Tuesday, April 5, 2016

Setting up a supplemental needs trust.

Practice point:  Plaintiff's daughter, now the decedent, had entered into a settlement with the MTA, resolving a personal injury action. Upon entering into the settlement, decedent, who was receiving supplemental security income, Medicare and Medicaid due to several preexisting conditions, petitioned the court to approve and authorize the creation of a supplemental needs trust, into which the settlement proceeds would be transferred.  The petition was granted, and the MTA sent its portion of the settlement to decedent's counsel, who placed the funds in escrow pending completion of the documents creating and funding the trust.  However, decedent died before she had the opportunity to formally execute the trust documents.  Defendant-claimant, which was to be the remainderman of the trust, moved for the principal and interest that remains in the trust.

The motion court denied the motion, because decedent's failure to complete the formalities associated with setting up the trust prior to her death was fatal to the trust's existence, and the Appellate Division affirmed. Neither decedent nor the putative trustee executed or acknowledged the proposed trust agreement, and the trust was never properly funded with the settlement proceeds. Accordingly, a valid trust was never created.

Student note:  The proposed trust is a "lifetime trust" within the meaning of the EPTL, and therefore it must comply with the formality requirements of EPTL 1-2.20.

Case:  Gaines v. City of New York, NY Slip Op 02294 (1st Dep't 2016)

Here is the decision.

Tomorrow's issue:  A motion to dismiss, and amending a bill of particulars.