Moretti, Application of

• Decision Date: 26 October 1993
• Citation: 159 Misc.2d 654,606 N.Y.S.2d 543
• Parties: , 43 Soc.Sec.Rep.Ser. 483 In the Matter of the Application of Joseph Moretti and Elaine Moretti, Co-Conservators of the Property of Michael MORETTI, a Conservatee, for leave to establish a Supplemental Needs Trust.
• Court: New York Supreme Court

Page 543

606 N.Y.S.2d 543

159 Misc.2d 654, 43 Soc.Sec.Rep.Ser. 483

In the Matter of the Application of Joseph Moretti and Elaine Moretti, Co-Conservators of the Property of Michael MORETTI, a Conservatee, for leave to establish a Supplemental Needs Trust.

Supreme Court, Kings County IAS Part 76.

Oct. 26, 1993.

Robert W. Schmidt, County Atty., Judith L. Cashman, Beverly Sennett, Deputy County

Attys., Mineola, for Nassau County Dept. of Social Services.

Vincent Leong, Asst. Atty. Gen., N.Y. State Dept. of Law, New York City, for N.Y.S. Dept. of Social Services.

Charles Robert, Robert, Lerner & Bigler, Rockville Centre, for petitioner.

Robert Kruger, Guardian ad Litem, Brooklyn, for Michael Moretti.

SEBASTIAN LEONE, Judge.

In this proceeding, petitioner Elaine Moretti moves for leave to reargue this court's decision dated September 24, 1992 to the extent that it denied that branch of her petition which sought an order authorizing and directing her to transfer the personal property held by her as conservator of the property of Michael Moretti into a supplemental needs trust with her as trustee.

The facts of the instant matter are as follows: On September 8, 1984, Michael Moretti, at the age of 15, was struck by a motor vehicle and suffered severe brain damage. A personal injury action was subsequently brought on his behalf, which resulted in a settlement payment of $1,000,000, $333,333 of which was paid as legal fees to the attorneys who had represented him in that action. Pursuant to an order of this court, the net proceeds of the tort settlement were used to purchase one-half of Michael Moretti's family home, and an annuity from Aetna Life and Casualty Company. After Michael Moretti reached his majority, this court, by order dated February 2, 1987, appointed Michael Moretti's parents, Elaine Moretti (the petitioner herein) and Joseph Moretti (who is now deceased) co-conservators of his property.

Michael Moretti is now 24 years old. He resides at home with his family, and has been in a coma since the accident. He has no private health insurance and, as a result of the high cost of medical care for a coma patient, only approximately $200,000 remains of his initial tort recovery. These funds render him ineligible for Medicaid and Supplemental Security Income ("SSI").

In an attempt to avoid expending these remaining funds from Michael Moretti's tort recovery on health care which, if he lacked such funds, would be paid by government entitlements, petitioner, in her original application, sought approval from this court to transfer Michael Moretti's assets into a supplemental needs trust. The New York State Department of Social Services ("NYSDSS") and the Nassau County Department of Social Services opposed the original application, and a guardian ad litem was appointed by the court to represent and protect the rights and interests of Michael Moretti. This court, based upon the applicable law which existed at that time, declined to approve the establishment of such a supplemental needs trust for Michael Moretti.

Petitioner, by her instant motion, seeks leave to reargue this court's decision denying such approval. In support of her motion, petitioner asserts that several months after this court rendered its decision, there was a change in the applicable law. Specifically, on August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 ("OBRA '93", Pub.L. 103-66) (codified as amendments to 42 U.S.C. § 1396 et seq.), containing major revisions of the Federal Medical Assistance (Medicaid) program, was enacted. OBRA '93 addresses supplemental needs trusts and explains their effect upon Medicaid eligibility. OBRA '93 also repealed 42 U.S.C. § 1396a(k), upon which the court relied in rendering its original determination. Additionally, on April 1, 1993, chapter 698 of the Laws of 1992 went into effect, creating article 81 and repealing articles 77 and 78 of the Mental Hygiene Law.

In consideration of these major changes in the law since the court's decision was rendered, the court grants reargument (see, CPLR 2221; Siegel, Practice Commentaries, McKinney's Cons. Laws of N.Y., Book 7B, CPLR C2221:8, at 185) and, upon reargument, the court's decision of September 24, 1992 is recalled and vacated to the extent indicated below.

In addressing petitioner's application for an order approving the establishment of a supplemental needs trust for Michael Moretti, the court notes that EPTL 7-3.1(a) provides that "[a] disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator." Pursuant to former 42 U.S.C. § 1396a(k)(2), "a trust ... established (other than by will) by an individual (or an individual's spouse) under which the individual [was] the beneficiary of all or part of the payments from the trust and the distribution of such payments [was] determined by one or more trustees who [were] permitted to exercise any discretion with respect to the distribution to the individual," was called a "Medicaid qualifying trust". Under former 42 U.S.C. § 1396a(k)(1), the amount from such a trust deemed to be available income and/or resources for purposes of determining medical assistance eligibility was "the maximum amount of payments that [could] be permitted under the terms of the trust to be distributed to the grantor, assuming the full exercise of discretion by the trustee or trustees for the distribution of the maximum amount to the grantor."

In cases decided prior to the enactment of OBRA '93 (including this court's original decision dated September 24, 1992), courts have generally denied applications to establish supplemental needs trusts where such trusts were to be created and funded by an individual's conservator, committee, guardian, or other legal representative with property in that representative's hands or control on the ground that such supplemental needs trusts would constitute Medicaid qualifying trusts pursuant to former 42 U.S.C. § 1396a(k)(2), and self-settled trusts pursuant to EPTL 7-3.1(a) (see, e.g., Matter of Daley, N.Y.L.J., Sept. 16, 1992, at 25, col. 2 [Sur.Ct., Nassau County]; Matter of Shaw, N.Y.L.J., July 8, 1992, at 33, col. 1 [Sur.Ct., Nassau County]; Matter of Gonzalez, 154 Misc.2d 633, 637, 586 N.Y.S.2d 861; Matter of Daniel, N.Y.L.J., Apr. 8, 1992, at 33, col. 6 [Sur.Ct., Dutchess County]; compare, Matter of Mills v. Durst, 156 Misc.2d 676, 687, 594 N.Y.S.2d 537 [holding supplemental needs trust was not self-settled where trust was created before infant had a legal right to the proceeds of the settlement].

As noted above, OBRA '93 repealed 42 U.S.C. § 1396a(k). Moreover, OBRA '93 specifically addresses and resolves the issue, raised in this case and the above-cited cases, of whether such supplemental needs trusts established by an individual's representative with property in that representative's hands or control are self-settled and Medicaid disqualifying. 42 U.S.C. § 1396p(d)(2)(A) provides:

"(2)(A) For purposes of this subsection, an individual shall be considered to have established a trust [i.e., the trust is self-settled] if assets of the individual were used to form all or part of the corpus of the trust and if any of the following individuals established such trust other than by will:

(i) The individual.

(ii) The individual's spouse.

(iii) A person, including a court or administrative body, with legal authority to act in place of or on behalf of the individual or the individual's spouse.

(iv) A person, including any court or administrative body, acting at the direction or upon the request of the individual or the individual's spouse."

Thus, generally, such a trust would be considered to be self-settled and Medicaid disqualifying. However, OBRA '93 simultaneously carves out an exception to the new trust rules.

42 U.S.C. § 1396p(d)(4)(A) provides:

"(4) This subsection shall not apply to any of the following trusts:

(A) A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1614[a][3] and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this title."

In the case at bar, the proposed supplemental needs trust falls within this exception. The trust would contain the assets of Michael Moretti, who is a disabled individual under age 65. The trusts permissible under this subsection may be funded with "the assets" of a disabled individual under age 65. There is no limitation with respect to how these assets were acquired by such individual. Petitioner, as Michael Moretti's mother and guardian, seeks to establish this trust for his benefit. Petitioner has submitted a copy of the proposed supplemental needs trust which has now been amended and revised to comply with OBRA '93. Such proposed trust meets the requirements of 42 U.S.C. § 1396p(d)(4)(A) by providing in paragraph 3.3 thereof that: "This trust shall terminate upon the death of Michael Moretti and the State shall be reimbursed for medical assistance provided to Michael Moretti during his lifetime, as consistent with federal and state law."

The proposed supplemental needs trust also now includes a provision (p 2.2) for the use of principal pursuant to court order. It appears that under 42 U.S.C. § 1396p(d)(4)(A), both the corpus and the income of the trust may be used during the beneficiary's lifetime with full trustee discretion for the benefit of the disabled individual. Additionally, the court notes that the proposed trust, as revised, no longer contains the language which the court found, in its original decision, rendered it void as against public policy pursuant to EPTL 7-3.1(c).

In opposition to the instant application, the NYSDSS...