Moses Ratowsky established a trust for the benefit of his 20-year-old grandson, Daniel Schreiber, the terms of which allowed Daniel to withdraw the entire principal at age 21. Daniel was disabled and received Medicaid and Social Security income. Having the right to withdraw the principal of the original trust would cause the entire trust corpus to be considered an available resource, thereby disqualifying Daniel from receiving the above-mentioned needs-based government benefits.
In order to avoid the termination of Daniel’s benefits, the trustees sought authorization from the Surrogate’s Court to exercise a power of appointment of assets from the original trust to a new trust. The new trust would contain the same terms, conditions, beneficiaries, and trustees as the original trust, but would also contain supplemental needs trust protection. Unlike the original trust, the new trust did not give the grandson the right to any income or principal when he turned 21. Indeed, the new trust did not give the grandson the right to withdraw any sum from the trust at any time. Rather, the new trust stated that the grandson shall not have any right or power to assign, encumber, direct, distribute or authorize distribution from this trust. The trustees believed that these amendments to the trust would allow the grandson to continue receiving governmental benefits and, at the same time, permit the assets in the new trust to be used to enhance the grandson’s quality of life.
The New York State Department of Health filed objections, arguing that the new trust would be created with Daniel’s assets, and therefore must contain a Medicaid payback provision pursuant to New York estates and trusts law. Such a payback provision would allow the State, upon the grandson’s death, to recoup all amounts remaining in the new supplemental needs trust up to the total value of all medical assistance paid on behalf of the grandson. Since the new trust did not contain a payback provision, the State argued that the Surrogate’s Court should not approve the exercise of the power of appointment.
The Surrogate Court denied the state’s objections and approved the petition; the state appealed. The order was affirmed on appeal. The appellate court held that a Medicaid payback provision was not required because (1) Daniel did not create the original trust, and (2) at the time the trustees sought to amend the trust the principal was not considered Daniel’s assets under state and federal law.
In case is annexed here Matter of Kroll, 143 A.D.3d 716, 2016 WL 5795354 (N.Y. App. Div. Second Dept. Oct. 5, 2016)
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