The Department of Social Services of the City of New York cannot claim the remainder of a deceased woman’s proposed special needs trust that named the agency as the proposed remainder beneficiary because the trust was not finalized prior to the beneficiary’s death.  Gaines v. City of New York (N.Y.Sup.Ct.App.Div.1st Dept., No. 633, 14471/03, March 29, 2016).

Janie Gaines, a Supplemental Security Income (SSI), Medicare and Medicaid recipient, settled a lawsuit and petitioned the court to approve and authorize the creation of a special needs trust to hold the settlement proceeds. One of the defendants conveyed its portion of the settlement to Ms. Gaines’ attorney, who placed the money into her escrow account.  However, Ms. Gaines died before the trust could be finalized.

The Department of Social Services of the City of New York, as a remainder beneficiary, filed a motion requesting payment from the funds held by Ms. Gaines’ attorney.  The motion court denied the city’s request, finding that the trust never existed and, therefore, the city could not file a claim against it.  The city appealed.

The Appellate Division of the Supreme Court of New York, First Department, upholds the trial court’s decision.  The court finds that the “decedent’s failure to complete the formalities associated with setting up the SNT prior to her death was fatal to the SNT’s existence.  Neither decedent nor the putative trustee executed or acknowledged the proposed trust agreement, and the SNT was never properly funded with the settlement proceeds.”

To read the full text of the court’s decision, go to:  https://scholar.google.com/scholar_case?q=Gaines+v.+City+of+New+York&hl=en&as_sdt=40000006&case=12668410983599125237&scilh=0