The Role of Special Needs Trust Counsel in Personal Injury Litigation: A Value Added Approach. By: Edward V. Wilcenski, Esq.

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1 The Role of Special Needs Trust Counsel in Personal Injury Litigation: A Value Added Approach By: Edward V. Wilcenski, Esq. Jones Wilcenski & Pleat, PLLC Clifton Park, New York I. Introduction Attorneys who work in the area of Special Needs Trusts and disability planning need a basic foundation in many diverse areas of the law: trusts and estates, guardianship practice, probate court practice, government benefit eligibility, estate, gift, and income taxation, just to name a few. In fact, the landscape is so expansive that in many cases, the mark of a good Special Needs Trust attorney is his ability to identify the issues presented in a given case, admit what he does not know, and then draw from the experience of others who have more specialized knowledge on a given topic. Personal injury attorneys who litigate cases for permanently disabled plaintiffs also benefit from this approach, and the earlier that issues considered ancillary to the litigation are identified, the more effective Special Needs Trust counsel can be. Unfortunately (and at least in this author s experience), Special Needs Trust counsel is often brought into a personal injury matter as an afterthought, in many cases after important issues have already been decided. Indeed, one prominent Special Needs Trust attorney likens this phenomenon to jumping onto a moving train, and then, depending on the landscape, attempting to apply the brakes so that certain important issues can be revisited. In many cases the benefit of our involvement may not be immediately appreciated by litigating counsel, the court, or even the parties, and our efforts are begrudgingly accepted as a necessary evil. In the end, however, this author

2 believes that plaintiff and counsel alike are well served by addressing these issues early on, and that this collaborative approach often serves to ensure that the disabled plaintiff is able to fully benefit from the successful efforts of the attorney litigating the personal injury matter. Indeed, many of the issues that accompany the resolution of personal injury litigation are well beyond the scope of what most litigating attorneys would consider as within their realm of responsibility. For example: * Does the plaintiff currently receive entitlement benefits, and will the receipt of settlement proceeds jeopardize continuing eligibility? * Will other members of the disabled individual s household be receiving a share of the proceeds on an ancillary claim, again putting the disabled beneficiary s benefit eligibility at risk because of deeming rules? * In addition to private third party insurance company liens, does the Medicaid program have the right to be reimbursed off the top of any settlement, and if so, has the Medicaid lien been scrutinized and edited to include only those charges properly paid out of the settlement? * Is there a need to consider a Medicare Set-Aside Trust to ensure that the Medicare program s interest has been appropriately considered in any settlement? * If a guardian was appointed at the outset of the litigation (a proceeding often brought by the litigating attorney), was the Order sufficiently broad to accommodate the future needs of the disabled beneficiary, or must the Order be modified?

3 * What is the level of cognitive capacity of the disabled plaintiff, and if competent, are there advance directives in place for this individual so that someone will be able to step in and help manage funds from the recovery? * Has a Special Needs Trust been drafted to hold the proceeds of the settlement, and will the trust pass muster with the agencies providing benefits? * If the value of the settlement is significant, has there been any consideration of gift tax consequences upon funding, or estate and generation-skipping tax planning should the beneficiary die prematurely? * If the settlement is in the form of a structured settlement, has there been any consideration of liquidity for estate tax purposes should the beneficiary die prior to full payout? * If other members of the household/family will be receiving funds based on related or ancillary claims, do they have their own estate planning documents in place, so that the disabled plaintiff will not lose government benefit eligibility by reason of a direct inheritance? Expecting litigation counsel to have the expertise to successfully sue a case, negotiate a settlement, and then, in addition, counsel a client on these other matters is simply unrealistic. That being said, attorneys who bring personal injury cases and yet 1 fail to recognize and address many of these issues do so at their own peril. And for the unfortunate Medicaid beneficiary whose attorney never advised her of these other issues, pleading ignorance or bad advice will be no excuse if it later turns out that those 1 Dam, James L, New Malpractice Danger for P.I. Lawyers as a Result of Medicaid; Workers Compensation, Estate Planning, Divorce also Affected, Lawyers Weekly USA (July 29, 1996); see also Josephine Grillo, as guardian and next friend for Christina Grillo, a minor v. Tom L. Pettiette, T.E. Swate and Hardy, Milutin & Johns, in the 96th District Court of Tarrant County, Texas, Cause No , as reported in the National Structured Settlement Trade Association newsletter, 2001.

4 2 benefits were incorrectly paid. A Practical Approach This article is designed to help its reader issue spot when called in to assist in a litigation matter, and will leave the reader to pursue more detailed research on a given topic via the resources cited throughout. Hopefully, the article will be of particular value to a litigating attorney who is not otherwise aware of some of the common pitfalls in this area of practice, and for the Special Needs Trust attorney who may be faced with his or her first case where these issues are presented. II. Common themes A. Understand the nature of the disability While it may seem like a goes without saying proposition, spending some time familiarizing oneself with the disability at issue is a critical first step. Certainly litigation counsel must know the nature of the injury in order to assess damages and to sue the case, and in many cases a Life Care Plan will have been prepared to identify and quantify the cost of the future care of the disabled plaintiff. Knowing the disability will often help guide decisions that will need to be made as settlement and distribution options are considered, and in counseling the disabled plaintiff on how recoveries can be used. Following are some examples: 1. Is the disabled beneficiary mentally competent, and if not, is a guardianship appropriate? Some disabilities are so severe that competence never becomes an issue. In many cases, and especially for very young plaintiffs, the nature, extent and duration of the disability is much more difficult to predict. If there is a suspicion that the disability is 2 Oxenhorn v. Fleet Trust Co., 94 N.Y.2d 110 (1999)

5 permanent, then in most cases one will need to discuss the possibility of establishing a guardianship, and further consider whether the guardianship should be brought pursuant to Article 17 of the Surrogate s Court Procedure Act (which terminates by operation of law on the disabled ward s reaching the age of eighteen (18)), Article 17A of the Surrogate s Court Procedure Act (which would be available to both minors and adults depending on the nature of the injury), or Article 81 of the Mental Hygiene Law (although the willingness of certain courts to allow Article 81 to be used for a disabled minor has 3 been the subject of some judicial disagreement). Other states have similar statutes which demarcate guardianship by age and cognitive limitation, and readers who do not practice in New York State can apply the same analysis explained below when making these decisions in other state. Article 17-A of the Surrogate s Court Procedure Act is generally considered to be a plenary guardianship which strips the disabled beneficiary of the ability to make most legal decisions that would otherwise be available once he or she reaches the age of majority. That being said, it is a fairly simple proceeding to bring, and because the statute is not designed to provide much leeway in crafting a guardianship tailored to the needs of the ward, it is generally the least expensive alternative. In contrast, Article 81 of the Mental Hygiene Law is a more progressive alternative, as it demands regular and fairly intensive inquiry into the changing condition 4 of an Article 81 ward, and modification of the guardianship when necessary. As a 3 The procedural mechanics of settling a case where a guardianship is possible, together with the costs and benefits of the various guardianship statutes, is the subject of a comprehensive article written by New York State Bar Association Elder Law Section member Jay J. Sangerman, Esq., entitled Vehicles for the Placement of Tort Awards for Minors and Disabled Individuals: When is a Guardianship Required for the Establishment of a First Party Special Needs Trust; Choosing the Appropriate Technique and Forum, NYSBA Elder Law Section Spring 2002 CLE Program Outline, Advanced Elder Law; Taking Advocacy to the Next Level. 4 N.Y. Mental Hygiene Law 81.36

6 result, Article 81 is traditionally a more expensive proposition, and the guardians (who in many cases involving minor disabled beneficiaries will be the parents) have a tendency to resent the cumbersome reporting requirements that the Article 81 statute mandates. While some advocates believe that Article 17-A may provide similar flexibility to the 5 Article 81 proceeding, in this author s experience there is insufficient guidance within the statute, not to mention limited receptiveness by the courts, to utilizing Article 17-A in this fashion. Ultimately, the correct answer is dependent upon the nature and severity of the disability, the practice of the local courts, and the inclination of the beneficiary and his or her family to take a chance on either forum. Finally, there is also the possibility that a guardianship will be unnecessary because the disability is either entirely physical in nature (as with a spinal cord injury), or the plaintiff retains sufficient cognitive capacity (as with a minor head injury), such that the plaintiff will be able to execute Advance Directives ( Durable Powers of Attorney or Health Care Proxies) to accommodate future changes in condition. In many cases the services of a Special Needs Trust or Elder Law attorney will still be necessary, as there will be a need to access government benefit programs such as Medicaid to pay for future care and services, but court involvement through a guardianship may not. In considering the question of the need for (or the appropriate forum for) guardianship, the input of the litigating attorney will be invaluable. He or she will have built a long standing relationship with the family, and will know the intimate details of the injury leading to the disability. In the author s experience, litigation counsel will be happy to participate in this discussion, especially if the Special Needs Trust attorney is able to 5 Some have argued that SCPA 1758 allows for modification of a guardianship to address a change in condition, although many practitioners remain skeptical. See, Kruger, Robert, Esq., Revisiting the Guardianship for Children, NYSBA Elder Law Attorney, p. 61, Vol. 13, No. 2 (Spring 2003).

7 handle the additional legal work once a decision is made. 2. What are the prospects for independent living? This can be a difficult question to answer, especially when the injury is to a young child, or for someone with a head injury, as the long term effects of the injury are so difficult to predict, and the success of rehabilitation and treatment can vary so widely depending on the individual. It is nonetheless important to consider this question, as it will be relevant in making recommendations as to how the settlement will be paid (i.e. a lump sum, a structured settlement, or a combination of both), it may dictate which government benefit programs will support the beneficiary in the community, and may impact how the Special Needs Trust will be drafted and administered. For an individual whose disability is so severe that mobility is limited and cognitive functioning is significantly impaired, permanent institutional-level placement may be the only option. If that care is going to be provided in a Skilled Nursing Facility (SNF) or an Intermediate Care Facility (ICF), then the primary role of a Special Needs Trust attorney is often to ensure the preservation of government benefits (usually through the use of a Special Needs Trust), and to help the Trustee and the beneficiary s family maximize the use of those funds to enhance the quality of the individual s life. In this type of a case, the selection of a structured settlement versus a lump sum (or a combination thereof) may have limited impact on the beneficiary s quality of life, and attorney drafting the Trust may not need to anticipate as many expenditures as would be necessary for a beneficiary who will be living independently in the community and accessing a wide array of government benefits to pay for necessary goods and services. For an individual whose disability is less severe and who will be returning to

8 independent or semi independent living, counsel needs to consider how the disabled individual will support herself in the community upon conclusion of the lawsuit. Often she will access a patchwork of private programs and government benefits, each with a different set of eligibility criteria, and each with different rules governing the treatment of 6 Special Needs Trusts. And even for a plaintiff with severe injuries who requires a significant level of care, in some cases her family may want to use litigation proceeds to modify the family home or build a new handicap accessible home so that care can be provided in a familiar setting, using one or more members of the family as direct care providers for the disabled plaintiff. These situations require much more creative involvement by the Special Needs Trust attorney, who needs to think outside the box in helping construct a care plan, consider alternate sources of funding for the plan (private and government), and who must be mindful of how such an arrangement will be viewed by the various benefit programs that will be used to support the plan. In these cases, the combination of a lump sum to pay for a home or home modification, together with a fixed, non taxable stream of income in the form of an annuity to offset housing costs and pay for supplemental care may be the answer. The implementation of such a plan may involve consideration of how real estate expenditures by the Special Needs Trust will be secured in the event of a future sale of the home, preparation of a care contract so that a family caregiver can remain home with a disabled plaintiff without a significant diminution in household income, and development of a household budget that will not adversely affect 6 See, for example, Wilcenski, Edward V. and Pierro, Louis W., The Foster Care Independence Act of 1999 and the SSI Program: Just What We Needed - More Transfer of Asset Rules, N.Y. S. Bar Association Elder Law Attorney, Vol. 11, No. 1., p. 43 (Winter 2001); see also, Same Issues, Different Agency: Transfer Penalties and Trust Rules Under the Section 8 Program, N.Y. S. Bar Association Elder Law Attorney, Vol. 11, No. 4, p 41 (Fall 2001).

9 continuing government benefit eligibility to pay for long term medical costs and other services. The design of such a plan must often be coordinated with litigation counsel, representatives from one or more government benefit agencies, the proposed Trustee of the Special Needs Trust, and the local organization that will be providing or supplementing the services that are being provided in the home setting. Equipped with a knowledge of the disability, a solid working familiarity with the government benefit programs that support the disabled in our communities, and a willingness to encourage creative solutions to difficult cases, there is really no limitation on the number of ways that a settlement can be structured to encourage independent, community based living for a disabled plaintiff. III. Basic Government Benefit Eligibility Using the word basic to describe the government benefit programs that support disabled individuals in the community is admittedly misleading. Nonetheless, there are two means tested government benefit programs (ie programs that limit the amount of income and resources that a participant can retain and still qualify) that will be a factor in the majority of personal injury cases involving permanently disabled individuals. They 7 are the Supplemental Security Income (SSI) program and Medicaid programs. Following are brief discussions of issues that arise when a tort award is received by a participant in each of the programs. A. Supplemental Security Income Supplemental Security Income (SSI) provides a minimum level of income for 7 For a comprehensive review of the various benefit program rules in the context of litigation proceeds, see Robert, Joan, Esq., Working with the Personal Injury Bar, N.Y.S. Bar Association Elder Law CLE Outline (September 2007).

10 8 people who are under 65 and blind or disabled. The program has relatively stringent income and resource requirements that must be met in order to participate in the program. Litigation proceeds paid directly to an SSI recipient (as well as any other irregular and unexpected payment, such as an inheritance) will generally impact a recipient s eligibility for SSI in the month of receipt (because the payment constitutes countable income to the recipient), and will impact future eligibility if the value of the proceeds exceeds $2,000 (the SSI program s resource threshold) in the following month and beyond. For individuals who have never worked because they were too young, or because of a pre-existing disability, the SSI program will often serve as the primary source of income, at least until such time as a parent or spouse becomes disabled or retires, at which point Social Security benefits may be available to the disabled plaintiff from the parent s or spouse s work record. In New York, any individual eligible for SSI benefits is 9 also eligible for Medicaid, which is the primary source of government funding for long term care in our state. As such, the SSI program is often the doorway through which Medicaid benefits are provided to the permanently disabled in our communities. Prior to December 1999, an SSI recipient who received a lump sum from a tort settlement, inheritance or other source, could freely transfer those funds to the extent they exceeded the $2,000 SSI resource threshold. The funds could be transferred to another family member, or to a trust established for the recipient s own benefit, without impacting SSI eligibility. As long as the recipient was not also participating in another 8 For a detailed discussion of the SSI program rules, see Regan, John J., Supplemental Security Income, Tax, Estate and Financial Planning for the Elderly (Matthew Bender & Co., Inc. 2003). Information is also available from the Social Security Administration website, N.Y.C.R.R (a).

11 benefit program that would penalize such a transfer (such as a Medicaid Waiver program), benefits would continue with only the loss of a single month of SSI eligibility (the month that the funds were received). In December of 1999, as part of the Foster Care Independence Act, Congress essentially adopted the Medicaid transfer and trust rules (discussed below) for SSI program recipients. In effect, this new set of rules subjected an SSI recipient to a period of ineligibility for SSI benefits for a period of up to three (3) years for transfers of 10 resources. While most of the exceptions to the transfer penalties were also incorporated into the SSI program rules (these exceptions serve as the basis of much of the SSI planning done by Special Needs Trust attorneys), the important thing for those unfamiliar with this area of practice to remember is that because SSI and Medicaid are often linked, a misstep in the SSI context can cause a beneficiary to lose eligibility in the Medicaid context, which can be much more damaging and costly. Indeed, it is the unintended loss of Medicaid funding which can subject an attorney to liability if he or she 11 should have known otherwise. B. Medicaid The Medicaid program provides funding for medical care, rehabilitative services, personal care services, and other long term support for many of the disabled in our communities. Almost all residents of our state- and privately-operated community residences for the disabled, and almost all individuals receiving case management and other services in the community, obtain their care and services through participation in the Medicaid program. Disabled individuals of any age are eligible for Medicaid Pub. L (1999) Supra note 1.

12 benefits so long as they meet the financial criteria for participation. As mentioned above, participation in the SSI program provides automatic eligibility for the Medicaid program in New York State, as well as in most other states. There are many different types of programs and services funded by Medicaid. In the context of a personal injury case involving a permanently and severely disabled plaintiff, the care provided by the Medicaid program will often be institutional level care (which can be provided in an institution or in a community-based setting). An individual with a severe head or spinal cord injury may need this level of care. Less severely disabled individuals who are able to reside independently, and who may only be relying on Medicaid to offset the cost of prescription medications or case management services, may only be accessing community Medicaid, which is the program that serves those without skilled care needs. Individuals with psychiatric illnesses controlled through medication may fall into this category. All Medicaid funded programs have income and resource limitations, but in the past only the more intensive, institutional level Medicaid services will be subject to discontinuation if the recipient gives away assets in order to obtain or maintain 12 eligibility. In New York State the transfer penalty provisions have recently been limited to only care received in a skilled nursing home setting, but this treatment has not (to this 13 author s knowledge) been followed in many other states. Counsel practicing outside of New York state is well advised to investigate the scope of the Medicaid program s treatment of gifts and transfers in the state where the beneficiary resides before any U.S.C. 1396p et.seq.. The New York State Department of Social Services (now the Department of Health) issued a well written and comprehensive interpretation of these transfer penalties in 1996, three years after the federal provisions were enacted by Congress. See, 96 ADM-8, OBRA 93 Provisions on Transfers and Trusts, NYS Dept. of Soc. Serv. Transmittal (Sept. 1996). 13 See NYS General Information Service Message GIS 07 MA 018, Transfers of Assets and Medicaid Waiver Applicants/Recipients (9/24/07)

13 advising a recipient to transfer property. Knowing which benefits are supporting an individual in the community is critical to maximizing the use of litigation proceeds to enhance that person s standard of living without disrupting benefit eligibility. Because most means-tested benefit programs (including SSI and Medicaid) allow for certain items of personal property to remain exempt in determining ongoing eligibility, smaller settlements may be used to purchase exempt items (eg. a computer, a handicap equipped van, etc.) in place of establishing a trust or purchasing a structured settlement annuity. For larger settlements, and depending on the benefit program, a portion of the proceeds can be allocated (or even gifted) to other family members, or transferred to a Special Needs Trust (discussed below) to be spent at some future point in time. The key is knowing the nature of the disability, and understanding the underlying benefit program eligibility rules. IV. Addressing the Medicaid Lien The Medicaid program is commonly referred to as the payor of last resort, and in order to maintain its status as such, the federal and state Medicaid statutes contain comprehensive recovery and recoupment provisions, allowing for recovery of costs in many different contexts: estate administration, real estate transactions, and family court 14 proceedings, to name a few. In the context of personal injury litigation, most lawyers know that the issue of Medicaid recoupment from personal injury settlements has been the focus of much litigation in recent years, and the subject of many comprehensive articles detailing the statutory framework and the series of cases which led up to the current state of affairs. Yet while this article will not address Medicaid liens in any detail, 14 For comprehensive treatment of Medicaid liens in New York in the personal injury context, see, 02 OMM/ADM-01, Medicaid Liens and Recoveries, N.Y. State Department of Health Transmittal (April 17, 2002), which contains the procedural guidelines that local social services districts will follow in securing recoveries for Medicaid benefits paid.

14 passing mention must be made of Arkansas Dept. of Health and Human Svs. v. Ahlborn, 547 U.S. 268 (2006). Ahlborn involved the scope of the Medicaid program s statutory right to be repaid from litigation proceeds for Medicaid benefits paid on behalf of the beneficiary as a result of the injury giving rise to the lawsuit. Addressing an Arkansas state statute which essentially provided that the recoupment right extended to the entire recovery and without limitation despite an allocation between different elements (ie past medical expenses, pain and suffering, future medical, etc.), the Supreme Court ruled in favor of the plaintiff and limited Medicaid reimbursement to only that portion of the recovery which represented payment for past medical expenses. This decision has provided counsel with significant leverage in reducing the amount of a Medicaid lien when negotiating settlement of a lawsuit. Issues of third party liability and Medicaid recovery in the context of the establishment and funding of First Party Special Needs Trusts is an area of considerable activity and rapid change, especially in recent years. Counsel working in this area is well advised to remain abreast of developments in this area. In addition to considering Ahlborn s impact on a given recovery, counsel should consider a number of other issues when reviewing a Medicaid lien. Specifically, counsel should: * Request that the social services agency provide a Medicaid expenditure report (also called a claim detail report) which provides the detail behind its lien so that it can be reviewed for accuracy; * Review the claim detail report to ensure that only expenditures paid as a direct result of the injury giving rise to recovery are included in the liens;

15 * Determine whether the report includes payments made to the school district for services provided as part of a minor plaintiff s special education plan, as these services would not typically be recoverable given that they are a necessary part of every student s right to a free and appropriate education under federal and state law. In addition to these more technical steps, in this author s opinion it is also important to establish a good working relationship with the attorney for the Medicaid agency. In most cases, the client s Medicaid case will be reviewed and recertified each year, and an antagonistic relationship with local social services counsel will only serve to make that process longer and often more expensive for the disabled client. While there will certainly be issues of disagreement that might require judicial involvement, and while district staff may not be as cooperative as one would hope, as a general rule maintaining an open and honest line of communication with the social services district personnel will ultimately inure to the benefit of the client. V. Special Needs Trusts As with government benefit eligibility, Special Needs Trusts have been the subject of numerous articles and treatises, all easily available to a practitioner eager to learn more about this topic. Indeed, the information on First Party Special Needs Trusts reproduced below is taken directly from an article written by the author for a New York State Bar Association Elder Law Section program in the fall of 2002, updated for a 15 similar program in Arguably the most comprehensive treatise on the topic for a national audience is Third Party and Self-Created Trusts: Planning for the Elderly and Disabled Client, Kruse, Clifton B., Jr., A.B.A. Real Property, Probate and Trust rd Law Section, 3 Ed. (2002). Within New York State, Elder Law and Guardianship in New York, Kasoff, Edwin and Robert, Charles (Lawyers Coop. 1997), and New York Guide to Tax, Estate and Financial Planning for the Elderly, Goldfarb, David and Rosenberg, Joseph (Matthew Bender & Co., Inc. 2002), contain comprehensive and well integrated discussions of these trusts and their use in planning for the disabled and their families. For this author s

16 The reader should understand that there are two basic types of Special Needs Trusts, those funded with the assets of someone other than the disabled beneficiary (referred to here as a Third Party Special Needs Trusts), and those funded with the assets of a disabled beneficiary, such as an injured plaintiff in a personal injury action (referred to here as a First Party Special Needs Trust). Because the primary focus of this article is the receipt and management of settlement proceeds from personal injury litigation, only First Party Special Needs Trusts will be discussed. Counsel should consider utilizing a Special Needs Trust any time a disabled plaintiff is currently (or may at some point in the future be) receiving any form of means tested government benefit such as SSI, Medicaid, Section 8 housing supports, etc.. These trusts maintain certain preferences under federal and state law, and as long as they are drafted properly, benefit eligibility will continue after the litigation proceeds are paid. A. First Party Trusts: Meeting the Statutory Requirements First Party Special Needs Trusts are essentially creatures of the federal Medicaid statute, and premised on a provision of the federal statute which states that transfers of assets (like litigation proceeds) to a properly drafted Special Needs Trust will not generate a period of eligibility for Medicaid benefits. These trusts are usually framed by language provided by our state Special Needs Trust statute, N.Y. Estates Powers & Trusts Law The statutory language is not complete, however, and there are other factors that will need to be considered when drafting a First Party Special Needs Trust. treatment of the topic, see Wilcenski, Edward V., Drafting Special Needs Trusts: Some Practical Observations and Suggestions, NYSBA Elder Law Section Fall 2007 Section Meeting Program Outline.

17 As a preliminary matter, the drafting attorney will need to ensure, at a minimum, that the criteria found in the federal statute is met. Specifically, 42 U.S.C. 1396p(d)(4)(A) provides that: "[there shall be no transfer penalty for transfers to] a trust containing the assets of an individual under the age of 65 who is disabled (as defined in section 1614(a)(3) [42 U.S.C.S. 1382c(a)(3)]) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the state will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this title [42 U.S.C.S et. seq.]." The federal Medicaid statute thus sets out four explicit criteria for these trusts: * The assets being used to fund the trust must come from an individual who is under the age of 65 at the time the assets are transferred to the trust; * The individual must be disabled as that term is defined in the Social Security law; * The trust must be "established" (ie. created by) a parent (of the beneficiary), grandparent (of the beneficiary), legal guardian (of the beneficiary), or court (ie. pursuant to a court order); * There must be a "lien" or "payback" provision in the trust which provides that upon the beneficiary's death, the state is repaid for any medical assistance provided during the course of the beneficiary's lifetime. The age requirement needs little explanation, other than to point out that the age of the beneficiary is measured as of the date the assets are transferred to the trust. As long as the funds are transferred to the trust prior to age 65, they will remain exempt even after the beneficiary reaches that age. Transfers to a First Party Special Needs Trust subsequent to the age of 65 will not be exempt from the transfer penalty, and the assets in the trust will not be disregarded when considering ongoing benefit eligibility, as one component of the four-part test will not have been met.

18 The second requirement, that the individual be "disabled," is generally satisfied by providing proof of SSI or Social Security Disability Income ("SSDI") eligibility. For firsttime applicants for benefits, this standard may cause a delay in the application process, or a denial altogether if the individual's disability is called into question by the local social services agency, which uses the same standard as the Social Security Administration in determining disability. Disputes such as this often arise for individuals with psychiatric disabilities who are controlling their illness through medication, and for high-functioning developmentally disabled individuals who may be able to secure some employment, but who still need significant supervision and assistance in the management of their daily affairs. The third requirement can prove to be troublesome in cases where there is no independent need for a guardian or court involvement, but where the disabled beneficiary lacks a parent or grandparent to "establish" the trust on his behalf. In such a case, the practitioner will need to obtain an independent court order for the sole purpose of establishing the trust, notwithstanding the fact that the beneficiary may be competent and able to establish the trust himself. Such an order can be obtained through a "single transaction" guardianship proceeding under Article 81 of New York's Mental Hygiene 16 Law, or through a miscellaneous proceeding in Surrogate's Court under SCPA and 202. This is something that can generally be anticipated at the outset of the litigation, and if the litigating attorney is also filing a guardianship petition in order to commence the litigation, authority to settle and fund the trust can be incorporated into the Petition and resulting Order. The fourth requirement, the "payback" to the state, is also a relatively easy requirement to meet. Language as simple as the following will be sufficient: 16 Use of the "self petition" is described in some detail in Guardianship Practice in New York State, in the chapter entitled, Burden and Obligations of the Petitioner, Flowers, Ellen L., and Newman, John, N.Y.S. Bar Association Pub. (2000), p Emanuelli, Hon. Albert J., Special Needs Trusts: The Role of the Surrogate s Court, Westchester Bar Journal, Vol. 25, Nos. 3, 4 (Summer/Fall 1998), p The use of the Surrogate's Court proceeding is, in the author's experience, more common in the upstate counties, whereas downstate practitioners have used actions in Supreme Court for the same purpose. Single transaction guardianship petitions under Article 81 of the Mental Hygiene Law continue to be a viable alternative statewide, but because in all events a Court Evaluator is appointed, even if the beneficiary is fully competent and residing in the community, the proceeding tends to be a more expensive means of obtaining this court order.

19 "The New York State Department of Health, or other appropriate entity, shall be reimbursed for the total amount of medical assistance provided to the beneficiary during his/her lifetime, as consistent with federal and state law. Prior to making any such payment, the trustee shall request from the state agency or other entity requesting reimbursement a Claim Detail Report or other detailed record of expenditures which substantiates the reimbursement claim." In addition to meeting the specific requirements of the federal statute, New York State Social Services Regulations contain certain additional requirements for First Party Special Needs Trusts, although these do not necessarily need to be drafted into the trust instrument. Instead, they are affirmative obligations of the trustee that govern issues 18 such as reporting the creation and funding of the trust, bonding, etc. Nonetheless, on occasion a social services agency will ask that one or more of these regulatory provisions be included in the text of the trust instrument. While the lack of the regulatory language in the trust instrument does not affect its status as a First Party Special Needs Trust, there is certainly no reason not to add the language if requested by the agency, especially if it will expedite the approval of the trust instrument by the agency processing an application or recertification. Finally, in cases where the First Party Special Needs Trust is being drafted in connection with a court proceeding, a judge may have her own specific requirements governing the trustee's accounting obligations, designation of remainder beneficiaries, etc.. And because in most court proceedings the local social services agency will be put on notice and have a right to appear, there may be other, negotiated provisions that will need to be added to the trust instrument in order to have it approved. VI. Conclusion The most important recommendation that one can make to a litigating attorney who seeks assistance in these matters is to involve Special Needs Trust Counsel as soon as it appears that the case will be successful. While there may be a significant stretch of time before the Special Needs Trust is drafted or estate planning issues are N.Y.C.R.R (b)(5)(iii)(a) through (e).

20 discussed, Special Needs Trust Counsel can provide advice on how a guardianship petition should be structured, can help the litigating attorney consider the benefits of a lump sum payment versus the purchase of a structure, and can help identify and negotiate government benefit liens and ongoing eligibility issues that will have an impact on the disabled individual s quality of life long after the case is closed. Edward V. W ilcenski - Spring