NJ Supreme Court Permits Disabled Child of Retired Fireman to Designate Special Needs Trust as Beneficiary of State Pension Plan

(In the midst of my oral argument before the New Jersey Supreme Court held on February 4, 2014 on behalf of Thomas Saccone. A video of the entire oral argument can be found on my website here.) 

Reversing contrary decisions by lower courts and administrative agencies, the New Jersey Supreme Court ruled that the disabled child of a retired fireman may have his survivors’ benefits paid into a special needs trust rather than directly to the child, thereby allowing the child to maintain eligibility for Medicaid and other public benefits based on financial need. Saccone v. Police and Firemen’s Retirement System, Docket No. A-49-071841 (September 11, 2014)

For the past six years, I’ve represented Thomas Saccone, a retired Newark, NJ firefighter with a severely disabled adult child named Anthony. Anthony lives with his parents, is unable to work, has been found to be totally disabled by the Social Security Administration, and for many years has received Supplemental Security Income (SSI) and Medicaid, public benefits based on financial need. Eligibility for these public benefits are critical in providing for Anthony’s care.

After he retired, Tom was approved for benefits from the Police and Firemen’s Retirement System (“PFRS”). In order to structure his estate plan to provide for Anthony after his death without jeopardizing Anthony’s eligibility for needs-based public benefits, Tom executed a Last Will and Testament containing a testamentary special needs trust (“SNT”).

A Special Needs Trust is a trust designed to preserve the trust beneficiary’s eligibility for government benefits based upon financial need, such as Medicaid and SSI benefits. These needs-based programs are often vital for the beneficiary of SNT, who is an individual with a disability.

Tom asked the PFRS to pay the survivor benefits to which Anthony would be entitled upon Tom’s death to the testamentary SNT established under Tom’s will in order to protect Anthony’s eligibility for public benefits. Those death benefits included the payment of pension benefits to the retired member’s widow/er and children (the “pension death benefit”).

The PFRS denied the request based on a pension statute which prohibits a retiree from designating a primary or a contingent beneficiary for the receipt of the retiree’s pension death benefits in the event of the retiree’s death. The pension board said:

[It c]ould not comply with your request to pay a trust, instead all monthly benefits must be paid to a named beneficiary or the check could be sent to ‘in care of’ anyone designated to act as the trustee for the trust.

Thereafter, we appealed the PFRS decision administratively to the Division of Pensions and Benefits, which affirmed the denial, and then to the Appellate Division of New Jersey’s Superior Court, which affirmed the Division’s decision. On Petition for Certification, the New Jersey Supreme Court “summarily reversed” the Appellate Division, and remanded the matter back to the PFRS to decide the case on the merits. (I first blogged about the Saccone case in 2010 here.)

On remand, the administrative agencies again denied Tom’s request, concluding that Tom could not designate a special needs trust as a beneficiary of his pension death benefits. Tom filed a second Notice of Appeal. The Appellate Division of New Jersey’s Superior Court again affirmed the administrative denials. The appeals court concluded that the Board did not violate public policy in denying Tom’s application. (The Appellate Division’s decision is annexed here.)

I again filed a Petition for Certification to the New Jersey Supreme Court, which was again granted. Thereafter, the Supreme Court permitted four organizations to file amicus curiae, or friend of the Court, briefs. The organizations were: the National Academy of Elder Law Attorneys, the Special Needs Alliance, the National Academy of Elder Law Attorneys – New Jersey Chapter, and the Guardianship Association of New Jersey, Inc.

Oral argument was held before the New Jersey Supreme Court on February 4, 2014. The four amicus counsel and I argued that the Supreme Court should extend a right to retired public employees with disabled children to pay a retiree’s pension death benefit to a special needs trust for the retiree’s disabled child rather than directly to the child in order to maintain the child’s eligibility for needs-based public benefits. (The text of my opening statement delivered during oral argument before the NJ Supreme Court can be found here.)

The Supreme Court issued its decision on September 11, 2014. As we hoped, the Court reversed the decisions by the lower courts and administrative agencies, holding that “the disabled son of a retired [PFRS] member … may have his survivors’ benefits paid into a first-party … SNT created for him under 42 U.S.C.A. §1396p(d)(4)(A).”

The Supreme Court characterized the State Pension Board’s contrary decisions denying Saccone’s request to designate a special needs trust as the beneficiary of his pension death benefits rather than Anthony directly as “arbitrary, capricious and unreasonable”:

Properly viewed, the question on appellate review is whether the Board acted arbitrarily, capriciously, or unreasonably in declining to consider an SNT as Anthony’s proposed equivalent, thereby allowing him to receive his future survivors’ death benefit, should his father predecease him, through a vehicle that prevents the benefit from becoming a financial liability. So viewed, the Board’s response is contrary to the legislative policy underlying the statute the Board was charged with executing for the benefit of its members. … The Board’s determination required a disabled child of a PFRS retiree to have to choose between abandoning the survivors’ benefit earned by his father and forgoing public assistance programs for his medical needs. That choice is harsh and unwarranted. No legitimate public policy is advanced by the Board’s interpretation. We reject as arbitrary, capricious, and unreasonable the Board’s interpretive determination that foists on disabled children of PFRS retirees, such as the child involved here, what is essentially a forfeiture of survivors’ benefits.

★ ★ ★

Paying Anthony’s share of survivors’ benefits to an SNT established for the sole benefit of Anthony is equivalent to paying those benefits to Anthony himself.

The Supreme Court also faulted the Pension Board for taking a “one size fits all” approach when applying the pension statutes, rather than properly examining the equities of each public employee’s situation when applying the pension regulations:

New Jersey’s courts have long emphasized that pension statutes are “remedial in character” and “should be liberally construed . . . in favor of the persons intended to be benefited thereby.” ,,, The Board has been reminded of its obligation to consider the equities of each public employee’s unique and individual circumstances when applying its regulations. (Citations Omitted)

The Supreme Court also recognized special needs trusts as “legitimate planning tools” which would allow Anthony to meet his care needs in the future:

The loss of public assistance is undoubtedly detrimental to the well-being of a disabled person, particularly when the income received from a pension alone does not cover the cost of needed medical services. … However, as the amici explain in detail, that consequence may be avoided through the use of a special needs trust. SNTs are legitimate planning tools as recognized by this Court. “A special needs trust is a trust that is intended to allow a disabled individual to maintain eligibility for certain needs-based government benefits.” SNTs may be “an effective tool to plan for the future of a disabled minor or adult child.” Congress has authorized the use of certain forms of SNTs designed to avoid the loss of public assistance provided to a permanently disabled person. Our Legislature subsequently endorsed the use of SNTs for that purpose as well. The Legislature specifically noted that “[i]t is in the public interest to encourage persons to set aside amounts to supplement and augment assistance provided by government entities to persons with severe chronic disabilities.” [T]he [NJ] Legislature embraced SNTs to the fullest extent permitted by federal law. (Citations Omitted)

The Supreme Court reversed the Appellate Division’s decision and remanded the matter to the Pension Board “for further proceedings consistent with this opinion.” And with that ruling, the Saccone saga reached a successful conclusion.

The case is attached here – Saccone v. Police and Firemen’s Retirement System, Docket No. A-49-071841 (September 11, 2014)

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On September 11, 2014, I notified the Elder and Disability Law Section of the NJ State Bar Association of the Supreme Court decision in the Saccone case via email as follows:

I’m happy to report that the NJ Supreme Court today reversed lower courts and administrative agencies (which consistently ruled against us for the past 6 years of appeals) and held that the disabled child of a retired member of the Police and Firemen’s Retirement System may have his or her survivors’ benefits paid into a first-party special needs trust rather than directly to the child, thereby allowing the child to maintain eligibility for SSI and other public benefits. The Court thanked the amicus counsel who participated and filed briefs which clarified the issues for the Court and I’d like to add my personal thanks to the attorneys involved, Ron Landsman, Dan Jurkovic, John Callinan and Bob Brogan. Great job gentlemen.

In response, I received many congratulatory emails from colleagues, for which I am very grateful. A sample of those emails follow:

Don: I read the Supreme Court’s decision in Saccone. You must be flying high! Congratulations on a great win!

William P. Isele, Esq.
Archer & Griner
●●●●●

Dear Don, Kudos on winning the Saccone case!! Wow!! Just think of all the disabled persons who will benefit from your win!!

Connie Rosenberg MPS,RN,CMC
Connie Rosenberg & Associates Care Management, Inc.
●●●●●
Belief in the correctness of your position, fundamental fairness, patience, and perseverance pays-off. Congrats!

Gary Mazart, Esq.
Schenck, Price, Smith & King, LLP
●●●●●
Don Vanarelli, lawmaker.
Another huge feather in your cap.
A big round of applause to you. Cheers!

Stephanie M. Kay, Esq.
The Kay Law Firm LLC
●●●●●
Don and Whitney,
I saw the decision in daily reports today, congrats on the win!

Eric A. Carosia, Esq.
Berkowitz, Lichtstein, Kuritsky, Giasullo & Gross, LLC
●●●●●
Don: Congratulations on a well deserved victory! It amazes me that the CBSS insisted on denying this without seeing the human story behind it.

Janet B. Lurie, Esq., CELA
Law Office of Janet B. Lurie
●●●●●
I join in the congrats to all. It seems to me that the human stories are what finally gets the court to move, unfortunately.

Susan L. Goldring, Esq.
Certified Elder Law Attorney
Zager Fuchs, PC
●●●●●
Don, amazing!!! Well done. You will be on cases of note on Monday’s agenda!!

Lauren S. Marinaro, Esq.
Fink, Rosner, Ershow-Levenberg
●●●●●
Don
Congratulations to you and your team! What a great victory!

Jo-Anne Herina Jeffreys, Esq.
Law Office of Jo-Anne Herina Jeffreys
●●●●●
Awesome job – congratulations

Sharon Rivenson Mark, Esq.
Law Office of Sharon Rivenson Mark
●●●●●

Don and helpers- Great perseverance and great victory!!!!

Don McHugh, Esq. CELA, CAP
McHugh and Macri Esq.
●●●●●
Congratulations Don — you totally deserve this win. I wish Legal Services of New Jersey could have been at your client’s side, in support.

Gwen Orlowski, Esq.
Senior Staff Attorney
National Senior Citizens Law Center
●●●●●
Way to go! A great precedent.

Jonathan Bressman, Esq.
Law Offices of Jonathan Bressman, LLC

●●●●●
Nice job!

Matthew J. Nolfo, Esq.
Matthew J. Nolfo and Associates
●●●●●
Excellent !!

Betsy Kreger, Esq.
Stark & Stark
●●●●●
Fabulous job Don et al. You’ve got great perseverance. Such a good result.

Linda S. Ershow-Levenberg Esq
Fink, Rosner, Ershow-Levenberg, LLC
●●●●●
You da man Don!!

Cathy Pisciotta, Esq.
Pisciotta and Menasha
●●●●●
Don, Congrats on the Saccone decision. You rock!

Helen C. Dodick, Esq.
Acting Public Guardian for Elderly Adults
New Jersey Department of Human Services
●●●●●

Donald: While philosophically I sided with the dissent, I send my kudos and applaud you for your fortitude in the face of adversity and plodding ever forward. Your reward is the outcome. I hope your client is duly appreciative. Michael

Michael A. Backer, Esq.
Greenbaum, Rowe, Smith & Davis, LLP
●●●●●

Dear Don, Congratulations! This information came to us on a list serve of national Pooled Trust organizations in which we participate. This has to be the case you litigated! Well done! I know the Saccones are happy and relieved. Best wishes,

Ellen Ball Nalven, M.Ed.
Executive Director
PLAN/NJ
Planned Lifetime Assistance Network of NJ
●●●●●

First, I want to congratulate NAELA member Donald Vanarelli and his client who, for many long years, litigated the issue of whether certain retirement benefits could be placed into a Special Needs Trust (SNT) and finally prevailed after losing before an agency and the NJ Appellate Division.

Second, I want to give a shout out to the three amici: NAELA (national and the NJ chapter), the Special Needs Alliance and the guardianship Association of NJ, Inc. . In the New Jersey Supreme Court opinion, the Court not only quoted from NAELA’s brief, but called the three amici “true friends of the Court.” The three amici were not in competition with each other, nor did they overlap in their arguments. By having three different amicus briefs, the amici were able to use their limited number of pages to each focus on different issues. NAELA’s Litigation Committee and Board of Directors voted to approve the filing of an amicus brief on behalf of NAELA and anyone who reads the opinion will agree that NAELA’s participation was viewed as extremely valuable to the Court in reaching its decision. I truly believe that the amici’s briefs were critical in this case.

Saccone is a case where the New Jersey Supreme Court knew what it wanted the result to be and invoked statutory construction and legislative intent principles to get there. Believing that the Board of Trustees’ strict interpretation of a state pension statute resulted in a harsh and unintended result by disqualifying children with disabilities from receiving means-tested public benefits, the Court noted that the state statute in question was intended to benefit and not hurt children, and that the language of the statute allowed SNTs to be considered as “equivalent” to the word “child” for purposes of this particular statute because SNTs must be for the sole benefit of the child with disabilities.

Two justices dissented. They sympathized with Saccone but concluded that the statutory language was unambiguous. In their view, only the Legislature had the power to fix the problem.

* * *

I believe that the Supreme Court’s pronouncements in this decision can be used only to help and not hurt SNT beneficiaries because its holding pertains only to its interpretation of a statute that is remedial in character and invokes public policy considerations intended to help SNT beneficiaries.

Shirley B. Whitenack, Esq.
Schenck, Price, Smith & King, LLP