the testator’s estate plan, is answered during the testator’s life, i.e. by the parent, rather than in the court room in the context of a 1404 hearing.  There is immediacy.  In fact, the person cut out of the estate receives his funds (the carrot absent the string) first and before all those sharing in the estate.  There is certainty.  Attorney’s fees and the substantial costs of litigation are curtailed or eliminated. 

Mrs. Cook and Her Niece

Here is how the rule evolved from the thoughtful estate planning efforts of a widow.  In the early 1920s the Court of Appeals decided In re Cook’s Will 244 NY 63, a case which arose in Washington County.  Mrs. Cook was an elderly widow of wealth and decided to make a will disposing of her property to charities.  Her only heirs and next of kin were a sister, a niece and two nephews.  They all were all adults and not close with her.  In preparing for the disposition of her property, she wrote to her niece as follows:

Dear Katherine:

In making my will, it was my intention to bequeath you something.  After consideration, it

occurred to me that it will give me greater pleasure to give it now, and you to receive it now, and in doing so I am asking you if you would be willing to sign and receipt an agreement, agreeing that in consideration of this gift now, that you agree that you will not at any time contest or join with others in contesting my will.  The same conditions apply to your (2) brothers, who must also sign such an agreement. *** Kindly let me have full names and addresses of your brothers.

Her niece’s reply indicated that she was glad to receive the gift from her Aunt as her brothers and herself were trying to secure a home for their respective families.  Having failed to state, however, anything about contesting the will, another letter followed on February 8, 1924, written by G.E Knowlton, on behalf of Mrs. Cook, where he stated:

Dear Mrs. Russell:

Mrs. Robert H. Cook has handed me your letter of January 21st in which you state that you would appreciate a gift from her, but you do not say that you will refrain from contesting her will.

May I ask you to be good enough to advise Mrs. Cook as to your attitude in this matter.

A few days afterwards her niece replied:

Dear Aunt Julia:

I am sorry that I omitted to state in my letter that I would agree to the agreements mentioned in your letter. I both appreciate and agree to those conditions.

Thereafter, her niece signed and sent to Mrs. Cook the following agreement:

Dated March 5, 1924.

Received from: Francis Julia Cook

….Dollars

As a gift from her and in consideration of this gift, I agree that I will not at any time contest or join with others in contesting her Will.

The court was confronted with the question:  Having received the advances or gifts under the circumstances, can these heirs and next of kin of Mrs. Cook now contest her will? 

Despite these writings they tried to do so. They alleged that Mrs. Cook was incompetent, and that her will was procured by fraud and undue influence.  In upholding the validity of the agreements not to contest Mrs. Cook’s will, the court held that agreements not to contest another’s will are not void as against public policy.  Further, the court stated that agreements made between heirs and next of kin after the death of the decedent have always been found valid when made in good faith.  Agreements made before the death of the testator regarding the future disposition to be made of the estate are akin to those implied in the taking of a legacy bequeathed upon the condition stated in the will that no contest shall be made.

The rule in New York, is that where a distributee in consideration of a gift from the family member (testator/decedent) during her lifetime, has agreed not to challenge the decedent’s will, he shall not file objections.  The central element of the rule is that by contracting with the decedent for the present day benefit, the distributee divests himself of legal standing to challenge the will.

The effective solution is an arrangement structured as a deal or a contract.  The deal is that the distributee receives present day benefit (payment) in exchange for the agreement not to the challenge the parent’s will on death.  The problem person or child is required to contract away, relinquish and waive the right to challenge the decedent’s will.  The approach is well founded in New York law such that it must be considered as an alternative to years of potential litigation between the disinherited distributee and the estate after the testator has died.

There are some important steps to be followed to avoid litigation.  The proper approach is significant because the ultimate arbiter of the validity of the agreement will be the Surrogate Judge after the testator has died and the distributee attempts to get out of the agreement.  It is recommended that experienced and strong lawyers be involved in the process.  To this end, it is important to have the distributee represented by his own lawyers.  He should not be represented by the decedent’s lawyers.  If money is an issue, the gift can include payment of the distributee’s legal fees under certain circumstances.  The process should be considered as one involving the negotiation of a contract or in the planning context, similar to negotiation of a waiver of a spousal right of election.

As was the case for Mrs. Cook, when done correctly a pre mortum and pre probate gift to a problem person or child can be efficacious and highly successful strategy to avoid estate litigation.

Disinheritance Problem- Solved

Intentions to disinherit in connection with the making of wills are not uncommon.  Disinheritance circumstances give rise to acrimony and much litigation.  In many cases, children and family members often find themselves dealing with these circumstances.

Clients planning their estates often are confounded with how to deal with a formed intention to cut someone out of sharing in the estate.  Putting feelings and emotions aside, it is a matter of carrying out the decedent’s intentions, money and fairness. 

Common Ineffective Solution Attempt

In estate cases in New York, many challenged estate plans contain an in terrorem clause with an additional provision stating that the particular person is cut out or left nothing.  It is not uncommon for a will to make specific reference to the fact that the decedent specifically considered and deliberately intended to leave the person out of the plan.  In some instances, no reasons are stated.  In other cases, no mention of the person is made. 

There are other cases where the will expressly states that the person cut out will not benefit from the will and advances the intended double whammy threat that if the person cut out challenges the will, that person is automatically cut out.  The client drawing the will feels satisfied.

This is a failing strategy and plan.  Coupling the in terrorem clause with a provision that the ditributee, problem person or child receives nothing sets up a guaranteed challenge to the will.   The double whammy threat is empty, meaningless and ineffectual.  In fact, in practice the attempted solution often invites litigation and has no estate litigation deterrent effect whatsoever.

Better Solution Attempt

Quite simply and more properly the in terrorem clause should actually be coupled with a sufficient and enticing incentive.  Think of the cart driver dangling the carrot in front of the mule on the stick extended in front of the animal’s mouth.  For illustration, include in the will an in terrorem clause with a specific bequest of say $20,000 for the problem person.  The incentive of a specific bequest in the plan coupled with the potential for enforcement of the in terrorem clause creates significant risk of forfeiture of the bequeathed sum.  The particular sum in each case must be thoughtfully determined, and often it is not or circumstances change.

This solution is entirely acceptable but in the context of litigation, can be a failure. The carrot and stick approach still subjects the plan to risk and chance – up in the air for future lawsuits.  There is a better approach, which will be discussed in the next blog post.

Summary Judgment in a Contested Accounting Proceeding- Part II

As explained in our prior post from May, “Summary Judgment in a Contested Accounting Proceeding – Disposing of Meritless Objections“, the high standard imposed on a fiduciary creates a low burden for a party to contest the fiduciary’s accounting. Thankfully, the fiduciary may move for summary judgment to dismiss objections that ultimately turn out to be meritless.

But what happens when the opposing party questions the reasonableness of a fiduciary’s conduct. Is the appropriate exercise of the fiduciary’s discretionary power always a question of fact necessitating a hearing? The simple answer is no.

The general rule in New York is that a court will not interfere with the exercise of a trustee’s discretion except in limited circumstances (see e.g. Matter of Hilton, 174 App Div 193 [1st Dept 1916]; Matter of Mitchell’s Will, 30 Misc 2d 781 [Sur Ct, Kings County 1961]; Matter of Irrevocable, 2005 NY Misc LEXIS 3899 [Sur Ct, New York County Dec. 14, 2005]). A party therefore may generally not advocate that the court should substitute its judgment for that of the Trustee’s. This is not the appropriate standard (see Matter of Hilton, 174 App Div at 193; Restatement [Third] of Trusts § 50). Rather, the party opposing summary judgment should tender evidence of fraud, bad faith, or an abuse of discretion to justify a hearing (see e.g. Matter of Hilton, 174 App Div 193 [1st Dept 1916]; Matter of Mitchell’s Will, 30 Misc 2d 781 [Sur Ct, Kings County 1961]; Matter of Irrevocable, 2005 NY Misc LEXIS 3899 [Sur Ct, New York County Dec. 14, 2005]).

In Matter of Hilton, 174 App Div 193 (1st Dept 1916), for example, the appellate court reversed an order of the court below for an increase in annual trust payments to the beneficiary, based on the lack of any evidence demonstrating an abuse of discretion (see also Matter of Irrevocable, 2005 NY Misc LEXIS 3899 [Sur Ct, New York County Dec. 14, 2005]; Restatement [Third] of Trusts § 50). Similarly, Matter of Mitchell’s Will, 30 Misc 2d 781 (Sur Ct, Kings County 1961), the court declined to set the matter down for a hearing unless the Objectant submitted proof that “the trustees’ action amounts to an abuse of discretion, bad faith, arbitrary action or fraud.”

In short, there are numerous cases granting summary judgment in favor of the fiduciary in accounting proceedings. This is especially true where the trust agreement provides the Trustee with discretion and there is no evidence of any abuse of that discretion.

Inheritance By Non-Marital Children

I recently read an article on People.com about a poor young man who became “Lord of the Manor” after DNA proved he was the heir of a wealthy British aristocrat (https://people.com/human-interest/care-worker-inherits-60-million-english-estate-dna-test/). This got me wondering what happens in New York when a non-marital child shows up after the parent is deceased and demands his inheritance. Does he have a right to inherit Mom or Dad’s estate? How do the marital children, if any, respond to his demands?

New York Estates, Powers and Trust Law Section 4-1.2 specifically addresses the question of inheritance by non-marital children. In New York, a non-marital child is the legitimate child of his mother and can inherit from his mother and from her family unless specifically excluded.

But, the rules are different for a non-marital child to inherit from his father’s estate. Before a non-marital child can inherit from his father, paternity must first be established. Section 4-1.2 sets out three methods to establish paternity: (i) an order of filiation issued by a court during the lifetime of the father; (ii) a signed acknowledgement of paternity by the father; or (iii) clear and convincing evidence of paternity, which may include, but is not limited to, DNA evidence or evidence that the father openly and notoriously acknowledged the child as his own.

In some situations, the father either did not know about the child, or he kept the existence of his secret love-child from his family. One way an unknown or secret non-marital child can establish paternity would be through DNA evidence. The burden is on the non-marital child to prove he is the decedent’s child with clear and convincing evidence. First, the non-marital child must commence a Surrogate’s Court proceeding to establish inheritance rights to the father’s estate. A pre-trial motion can then be made for an order to posthumously perform a DNA test.

A court may grant a motion for posthumous DNA testing where the non-marital child provides some evidence that the decedent openly and notoriously acknowledged paternity and establishes that the testing is practicable and reasonable under the totality of the circumstances. (Matter of Poldrugovaz, 50 AD3d 117, 129 [2d Dept 2008].) Factors that courts consider include (i) whether evidence presented demonstrates a reasonable possibility that the testing will establish a match; (ii) the practicability of obtaining the tissue sample for the purpose of conducting the test, including whether it is readily available; (iii) whether there is a need to exhume the decedent’s body or obtain the sample from a nonparty; (iv) whether appropriate safeguards were, or will be, taken to insure the reliability of the genetic material to be tested; and (v) the privacy and religious concerns of the decedent and or his family members. (Matter of Betz, 74 AD3d 1459, 1463 [3d Dept 2010].) The rule is to safeguard the estates of decedents from fraudulent claims. The last thing grieving families need is to have someone show up claiming to be their father’s child and demanding his inheritance without any evidence to back up his claim.

Contribution by Jacque K. Vincent, J.D.

An Interview with an Estate Litigation Attorney (Part 2)

Q. What skills should an Estate Litigation Attorney possess?

A. An estate litigation attorney is required to know the law in several critical areas. First, it is mandatory that the attorney fully understand the law pertaining to the making of a valid will or trust, as that is often the heart of the contest. An estate litigation attorney must know and understand how estate planning attorneys operate and how they develop and achieve a client’s estate plan.

An estate litigation attorney must also know the state and federal procedural rules of the court cold. The attorney is equally required to know how to prove the client’s case. For example, it must be second nature for the estate litigation attorney to prove that a will was properly prepared and signed under the statute that prescribes how to make a valid will or that a person making a will lacked legal capacity or was subjected to undue influence. An estate litigation attorney must not only know the four basic objections to a will, but also know how to either prove a valid objection or successfully defend against objections lacking merit in to obtain a dismissal.

Q. Are there other skills that come in handy?

A. Strong litigation and in particular, trial skills are a tremendous advantage. Many lawyers who draw a lot of wills and trusts and plan estates, try to handle the estate litigation. These well-intentioned but misplaced efforts often result in case failures or settlements too generous to the other side due to a lack of significant estate litigation and negotiation experience. Lawyers with a lot of experience in lawsuits are better suited to taking the deposition testimony of witnesses under oath as they are accustomed to dealing with non-cooperative and evasive witnesses, shades of truth and confrontations with documentary evidence.

Q. Do you need to understand medical proof?

A. It is mandatory. The estate litigation attorney must have significant professional experience with medical/legal matters. It is impossible to handle a case where the decedent’s capacity is an issue if you do not fully understand the medical details of the decedent’s condition. In order to properly handle the case, the lawyer must be fully versed in all medical issues involving the decedent, fully understand all of the medical records and charts, diagnostic tests and results and ultimately, know how to legally prove the decedent’s condition in court. There are countless dismissals of objections that allege only that the decedent was old, of advanced age, senile, demented, weak or sick. Without more and strong medical and lay person evidence, these claims are properly dismissed for failures of proof.

It is a recipe for disaster in a case where a lawyer is unfamiliar with the medical terminology, practices and procedures. Not only can it be embarrassing but the medical witnesses become frustrated with what they perceive to be a lack of preparation and skills.

Q. Why does the Estate Litigation Attorney need to know how lawyers work?

A. Inevitably estate and trust litigation often is an intense study and critique of the drafting attorney’s work and conduct. An objectant’s attorney ordinarily is critical of the work, seeking to attack it to cause the instrument to fail in court. The attacks range from the basics pertaining to the paperwork to the leveling of allegations of attorney misconduct and negligence. In these cases, a strong attorney defending the estate knows the standard of care required to be upheld by the drafting attorney and brings out the drafting attorney’s good work and fine product.

Q. Is invalidating a will or trust in New York courts easy?

A. No. The law favors validity of wills and trusts that are properly prepared and signed. The law makes it difficult to upset valid planning put in place by a decedent. This makes sense for a number of good reasons. First, the law favors and encourages people to plan their estates. The law is deferential to decedent’s lawful intentions rather than imposing generic dispositions. In New York, the law takes it a step further to add a presumption of validity to wills that are signed under the supervision of an attorney. Further, in New York the level of capacity required to make a valid will is quite low. The law sends a strong message to residents who take the time and often incur substantial expenses to plan their estates, that the law will make the success of the estate plan more likely than challenges attempting to destroy it.

Hard Promises – Multi Court Cases For Tom Petty

In 1981, Tom Petty and the Heartbreakers released the album Hard Promises, containing the single:  The Waiting.  In it, Tom sings, “oh baby don’t it feel like heaven right now?  Don’t it feel like something from a dream?  Yeah, I’ve never known nothing quite like this”.

Tom’s lyrics uncannily describe an opposite reality of the evolution of what on its face appeared to have been careful and deliberative estate planning on his part.  The most recent turn in Tom’s estate plan is that his daughters (from marriage number one) have just filed their own lawsuit against his widow.  The fight continues for Tom’s valuable artistic catalogue.  We now have developing hard knuckles estate litigation.

It is increasingly common that a family’s estate litigation does not occur in a single court.  The trend is multiple legal disputes in more than one jurisdiction – sometimes at the same time.

In all of his work planning his estate, Tom likely never envisioned that his survivors would be fighting in court – let alone two courts at one time.  His wife Dana’s petition in probate court sought to have the court approve a professional manager to handle the catalogue of Tom’s legendary works.  In that probate court, his daughter Adria, filed another probate petition to wrestle control of the estate from Dana.  So, in Tom’s estate the initial battle line was formed by two applications for competing relief in the same court.  This is not all that uncommon.  Probate court is often confronted with dueling petitions competing for the same or similar relief.  The classic arguments are that one party or another is better suited or more fit to handle the fiduciary duties for the estate than another competing party.

Beyond dueling petitions (often termed “cross petitions”) in one court for the same relief, what prompts litigants in these cases to pursue more fights in various and different courts?  In many cases separate initiation of multiple suits by the same parties are driven by the nature of the relief available in a particular court.  In Tom’s case his daughters started their separate lawsuit in a state court in California.  That is not atypical in more complicated or asset laden estate disputes where the claims are directed by persons, seeking to gain benefit from the estate, against individuals who stand in their way or who have themselves allegedly benefitted to the detriment of the other party. 

While the Surrogate’s Court in New York has jurisdiction over the handling of the estate and many related proceedings, many estate disputes spawn and emanate satellite litigation in New York State Supreme Court.  Litigants start proceedings in that forum for injunctive (restraining orders) and other relief, including money damages.  Some litigants sue the other party for breach of a fiduciary duty in the other forum or sue to recover items of property (replevin) or money (conversion).  Sometimes the state court is called upon to address alleged breaches of contract or matters pertaining to administration of trusts related to the decedent’s estate.

In Tom’s case the claims seem to be less esoteric and more direct.  His daughters claim that his widow deprived them of their role in “equal participation” in determining how his works are released.  In short, their argument is that this phrase means that the two of them have a majority vote representing two thirds of the three ladies handling the decisions. 

That position and the argument is the same as that which they advanced in the probate court dispute.  What motivates advancing the same argument in another court?  Perhaps it is that his daughters are actually forum or judge shopping.  It could be that they sense that the probate court forum favors Dana.  Their logic may not be that far off.  It is often asserted that a probate or Surrogate’s Court is a friendly forum for the estate and the individuals designated by the decedent to handle the estate.  The thinking is that the probate court is overly protective of the estate and the decedent’s nominated fiduciary – often bending over backwards in deferential accommodation to the alleged talismanic “decedent’s intent”.  It is also possible that the daughters, after having filed their competing petition in the probate court, sense an unfavorable reception or perhaps even an imminent defeat.  In addition, the daughters have now upped the ante by seeking financial damages ($5.0M) from Dana in the state court case.  That claim is based on the contention that Dana usurped estate assets to the detriment of the daughters.

The daughters also made the classic move to justify activity in state court, getting around the probate court, by making Tom Petty Unlimited the plaintiff in the case they just started.  It is an LLC which was formed in March of 2018, to manage the assets after Tom’s death.  As we continue to learn more, it seems that this entity controls Tom’s rights as a recording artist and his memorabilia. In the suit the claim is advanced that Tom’s widow created another company, Tom Petty Legacy, to usurp the other LLC’s business and misappropriate its assets.

Tom is a classic rocker and despite his death his work is a staple for classic rock outlets.  It is widely enjoyed and listened to every day.  While his music plays, it certainly is becoming more apparent that his estate plan will unfold in the courts with the ultimate decisions pertinent to management and control being made by the courts rather than his family.

https://nypost.com/tag/tom-petty/

Renunciation Of An Inheritance Part 1

Most people welcome receiving an inheritance, but there are times when an inheritance causes problems for the beneficiary. Some beneficiaries want to avoid receiving their inheritance for tax purposes, while others may want to avoid paying a creditor. “Motives or reasons for the renunciation have no bearing on this statutory right, as long as no fraud or collusion is involved.” Matter of Oot, 95 Misc 2d 702, 705 (Sur Ct, Onondaga County 1978).    

Matter of Rosenberg, 2016 NY Misc LEXIS 261 (New York County, January 27, 2016) is an interesting case that involved renunciation for estate tax purposes. In this case, the decedent Paul Rosenberg, a Jewish art collector and dealer who lived in France, owned two paintings by Henri Matisse. In 1940, the Nazis confiscated the paintings. In 2012, the paintings were discovered and determined to belong to the Rosenberg’s who had immigrated to New York. The paintings were valued at over $12 million.

Paul Rosenberg died in 1959. Paul bequeathed half of his residuary estate to his son Alexandre or, in the event that Alexandre did not survive him, to Alexandre’s children. Alexandre died in 1987, survived by his wife and children. Alexandre bequeathed his residuary estate to his wife or, in the event that she disclaimed her interest, to a Marital Trust for her benefit. Alexandre’s wife did indeed disclaim, and as a result, his children were to receive any assets that pass as part of his residuary estate.

Alexandre’s wife petitioned the Surrogate’s Court to permit Alexandre’s estate to renounce an interest in the newly discovered paintings and any works of art discovered in the future that would be found to be assets of Paul’s estate. Her reason for the renunciation was to spare her children the cost of estate tax that would be payable otherwise. EPTL 2-1.11 (c)(2) gives the court discretion to extend the time to file and serve a renunciation upon a showing of reasonable cause. Here, the Court held that the extraordinary circumstances of this case warranted its allowance to extend the petitioner’s renunciation of assets found in the future.  

Subsequently, in 2014, after the Rosenberg family learned about the discovery of several stolen pieces of art held by a German citizen, the Court granted renunciation to the estate of Alexandre. 

Renouncing a property interest for purposes of avoiding creditors is also permissible. In Matter of Oot, Patricia Hoopingarner worked for William Prescott, the petitioner, as a receptionist-bookkeeper from 1972 to 1976. In 1976, the Prescott discovered that Hoopingarner had misappropriated over $40,000. Hoopingarner signed a confession of judgment which was filed in the Clerk’s office. In 1978, her mother, Marion Oot, died and Hoopingarner was named as a legatee under the will.

As long as the beneficiary has not accepted the disposition, a legatee has a statutory right to renounce any gift made by a will (EPTL 2-1.11). Hoopingarner filed a renunciation under the will to avoid paying the judgment against her. Prescott sought to set aside the renunciation as a fraudulent conveyance. The Court held that “the fact that the renunciation of a legacy might frustrate the claims of creditors is of no consequence if the statutory renunciation procedures have been meticulously followed.” Id. at 706.

By Jacque K. Vincent, JD

Renunciation Of An Inheritance Part 2

What happens when a person renounces a bequest?

Filing a renunciation has the same effect with respect to the renounced interest as though the renouncing person had predeceased the testator unless a provision relating to a possible renunciation is included in the will. In other words, if you decide to renounce your bequest, you will be treated as if you died before the grantor did, and your share is redistributed according to the terms of the will.

In Estate of Cooper, the decedent left residuary shares of his estate to his three daughters. He did not provide any provision relating to a possible renunciation of a bequest in his will. When one daughter renounced her bequest, that portion of the estate went to her children. Estate of Cooper, 73 Misc 2d 904, 906 (Sur Ct, Onondaga County 1973).

Because the daughter’s renunciation of the bequest was treated as if she had predeceased her father, the disposition vested in her surviving children, per stirpes, in accordance with the antilapse statute.

The antilapse statute provides that where a testator has made bequeaths to his issue or his siblings, and the beneficiary dies before the testator, the deceased beneficiary’s disposition vests in his surviving issue. EPT § 3-3.3.

By Jacque K. Vincent, JD

Renunciation Of An Inheritance Part 3

Unintended Consequences of Renunciation

One issue to note is that renunciation can negatively impact a distributee’s eligibility for Medicaid benefits or other public assistance. In assessing need and eligibility, the Department of Social Services will consider any financial asset or resource the applicant may immediately or potentially have available. Courts have held that a recipient of public assistance is obligated to utilize all available resources to eliminate or reduce the need for public assistance. Although when a distributee renounces his inheritance and the disposition never vests, the Courts still allow Social Services to consider the inheritance as a potential resource for the applicant when determining eligibility. Molly v Bane, 214 AD 2d 171, 176 (2d Dept 1995).

Something else to be aware of is that proceeds recovered from an action for wrongful death cannot be renounced. Renunciation is limited to the distribution of testamentary or administration assets. Since proceeds from a wrongful death action are not passed through a testamentary instrument, renunciation is not applicable. In re Estate of Summrall, 93 Misc 2d 420 (Sur Ct, Bronx County 1978).


By Jacque K. Vincent, JD

How the “Sole Benefit” Rule Frustrates Supplemental Needs Trusts

Floyd Brown was charged with murder in 1993. Found incompetent to stand trial, he was sentenced to a psychiatric institution. In 2007, after fourteen years of confinement, he was exonerated. The appellate judge held that the lone piece of evidence, an elaborate six-page confession, was entirely too sophisticated for Mr. Brown to have dictated. Mr. Brown is intellectually disabled; he has an IQ of less than sixty and the mental capacity of a seven-year old child.  

Following his release, Mr. Brown was awarded approximately nine million dollars for his wrongful confinement. The net settlement was put into a supplemental needs trust (“SNT”), a special kind of trust available for people with disabilities which allows the beneficiary to exclude the trust corpus from asset calculation when applying or recertifying for means-tested government programs. The trust was meant to enhance his quality of life. Yet, with millions of dollars accruing interest, Mr. Brown’s simple request for a bouquet of flowers for his mother’s grave was denied, and he was living below the poverty line. 

Why? Because the flowers and other items Mr. Brown requested were not strictly for his benefit. According to the Social Security Administration’s (“SSA”) interpretation of the statutory language, which established SNTs, the trust must be established for the “sole benefit” of the beneficiary.

Likewise, until very recently, the SSA required that all trust disbursements be made for the “sole benefit” of the beneficiary. On April 30, 2018, the SSA relaxed its interpretation of the “sole benefit” rule in limited circumstances: trust disbursements made to third-parties for certain goods or services may now be for the “primary benefit” of the beneficiary.

However, outside of this limited exception, any other disbursement that violates this stringent rule ensures that the beneficiary will lose eligibility for essential government benefit programs, including Medicaid and Supplemental Security Income (“SSI”).

Although Mr. Brown had millions of dollars, losing eligibility for public benefits meant the trust would likely be expended in a short time to provide medical care and necessities, and to repay state and federal programs for previous expenditures related to his cost of care.

To download the rest of the article, click here.

By: ELIZABETH A. WEIKEL

Ms. Weikel is a JD Candidate at Quinnipiac University School of Law.  She will be an associate here at Tabner, Ryan, & Keniry LLP in the late summer.