Supplemental Needs Trusts, Medicaid Liens and Estate Recoveries - - PDF document

1 NYPWA Summer Conference 2012: SNTs, Accident and Estate Recoveries

Paula Mallory Engel, Chief Welfare Attorney, Onondaga County DSS

Supplemental Needs Trusts, Medicaid Liens and Estate Recoveries

Paula Mallory Engel, Esq. Onondaga County Department of Social Services

• I. Medicaid Recoveries from SNTs

What are the Triggers? Goals of SNT’s

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Reviewing the Trust: What Type of Trust?

1st Party SNTs Third Party or Testamentary Trusts Pooled Trusts Sole Benefit Trusts

Reviewing the Trust: Source of Funds

SSI, SSD Medicaid impact to grantor

Negotiating the Initial Payment

Accident Awards – related medical expenses, cash assistance – settled and paid PRIOR to the funding of the SNT. (Reccardi v. County of Suffolk, 250 AD2d 584 [2nd Dep’t 1998]).

Trust Language Approval

Court Approval does not equal or mandate Medicaid approval (In re Estate of Woolworth , 76 AD3d 160 [4th Dep’t 2010]) EPTL required language Best practice language (see hand-outs) Bond or no bond? Accountings

2 NYPWA Summer Conference 2012: SNTs, Accident and Estate Recoveries

Paula Mallory Engel, Chief Welfare Attorney, Onondaga County DSS

Termination of the Trust Litigation/Fair Hearing Events

Court Action: Petition for Compulsory Accounting and/or Removal of Fiduciary, McKinney’s SCPA §2205. NB: Six-year statute of limitations. */@,911615811333

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Trust De-Canting: EPTL § 10-6.6 (Power of Appointment).

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• Failure to provide payout to DSS (In re Estate of Abraham XX, 26 AD3d 1085 [3rd Dep’t 2007]).

Fair Hearings: MA overpayment collections Non-approval of SNT as exempt resource Budget Issues

Pooled Trusts

Can be used for large resource amounts or for excess income Differences between SSA “in-kind” income calculations and DOH guidance on effect of distributions for shelter and food Lack of clarity in law regarding distributions at death

3 NYPWA Summer Conference 2012: SNTs, Accident and Estate Recoveries

Paula Mallory Engel, Chief Welfare Attorney, Onondaga County DSS Lack of clarity regarding what retained distributions are to be used for See argument of AAG Mark Brody on behalf of OPWDD in case of In re Smergut, 31 Misc.3d 875, 878 (N.Y. Sup. 2011). “B)D 151/886319*61

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Third-Party Trusts

What effect of distributions? What is source of funding, and what MA effect if any regarding grantor’s Medicaid eligibility No payout to DSS after death

Reviewing Accountings

Distributions – type, nature, payee – NOT amount until hits statutory threshold Issues involving MA incorrectly paid Issues with multiple members of household with SNT beneficiary

SNTs and Post-Eligibility Chronic Care Budgeting

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Irrevocable assignment prior to snapshot – Look-back period or none?

4 NYPWA Summer Conference 2012: SNTs, Accident and Estate Recoveries

Paula Mallory Engel, Chief Welfare Attorney, Onondaga County DSS

• II. SSL §§ 104-b and 104(1) Liens and Claims

Handling Accident Liens – pre- and post-HMS involvement Accident Liens – Handled by LDSS

Notification of potential claim: Old search methods: FEDS, common app, attorney, E-Courts

• search. newspapers, other.

Claims in Suit: Now, based on March 31, amendment to SSL 104-b(1), DSS must get notice of commencement of action. New CPLR 306-c – Notice must be sent to LDSS or DOH by certified mail within 60 days of completion of service of process.

Accident Liens – Handled by LDSS (con’t.)

Negotiating Final Lien Amount 1) Set up E-Track 2) Make sure updated ACR amount filed with plaintiff prior to pre-trial conference 3) Appear if parties are not cooperative at pre-trial with Judge’s approval 4) If non-cooperation persists – consider intervening as a party

Ahlborn Hearings (D. Israel)

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Intersection of TA, Burial Claims

Be careful to distinguish between the lien amount (MA) and the right of recovery (TA) SSL 104-b vs. SSL 104(1) Try to negotiate all at the same time Encourage plaintiff to avoid later need to deal with collection action

Intersection of Estate, Wrongful Death, and TA Claims

Working with two courts – Supreme and Surrogate Length of time between incident and death – medical care provided McKinney's EPTL 5-4.3, 5- 4.4. In re Buscemi, 32 A.D.3d 1021, 822 N.Y.S.2d 109 (2d Dep't 2006). Watch how Plaintiff’s counsel tries to allocate proceeds. (D. Israel) Make sure that plaintiff’s counsel doesn’t allocate all to wrongful death and none to pain and

• suffering. The Ahlborn Court discussed this, stating that “the risk that parties to a tort suit will

allocate away the State’s interest can be avoided by either obtaining the State’s advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision.”

5 NYPWA Summer Conference 2012: SNTs, Accident and Estate Recoveries

Paula Mallory Engel, Chief Welfare Attorney, Onondaga County DSS

Intersection of Estate, Wrongful Death, and TA Claims (cont’d.)

Ensure payment of burial claim if appropriate The settlement must get approved by Surrogate, so ensure your position with respect to the priority of the burial claim is represented there as well

Special Cases: NH Negligence under PHL § 2801-d

What effect on the MA lien process: Any damages recovered by a plaintiff “shall be exempt for purposes of determining initial or continuing eligibility for [Medicaid]” (§ 2801–d[5] What effect on the estate recovery process: Was case settled prior to death? Was death caused by the negligent act of the NH? If not, then proceeds are recoverable in the Estate if decedent was over 55, unmarried or widowed, without surviving minor or disabled children.

III.Estate Recoveries

Source of Information

NH and MA caseworkers Newspapers The “Death List” Working with your Surrogate Court Attorneys

Legal Framework

A) Federal and State Framework for Mandatory Estate Issues:

• 1. 42 USC § 1396p (b)(1)(B)(i); Social Services Law §§ 104(1); 369(2)(b)(i)(B), and the 2002

Administrative Directive 02 OMM/ADM-3.

• 2. Prior to the passage of the estate recovery provisions of the Omnibus Budget

Reconciliation Act of 1993 (OBRA `93), pursuing estate recoveries was voluntary and limited to Medicaid provided to individuals 65 years of age or older or permanently

• institutionalized. OBRA '93:
• 3. Expands Medicaid estate recoveries to Medicaid provided to individuals 55 years of age

and older;

• 4. Makes estate recovery activity mandatory; and
• 5. Requires that provision be made to avoid imposing undue hardship as a result of estate

recovery actions. B) Policy:

• 1. Recovery of correctly paid Medicaid must be made:

6 NYPWA Summer Conference 2012: SNTs, Accident and Estate Recoveries

Paula Mallory Engel, Chief Welfare Attorney, Onondaga County DSS

• a. Upon the sale of real property subject to a lien imposed on account of Medicaid

provided to a PII; the liquidation of the property may take place either during the recipient’s lifetime or after his/her death; and

• b. From the estate of a person who died as a permanently institutionalized

individual, to recover Medicaid provided during the period in which the individual was permanently institutionalized; and

• c. From the estate of any person who was 55 years of age or older when he or she

received Medicaid, to recover Medicaid provided on and after the person’s 55th birthday. 2. Exceptions No recovery of correctly paid Medicaid may be made during the lifetime of the Medicaid recipient’s surviving spouse, or at a time when the recipient has a surviving child who is under 21 years of age or who is certified blind or certified disabled. SSL § 369(2); see, e.g., Estate of Andrews, 234 A.D.2d 692 (3d Dep’t 1996); Estate of Burstein, 160 Misc.2d 900 (Sur.Ct. New York Co. 1994). But see In re Schneider (handout), 15 Misc.3d 1146(A), 2007 WL 1686731 (N.Y.Sur.), lv denied "'#' +% <%%? in which the Surrogate determined that this exception did not apply when the disabled child was not financially dependent on the deceased individual prior to the date of death and was not a named beneficiary in the decedent’s will: relying on the Second Department’s finding in Matter of Samuelson (110 A.D.2d 185 [2d Dep’t 1985]), based on its review of the legislative intent behind SSL § 369(1)(b):

“contrary to petitioner's position, the triggering factor of the restrictive recoupment statutes is not the mere existence of a surviving spouse, infant issue, or blind or disabled child. Rather, the statute is predicated on the assumption that the surviving spouse, infant issue or blind or disabled child was financially dependent upon the recipient prior to the latter's death and that the protected individual is entitled to a share of the deceased recipient's estate. Clearly, it is this latter group of needy individuals which the restrictive recoupment provision seeks to protect since the depletion of the assets of the deceased recipient's estate would be directly detrimental to their future financial independence and self-care” (id. at 192–193).

There are also exemptions from estate recovery for reparations paid to special populations and certain assets and resources of American Indians and Alaska

• natives. 02 OMM/ADM-3 at 9-10.

C) Limits to Amount of Claim The amount to be claimed must be the actual cost of the services included in the state plan. 42 U.S.C. §1396p(b)(1)(B)(i), (ii). In addition, it can only be the services incurred between the date

• f death and ten years prior or the date of the decedent’s 55th birthday, whichever period is
• shorter. SSL § 104.

D) Preferred Creditor Status. SCPA § 1811, SSL § 104(1)

7 NYPWA Summer Conference 2012: SNTs, Accident and Estate Recoveries

Paula Mallory Engel, Chief Welfare Attorney, Onondaga County DSS SCPA § 1811 sets forth the priority of the payment of debts and expenses of an estate. After the funeral bill and the expenses of administration are paid, the fiduciary must then pay “[d]ebts entitled to a preference under the laws of the United States and the State of New York” (see SCPA 1811[2][a] ). See In re Robinson ex rel. Snell, 194 Misc.2d 695 (N.Y. Sur. Ct. 2003); In re Berg (Index

• no. 2008-1351, Bronx Sur. Ct.), decided August 5, 2011.

Specific Issues

• A. Working with your Public Administrator

The right of DSS to compromise its claim: Compare executor’s right to negotiate claims under EPTL § 11-1.1, (b)(14) versusSSL § 104 and the right to bring a claim confers the right to compromise the claim). The public administrator can step in if the local district believes it is proper to petition to remove the fiduciary under SCPA § 711.

• B. Filing the claim timely

There is a six year Statute of Limitations on claims against the estate, counted from the date of the appointment of a fiduciary. CPLR § 213. If a claim isn't presented within seven months after letters are granted, the fiduciary is not chargeable for any assets that he already distributed in good faith. Once an affidavit setting forth a contingent or unliquidated liability has been filed, assets can't be distributed unless the court fixes adequate reservation in a special proceeding. The fiduciary must give prompt notice

• f allowance or rejection of a claim. A claim is deemed rejected if not allowed within 90 days;

validity and enforceability are then determined at the judicial settlement of the account. Importantly, a creditor who fails to present his/her claim within seven months may continue to recover from the fiduciary to the extent of any estate assets in the hands of the fiduciary after expiration of such seven month period.

• C. Requirement of Good Faith:

The fiduciary has a burden of good faith under SCP § 1802. A distribution is not made in good faith under the statute if, at the time of distribution, the fiduciary “knew or should have known

• f the existence of a claim (by a creditor).” Turano, Practice Commentaries, McKinney’s Cons

Laws of NY, Book 58A, at 130; see Manufacturers and Traders Trust Co. v. Mertz, (Index No. 2003-07867, Monroe Sur.Ct.), decided May 9, 2005. Practice Tip: We have often found that the agent under a Power of Attorney, who completed the common application for Medicaid benefits, is also the fiduciary. This makes it easier to establish knowledge of the Medicaid claim.

• D. Moving for compulsory accountings

8 NYPWA Summer Conference 2012: SNTs, Accident and Estate Recoveries

Paula Mallory Engel, Chief Welfare Attorney, Onondaga County DSS SCPA §2102 provides that a proceeding may be commenced to require a fiduciary:

• 1. To supply information concerning the assets or affairs of an estate relevant to the interest of

the petitioner when the fiduciary has failed after request made upon him in writing therefor.

• 2. To set apart and turn over exempt property to which a spouse or child is entitled or if it has

been lost, injured or disposed of to pay the value thereof or the amount of injury thereto.

• 3. After reservation for the payment of the expenses of administration to pay the reasonable

funeral expenses of a decedent if there are funds available for such payment.

• 4. To pay a claim which has been allowed, to deliver a specific bequest or property to a person

entitled thereto or to pay a legacy, distributive share, interest in a trust or a claim for an administration expense, and when a trustee is unable to deliver personal property to the person entitled, to pay the value thereof.

• 5. To pay in advance to any beneficiary of an estate all or part of any beneficial interest to which

he is entitled when the property of the estate applicable to the payment of debts, legacies and expenses exceeds by at least one-third the amount of all known claims, legacies having priority and beneficial interests of the same class and the beneficiary needs such payment for his support or education or of his family.

• 6. To comply with such directions as the court may make whenever two or more fiduciaries

disagree with respect to any issue affecting the estate.

• 7. Pursuant to the provisions of paragraphs (d) and (e) of section 11-1.5 of the estates, powers

and trusts law, to pay interest on general dispositions at the legal rate unless the court

• therwise directs.

DSS, as a creditor, has the right to pursue compulsory actions. A contingent, unliquidated claimant (i.e., a creditor) of the estate has been held to have standing to obtain an inventory of all of the assets of the estate. Matter of Lefkowitz, NYLJ, December 30, 1998, p. 26, col. 4 (Sur.

• Ct. Nassau Co. 1998) (e.g., In re Estate of Rhodes, 148 Misc.2d 744, [N.Y. Surr. 1990]).

Note that CPLR governs the practice and procedure in Surrogate Court, pursuant to SCPA §102. However, there are notable exceptions. For example, a respondent in a probate proceeding can examine the accounting fiduciary before filing objections to the accounting. SCPA § 2211. However, such an examination might preclude further discovery under the CPLR to some extent. See, In re Coyle’s Will, 61 Misc.2d 720 (Albany Sur.Ct. 1969).

• E. Setting aside fraudulent transfers

1) Debtor-Creditor Law: Note: This only arises when the claim accrued prior to the decedent’s death (i.e., Medicaid incorrectly paid, claim on life estate value of house sold while A/R was alive). 30 N.Y. Jur. 2d Creditors’ Rights § 453. “

9 NYPWA Summer Conference 2012: SNTs, Accident and Estate Recoveries

Paula Mallory Engel, Chief Welfare Attorney, Onondaga County DSS N.Y. Debt. & Cred. Law § 273 provides that “every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made...without fair consideration.” N.Y.

• Debt. & Cred. Law § 273. Thus, a transfer is considered a fraudulent conveyance under N.Y.
• Debt. & Cred. Law § 273 if the requirements of lack of fair consideration and insolvency are met,

regardless of the transferor’s intent. In re Malandra, Debtor (US Bnk. Ct.NDNY, Index No. 00- 063225, decided August 22, 2001). These types of actions must be commenced within six years from the date of the contested

• transaction. Quadrazzi Concrete Corp. v. Mastroianni, 56 A.D.2d 353, 355 (2d Dept. 1977); N.Y.

Civil Practice Law and Rules 213. Conveyances that are found to be fraudulent may then be set aside under N.Y. Debt. & Cred. Law §§ 278-279. N.Y. Debt. & Cred. Law §§ 278-279. 2) EPTL § 13-3.6:

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Negotiating Special Issues

A) NH claims to unpaid NAMI (In re Swingearn, 59 AD3d 556 [2nd Dep’t 2009]; Matter of Snell, 194 Misc.2d 695 [N.Y. Surr. 2003]) B) Hardship waivers:

10 NYPWA Summer Conference 2012: SNTs, Accident and Estate Recoveries

Paula Mallory Engel, Chief Welfare Attorney, Onondaga County DSS A recovery against an estate may be waived if there is found to be an “undue hardship.”42 U.S.C. §1396p(b)(3); SSL § 369(5); 02 OMM/ADM-3 at 8. A fiduciary or any beneficiary of the estate may claim undue hardship, and local district should consider “the potential for undue hardship when deciding whether to pursue a particular recovery”. 02 OMM/ADM-3 at 8. Undue hardship may exist when one or more of the following is present: 1) The estate corpus is sole income-producing asset of the beneficiaries (e.g., family farm or business with limited income); 2) The estate corpus is a homestead of modest value (defined as no higher than 50% of the average price of homes in the county where the home is located as of the date

• f the recipient’s death) and the home is the primary residence of the beneficiary;
• r

3) There are other “compelling circumstances”. Estate or Medicaid planning techniques which were used to divest assets to avoid estate recovery is not an undue hardship, nor is the claimed inability of a beneficiary to maintain a pre- existing lifestyle. See OMM/ADM-3 at 8.

IV. Working with Outside Contractor for Recoveries

OMIG has concurrent jurisdiction with the counties, and state has statutory authority to take

• ver recovery process entirely. SSL § 369(7):

Notwithstanding any provision of law to the contrary, the department may commence actions or proceedings in accordance with the provisions of this section, sections one hundred one,

• ne hundred four, one hundred four-b, paragraph (a) of

subdivision three of section three hundred sixty-six, subparagraph one of paragraph (h) of subdivision four of section three hundred sixty-six, and paragraph (b) of subdivision two of section three hundred sixty-seven-a of this chapter, to recover the cost of medical assistance furnished pursuant to this title and title eleven-D of this article. The department is authorized to contract with an entity that shall conduct activities on behalf of the department pursuant to this subdivision.

New York third party liability recovery, under Social Services § 104-b, has been traditionally administered at the public welfare district level. However, local districts currently have the

• ption to relinquish efforts to the New York State Office of the Medicaid Inspector General’s

(OMIG) recovery pilot program. A memo prepared and distributed by OMIG to all public welfare district offices in June, 2011 detailed the transition that is underway to centralize New York’s third party recovery efforts into a state-based process. The current alteration in administration was initiated after the acceptance of the Medicaid Redesign Team proposal

11 NYPWA Summer Conference 2012: SNTs, Accident and Estate Recoveries

Paula Mallory Engel, Chief Welfare Attorney, Onondaga County DSS 102 in February. Expect legislation in the coming year to fully integrate statutory and administrative language to support the centralization. Additionally, OMIG has contracted with HMS, Inc., a private third party, to perform subrogation and recovery on behalf of the state. More than 10 of the 58 public welfare districts that have to date agreed to participate in the pilot program, and thus, pass recovery administration to the state. In the 2012-2013 Work Plan published by OMIG, that agency states that “OMIG has statewide responsibility for Medicaid recoveries from the estates of deceased enrollees and for personal injury awards and settlements for all enrollees. OMIG will identify situations in which these recoveries are appropriate.” Source: http://www.omig.ny.gov/data/images/stories/work_plan/1213work_plan.pdf Description of Onondaga County’s experience with HMS.