Matter of Longhine

[*1]

Matter of Longhine
2007 NY Slip Op 50517(U)
Decided on February 27, 2007
Surrogate's Court, Wyoming County
Griffith, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
As corrected in part through April 4, 2007; it will not be published in the printed Official Reports.


Decided on February 27, 2007
Surrogate's Court, Wyoming County

In the Matter of the Estate of Robert J. Longhine.

2006-9

Petitioner James B. Longhine by Susan Reinecke (Cooke & Steffan) Alden, NY,Guardian ad litem

Estate of Robert J. Longhine by Harold C. Parker, Perry, NY.

Wyoming County Department of Social Services by David Nelson (Dadd & Nelson), Attica, NY.

Michael F. Griffith, J.

Robert J. Longhine died a resident of Wyoming County on January 18, 2006. His Last Will and Testament dated October 3, 2005 was admitted to probate in this court on April 3, 2006. Under the terms of his will the testator divided his estate in equal shares for his three children, but established a testamentary trust for the share for the benefit of his son, James B. Longhine. The trust provides for the distribution of income as well as principal for the benefit of James and is not a Supplemental Needs Trust (SNT) as authorized and defined in EPTL 7-1.12.

Although there has been no formal appointment of a guardian for James pursuant to SCPA Article 17-a or Mental Hygiene Law Article 81, he is alleged to be a person under disability and receives Supplemental Security Income (SSI) and Medicare benefits as a result of his disability. There is no indication that James is receiving or has received Medicaid or other, local benefits through the Wyoming County Department of Social Services (DSS) or other agency.

To avoid the loss of these benefits, a petition seeking a construction of the will and reformation of the trust to create a Supplemental Needs Trust was filed by Susan Reinecke, the guardian ad litem for James. The Wyoming County DSS appeared pursuant to Citation and filed an Answer, objecting to the form of the proposed SNT upon the ground that it does not contain a "payback clause" alleged to be required by EPTL 7-1.12 (c) and Social Services Law 366 (2) (b) (2).

Although DSS has no current claim or pecuniary interest, the court finds that DSS has [*2]standing in this proceeding due to the potential, future consequences should James need or apply for Medicaid-funded benefits before the trust is exhausted.

The facts are not in dispute and the matter is before the court on cross-motions for Summary Judgment pursuant to CPLR 3212. The two issues presented are:

1. May the testamentary trust created under Robert's will be reformed to create a SNT to preserve James' eligibility for government benefits?
2. Must a SNT created by action of the court in reforming the trust under the will contain a "payback clause" pursuant to EPTL 7-1.12 ( c )?

Under the terms of the trust in the will, James is to receive the net income in quarterly installments with authority to the trustee to invade the trust principal for James' benefit, "During the lifetime of my son, . . . to liberally provide for my son's health, support and maintenance." Although James is not presently receiving medical or other services funded through Medicaid, he is receiving Social Security and Medicare benefits. Unless the trust is reformed, it is likely that he will lose his eligibility for those benefits and be denied eligibility for Medicaid-funded services should he need them in the future.

SCPA 1420 authorizes the Surrogate's Court to determine the validity, construction or effect of any provision of a will and to take such proof and make such decrees as justice shall require.

The terms of the will in this case are clear and unambiguous in establishing a non-Supplemental Needs Trust for James. The affidavit of the attorney-draftsman of the will has been submitted in support of the petition. The affidavit states that a SNT was not considered at the time of the drafting of the will because of the lack of time after the diagnosis of decedent's final illness, and that had the testator considered James' likely disqualification from the benefits being received he clearly would have intended that the trust be a SNT.

The existence of clear and unambiguous language, however, is not a bar to the reformation of a testamentary trust. (11 Warren's Heaton, Surrogate's Courts §188.02 at 188-5 [7th ed]).

The recent case of Matter of Kamp (7 Misc 3d 615 [Sur Ct, Broome County 2005]) provides a thorough review and analysis of the cases and issues relevant here. Of the courts that have considered the issue, three have allowed the reformation of a testamentary trust and the creation of a SNT for the benefit of the beneficiary. (Matter of Kamp, id.; Estate of Ciraolo, NYLJ, Feb. 9, 2001 at 31 col 4 [Sur Ct, Kings County 2001]; In re Hulett, Sur Ct, Cattaragus County, 1999, Himelein, J., No. 28,611; Estate of [*3]DeRosa, NYLJ, April 20, 2006 at 30 col 2 [Sur Ct, Kings County]). The only reported case that has disallowed the reformation or required a "payback clause" is Matter of Rubin (4 Misc 3d 634 [Sur Ct, NY County 2004]).

This court agrees with the reasoning of Surrogate Peckham in Matter of Kamp in rejecting the more restrictive analysis of Matter of Rubin, particularly in the context of the creation of SNTs.

It should be noted that of four cases cited, three involved wills executed prior to the existence of statutory authority for the creation of SNTs. (Matter of Kamp ; Estate of Ciraolo; Estate of DeRosa). In those cases the courts simply allowed the testators to benefit from a planning device that did not exist at the time the will was executed, presuming that it would have been utilized by the testator. Only In re Hulett granted reformation of testamentary provisions created after the adoption of EPTL 7-1.12, finding intent to supplement rather than supplant government benefits being received by the beneficiary from the language of the will. (In re Hulett, Sur Ct, Cattaragus County,1999, Himelein, J., No. 28,611).

One other, noteworthy case took a different approach in the face of unfavorable and unambiguous language in the trust and utilized EPTL 10-6.6 (b) (2) to pay out the principal of the trust to a new SNT created for the beneficiary. (Estate of Grosjean, NYLJ, December 10, 1997 at 35 col 6 [Sur Ct Nassau County]).

Despite the obvious difference in the language of the trusts in those cases and the language of the will in this case, reformation may still be allowed upon consideration of relevant factors, including:
1. The intention of the testator


2. Lack of fraud or unjust enrichment
3. Non-interference with or disruption of the dispositional plan under the instrument.

The Third Restatement of the Law of Property states the principle simply as:
"A donative document, though unambiguous, may be reformed to conform the text to the donor's intention if it is established by clear and convincing evidence (1) that a mistake of fact or law, whether in expression or inducement, affected specific terms of the document; and (2) what the donor's intention was." (Restatement [Third] of Property [Wills and Other Donative Transfers] §12.1)


Here, in cases involving a SNT and Medicaid or other public benefit planning, courts [*4]have created a presumptive intent on the part of the testator or donor to take advantage of public benefits or funds available as the primary means of providing for the care of a disabled individual. (Matter of Shah, 95 NY2d 148 [2000]; Matter of Escher, 94 Misc 2d 952 [Sur Ct, Bronx County 1978],aff'd 75 AD2d 531, aff'd 52 NY2d 1006 [1981]).

This common-sense presumption is similar to the presumption that a testator will desire to reduce taxes to the greatest extent possible. (Matter of Kamp, 7 Misc 3d at 620 citing Matter of Choate, 141 Misc 2d 489 [Sur Ct, NY County 1988]).

The affidavit of the attorney-draftsman states that a SNT was not presented to the testator for his consideration due to the lack of time at the onset of his final illness. In addition:
1. The testator was the sole care giver for James for his entire, adult life.
2. James was receiving public benefits in the form of Social Security and Medicare while residing with his father and at the time of the execution of the will.
3. The bulk of the modest estate here consists of various parcels of real property.

Given the potential loss of the Social Security and Medicare benefits James has been receiving and the likely need to sell the parcels of real property to replace those benefits, the court has no difficulty in presuming that the testator would have intended that James' share pass by way of a SNT had he been presented with that option.

Further, there is no suggestion of any element of fraud by or unjust enrichment of any party and the reformation of the trust in the manner requested would not interfere with or disrupt the dispositional plan under the will. In fact, the creation of the SNT here is necessary to preserve the plan established by the will.

Accordingly, the court finds and directs that the trust created by Robert's Will should be reformed into a SNT f/b/o James. A proposed SNT was drafted by the guardian ad litem and attached to the petition. The court has reviewed the terms of the proposed SNT and finds as follows:

1. No "payback" clause is required because the will, as reformed, passes the property of the testator, not James, into the SNT and the trust is not a "self-settled" trust (See In re Hulett; Matter of Kamp; Estate of Grosjean).

2. The reference to "quarterly" distribution by the trustee in paragraph one [*5]should be deleted.

In addition, while not part of the terms of the reformed trust in the will, the decree will require the following conditions of the trustee (See Matter of Goldblatt, 162 Misc 2d 888 [Sur Ct, Nassau County 1994]) :

A. Annual Account - The trustee shall be required to file an annual account with the court by May 1st of each year.
B. The trustee may only resign and a successor may only be appointed upon application to and with the approval of this court.

C. Expenditure of trust funds - The trustee shall be permitted to expend up $500 for any single item up to a maximum of $1,000 per year from the trust without advance approval from the court, subject to review and approval by the court on the annual account and any intermediate or final trust accounting.

The guardian ad litem shall submit a proposed Decree and corrected SNT in accordance with this Decision.

February 27, 2007

______________________

Michael F. Griffith

Surrogate
copies to:
Susan L. Reinicke
Harold C. Parker
David A. Nelson

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