Trial Court Exceeded Authority In Refusing To Fully Fund Special Needs Trust Based On Disagreement With Legislative Policy

After a trial court, expressing its disagreement with the legislative policy underlying special needs trusts, placed only a portion of the net settlement proceeds of a lawsuit brought on behalf of a severely disabled person into a special needs trust and ordered the remaining funds be paid directly to the disabled person, resulting in the termination of his SSI and Medicaid benefits, the Court of Appeals of Indiana reversed. The appeals court directed that the full, available amount of the settlement proceeds be placed into the special needs trust. Matter of Guardianship of Timothy A. Robbins, Docket No. 18A-GU-242  (Court of Appeals of Indiana, July 26, 2018).

When a vehicle driven by then-42-year-old Timothy Robbins was side-swiped by a truck, Timothy was ejected from his vehicle. As a result of the accident, Timothy sustained a devastating traumatic brain injury, multiple skull and facial fractures, and additional serious injuries. He remained in a coma for many weeks. His brain injuries and resulting dementia are catastrophic and have resulted in permanent and total impairment. Timothy was eventually transferred to a nursing home, where he remains today with full-time care. Timothy will never again live independently and will continue to require full-time care for the rest of his life.

Timothy was later adjudicated to be an incapacitated adult person. His father was appointed as guardian over Timothy and his estate. The guardian filed a lawsuit on Timothy’s behalf against those responsible for the accident. The case ultimately settled for $17.75 million.

At the time of the settlement, Timothy was receiving Medicaid and Supplemental Security Income (SSI), public benefits based upon financial need. The guardian retained an elder law attorney to help structure Timothy’s finances to ensure that Timothy would be provided with all needed care for the rest of his life. The elder law attorney informed the guardian that, if paid directly to Timothy, the settlement proceeds would cause Timothy to lose eligibility for the public benefits. The elder law attorney advised the guardian to seek court authorization to establish a special needs trust for Timothy’s benefit, and to fund the special needs trust with the net settlement proceeds. By doing so, Timothy could remain eligible for both SSI and Medicaid.

The guardian asked the trial court to approve the settlement agreement, pay attorney fees and litigation expenses, satisfy a lien asserted by Medicaid for medical care provided to Timothy and grant the guardian authority to create and fund a special needs trust for Timothy with the net proceeds of the settlement. At the hearing on the guardian’s application, the trial court stated that it was “aware of the rules” regarding special needs trusts but that it disagreed with the legislative policy, explaining that “it’s . . . the legal fiction of impoverishment which I’m having trouble buying into when we have million[s] sitting here.”

The trial court ultimately entered an order granting the guardian’s requests to approve the $17.75 million settlement, pay attorney fees and expenses, and satisfy the existing Medicaid lien. However, the trial court denied the request to fund a special needs trust in the manner requested by guardian. Instead, the trial court allowed only $1 million of the settlement proceeds to be placed in the trust, ordering the remaining millions to be paid directly to Timothy. The trial court provided three reasons for this decision: (1) “[T]he guardian’s request to place all assets received from the … settlement into a special needs trust would shift considerable expenses . . . to the taxpayer;” (2) “The amount received for the future care of Timothy A. Robbins under the Mediated Settlement Agreement is adequate to meet his future needs without public assistance;” and, (3) The special needs trust “appears to be for the benefit of the guardian and the descendants of Timothy A. Robbins as opposed to Timothy A. Robbins.”

The guardian appealed, and the Court of Appeals reversed. The appeals court ruled that since “under our system of limited government, the legislative branch is entrusted with decisions of public policy, … although trial court may well have a genuine disagreement with the policy decisions of our state and federal legislators, it is still bound to abide by them.”

The appeals court recognized that:

Special needs trusts are a creation of both federal and state legislation … [which provide] disabled people with the power to obtain additional healthcare services and equipment that are not covered by Medicaid, such as full-time care, wheelchairs if needed more often than every five years, dental work and dentures, eyeglasses if needed more often than every five years, home modifications, accessible vehicles, funerals, or anything to improve the quality of life of the disabled person. … Additionally, special needs trusts mean that the disabled person no longer has to “spend down” the proceeds of a litigation settlement before SSI and Medicaid are available.

The appeals court also found that the trial court made mistakes of law, as follows:

The trial court also refused to place the full amount of the settlement proceeds into the special needs trust because it concluded that the trust was solely for the benefit of the guardian and Timothy’s descendants. This is a mistake of law. As a matter of law, a special needs trust must contain a provision declaring that, upon the death of the disabled trust beneficiary, the total amount of Medicaid benefits must be paid back first, before any distributions to heirs are made. [citations omitted] Additionally, the special needs trust must be administered for the exclusive benefit of the disabled individual beneficiary for his or her lifetime. In other words, so long as the disabled individual is alive, other persons such as family members—or the guardian— cannot receive a direct benefit from the trust assets, and upon the disabled person’s death, the State gets repaid before anyone else inherits a dime. Consequently, it is a legal impossibility that Timothy’s special needs trust is designed to “benefit” either the guardian or Timothy’s descendants, and the trial court’s conclusion in this regard was erroneous.

The appeals court reversed the judgment of the trial court and remanded the case with instructions to direct that the full, available amount of net settlement proceeds be placed in Timothy’s special needs trust.

The case is attached here – Matter of Guardianship of Timothy A. Robbins

For additional information concerning special needs trusts and disability planning, visit:

NJ Special Needs Trusts and Disability Planning

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NJ Medicaid and Public Benefits Planning