714 F. 3d 559, affirmed.
• Syllabus   [HTML]    [PDF]  
• Opinion, Sotomayor  [HTML]    [PDF]  

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321.



CLARK et ux. v. RAMEKER, TRUSTEE, et al.

certiorari to the united states court of appeals for the seventh circuit

No. 13–299. Argued March 24, 2014—Decided June 12, 2014

When petitioners filed for Chapter 7 bankruptcy, they sought to exclude roughly $300,000 in an inherited individual retirement account (IRA) from the bankruptcy estate using the “retirement funds” exemption. See 11 U. S. C. §522(b)(3)(C). The Bankruptcy Court concluded that an inherited IRA does not share the same characteristics as a traditional IRA and disallowed the exemption. The District Court reversed, explaining that the exemption covers any account in which the funds were originally accumulated for retirement purposes. The Seventh Circuit disagreed and reversed the District Court.

Held: Funds held in inherited IRAs are not “retirement funds” within the meaning of §522(b)(3)(C). Pp. 4–11.

(a) The ordinary meaning of “retirement funds” is properly understood to be sums of money set aside for the day an individual stops working. Three legal characteristics of inherited IRAs provide objective evidence that they do not contain such funds. First, the holder of an inherited IRA may never invest additional money in the account. 26 U. S. C. §219(d)(4). Second, holders of inherited IRAs are required to withdraw money from the accounts, no matter how far they are from retirement. §§408(a)(6), 401(a)(9)(B). Finally, the holder of an inherited IRA may withdraw the entire balance of the account at any time—and use it for any purpose—without penalty. Pp. 4–6.

(b) This reading is consistent with the purpose of the Bankruptcy Code’s exemption provisions, which effectuate a careful balance between the creditor’s interest in recovering assets and the debtor’s interest in protecting essential needs. Allowing debtors to protect funds in traditional and Roth IRAs ensures that debtors will be able to meet their basic needs during their retirement years. By contrast, nothing about an inherited IRA’s legal characteristics prevent or discourage an individual from using the entire balance immediately after bankruptcy for purposes of current consumption. The “retirement funds” exemption should not be read in a manner that would convert the bankruptcy objective of protecting debtors’ basic needs into a “free pass,” Schwab v. Reilly, 560 U. S. 770. Pp. 6–7.

(c) Petitioners’ counterarguments do not overcome the statute’s text and purpose. Their claim that funds in an inherited IRA are retirement funds because, at some point, they were set aside for retirement, conflicts with ordinary usage and would render the term “retirement funds,” as used in §522(b)(3)(C), superfluous. Congress could have achieved the exact same result without specifying the funds as “retirement funds.” And the absence of the phrase “debtor’s interest,” which appears in many other §522 exemptions, does not indicate that §522(b)(3)(C) covers funds intended for someone else’s retirement. Where used, that phrase works to limit the value of the asset that the debtor may exempt from her estate, not to distinguish between a debtor’s assets and the assets of another. Also unpersuasive is petitioners’ argument that §522(b)(3)(C)’s sentence structure—i.e., a broad category, here, “retirement funds,” followed by limiting language, here, “to the extent that”—prevents the broad category from performing any independent limiting work. This is not the only way in which the phrase “to the extent that” may be read, and this argument reintroduces the problem that makes the term “retirement funds” superfluous. Finally, the possibility that an account holder can leave an inherited IRA intact until retirement and take only the required minimum distributions does not mean that an inherited IRA bears the legal characteristics of retirement funds. Pp. 8–11.

714 F. 3d 559, affirmed.

Sotomayor, J., delivered the opinion for a unanimous Court.


NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.



No. 13–299



on writ of certiorari to the united states court of appeals for the seventh circuit

[June 12, 2014]

 Justice Sotomayor delivered the opinion of the Court.

When an individual files for bankruptcy, she may exempt particular categories of assets from the bankruptcy estate. One such category includes certain “retirement funds.” 11 U. S. C. §522(b)(3)(C). The question presented is whether funds contained in an inherited individual retirement account (IRA) qualify as “retirement funds” within the meaning of this bankruptcy exemption. We hold that they do not.



When an individual debtor files a bankruptcy petition, her “legal or equitable interests . . . in property” become part of the bankruptcy estate. §541(a)(1). “To help the debtor obtain a fresh start,” however, the Bankruptcy Code allows debtors to exempt from the estate limited interests in certain kinds of property. Rousey v. Jacoway, 544 U. S. 320, 325 (2005) . The exemption at issue in this case allows debtors to protect “retirement funds to the extent those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code.” §§522(b)(3)(C), (d)(12). 1   The enumerated sections of the Internal Revenue Code cover many types of accounts, three of which are relevant here.

The first two are traditional and Roth IRAs, which are created by 26 U. S. C. §408 and §408A, respectively. Both types of accounts offer tax advantages to encourage individuals to save for retirement. Qualified contributions to traditional IRAs, for example, are tax-deductible. §219(a). Roth IRAs offer the opposite benefit: Although contributions are not tax-deductible, qualified distributions are tax-free. §§408A(c)(1), (d)(1). To ensure that both types of IRAs are used for retirement purposes and not as general tax-advantaged savings vehicles, Congress made certain withdrawals from both types of accounts subject to a 10 percent penalty if taken before an accountholder reaches the age of 59½. See §§72(t)(1)–(2); see also n. 4, infra.

The third type of account relevant here is an inher-ited IRA. An inherited IRA is a traditional or Roth IRA that has been inherited after its owner’s death. See §§408(d)(3)(C)(ii), 408A(a). If the heir is the owner’s spouse, as is often the case, the spouse has a choice: He or she may “roll over” the IRA funds into his or her own IRA, or he or she may keep the IRA as an inherited IRA (subject to the rules discussed below). See Internal Revenue Service, Publication 590: Individual Retirement Arrangements (IRAs), p. 18 (Jan. 5, 2014). When anyone other than the owner’s spouse inherits the IRA, he or she may not roll over the funds; the only option is to hold the IRA as an inherited account.

Inherited IRAs do not operate like ordinary IRAs. Unlike with a traditional or Roth IRA, an individual may withdraw funds from an inherited IRA at any time, without paying a tax penalty. §72(t)(2)(A)(ii). Indeed, the owner of an inherited IRA not only may but must withdraw its funds: The owner must either withdraw the entire balance in the account within five years of the original owner’s death or take minimum distributions on an annual basis. See §§408(a)(6), 401(a)(9)(B); 26 CFR §1.408–8 (2013) (Q–1 and A–1(a) incorporating §1.401(a)(9)–3 (Q–1 and A–1(a))); see generally D. Cartano, Taxation of Individual Retirement Accounts §32.02[A] (2013). And unlike with a traditional or Roth IRA, the owner of an inherited IRA may never make contributions to the account. 26 U. S. C. §219(d)(4).


In 2000, Ruth Heffron established a traditional IRA and named her daughter, Heidi Heffron-Clark, as the sole beneficiary of the account. When Ms. Heffron died in 2001, her IRA—which was then worth just over $450,000—passed to her daughter and became an inherited IRA. Ms. Heffron-Clark elected to take monthly distri-butions from the account.

In October 2010, Ms. Heffron-Clark and her husband, petitioners in this Court, filed a Chapter 7 bankruptcy petition. They identified the inherited IRA, by then worth roughly $300,000, as exempt from the bankruptcy estate under 11 U. S. C. §522(b)(3)(C). Respondents, the bankruptcy trustee and unsecured creditors of the estate, objected to the claimed exemption on the ground that the funds in the inherited IRA were not “retirement funds” within the meaning of the statute.

The Bankruptcy Court agreed, disallowing the exemption. In re Clark, 450 B. R. 858, 866 (WD Wisc. 2011). Relying on the “plain language of §522(b)(3)(C),” the court concluded that an inherited IRA “does not contain anyone’s ‘retirement funds,’ ” because unlike with a traditional IRA, the funds are not “segregated to meet the needs of, nor distributed on the occasion of, any person’s retirement.” Id., at 863. 2   The District Court reversed, explaining that the exemption covers any account containing funds “originally” “accumulated for retirement purposes.” In re Clark, 466 B. R. 135, 139 (WD Wisc. 2012). The Seventh Circuit reversed the District Court’s judgment. In re Clark, 714 F. 3d 559 (2013). Pointing to the “[d]if-ferent rules govern[ing] inherited” and noninherited IRAs, the court concluded that “inherited IRAs represent an opportunity for current consumption, not a fund of retirement savings.” Id., at 560, 562.

We granted certiorari to resolve a conflict between the Seventh Circuit’s ruling and the Fifth Circuit’s decision in In re Chilton, 674 F. 3d 486 (2012). 571 U. S. ___ (2013). We now affirm.


The text and purpose of the Bankruptcy Code make clear that funds held in inherited IRAs are not “retirement funds” within the meaning of §522(b)(3)(C)’s bankruptcy exemption.


The Bankruptcy Code does not define “retirement funds,” so we give the term its ordinary meaning. See Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U. S. ___, ___ (2014) (slip op., at 7). The ordinary meaning of “fund[s]” is “sum[s] of money . . . set aside for a specific purpose.” American Heritage Dictionary 712 (4th ed. 2000). And “retirement” means “[w]ithdrawal from one’s occupation, business, or office.” Id., at 1489. Section 522(b)(3)(C)’s reference to “retirement funds” is therefore properly understood to mean sums of money set aside for the day an individual stops working.

The parties agree that, in deciding whether a given set of funds falls within this definition, the inquiry must be an objective one, not one that “turns on the debtor’s subjective purpose.” Brief for Petitioners 43–44; see also Brief for Respondents 26. In other words, to determine whether funds in an account qualify as “retirement funds,” courts should not engage in a case-by-case, fact-intensive examination into whether the debtor actually planned to use the funds for retirement purposes as opposed to current consumption. Instead, we look to the legal characteristics of the account in which the funds are held, asking whether, as an objective matter, the account is one set aside for the day when an individual stops working. Cf. Rousey, 544 U. S., at 332 (holding that traditional IRAs are included within §522(d)(10)(E)’s exemption for “a payment under a stock bonus, pension, profit sharing, annuity, or similar plan or contract on account of . . . age” based on the legal characteristics of traditional IRAs).

Three legal characteristics of inherited IRAs lead us to conclude that funds held in such accounts are not objectively set aside for the purpose of retirement. First, the holder of an inherited IRA may never invest additional money in the account. 26 U. S. C. §219(d)(4). Inherited IRAs are thus unlike traditional and Roth IRAs, both of which are quintessential “retirement funds.” For where inherited IRAs categorically prohibit contributions, the entire purpose of traditional and Roth IRAs is to provide tax incentives for accountholders to contribute regularly and over time to their retirement savings.

Second, holders of inherited IRAs are required to withdraw money from such accounts, no matter how many years they may be from retirement. Under the Tax Code, the beneficiary of an inherited IRA must either withdraw all of the funds in the IRA within five years after the year of the owner’s death or take minimum annual distributions every year. See §408(a)(6); §401(a)(9)(B); 26 CFR §1.408–8 (Q–1 and A–1(a) incorporating §1.401(a)(9)–3 (Q–1 and A–1(a))). Here, for example, petitioners elected to take yearly distributions from the inherited IRA; as a result, the account decreased in value from roughly $450,000 to less than $300,000 within 10 years. That the tax rules governing inherited IRAs routinely lead to their diminution over time, regardless of their holders’ proximity to retirement, is hardly a feature one would expect of an account set aside for retirement.

Finally, the holder of an inherited IRA may withdraw the entire balance of the account at any time—and for any purpose—without penalty. Whereas a withdrawal from a traditional or Roth IRA prior to the age of 59½ triggers a 10 percent tax penalty subject to narrow exceptions, see n. 4, infra—a rule that encourages individuals to leave such funds untouched until retirement age—there is no similar limit on the holder of an inherited IRA. Funds held in inherited IRAs accordingly constitute “a pot of money that can be freely used for current consumption,” 714 F. 3d., at 561, not funds objectively set aside for one’s retirement.


Our reading of the text is consistent with the purpose of the Bankruptcy Code’s exemption provisions. As a general matter, those provisions effectuate a careful balance between the interests of creditors and debtors. On the one hand, we have noted that “every asset the Code permits a debtor to withdraw from the estate is an asset that is not available to . . . creditors.” Schwab v. Reilly, 560 U. S. 770, 791 (2010) . On the other hand, exemptions serve the important purpose of “protect[ing] the debtor’s essential needs.” United States v. Security Industrial Bank,459 U. S. 70, 83 (1982) (Blackmun, J., concurring in judgment). 3  

Allowing debtors to protect funds held in traditional and Roth IRAs comports with this purpose by helping to ensure that debtors will be able to meet their basic needs during their retirement years. At the same time, the legal limitations on traditional and Roth IRAs ensure that debtors who hold such accounts (but who have not yet reached retirement age) do not enjoy a cash windfall by virtue of the exemption—such debtors are instead required to wait until age 59½ before they may withdraw the funds penalty-free.

The same cannot be said of an inherited IRA. For if an individual is allowed to exempt an inherited IRA from her bankruptcy estate, nothing about the inherited IRA’s legal characteristics would prevent (or even discourage) the individual from using the entire balance of the account on a vacation home or sports car immediately after her bankruptcy proceedings are complete. Allowing that kind of exemption would convert the Bankruptcy Code’s purposes of preserving debtors’ ability to meet their basic needs and ensuring that they have a “fresh start,” Rousey, 544 U. S., at 325, into a “free pass,” Schwab, 560 U. S., at 791. We decline to read the retirement funds provision in that manner.


Although petitioners’ counterarguments are not without force, they do not overcome the statute’s text and purpose.

Petitioners’ primary argument is that funds in an inherited IRA are retirement funds because—regardless of whether they currently sit in an account bearing the legal characteristics of a fund set aside for retirement—they did so at an earlier moment in time. After all, petitioners point out, “the initial owner” of the account “set aside the funds in question for retirement by depositing them in a” traditional or Roth IRA. Brief for Petitioners 21. And “[t]he [initial] owner’s death does not in any way affect the funds in the account.” Ibid.

We disagree. In ordinary usage, to speak of a person’s “retirement funds” implies that the funds are currently in an account set aside for retirement, not that they were set aside for that purpose at some prior date by an entirely different person. Under petitioners’ contrary logic, if an individual withdraws money from a traditional IRA and gives it to a friend who then deposits it into a checking account, that money should be forever deemed “retirement funds” because it was originally set aside for retirement. That is plainly incorrect.

More fundamentally, the backward-looking inquiry urged by petitioners would render a substantial portion of 11 U. S. C. §522(b)(3)(C)’s text superfluous. The funds contained in every individual-held account exempt from taxation under the Tax Code provisions enumerated in §522(b)(3)(C) have been, at some point in time, “retirement funds.” So on petitioners’ view, rather than defining the exemption to cover “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under [the enumerated sections] of the Internal Revenue Code,” Congress could have achieved the exact same result through a provision covering any “fund or account that is exempt from taxation under [the enumerated sections].” In other words, §522(b)(3)(C) requires that funds satisfy not one but two conditions in order to be exempt: the funds must be “retirement funds,” and they must be held in a covered account. Petitioners’ reading would write out of the statute the first element. It therefore flouts the rule that “ ‘a statute should be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous.’ ” Corley v. United States, 556 U. S. 303, 314 (2009) .

Petitioners respond that many of §522’s other exemptions refer to the “debtor’s interest” in various kinds of property. See, e.g., §522(d)(2) (exempting “[t]he debtor’s interest, not to exceed [$3,675] in value, in one motor vehicle”). Section 522(b)(3)(C)’s retirement funds exemption, by contrast, includes no such reference. As a result, petitioners surmise, Congress must have meant the provision to cover funds that were at one time retirement accounts, even if they were for someone else’s retirement. Brief for Petitioners 33–34. But Congress used the phrase “debtor’s interest” in the other exemptions in a different manner—not to distinguish between a debtor’s assets and the assets of another person but to set a limit on the value of the particular asset that a debtor may exempt. For example, the statute allows a debtor to protect “[t]he debtor’s aggregate interest, not to exceed [$1,550] in value, in jewelry.” §522(d)(4). The phrase “[t]he debtor’s aggregate interest” in this provision is just a means of introducing the $1,550 limit; it is not a means of preventing debtors from exempting other persons’ jewelry from their own bankruptcy proceedings (an interpretation that would serve little apparent purpose). And Congress had noneed to use the same “debtor’s interest” formulation in §522(b)(3)(C) for the simple reason that it imposed a value limitation on the amount of exemptible retirement funds in a separate provision, §522(n).

Petitioners next contend that even if their interpretation of “ ‘retirement funds’ does not independently exclude anything from the scope of the statute,” that poses no problem because Congress actually intended that result. Reply Brief 5–6. In particular, petitioners suggest that when a sentence is structured as §522(b)(3)(C) is—starting with a broad category (“retirement funds”), then winnowing it down through limiting language (“to the extent that” the funds are held in a particular type of account)—it is often the case that the broad category does no independent limiting work. As counsel for petitioners noted at oral argument, if a tax were to apply to “sports teams to the extent that they are members of the major professional sports leagues,” the phrase “sports teams” would not provide any additional limitation on the covered entities. Tr. of Oral Arg. 15.

There are two problems with this argument. First, while it is possible to conceive of sentences that use §522(b)(3)(C)’s “to the extent that” construction in a manner where the initial broad category serves no exclusionary purpose, that is not the only way in which the phrase may be used. For example, a tax break that applies to “nonprofit organizations to the extent that they are medical or scientific” would not apply to a for-profit pharmaceutical company because the initial broad category (“nonprofit organizations”) provides its own limitation. Just so here; in order to qualify for bankruptcy protection under §522(b)(3)(C), funds must be both “retirement funds” and in an account exempt from taxation under one of the enumerated Tax Code sections.

Second, to accept petitioners’ argument would reintroduce the surplusage problem already discussed. Supra, at 8–9. And although petitioners are correct that “the only effect of respondents’ interpretation of ‘retirement funds’ would seemingly be to deny bankruptcy exemption to inherited IRAs,” Reply Brief 2, as between one interpretation that would render statutory text superfluous and another that would render it meaningful yet limited, we think the latter more faithful to the statute Congress wrote.

Finally, petitioners argue that even under the inquiry we have described, funds in inherited IRAs should still qualify as “retirement funds” because the holder of such an account can leave much of its value intact until her retirement if she invests wisely and chooses to take only the minimum annual distributions required by law. See Brief for Petitioners 27–28. But the possibility that some investors may use their inherited IRAs for retirement purposes does not mean that inherited IRAs bear the defining legal characteristics of retirement funds. Were it any other way, money in an ordinary checking account (or, for that matter, an envelope of $20 bills) would also amount to “retirement funds” because it is possible for an owner to use those funds for retirement. 4  

*  *  *

For the foregoing reasons, the judgment of the United States Court of Appeals for the Seventh Circuit isaffirmed.

It is so ordered.


1 Under §522, debtors may elect to claim exemptions either under federal law, see §522(b)(2), or state law, see §522(b)(3). Both tracks permit debtors to exempt “retirement funds.” See §522(b)(3)(C) (retirement funds exemption for debtors proceeding under state law); §522(d)(12) (identical exemption for debtors proceeding under federal law). Petitioners elected to proceed under state law, so we refer to §522(b)(3)(C) throughout.

2 The Bankruptcy Court also concluded in the alternative that, even if funds in an inherited IRA qualify as retirement funds within the meaning of §522(b)(3)(C), an inherited IRA is not exempt from taxation under any of the Internal Revenue Code sections listed in the provision. See 450 B. R., at 865. Because we hold that inherited IRAs are not retirement funds to begin with, we have no occasion to pass on the Bankruptcy Court’s alternative ground for disallowing petitioners’ exemption.

3 As the House Judiciary Committee explained in the process of enacting §522, “[t]he historical purpose” of bankruptcy exemptions has been to provide a debtor “with the basic necessities of life” so that she “will not be left destitute and a public charge.” H. R. Rep. No. 95–595, p. 126 (1977).

4 Petitioners also argue that inherited IRAs are similar enough to Roth IRAs to qualify as retirement funds because “the owner of a Roth IRA may withdraw his contributions . . . without penalty.” Brief for Petitioners 44. But that argument fails to recognize that withdrawals of contributions to a Roth IRA are not subject to the 10 percent tax penalty for the unique reason that the contributions have already been taxed. By contrast, all capital gains and investment income in a Roth IRA are subject to the pre-59½ withdrawal penalty (with narrow exceptions for, for example, medical expenses), which incentivizes use of those funds only in one’s retirement years.




              The problem has been that seniors needing rehabilitation were being admitted to the hospital "for observation" as opposed to being admitted to the hospital, which meant Medicare wouldn't cover the costs of their rehabilitation. Many seniors who believed that the rehab was being covered by Medicare got a surprise when they got a bill for their rehab that could amount to $6,000 to $30,000 that they had to private pay, after thinking they had met the 3 day rule so Medicare would be paying that bill. This new law requires hospitals to provide patients placed into observation services with oral and written notice within 24 hours of such placement that the patient is in observation status and not admitted to the hospital. The notice must include a statement that observation status may impact the patient's coverage for the hospital services, and advise the patient to contact his or her insurance plan to better understand the implications of being placed in observation status. The patient or their legal representative must sign the notice to acknowledge receipt. The New York State Department of Health is expected to develop guidance for hospitals regarding the written notice. The law went into effect on October 21, 2013, but the provisions governing notice do not go into effect until Monday, January 20, 2014. The text of the new law can be found at: http://open.nysenate.gov/legislation/bill/s3926a-20        See my discuss of this problem, links to a video and several articles at Question 1 at http://www.estateandelderlaw.com/ep_pg2.htm


              UNIFIED CREDITS:

             See the link below for a summary of all changes and see page 9 for estate tax changes:


              Here's the new law|:





<>   The Supreme Court, in US v Windsor  June 26th, 2013, held that the Defense of Marriage Act (DOMA) is unconstitutional as a deprivation of the equal liberty of persons that is protected by lthe 5th amendment. This has far reaching estate planning consequences for same sex married couples for income, gift, estate tax, IRA and retirement planning.  


<>  New York 2013 Income and Resourse Standards effective January 1, 2013:


<>  New York Medicaid Regional Rates For Calculating Penalty Periods:


<>   12/31/2012 New York County Surrogate's Court sets forth duties of the Trustee of a Supplemental Needs Trust:

 Matter of JP Morgan Chase Bank N.A. (Marie H.)

[*1] Matter of JP Morgan Chase Bank N.A. (Marie H.) 2012 NY Slip Op 22387 Decided on December 31, 2012 Sur Ct, New York County Glen, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Decided on December 31, 2012
Sur Ct, New York County

IN THE MATTER OF THE ACCOUNTING BY JP Morgan Chase Bank, N.A., and H. J. P., as Co-Trustees of the MARK C.H. DISCRETIONARY TRUST OF 1995,


Marie H., Grantor.


Counsel for trustee Chase Manhattan Bank: Davidson, Dawson & Clark

Counsel for individual trustee H.J.P.: stat Roy H. Carlin

Kristin Booth Glen, J.

This case raises important questions about the obligations of fiduciaries, including institutional trustees, to beneficiaries, with disabilities, of trusts that seek to provide for the welfare of those beneficiaries. A review of the history of this trust and related proceedings places the issue in sharp perspective.

This history reveals a severely disabled, vulnerable, institutionalized young man, wholly dependent on Medicaid, unvisited and virtually abandoned, despite a multi-million dollar trust left for his care by his deceased mother. It reveals two co-trustees, one who was personally involved with the deceased and who holds himself out as an expert in planning for children with intellectual disabilities, and one which is a major banking institution, neither visiting or inquiring after the beneficiary's needs nor spending a single penny on him.

The history turns brighter after a serendipitous SCPA Article 17-A proceeding, where the co-trustees were called to task, educated about available services, and hired a certified care manager to attend to the beneficiary's needs. That intervention, now after almost four years, has dramatically improved the beneficiary's quality of life and his functional capacity to enjoy what is now a near "normal" existence in the community.

This history, and the legal consequences that flow from it, discussed below, should provide a clarion call for all fiduciaries of trusts whose beneficiaries are known to have disabilities to fulfill their "unwavering duty of complete loyalty to the beneficiary" (106 NY Jur 2d, Trusts § 247) or be subject to the remedies available for breach of their fiduciary obligation.


Will and Trusts

Marie H. died on March 20, 2005 at the age of 85, survived by two adopted children, Charles A.H., and Mark C.H., then sixteen years old. Prior to her death, upon learning of her terminal cancer, Marie searched for an appropriate residential setting for Mark, and ultimately [*2]placed him in the Anderson School in Straatsburg, New York.[FN1] Mark's disabilities are described more fully below.

In her Will, Marie left her entire estate to the Marie H. Revocable Trust of 1995, created by trust agreement dated March 23, 1995 (the Revocable Trust).[FN2] The Revocable Trust provided that, upon Marie's death, after dividing her tangible property between her two children, the balance was to be divided into two equal shares, one for Mark's Trust, and one for Charles's Trust. The Will, also dated March 23, 1995, named her sister Betty as Executor and Guardian of the Person and Property of her minor children. Marie's attorney, H.J.P., was named the successor executor.

The will was admitted to probate on July 5, 2005. Because Betty predeceased Marie, letters testamentary issued to H.J.P.[FN3] The federal estate tax return (the 706) indicated a gross estate of approximately $12 million, of which $2,575,000 was the date of death valuation of Marie's co-op apartment, and $8,973,653.79 was the date of death value of her stocks and bonds. Other miscellaneous property was valued at $471,439,77. According to the 706, the only assets that were transferred to the Revocable Trust during Marie's lifetime were two Citibank accounts totaling $1,390.41.

The 706 estimated the executor's commission at $133,000 and attorneys fees at $300,000,[FN4] with other administration expenses [FN5] shown as $462,717.45. Federal estate taxes were shown as $3,479,561.55.[FN6] [*3]

On the same day that she executed her will and the Revocable Trust, March 23, 1995, Marie entered into two irrevocable trust agreements, one for Charles and one, the Mark C.H. Discretionary Trust of 1995 (the Mark Trust), with herself and Betty as Trustees. H.J.P. was named successor trustee if either of the two named trustees should cease to serve, and, upon Marie's death, the Chase Manhattan Bank, N.A. (Chase) was designated as additional trustee "to serve with the other Trustees in office." The Mark Trust was funded with an initial contribution of $18.00.

It is clear that the Mark Trust is for the benefit of a person with disabilities.[FN7] Article 2.1 provides for distributions of income and principal to Mark for his "care, comfort, support and maintenance," in the trustees' discretion, and further provides: "(ii) In the event such net income shall in any year be insufficient to provide for the support, maintenance, care and comfort of the beneficiary or for necessary medical expenses as determined by the Trustees, in their sole and absolute discretion, the said trustees shall expend out of the principal of said fund such sums as they deem necessary for any such purposes. Before expending any amounts from the net income and/or principal of this trust, the Trustees may wish to consider the availability of any benefits from government or private assistance programs for which the Grantor [sic] may be eligible and that where appropriate and to the extent possible, the Trustees may endeavor to maximize the collection of such benefits and to facilitate the distribution of such benefits for the benefit of the beneficiary. "In Article 2.1, section (iii) continues, authorizing the trustees" to pay or apply. . .to any facility [the beneficiary] may be residing in and/or to any organization where he may be a client or a participant in any program(s) sponsored by them, as the Trustees shall determine, for the general uses of such [*4]facility and/or organization. . . ."[FN8]

Article 2.1, section (v) gives the trustees the right to terminate the trust "as if the beneficiary were deceased" if the existence of the trust causes the beneficiary to be excluded from government benefits.

The Account

After probate of Marie's will, in the SCPA Article 17-A proceeding, described below, this court, sua sponte, ordered H.J.P. and Chase to account as trustees of the Mark Trust,[FN9] noting "questions having arisen as to whether the funds intended by Marie H. to benefit Mark . . .had been duly applied by for such purposes by her chosen fiduciaries." The court appointed a guardian ad litem (GAL) for Mark in this accounting proceeding (SCPA § 403[2]).

On December 7, 2010, the trustees filed an amended accounting covering the period of March 23, 1995 through March 31, 2010. Schedule A of that accounting showed the total amount of principal received as $1,420,343.28. In objections filed by the GAL, he noted his belief that, with a net estate of approximately $10 million, the Mark Trust should have been funded with $5 million. After meeting with Chase's attorney, he concluded, based on her statements to him, that estate taxes of $3,479,561.55 accounted for the diminution of the amount with which the Trust was funded. This, of course, was clearly not the case, as the estate tax would have been paid before distribution of the residuary estate, first to the Revocable Trust, and from there, in equal shares to the Mark Trust and trust for Charles. If, in fact, all the estate taxes were somehow allocated to Mark's share, a major error would have occurred.

Schedule G, "the Statement of Principal Assets on Hand" as of March 31, 2010, showed a market value of $2,733,094.49. The substantial increase over the amount shown as principal received in 2005 is, however, not due to investment strategies but rather, according to a subsequent communication from Chase, the result of under-reporting the initial principal received with many securities incorrectly listed at a $0 inventory value on Schedule A.[FN10]

Schedule C shows commissions paid to the Trustees in amounts of $17,622.53 to H.J.P.[FN11] [*5]and $34,914.61 to Chase.[FN12] Significantly, Schedule G-1 shows income on hand of $248,881.36, while Schedule E-1, distribution of income, shows $0. The statement of administration expenses chargeable to income, Schedule C-2, totals $29,493.49, of which the largest items are the commissions paid to the trustees. Of the total administrative expenses and taxes shown on Schedule C, New York State income taxes (after substantial refunds) constitute $7,158.54; federal income taxes (after substantial refund) were $6,367.70; commissions, as already noted, to Chase ($34,914.61) and H.J.P. ($17,622.53); H.J.P.'s firm's legal fees of $11,500; the fees of the guardian ad litem of $7,375; and the fees of Staver Eldercare Services (the care manager hired for Mark as a result of the 17-A proceeding) of only $3,525.

The almost negligible amount paid to Staver, beginning in February, 2009, is the only money paid out for the benefit of Mark, the disabled beneficiary, in five years. That is 1.4% of the income on hand at the end of the accounting period and 3.6% of all expenses. On an almost $3 million trust, the money spent on the beneficiary, over a five year period — and only because of the court's intervention — was approximately 0.1%.

The 17-A Proceeding

In October 2006, H.J.P. brought a proceeding pursuant to Article 17-A to be appointed as guardian of the person [FN13] of Mark. In support of his petition, he submitted affirmations from two health care providers. One, Robert C. Williams, Ph.D., described Mark as "profoundly mentally retarded, suffering from autism," as well as "non-verbal and engaging in numerous repetitive and self stimulating behaviors." Dr. Lynn Liptay provided a diagnosis of autism and mental retardation, noting that Mark was "nonverbal and requires constant supervision and assistance with all ADL's,"[FN14] and, as well, that he "engaged in frequent aggressive behaviors including spitting, throwing objects and hitting his own head."

Because Mark was living in an institution, he was represented by Mental Hygiene Legal Services (MHLS) (MHL § 81.07[g][1][vii]). The report of the principal attorney for MHLS in the Second Department, who visited him there, notes that, according to the Anderson School records, Mark "has the receptive communication skills of someone less than two years old and the expressive skills of a three month old." The attorney described her visit to Anderson and her observation of Mark: "Effective communication was not possible, [Mark's] only responses were facial grimaces and attempts to return to his classroom chair. He remained nonverbal, did not make eye contact, and appeared to be responding to internal stimuli."[*6]

At the initial hearing, on September 18, 2007,[FN15] where Mark's presence was excused,[FN16] H.J.P. revealed that, although he was applying for guardianship as a result of a promise to Mark's mother on her death bed, he had not seen Mark since Mark was six years old, when Marie brought him and Charles to H.J.P.'s law office. H.J.P. had never visited Anderson to ascertain Mark's condition nor, more critically, his needs,[FN17] nor had he inquired of the staff about any unmet needs. Also revealing the existence of Mark's trust [FN18] and his position as co-trustee, H.J.P. admitted that he had not expended a single dollar on Mark's behalf in almost three years.

I adjourned the hearing to permit the other co-trustee to appear. Subsequently, a representative of Chase came to court with H.J.P. in response to my instruction; Chase's "excuse" for inaction was its lack of institutional capacity to ascertain or meet the needs of this severely disabled, institutionalized young man. If the bank lacked such expertise, I noted, they should obtain the services of someone who could assess Mark's situation and ascertain his needs. After some initial missteps, H.J.P. and Chase retained the services of a certified care manager with extensive experience with people with intellectual disabilities, Robin Staver, MS, Ed.,


First contacting, and then visiting Anderson, she learned of a list of items the professionals there believed would enhance Mark's quality of life and assist his learning and development. Over the past four years she has, as a representative of the Trustees, been actively involved in Mark's life and care, attending, in person or by phone, planning meetings, arranging medical and other consultations, purchasing equipment, including assistive communication devices, recreational materials, clothing, etc., and providing for Mark's first forays into the community. What follows is a brief snapshot of the extraordinary - and heartwarming - progress Mark has made since the funds his mother left for his care have been well and thoughtfully used [*7]for that purpose.[FN19] The detail included, what anthropologists call a "thick description," is important in understanding how apparently trivial expenditures and interventions can have a huge impact on the progress and quality of life of a person with intellectual disabilities.

December 2008

This was Staver's first meeting with Mark and the staff at Anderson. She noted that "Mark enjoys swinging and climbing outdoors. However, there is no playground in the vicinity of his residence. [In response to communications about Mark's needs, initiated by the court,] in August a proposal for a play structure with swings and Adirondack chairs was sent to H.J.P. To date, no plans for the structure are in place."

The Residence Manager poignantly told Staver that "as far as she knew, Mark has not had any visitors in the five years she has worked with him nor has he had a vacation. She stated that most of the students leave the school over Christmas vacation, and Mark remains on campus with staff."

Staver reported on Mark's pharmacological regime at the same time that she recommended an independent neurology consult with a non-Medicaid neurologist and a speech evaluation "to determine appropriate augmentative communication devices and purchase those devices." Significantly for the issues presented here, Staver reported that "Mark currently takes Keppra 500 mg. which is covered by Medicaid. However, this medication causes adverse reactions including physical aggression, agitation, frustration and vocalizations. Keppra SR, which is an extended release medication, causes fewer side effects, but is not covered by Medicaid."[FN20]

Staver also recommended the purchase of a personal computer and computer programs for Mark's room, an electric synthesizer and/or electric keyboard, gift certificates for restaurants and clothing stores, the playground system and outdoor chairs previously requested, a one-week vacation to Disney World with 2 staff members on duty 24 hours a day, and a recliner chair with [*8]massage capabilities.[FN21]

July 2009

Mark "graduated" from the Special Ed program in June,[FN22] and was being prepared to enter a vocational program and to move to an IRA (Individualized Residential Alternative) residence in the community. He still required assistance with some ADL's (tooth brushing, applying deodorant) but was able to dress himself independently, eat with regular utensils and drink from a cup. He demonstrated "a limited sense of safety and require[d] supervision when out in the community." He had no skills in the areas of money, time-telling or calendar recognition. While he was still engaging in aggressive behavior, he was also enjoying some community activities including playing ball and watching videos. As previously reported, "Mark loves to climb on the playground and go on the swings. He smiles and will reciprocate gestures such as high fives or handshakes."

Staver also reported that Mark was now using the PECS (Picture Exchange Communication System) for communication with others, and had made "significant progress," although the speech pathologist recommended that an augmentative communication device be purchased to further enhance Mark's communication skills.

April 2010

Mark continued to reside on the Anderson campus, awaiting completion of a new IRA site targeted for December 2010. In January 2010, he transitioned from Anderson's education program to adult day habilitation services. Mark, still entirely non-verbal, continued to use the PECS, but his inability to communicate effectively with others made it "difficult for him to self- regulate when transitioning from one activity to another...[causing him to become] agitated and exhibit aggressive behavior."

Because of frequent signs of aggression, the Residence Manager "requested contact information for Mark's brother. Staff would like him to visit Mark. After Mark's mother died, he no longer had any contact with his brother. [The Residence Manager] believes that it would be beneficial for Mark emotionally to see his brother again."

Finally, Staver reported that she had now been able to purchase gift certificates for a computer and headphones, clothing for Mark, grocery items, and meals in local restaurants. Recommended [*9]items included two air purifiers,[FN23] a portable DVD player, a radio with wireless headphones, a recliner chair, and more gift certificates for restaurants in the community.

August 2010

Mark was just about to move to his new housing; because he "does not adapt well to change," he was exhibiting more outbursts of aggression, including lunging and throwing items while in the van that takes him to and from his day program. The Behavior Specialist instituted a protocol for use of a safety harness in the van, but also "stated that Mark would benefit from use of enjoyable sensory items in the van. These items will assist in calming Mark and hopefully turn the van ride into a positive experience. [The Behavior Specialist] will consult with . . .the Occupational Therapist regarding items to be purchased for Mark. . .[and] forward all requests to [Staver]."

Staver reported that since her last report, she had purchased a touch screen computer, a computer table, Boardmaker Plus! software, clothing and certificates for dining out in the community, and was planning to purchase additional needed items once Mark moved to his new residence.

November 15, 2010

Staver reports purchasing an iPad, and gift cards to Best Buy for accessories and apps; a trampoline, a recumbent bike, augmentative communication devices, educational puzzles and, as requested, "sensory items."

March 2011

Mark transitioned well to the Plutarch Residence. He "continues to exercise daily, enjoys taking long walks, brushes his teeth independently, helps with the laundry, and participates in afternoon meetings." He was progressing toward having "40 van rides without lunging out of his seat" so that the safety harness could be discontinued. In addition, "Mark continues to show significant improvement during community integration. He enjoys meals, bowling, haircuts and shopping."

Staver reports that she purchased for Mark's new residence : a laptop computer, a 32" television, a mattress and box spring, headboard and footboard, a rocker/reclining chair with heat and massage; a recumbent bicycle, a trampoline and rubber mats for safety.

Under consideration for purchase were: playground equipment for use at Mark's residence; a trampoline to be used at Mark's day program; Wii and XBox; a hammock; an iPad; and a Mayer-Johnson Tech/Talk augmentative communication system that aids users to communicate using direct selection.

August 26, 2011

Mark was reported to have continuously improved in the tasks and activities of daily life in his new residence, "participat[ing] in household tasks including putting laundry in the washing machine and transferring clean clothes to the dryer; reviewing his daily schedule, [*10]removing his plate from the table after meals, scraping the plate, rinsing it off and putting it in the dishwasher."

The importance of exercise was noted,[FN24] with Mark "playing basketball, walking, sprinting and running, as well as using an exercise ball, recumbent bike, Wii exercises and a trampoline at home." He no longer required the safety harness in the van and, in the classroom "accepts changes in his routine, shortens break time himself, interacts more with staff and is able to sit and complete tasks." The Speech Language Pathologist noted that Mark's use of the recently purchased XBox allowed him to "pair an enjoyable game with work tasks and aid in peer interactions."

Staff requested purchase of a number of items including an iPad with apps for music, communication, labeling and categorization; a Proloquo2Go for augmentative and alternative communication; wireless headphones for music [for self-soothing] at his day program; Boardmaker software for communication pictures and symbols; and sensory items including a compression vest, hand held massager; and neck/shoulder weighted compression.

November 2011

Staver wrote to H.J.P.: "Staff reports that Mark has benefited from recent purchases [of the items noted in the August 26, 2011 report] on his behalf" and, as well, "I am working to coordinate a visit with Mark's brother. Staff thinks this would be beneficial to Mark."

July 2012

Mark was now ensconced in his IRA, where he had his own room, and where he was making substantial progress in communicating. He was able to lose the weight he gained over the winter through portion control and exercise, including his trampoline and recumbent bike. He showed "significant progress in the classroom" and "mastered most tasks including attending speech and occupational therapy sessions without staff accompaniment". He participated in preparation for the Special Olympics 50 meter run, though ultimately he was unable to start.[FN25]

The staff had begun planning a vacation for Mark, beginning with an introduction "to an amusement park and/or water park to see how he reacts and how accepting he is to new activities." Options for the vacation include Disney World, as previously suggested by Staver, [*11]Autism on the Seas, a cruise for autistic individuals and their families/residential staff, and autism-friendly Broadway shows.

Also reported: "The case manager is working with Mark's brother, Charles, to facilitate a visit to Mark."

September 24, 2012

Despite some new physical problems, the most recent communication was positive on many fronts. Mark is reported as "using pleasant table manners" and using PECS, and is able to make his own choices for meals and snacks. He clears the table after meals, rinses and puts dishes in the dishwasher, independently takes his laundry from his room to the laundry room where he places it in the washer without prompts. He "showers independently" though with a staff member nearby due to his seizure disorder. He "has become less prompt-dependent at home" and "will independently leave the living room to go upstairs to his room or to the bathroom and return to the living room alone." As an example of his increasing life skills, Mark is reported to enjoy walking on the rail trail, after which "Mark likes purchasing a drink, and especially likes receiving change from his payment."

Demonstrating the beneficial results of purchases made for him, his "gross motor skills have improved. He enjoys bouncing on the trampoline, using it as a sensory activity..... He likes having meals in restaurants and enjoys dressing up prior to going out for dinner."

His communication skills are also improving, in part because of the devices that have been purchased for him and that are being incorporated into his regimes. According to the report, "Mark uses sign language to communicate the words cracker' and apple.' He uses the Super Talker 8 for dinner and chooses the foods he likes. Mark will start using programs on his iPad at home."

And, as an apparently small, but enormously encouraging, advance, Staver reports that, as she was leaving Mark's classroom, he waived bye' and, although previously entirely non-verbal, said, for the very first time, "buh"!

Finally, as a truly happy ending, Staver reports that she "facilitated a visit and accompanied Mark's older brother Charles to see Mark at his residence on September 22, 2012...[Charles] stated that he was amazed at the progress Mark made in the last 8 years. He also said he felt reassured by the staff's caring, sensitivity and commitment to their clients. He said he knows Mark thrives because of the environment he's in and looks forward to bringing his family to meet Mark in the near future."


As this history demonstrates, once the Trustees were required to make themselves knowledgeable about Mark's condition and his needs, and the availability of services that would [*12]enable them to provide for those needs, they began, and continue to use funds from his trust for the purposes his deceased mother anticipated and so deeply desired.

The history brings into sharp focus the obligations of trustees, both individual and institutional to the beneficiaries of trusts they administer when they know,[FN26] or should know,[FN27] that those beneficiaries have disabilities, and have medical, educational or quality of life needs that can and should be met from trust income.

It is fundamental that a fiduciary takes on obligations beyond those imposed by ordinary relationships or transactions; in the oft-quoted works of Judge Cardozo, her responsibility is "something stricter than the mere morals of the marketplace. . . but a punctilio of honor the most sensitive" (Meinhard v Salmon, 249 NY 458, 464 [1928]). This is no less the case for trustees, who have "an unwavering duty of complete loyalty to the beneficiary of the trust to the exclusion of all other parties (106 NY Jur 2d, Trusts § 247).

The Mark Trust empowers the trustees with "absolute discretion," gives them latitude to withhold or pay out income, and, in the event of an income shortfall, to invade the principal, for the "care, comfort, support and maintenance" of Mark and his descendants. However, the words "absolute discretion" do not insulate the trustees, even trustees of lifetime trusts, as here, from liability.

Article 6.1 purports to absolve the trustees from a duty to account (except for a final account). That violates public policy and cannot be enforced (Matter of Malasky, 290 AD2d 631 [3d Dept 2002]), where, as here, the beneficiary is a person under a disability, and no one is protecting the beneficiary's interests (Matter of Shore, 19 Misc 3d 663 [Sur Ct, New York County 2008]). In an accounting, the court can assess the trustees' failure to take reasonable interest in and action on behalf of Mark.

The trustees left Mark to languish for several years with inadequate care, despite the fact that the Mark Trust had abundant assets. In so doing, the trustees failed to exhibit a reasonable degree of diligence toward Mark. Courts will intervene not only when the trustee behaves recklessly, but also when the trustee fails to exercise judgment altogether ("even where a trustee has discretion whether or not to make any payments to a particular beneficiary, the court will interpose if the trustee, arbitrarily or without knowledge of or inquiry into relevant circumstances, fails to exercise the discretion" (Restatement [Third] of Trusts § 50, Comment b).

That is, sadly, precisely what occurred here.

The plain language of the Mark Trust elucidates Marie's intent in its creation.

Article 2.1, section (iii) authorizes the trustees to pay any income not applied for Mark's benefit [*13]"to any facility he may be residing in and/or to any organization where he may be a client or a participant in any program(s)." This provision reflects both the importance of Mark's quality of life to Marie and the minimum knowledge that Marie expected her trustees to have about Mark and his situation. In order to exercise their discretionary power of expenditure, at the very least they are required to take steps necessary to keep themselves fully informed of Mark's residential situation and ancillary services. It is not sufficient for the trustees to simply safeguard the Mark Trust's assets; instead, the trustees have a duty to Mark to inquire into his condition and to apply trust income to improving it. The trustees abused their discretion by failing to exercise it. H.J.P.'s complicity is exacerbated by the fact as drafter of the Mark Trust, as well as the drafter of Marie's Will, he was aware of Mark's incapacity for years before serving as trustee.

Although New York case law concerning inactive fiduciaries is sparse, the Appellate Division has clearly ruled that executors may not deny a needy beneficiary payment from an estate under circumstances far less compelling than those presented herein. In In re Van Zandt's Will, 231 App Div 381 (4th Dept 1931), the decedent bequeathed his real property to his sons subject to a life estate in the same property to his wife. As in the Mark Trust, the decedent gave his executors discretion over spending, authorizing but not requiring them to invade the trust corpus if the income supplied by the widow's life estate was insufficient for her "care, support and maintenance" (id. at 384). As in the Mark Trust, decedent's will gave the executors wide latitude "to expend so much of the corpus of his estate as, in their opinion, might be necessary" (id. at 382). The executors subsequently refused to pay the widow's health care expenses.

Despite the discretion that the words "in their opinion" afforded to the executors, the Van Zandt Court held that the will required the executors to expend estate assets on the beneficiary's behalf. The Court looked to the plain language of the will to determine the testator's intent: "The language of the will ... indicates a design on his part to devote his estate to the support of his wife. It is evident that he regarded her as the first object of his bounty. He makes it clear that, if the income from her property is insufficient for her care, support, maintenance, the corpus is available for that purpose" (id. at 383).

In addition, the Court qualified the executor's discretion, noting that it was not an "arbitrary" power that the executors could refuse to apply altogether: "the executors ... cannot shut their eyes to Mrs. Van Zandt's needs, and neglect to act, or refuse to approve proper and necessary payments which come early within contemplation of the bequest. The testator's intent to devote his entire estate, if need be, to the support of his wife must not be lost sight of" (id. at 384).

Rather, the Court suggested that trustees had an affirmative duty to exercise their spending power on expenses that fell within the parameters set forth in the will: "Where a trustee has been given freedom to act according to his own judgment in matters pertaining to another, and he fails, in the opinion of the court, to exercise such discretion, he may be compelled to do that which the trust fairly requires him to do" (id.).[*14]

By not spending, the executors obstructed the testator's intent.

As in Van Zandt, it was not sufficient for the trustees merely to prudently invest the trust corpus and to safeguard its assets. The trustees here were affirmatively charged with applying trust assets to Mark's benefit and given the discretionary power to apply additional income to Mark's service providers. Both case law and basic principles of trust administration and fiduciary obligation require the trustees to take appropriate steps to keep abreast of Mark's condition, needs, and quality of life, and to utilize trust assets for his actual benefit.

While the accounting in this trust is not yet complete,[FN28] their failure to fulfill their fiduciary obligations should result in denial or reduction of their commissions for the period of their inaction.


The current accounting leaves many questions unanswered, particularly since an accurate statement of the opening principal received depends on the administration under both Marie's will and the somewhat inexplicable [FN29] Revocable Trust. Without expressing a view, or making any negative assumption, whether or not the estate and Revocable Trust were appropriately administered affects the amount of assets the Mark Trust should rightfully have received.

There is no question that this court has the power to order such accountings sua sponte (SCPA 2205). The power, and, indeed the obligation to do so is especially important where, as here, the only interested person, the sole beneficiary, is under a disability, and there is no one but the court to protect his interests.

Accordingly, H.J.P. is ordered to account as executor of the will of Marie H., and he and Chase are ordered to account as co-trustees of the Marie H. Revocable Trust of 1995 within 90 days of the order to be entered following this decision. Further, the co-trustees of the Mark Trust are ordered to file and serve a supplemented and revised accounting herein for proceedings through December 31, 2012, reflecting the proper values of the assets with which the trust was funded, by that same deadline.

Order signed.


Dated: December 31, 2012.


Footnote 1:Charles is Mark's biological brother, and is one year older. He had no contact with Mark from the time Mark was placed at the Anderson School.

Footnote 2:Marie was named Trustee, with Section 9(c) of the Revocable Trust providing that, upon her incapacity, her sister Betty and H.J.P. should become Successor Trustees. Section 9(b) provide that, upon Marie's death, the Chase Manhattan Bank, N.A., should become a Successor Trustee with Betty and H.J.P. or the survivor of them.

Footnote 3:According to the guardian ad litem's report, H.J.P. reported that he specializes in estate planning and trusts and estates, and has long been involved in issues around people with intellectual disabilities, having served, inter alia, as co-chairperson of the New York State Association for Retarded Children Trust (NYSARC) and on the Board of the Association for the Help of Retarded Children (AHRC). He has lectured on planning for families who have children with intellectual disabilities, and, in fact, met Marie H. after one such lecture.

Footnote 4:According to a letter from H.J.P., his fees are "charged on a flat fee basis," and not on time spent. Accountant fees were estimated at $10,000.

Footnote 5:These expenses related primarily to the sale of Marie's co-op apartment.

Footnote 6:According to an affidavit in response to the report of the guardian ad litem in this accounting, discussed below, a federal audit increased the estate tax due by $38,496.44, plus interest of $5,584.65, while there was a refund of NYS Taxes of $16,048.87. The affidavit continues "the attorney fees for the estate were increased by $100,000"; expenses are shown on the 706 totaling $917,217.45.

Footnote 7:Much later, H.J.P. argued that the trust should not disqualify Mark from Medicaid eligibility as it was, and was intended to be an "Escher Trust." A precursor to the statutory supplemental needs trust (EPTL 7-1.12 [eff. July 26, 1993]) was established in New York law by Matter of Escher (94 Misc 2d 952 [Sur Ct, Bronx County 1978], affd on opn below, 75 AD2d 531 [1st Dept 1980], affd sub. nom Matter of Gross, 52 NY2d 1006 [1981]). There, the trustee with absolute discretion as to principal distributions could not be directed to transfer the trust corpus to the government entity providing for the life beneficiary's care (id.).

Footnote 8:Notably, these provisions do not appear in the trust for Mark's brother, Charles, established on the same day.

Footnote 9:It was the court's intention, at the same time, to order an accounting in the state of Marie H,, but, inexplicably, that order was never signed.

Footnote 10:It is difficult, if not impossible, to ascertain the amount with which the Mark Trust was funded, and thus also to compare that amount to the closing balance for purposes of evaluating the trustees' prudence as a manager of trust funds. A rough calculation of the net value of Marie's estate based on the 706 suggests that the Mark Trust would have received approximately $2.5 million. In a phone communication, the attorneys for Chase have agreed to file corrected schedules, but as reflected in the conclusion herein below, the trustees will be ordered to do so.

Footnote 11:According to H.J.P., the commissions to him were computed in accordance with SCPA § 2309.

Footnote 12:Pursuant to Article 5.7 of the Mark Trust, a corporate trustee is authorized to receive commissions in accordance with their published rates of compensation in effect when such compensation is payable (see SCPA § 2312).

Footnote 13:The original petition sought appointment both as guardian of the person and of the property, but in communications with the Guardianship Clerk, H.J.P. made clear that he was not, at that time, applying for the latter.

Footnote 14:ADL's are activities of daily living and include bathing, feeding oneself, toileting, dressing, etc. Mark was, according Anderson's records, unable to perform any of these activities.

Footnote 15:The proceeding was delayed for almost a year as a result of H.J.P.'s health-related issues.

Footnote 16:The health care professionals at Anderson wrote that Mark's aggressive and self harming behavior would be seriously exacerbated by the changes accompanying a trip from the institution in Straatsburg to the court in Manhattan.

Footnote 17:According to the guardian ad litem, the Director of Corporate Compliance at Anderson, Linda Geraci, "stated that she is concerned that [H.J.P.] has not inquired into Mark's needs nor has he purchased anything for him - - [despite the fact] that Mark's residence manager has recommended purchasing the following for Mark's benefit : an acoustic synthesizer and other musical equipment, furniture, clothing, adult swings, slides, climbing equipment, a stereo system and a computer with game software."

Footnote 18:Because Mark was placed in Anderson before his mother died, Anderson was not aware of the trust, and H.J.P. never informed them of its existence. This raised substantial concerns about Mark's Medicaid eligibility, which were ultimately favorably resolved.

Footnote 19:The information comes primarily from the quarterly reports prepared for formal team meetings at Anderson which Staver attends, in person or by phone, and which she has supplied to the Court, as well as her invoices and communications with H.J.P. and Chase. In accordance with the appointing order, H.J.P. now files extensive yearly reports which include the notes of the quarterly meeting and some additional, usually medical, information (see Matter of Mark C.H., 28 Misc 3d 765, 783 [Sur Ct, New York County 2010] [requiring annual reports in the form described by MHL § 81.31])

Footnote 20:That is, had funds been made available for Mark's "medical needs" from the Mark Trust, he could have avoided the serious aggression and exacerbating effects of the only medication covered by Medicaid.

Footnote 21:Staff utilized massage and soft touching to deal with Mark's agitation, and the chair was intended to give him the ability to "self soothe."

Footnote 22:This is automatic, upon a Special Ed student's reaching the age of 21, and does not necessarily suggest any particular level of scholastic achievement. It is, however, the transition from one set of government funded benefits to a different and separate system.

Footnote 23:Mark suffers from numerous allergies causing red and itchy eyes, and the air purifier was recommended by staff both for use in his residence and at the day habilitation program.

Footnote 24:Because Mark's medications have weight gain as a side effect, exercise is critical to maintain him at a healthy weight and BMI.

Footnote 25:According to the Residence Manager, there was a long wait between trials, and Mark removed his sneakers, behavior he engages in when frustrated. As a result, he was disqualified from the race, but staff "looks forward to Mark's participation next year and is hopeful there will be environmental accommodations for the participants."

Footnote 26:Through his 10 years of work with her, and the planning he did, H.J.P. unquestionably knew of Mark's severe disability, and the circumstances which had caused Marie to institutionalize him. Further, H.J.P. holds himself out as an expert in the legal needs of children with disabilities, and, in fact, first met Marie after giving a lecture on the subject at AHRC.

Footnote 27:Presumably Chase had conversations with its co-trustee H.J.P. But the language of the Trust itself, quoted supra, was more than enough to put them on notice that this was, as H.J.P. characterized it, an Escher trust for a person with disabilities (see n 7, infra).

Footnote 28:Many questions are left open by the accounting as it now stands, and they cannot be fully resolved without accountings in Marie's estate and the Revocable Trust, ordered below. The guardian ad litem may also wish to amend his objections to more clearly include commissions paid out in light of the abrogation of fiduciary duty.

Footnote 29:It is difficult to understand the use of this Revocable Trust, created on the same day as the execution of Marie's will and as the Mark and Charles Trusts, and like the latter, only nominally funded, as a planning device. Marie's estate could, as easily and without any negative tax consequences, simply have poured directly into the Mark and Charles Trusts. Without an accounting, it is impossible to know if commissions, appropriate or otherwise, were taken, or what expenses, if any, were charged to the Revocable Trust.


<>  New York Important Medicaid Case On The Use of Service Agreements Re payment for overnight supervision, importance of logs to document all services, even overnight services and hourly rate to be used. 

        State of New York Supreme Court, Appellate Division Third Judicial Department

          Decided and Entered: June 14, 2012 513524


In the Matter of SHARON

SWARTZ, Also Known as SHARON

TOWNSEND, Individually and

as Administrator of the


Deceased, Petitioner,


                                                                                                              MEMORANDUM AND JUDGMENT


HEALTH et al.,



Calendar Date: April 17, 2012

Before: Rose, J.P., Malone Jr., Stein, Garry and Egan Jr., JJ.


Eric A. Bare, Vestal, for petitioner.

Eric T. Schneiderman, Attorney General, Albany (Victor

Paladino of counsel), for respondents.


Malone Jr., J.

Proceeding pursuant to CPLR article 78 (transferred to this Court by order of the Supreme Court, entered in Broome County) to

review a determination of respondent Department of Health which denied Kenneth Swartz's request for Medicaid assistance.

In October 2006, petitioner moved into her parents' home to care for them and, on November 6, 2006, she, her father

(hereinafter decedent) and her mother signed a "Personal Services-Care Agreement," pursuant to which petitioner was to act

-2- 513524 as a personal care aide, homemaker/housekeeper and a companion for her parents on a 24-hour basis. The contract required

petitioner to maintain contemporaneous records of the dates and nature of all of the services that she provided and, in exchange

for those services, petitioner was to be paid on an hourly basis at a rate of $17, $16.50 or $15.50, depending on the type of

service provided. Petitioner provided services to her parents until decedent entered a nursing home in April 2007.

1 Because petitioner had never received any pay pursuant to the contract, when decedent's house was sold in February 2008, she received

$51,940.50 out of the profits of the sale, representing the amount she claimed was owed to her under the contract.

Meanwhile, decedent had applied for Medicaid assistance upon his admission to the nursing home facility. His application

was denied by the Broome County Department of Social Services (hereinafter the agency) on the basis that his eligibility was

subject to a penalty period of 5.8 months due to certain transfers of assets, including the transfer to petitioner after

the sale of his house, which had been made during the applicable "look-back" period. Specifically, the agency determined that,

although $51,940.50 had been transferred to petitioner, the fairmarket value of the services that she provided – and for which

she could provide detailed contemporaneous documentation – was $15,883.76, leaving a disqualifying transfer amount of

$36,056.74. Decedent requested a hearing, following which respondent Department of Health (hereinafter respondent) upheld

the agency's determination. Petitioner thereafter commenced this proceeding challenging respondent's determination, which was

transferred to this Court by order of the Supreme Court.



Apparently, petitioner's mother died sometime before April 2007. Petitioner commenced the proceeding individually and as

power of attorney for decedent. After decedent died during the pendency of this proceeding, Supreme Court "substituted" (see

generally CPLR 1015, 1021) petitioner in her fiduciary capacity as administrator of decedent's estate.

-3- 513524

Petitioner bears the burden of establishing eligibility for Medicaid benefits and respondent's determination in that regard

will not be disturbed so long as it is supported by substantial evidence in the record (see Matter of Barbato v New York State

Dept. of Health, 65 AD3d 821, 823 [2009], lv denied 13 NY3d 712 [2009]; Matter of Rogers v Novello, 26 AD3d 580, 581 [2006]). It

is well settled that certain transfers of assets for less than fair market value during the applicable look-back period renders

an applicant ineligible for nursing facility benefits (see Social Services Law § 366 [5]; Matter of Rogers v Novello, 26 AD3d at


In this case, substantial evidence supports respondent's determination that decedent transferred more than $36,000 in

assets to petitioner for less than fair market value and was,  therefore, ineligible for benefits for a period of 5.8 months.

Although petitioner contends that respondent improperly disallowed credit for services that she rendered during nighttime

hours, the record contains no detailed contemporaneously-prepared  records documenting the services that she allegedly provided each

night of the week between the hours of 10:45 P.M. and 6:00 A.M. Instead, petitioner maintained a general care plan that did not

contain any specific information regarding the services that were allegedly provided during that time period each night.

Accordingly, respondent's determination to disallow those hours in its calculation of the fair market value of the services that

petitioner provided is supported by substantial evidence in the record.


With respect to the hours of service for which respondent credited petitioner, substantial evidence supports respondent's

determination to disallow petitioner's claimed hourly rate of $15.50, which she alleged was the rate a local home healthcare

agency would have charged for those services in 2009. According to the testimony of an examiner from the agency and statistics

compiled by the US Department of Labor, the mean hourly wage rate for a personal home healthcare aide in this state was $9.22.

This conflicting evidence regarding the appropriate wage rate to be applied presented a credibility determination for respondent

to resolve, and we perceive no basis upon which to disturb its decision to apply the lower rate of pay (see generally Matter of -4- 513524

Community Related Servs., Inc. v Carpenter-Palumbo, 84 AD3d 1450, 1455 [2011], lv denied 17 NY3d 717 [2011]).


To the extent not specifically addressed, petitioner's remaining contentions have been considered and found to be

without merit.

Rose, J.P., Stein, Garry and Egan Jr., JJ., concur.

ADJUDGED that the determination is confirmed, without

costs, and petition dismissed.


Robert D. Mayberger

Clerk of the Court