In the Matter of Jennings v. Commissioner, N.Y.S. Dept. of Social Servs., 2010 NY Slip Op 00150 (N.Y. App. Div. 1/5/2010)

• Decision Date: 05 January 2010
• Docket Number: 2007-02546.
• Citation: 2010 NY Slip Op 00150
• Parties: IN THE MATTER OF WILLIAM JENNINGS, ETC., petitioner-respondent, v. COMMISSIONER, N.Y.S. DEPARTMENT OF SOCIAL SERVICES, ET AL., respondents; COMMISSIONER, NEW YORK STATE DEPARTMENT OF HEALTH, nonparty-appellant.
• Court: New York Supreme Court — Appellate Division

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2010 NY Slip Op 00150

IN THE MATTER OF WILLIAM JENNINGS, ETC., petitioner-respondent, v. COMMISSIONER, N.Y.S. DEPARTMENT OF SOCIAL SERVICES, ET AL., respondents COMMISSIONER, NEW YORK STATE DEPARTMENT OF HEALTH, nonparty-appellant.

2007-02546.

Appellate Division of the Supreme Court of New York, Second Department.

Decided January 5, 2010.

APPEAL by nonparty Commissioner, New York State Department of Health, in a proceeding pursuant to CPLR article 78 to review a determination of the New York State Department of Health dated June 7, 2006, made after an administrative fair hearing, that so much of the income of the petitioner's decedent as was deposited into a supplemental needs trust for the benefit of the decedent's adult disabled son was required to be included in the calculation of the decedent's eligibility and entitlement to Medicaid benefits during her lifetime and in the calculation of the obligation of the decedent's estate for the reimbursement of a certain portion of those benefits, from a judgment of the Supreme Court (Daniel Palmieri, J.), entered in Nassau County on January 12, 2007, which granted the petition and annulled the determination.

Andrew M. Cuomo, Attorney General, New York, N.Y. (Michelle M. Aronowitz and Carol Fischer of counsel), for nonparty-appellant.

Beth Polner Abrahams, Garden City, N.Y., for petitioner-respondent.

Before: A. Gail Prudenti, P.J., Steven W. Fisher, Ruth C. Balkin, John M. Leventhal, JJ.

OPINION & ORDER

BALKIN, J.

In New York, the concept of a supplemental needs trust originated in 1978,¹ establishing a vehicle for parents and guardians of adult children with severe and chronic disabilities to provide for their children's future by transferring their funds to a trust, created to pay for items that will enhance their children's quality of life without jeopardizing their children's eligibility for government benefits, such as Supplemental Security Income (hereinafter SSI), pursuant to 42 USC § 1382 et seq. and Medicaid, pursuant to 42 USC § 1396 et seq. and Social Services Law § 363 et seq.

The issues of first impression at the appellate level are whether the transfer of a settlor/parent's recurring income into a supplemental needs trust created for his or her disabled child must be counted toward (a) the settlor/parent's net available monthly income for calculation of the amount of the Medicaid benefits to which the settlor/parent is entitled after he or she is determined to be eligible for Medicaid (hereinafter post-eligibility benefits) and (b) the obligation of the estate of a deceased settlor/parent for the reimbursement of a certain portion of those benefits. We hold that, in the instant matter, there was a rational basis to include this income in the calculations.

I

The following facts essentially are undisputed. On September 15, 2004, the petitioner's decedent, Mattie Lou Hammond (hereinafter Hammond), who was then 85 years old, established an irrevocable Supplemental Needs Trust (hereinafter SNT) for the benefit of her 52-year-old son, Frediland Hammond (hereinafter Frediland), who is disabled due to mental retardation and developmental disabilities. Frediland is a recipient of Social Security Disability Insurance (hereinafter SSDI) (see 42 USC § 423) and Medicare benefits (see 42 USC § 401 et seq.), but not Medicaid benefits. Hammond, whose only income consisted of Social Security retirement benefits and a small widow's pension, created the trust by executing a special needs trust agreement (hereinafter the SNT Agreement), which designated her cousin, the petitioner, William Jennings, as trustee, with the discretion to use the SNT income and/or principal to insure that Frediland enjoyed the "benefits of education, recreation, hobbies, vacation, modes of transportation, entertainment, and any other need and/or comforts [he] may require to maximize [his] life and to keep [him] in the general community for so long as medically possible and safe."

The SNT Agreement, which initially funded the trust with the sum of $250, provided that "any person may, at any time, by Court order, assignment, gift, transfer, deed, or will, provide income or add to the principal of the Trust." The SNT Agreement also authorized the trustee to use the income for Frediland's necessary medical care, equipment, and supplies that were not paid for by private insurance or Medicaid. Finally, in accordance with statutory requirements, the SNT Agreement provided for the termination of the SNT upon Frediland's death, with the trustee using any remaining principal and accumulated interest to reimburse or "pay back" the New York State Department of Social Services (hereinafter NYS DSS), the nonparty-appellant, Commissioner, New York State Department of Health (hereinafter the DOH), or any other appropriate "Medicaid entity," for the medical assistance provided to Frediland during his lifetime, before distributing any remaining trust assets to his estate. Coincident with the execution of the SNT Agreement, on September 15, 2004, Hammond moved into a residential health care facility or nursing home in Hempstead, New York. On January 14, 2005, Hammond applied to the Nassau County Department of Social Services (hereinafter the NCDSS) for medical assistance benefits under the Medicaid program, to cover the costs of her own nursing home and medical care, retroactive to October 6, 2004. In her application, Hammond indicated that she had a total gross income in the sum of $1,847 per month, consisting of her Social Security retirement benefits in the monthly sum of $1,173, and a monthly pension benefit in the sum of $607.84; she informed the NCDSS, however, that she had been depositing all of her income into the SNT for Frediland's benefit.

On January 27, 2005, the NCDSS issued a Notice of Intent to Establish Liability Toward Chronic Care, which informed Hammond that she was eligible to receive Medicaid benefits. This determination of entitlement to post-eligibility benefits by the NCDSS is part of a process known as "chronic care budgeting" (18 NYCRR 360-4.9). Although the NCDSS determined that Hammond was eligible for Medicaid since the funds she deposited in Frediland's SNT could be excluded from her income for the purpose of determining her Medicaid eligibility, it simultaneously treated those same funds as income available to her for the purpose of calculating her required contribution for her own post-eligibility monthly cost of care. Specifically, the NCDSS determined that Hammond would have to contribute her Net Available Monthly Income (hereinafter NAMI)² in the sum of $1,730 per month toward the cost of her post-eligibility Medicaid services, calculated by subtracting, from her gross monthly income of $1,847, a monthly personal needs allowance in the amount of $50 and a monthly Medicare deduction in the amount of $66.

Hammond challenged the determination of the NCDSS, and asked for an administrative fair hearing in connection with the challenge. On May 26, 2006, an administrative fair hearing was conducted by the New York State Office of Temporary and Disability Assistance, which is part of the DOH, the agency responsible for the administration and interpretation of Medicaid laws in New York (see Kuppersmith v Dowling, 93 NY2d 90, 97). Although Hammond did not testify at the hearing, Jennings testified and introduced evidence of the existence and nature of the SNT Agreement, Hammond's application to the NCDSS, and the expenses actually paid from the SNT on Frediland's behalf. According to Hammond, her NAMI should have been "zero" because she deposited all of her monthly income into Frediland's SNT, relying on the rulings of Matter of Kaiser v Commissioner of N.Y.S. Dept. of Health (13 Misc 3d 1211[A]) and Matter of Correri v Commissioner of the NYS Dept. of Health (Sup Ct, Nassau County, May 19, 2005, Index No. 17372/04). The NCDSS disagreed, holding that, while the income placed in the SNT would not render Hammond ineligible for Medicaid, that income was countable for post-eligibility purposes in order to calculate Hammond's required contribution toward her own cost of care.

Following the administrative fair hearing, the Commissioner of the DOH (hereinafter the Commissioner) confirmed the NCDSS's determination in a decision dated June 7, 2006, relying upon past guidance letters and interpretative regulations contained in the State Medicaid Manual (hereinafter the SMM) issued by the United States Department of Health and Human Services' Centers for Medicare and Medicaid Services (hereinafter the CMS). The Commissioner reasoned, in part:

"[Ms. Hammond] submitted documentation into the hearing record that [her] income is being deposited monthly into the supplemental needs trust. Such income deposited into the trust is exempt from any of the transfer provisions for purposes of Medical Assistance. However, in order to be exempt as income, the income must be diverted to a trust for [her] benefit. By letter dated September 23, 1997, the Department of Health clarified Administrative Directive 96 ADM 8, and provided that neither the Administrative Directive nor the Regulations allow for the diversion of income to a trust for the benefit of any other individual."

On September 27, 2006, Hammond commenced the instant CPLR article 78 proceeding, seeking to annul the determination rendered by the DOH's designee³ after the fair hearing, on the grounds, inter alia, that it was arbitrary and capricious and affected by an error of law, specifically, that it was contrary to 42 USC § 1396p(c)(2)(B)(iii) and (iv), Social Services Law § 366(5)(d)(3)(ii)(C) and (D), and 18 NYCRR 360-4.4(c)(1)(iii). The DOH and the NCDSS answered the petition, denying the material allegations in the petition and asserting, among other things, that relevant Federal and state laws require "that such [SNT] trusts contain the assets of the individual with the disability" and the "income or resources of [Ha...