Top Ten (10) New Jersey Cases Involving Special Needs Trusts / Disability Planning Decided In 2010 (And A Few Cases Decided In 2009)



Here are my selections for the top ten (10) New Jersey cases involving Special Needs Trusts / Disability Planning decided in 2009 and 2010. For those cases I previously blogged about,  a link to the blog post as well as the case is included below.

(1)     Special Needs Trust Can Be Established Only When The Social Security Administration Determines That The Beneficiary Is Disabled

In J.C. v. Division of Medical Assistance and Health Services, ____ N.J. Super. ____ (App. Div. 2010), petitioner was determined to be totally disabled due to a work place injury by a workers’ compensation (WC) court in New Jersey, and awarded $308 per week in WC benefits. The petitioner then asked the WC court to establish a special needs trust (SNT) pursuant to 42 U.S.C. §1396p(d)(4)(a) in order to exclude her WC benefits from consideration in determining eligibility for Medicaid and other needs-based public benefits. After the SNT was established and the WC benefits transferred to the trust, petitioner applied for Medicaid benefits. The Medicaid application was denied and petitioner appealed. On appeal, the Superior Court of New Jersey, Appellate Division, affirmed the denial of benefits. The appeals court held that, since under federal law the determination of petitioner’s disability must be made by the Social Security Administration or the state disability review team based on the federal definition of “disability”, which was not done in this case, the WC court judgment that petitioner was disabled was not dispositive and the SNT was ineffective in preventing her assets from being included in the Medicaid eligibility determination.

(2)     The Frustrating Tale Of A Retired Firefighter Repeatedly Denied The Right To Plan His Estate To Benefit His Severely Disabled Child

Thomas Saccone is a retired Newark, NJ firefighter who has a severely disabled son, named Anthony, who has been receiving public benefits based upon need, i.e., Supplemental Security Income (SSI) and Medicaid benefits, for many years. In order to structure his estate plan to provide for Anthony without jeopardizing Anthony’s eligibility for needs-based public benefits, Mr. Saccone executed a Last Will and Testament containing a testamentary supplemental benefits trust (also known as a “special needs trust”) on Anthony’s behalf.

Mr. Saccone was approved for Police and Firemen’s Retirement System (“PFRS”) benefits effective December 1, 2000. In August 2008, by way of beneficiary designation, Mr. Saccone requested that the benefits to which Anthony would be entitled upon Mr. Saccone’s death be distributed to the testamentary supplemental benefits trust established under Mr. Saccone’s will rather than directly to Anthony himself.

After a number of administrative denials, Mr. Saccone filed a Notice of Appeal. On November 15, 2010, the appellate court upheld the administrative denials, holding that the issue raised by Mr. Saccone, whether a statute mandating compensation to a “child” of a retiree in these circumstances should be read as permitting the retiree to designate a trust for that child instead, was an advisory opinion since Mr. Saccone and his wife are still alive and his son may or may not be alive when Mr. Saccone dies. Since “[t]he governing legislation contains no provision requiring or even permitting the Board to provide purely advisory opinions to retirees, ” the appellate court ruled that the PFRS was correct when it refused to grant the relief sought by Mr. Saccone. The case is attached here – Saccone v. Police and Firemen’s Retirement System

Mr. Saccone filed a Petition for Certification to the New Jersey Supreme Court, which is pending.

(3)     A Case Study Involving Social Security and SSI Benefits, An Overpayment, Divorce, A Special Needs Trust And A Successful Effort To Increase The SSI Monthly Benefit Amount

To qualify for disabled adult child (DAC) benefits from the Social Security Administration (SSA), an applicant must show that he or she was disabled prior to the age of 19, that one of the applicant’s parents is deceased or receiving Social Security benefits, and that the applicant is unmarried. If qualified, the disabled adult child receives DAC benefits on his or her parent’s social security number. In this case, my law firm represented G.Z., who had recently received a notice from SSA informing him that he had been overpaid by $43,128.18 in DAC benefits. G.Z. had received DAC benefits for many years, but had gotten married, rendering him ineligible for DAC benefits. The overpayment was caused when G.Z. continued to receive SSA benefits after his marriage.

G.Z. was told he could request a waiver of the overpayment or file an appeal. We did both. In addition, we also filed a new claim seeking Supplemental Security Income (SSI) benefits for G.Z, since G.Z. had no income (because his DAC benefits had been terminated) and few resources. Several months later, the client was notified that the $43,128.18 overpayment of DAC benefits had been waived by SSA because G.Z. met the criteria for a waiver; that is, G.Z. was found to be without fault in causing the overpayment and was financially unable to repay. G.Z. also received notice that his claim for SSI disability benefits had been approved. However, G.Z. was awarded the lowest SSI monthly benefit amount available because SSA determined that G.Z. received “in-kind support and maintenance” from his nephew, J.Z., with whom he lived. (“In-kind support and maintenance” means unearned income that an SSI recipient receives in the form of food or shelter paid for by someone else. The receipt of in-kind support and maintenance by an SSI recipient results in the reduction of the recipient’s monthly SSI benefit amount.)

Because G.Z. had signed a Loan Agreement with his nephew J.Z. several months before he applied for SSI benefits in which he agreed to repay J.Z. for any support provided to G.Z., G.Z. did not believe he received in-kind support and maintenance from J.Z. As a result, G.Z. filed an appeal, asking SSA to reconsider its decision. However, on reconsideration, SSA affirmed its prior decision, concluding that the Loan Agreement was not bona fide because, the agency concluded, that there was no possibility that the loan could ever be repaid given G.Z.’s low income and resources. Believing that his Loan Agreement was, in fact, bona fide, G.Z. filed a Request for Hearing before an Administrative Law Judge (ALJ).

SSA held a hearing on G.Z.’s appeal. Thereafter, the ALJ issued an opinion which reversed SSA’s conclusion that G.Z. received in-kind support and maintenance from J.Z. The ALJ ruled that, as G.Z. claimed, the Loan Agreement was bona fide because the loan would be repaid by the trustee of the SNT using the trust assets obtained in G.Z.’s divorce. As a result, the ALJ ordered SSA to increase G.Z.’s SSI benefit to the highest monthly benefit amount available.

While the SSA/SSI claims and appeals were proceeding, G.Z. filed for divorce.  At the time of the divorce, G.Z. had been married for almost eight (8) years to L.Z. In order to resolve the issues in the divorce, the parties adopted in total the recommendations of the Middlesex County Early Matrimonial Settlement Panel, comprised of experienced family law practitioners, concerning an appropriate alimony award and the equitable distribution of marital assets. The Panel recommended that the alimony and equitable distribution award be made via a one-time, lump-sum payment to a Special Needs Trust as a result of G.Z.’s disability in order to maintain eligibility for SSI benefits. The terms of the parties’ settlement were set forth in a Marital Settlement Agreement and Dual Judgment of Divorce. Thereafter, a SNT was established and the payment was made to the trustee of the SNT in accordance with the parties’ agreement. As a result, G.Z. remained eligible for SSI and Medicaid.

(4)     New Case Reveals The Importance Of Special Needs Trusts: Limited Government Funds Available For The Disabled In New Jersey

In Pichardo v. N.J. Department of Human Services, ____ N.J. Super. ____ (App. Div. 2009), Julia Pichardo appealed from a final decision issued by the Department of Human Services, Division of Disability Services (DHS), denying her request for funds to repair or replace her laptop computer. Julia needed a new or repaired computer “to finish her education and for her work as a substitute teacher.”

Julia suffered a traumatic brain injury, and was therefore eligible for assistance from the Traumatic Brain Injury Fund (the “Fund”). The Fund, along with the Department of Vocational Rehabilitation, provided the funds necessary to purchase a computer for Julia in 2005. Two years later, in 2007, Julia requested that the Fund pay for repairs for her computer or purchase a new computer for her. The Fund denied both requests, citing governing regulations limiting the purchase of a computer for Fund recipients to the “one computer per recipient lifetime”, and excluded computer repairs and upgrades as valid Fund expenditures. The denials were affirmed in administrative appeal. Specifically, the DHS held that the “one computer per recipient lifetime” regulation was adopted to maintain the fiscal integrity of the Fund, and was therefore justified. Julia again appealed. On appeal, the Appellate Division affirmed, deferring to DHS’ interpretation of the Fund legislation. Thus, the only way Julia could obtain repairs for her computer or a replacement computer is through funds available in a special needs trust, which would permit her to maintain her eligibility for Fund expenditures while giving her access to supplemental funds which could be used to improve the quality of her life.

(5)     Special Needs Trusts Can Be Established By A Court In An Intestate Estate

In the case entitled In the Matter of the Trusts to be Established in the Matter of the Estate of Margaret A. Flood, Deceased, Superior Court of New Jersey, Chancery Division, Monmouth County, the court authorized the administrator of his deceased mother’s intestate estate to establish two supplemental benefits trusts within the decedent’s intestate estate to protect the shares of the estate which passed to the decedent’s two disabled adult daughters, and to fund the trusts with the beneficiaries’ intestate shares. The Court granted the executor’s application to establish the special needs trusts, and the State of New Jersey’s motion for reconsideration was denied. The State recently filed an appeal, which is pending.

(6)     Federal Court Enjoins NJ From Denying Medicaid To Applicants Who Made Outright Gifts To Their Disabled Or Blind Children

In Sorber v. Velez, Civ. No. 09-cv-3799 (D.N.J. 2009), plaintiffs, who were the aged parents of blind or disabled children, applied for nursing home Medicaid benefits after transferring substantial assets to their blind or disabled children. New Jersey denied the applications because, according to the State, the “disabled child” exemption to Medicaid’s prohibition against gifting assets applied only to those transfers made to a trust for the sole benefit of the applicant’s blind or disabled child which contained a “payback” provision. In NJ, these “sole benefit” trusts are also known as special needs trusts. The federal district court enjoined NJ from denying Medicaid, holding that the Medicaid statute “clearly exempts outright transfers of resources to blind or disabled children.”

(7)     NJ Appeals Court Allows Limited Disclosure of Notes by a Psychiatrist in Case Challenging Creation of a Supplemental Needs Trust

When Charles Laubach died in 2002, he left 29% of his estate in a special needs trust (SNT) for the benefit of his daughter, Susan Laubach. Mr. Laubach named his other daughter, Patricia Sciaretta, her husband, and a financial institution as co-trustees, and left the remainder of the SNT to Patricia and her children. The estate planning documents were created three months prior to Mr. Laubach’s death, and altered his previous will, which did not include the SNT. In 2006, Susan filed suit against her sister, brother-in-law, and the attorney who drafted the trust, alleging that they conspired to force her father to execute the trust in order to prevent her from obtaining her full inheritance. As part of her complaint, Susan argued that she was not under guardianship and that her mental health issues were not serious enough to warrant the creation of the trust. In response, the defendants requested that Susan turn over her psychiatrist’s notes as part of discovery. Susan refused to comply with the request, contending that the notes fell under a restrictive psychologist-patient privilege that prevents discovery of the notes. The defendants argued that the notes were actually covered by the less restrictive physician-patient privilege (since Susan’s therapist was a medical doctor, not a psychologist). The trial court dismissed the lawsuit after Susan continued to deny the defense request for production, and Susan appealed the dismissal.

Finding that the less restrictive physician-patient privilege applies to the notes, the Superior Court of New Jersey, Appellate Division, overturned the trial court’s dismissal of the lawsuit and forced Susan to turn over a small portion of the notes for in camera review by the trial court and eventual production to the defense. The court ordered that the notes “should not be subject to discovery except to the extent that discrete sections directly touching on [Mr. Laubach] and his alleged concerns about [Susan’s] ability to care for herself and handle money.” The case is annexed here – Laubach v. Quinn (N.J. Super. Ct. App. Div., No. A-0660-07T1927-07T3, August 28, 2008).

(8)     Director of Medicaid Affirms ALJ’s Decision Awarding Medicaid to Beneficiary of Trust Reformed by the Court to Comply with Special Needs Trust Rules

An administrative law judge (ALJ) in the E.C. vs. Division of Medical Assistance and Health Services case reversed a decision denying Medicaid benefits to a developmentally-disabled woman in a nursing home whose parents had established testamentary trusts in their wills for the Medicaid applicant and her two brothers. The trusts gave discretion to the trustees to distribute the trust assets as the “trustee believes desirable from time to time for the health, support, in reasonable comfort, best interests, and welfare” of the beneficiaries “considering all circumstances and factors deemed pertinent by [the] trustee.” After the trusts had been reformed by the Court to make them consistent with the testators’ probable intent, three subtrusts were created, one for each of the beneficiaries, with the distribution standards in E.C.’s subtrust changed to permit the trustee to make distributions to E.C. as the trustee “in the Trustee’s sole and nonreviewable discretion shall deem to be in the best interests of E.C.” Further, in the reformed trust the trustee was also permitted to take E.C.’s eligibility for Medicaid and other government aid into consideration in making distributions to E.C. The ALJ ruled that both the original trust and the reformed trust were inaccessible to E.C., and therefore exempt, and should not have been considered in determining E.C.’s eligible for benefits.

The State filed exceptions to the ALJ’s decision, and the Director of Medicaid issued an opinion affirming the ALJ’s decision. The Director held that the intent of the testators, or parents, controlled the interpretation of the trusts, and that since the parents apparently intended to give sole discretion to the trustees to make distributions, that the assets in the trust did not impact on the eligibility of the Medicaid applicant except to the extent that the assets were distributed.
Thus, this opinion confirms that assets left by a deceased parent or relative in trust to a disabled child who is a recipient of public benefits will not affect the recipient’s eligibility for benefits as long as the trust is properly established to reflect the parent’s intention to exclude the trust assets from consideration by the public benefit providers. The case can be found here – Director’s Decision in E.C. v. Division of Medical Assistance and Health Services

(9)     Court Discusses Proper Allocation Of Settlement Proceeds Between Attorneys Fees And Funding Of Special Needs Trust

In C.T. ex rel. D.H. v. Trenton Bd. of Educ., 2009 WL 4672167 (D.N.J. 2009), a $75,000 settlement for a board of education’s violation of the Individuals with Disabilities Act (IDEA) was allocated between attorney fees and a trust for the minor student. Without any information in the record regarding the care the student would need in the future, the court placed $50,000 in a trust for the student, and awarded $25,000 in attorney fees.

(10)     Proceeds from the sale of claimant’s marital home, placed in an escrow account pending equitable distribution in a divorce, were a countable resource when assessing eligibility for supplemental security income (SSI) benefits; the proceeds would be excluded if placed in a special needs trust

In Kelley v. Commissioner of Social Security, 566 F.3d 347 (3d Cir. 2009), Marguerite Kelley, who suffers from chronic pain and fatigue secondary to Crohn’s disease, applied for Disability Insurance Benefits from the Social Security Administration. She also filed a claim for Supplemental Security Income (SSI) benefits based upon her disability and financial need. Both claims were denied, and Kelley requested an administrative hearing. At the time of the hearing, Kelley was involved in divorce proceedings. She and her husband had sold their marital home approximately two years earlier, and by agreement they placed the proceeds of the sale in an escrow account until they could reach a further agreement on distribution.

At the hearing, the administrative law judge determined that Kelley’s “share of the proceeds from the sale of the marital home are a countable resource notwithstanding the fact that the proceeds are presently being held in an escrow account” and accordingly concluded that Kelley was not eligible for SSI. Kelley filed several more appeals, eventually reaching the United States Court of Appeals for the Third Circuit. Like all the lower courts, the Third Circuit held that proceeds from the sale of claimant’s marital home, placed in an escrow account by claimant and her then-husband pending equitable distribution, were a countable resource for purposes of assessing eligibility to receive SSI benefits. The Court went on to say that the proceeds of sale would have been exempt from consideration in the SSI eligibility determination had they been placed in a special needs trust.