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Court Decides Validity of Claim for Public Assistance against Estate



This was a proceeding brought by BS, the executor of the estate of her father, LS, before the Surrogate’s Court of the City of New York, Nassau County, to determine the validity of a claim made by the Nassau County Department of Social Services against the estate for public assistance rendered to ZS, LS’s wife, from 10 June 1996 to 3 October 2002, while LS was still alive.

LS and ZS had two children, BS and MS, who is mentally retarded.

On 11 August 1972, LS was shot four times in what BS described as a “bungled mob” assassination attempt.

According to newspaper articles, the gunman mistook LS and three others for the mobsters he intended to kill. LS suffered serious injuries that left him unable to work for the remainder of his life. Sometime in January 1976, LS began receiving Social Security disability benefits and, according to BS, LS also received a Worker’s Compensation award.

Sometime in 1992, ZS was diagnosed with Alzheimer’s Disease. On 22 December 1995, LS, as attorney-in-fact for ZS, executed an “Assignment to Petition the Court for Support Pursuant to 18 NYCRR 360-3.2.” It stated there that, in consideration of the medical assistance and care provided and to be provided to ZS by the New York State and Nassau County Departments of Social Services, ZS assigned to the Nassau County Department of Social Services (DSS) “so much of [her] right, title and interest to petition the court for support from my legally responsible spouse.”

n 4 January 1996, LS, as ZS’s spouse, executed a “Declaration of the Legally Responsible Relative.” It stated there that, “I, LS, declare that I refuse to make my income and/or resources available for the cost of necessary medical care and services for the Medicaid applicant/recipient listed above.”

On 10 June 1996, ZS began receiving Medicaid when she was placed in a nursing home. The record presented before the court included a “Medical Assistance Institutionalized Spouse Budget Worksheet,” which was signed on 11 March 1997 by a representative of DSS. The worksheet had the date of 12 March 1997 and lists the date of application as 18 April 1996. According to the worksheet, LS had $268,048 in excess resources and $157.80 in excess monthly income above the amounts allowed under the rules and regulations applicable at that time.

On 3 October 200, LS died. LS predeceased ZS. On 13 January 2003, by prior decision – Dec. No. 951, the guardian ad litem appointed by the court to represent ZS’s interest in the probate proceeding in LS’s estate was directed to exercise the right of election on her behalf, as the surviving spouse, as the failure to exercise it would have resulted in ZS’s non-eligibility for Medicaid.

On 3 December 2003, ZS died. The guardian ad litem had not yet exercised the right of election on ZS’s behalf and, the right being personal, with certain statutory exceptions, to the surviving spouse, in accordance with EPTL 5-1.1-A [c] [3], was extinguished upon her death. Also, a personal representative has not been appointed for her estate.

On or about 9 June 2003, DSS filed the subject claim for $386,382.77 for public assistance provided to ZS from 10 June 1996 to 3 October 2002, claiming preferred creditor status pursuant to Social Services Law §104 (1).

On 5 September 2003, the claim was rejected by the estate.

On 24 February 2004, LS’ will was admitted to probate. Under the will, a supplemental needs trust was created for ZS to be funded with LS’s residuary estate; and, upon ZS’s death, her supplemental needs trust was to be distributed in accordance with the terms of LS’s will, which contained bequests to MS of $15,000 in a supplemental needs trust, $15,000 outright to a niece, $5,000 to Putnam ARC, and the rest to BS.

On 1 December 2005, BS commenced the instant proceeding and asked the court to determine that DSS’s claim is invalid and should be disallowed.

According to BS, LS’s gross taxable estate is approximately $566,000 and the net probate estate is approximately $350,625. BS filed an affidavit, along with the petition, sworn to on 1 November 2005, in which she stated, but supplied no proof, that LS “continuously made the monthly spousal income contributions requested by the Department of Social Services.”

On the return date of the citation, DSS failed to appear or interpose any objection to the relief requested.

On 21 April 2006, the court appointed a guardian ad litem to protect MS’s interests in the subject instant proceeding.

On 15 May 2006, the guardian ad litem filed his report, at which time DSS was in default.

According to the guardian ad litem, in his report, MS is woefully disabled and functions at the level of a two-year old infant; that if the claim is upheld, no beneficiary, including his ward, MS, who is permanently disabled, will receive any benefit under the will; and, concluded that the claim should be denied.

On 14 September 200, DSS filed its verified answer to the petition, after the court issued Dec. No. 405 on 16 August 2006 giving DSS thirty days from the date of the decision and order to do so.

According to DSS, the claim is valid under a theory of an “implied contract” between it and LS.

After the petitioner and DSS submitted memoranda of law, the matter was submitted to the court for decision.

The court’s discussion is as follows:

According to the petitioner, the claim against the estate is invalid on the following grounds: (1) both federal and New York State law preclude the recovery of properly paid medical assistance, except in certain circumstances not applicable in this case; (2) DSS cannot recover against the estate of a Medicaid recipient’s spouse; (3) DSS cannot recover against the estate of a Medicaid recipient’s predeceased spouse; (4) recovery of a claim is prohibited where the Medicaid recipient is survived by a permanently disabled child; (5) DSS failed to meet its burden of proving “sufficient ability” on LS’s part at the time Medicaid assistance was rendered to ZS; and (6) the claim is barred by the equitable defense of laches.

According to DSS, the claim is properly recoverable from LS’s estate.

As held in the case of Scarpuzza v. Blum, 73 AD2d 237, 241-242 [2d Dept 1980], Medicaid is a “co-operative Federal-State program operated under State direction, but subject to Federal statutory and regulatory guidelines.” Enacted by Congress sometime in 1965, Medicaid “was intended to provide partial federal funding of the cost of providing medical care to the disadvantaged.” States are not required to participate in the Medicaid program. However, if a state participates, it is required by federal law to enact a “statutory plan detailing the extent of coverage and comporting with Federal law.” 42 USC § 1396a (a) governs the numerous required provisions of a state Medicaid plan. 42 USC § 1396p provides for the requisite State programs that must be complied “with respect to liens, adjustments and recoveries of medical assistance correctly paid.” On another note, Section 1396p (b) (1) permits a state to recover for medical assistance properly paid only in limited circumstances, viz.: “(A) In the case of an individual described in subsection (a)(1)(B) of this section, the State shall seek adjustment or recovery from the individual’s estate or upon sale of the property subject to a lien imposed on account of medical assistance paid on behalf of the individual; (B) In the case of an individual who was 55 years of age or older when the individual received such medical assistance, the State shall seek adjustment or recovery from the individual’s estate, but only for medical assistance consisting of (i) nursing facility services, home and community-based services, and related hospital and prescription drug services, or (ii) at the option of the State, any items or services under the State plan (42 USC § 1396p [b] [1] [A] & [B]).”

Sometime in 1966, New York State began participating in the Medicaid program. The New York State’s medical assistance implementation is governed by Sections 363 through 369 of Article 5, title 11 of the Social Services Law govern. Whereas, Federal and New York State law generally prohibit “recovery from the property of the recipient.”

Of particular significance to the determination of this proceeding is the Social Services Law § 366 (3) (a).

The Social Services Law § 366 (3) (a) provides: “Medical assistance shall be furnished to applicants in cases where, although such applicant has a responsible relative with sufficient income and resources to provide medical assistance as determined by the regulations of the department, the income and resources of the responsible relative are not available to such applicant because of the absence of such relative or the refusal or failure of such relative to provide the necessary care and assistance. In such cases, however, the furnishing of such assistance shall create an implied contract with such relative, and the cost thereof may be recovered from such relative in accordance with title six of article three and other applicable provisions of law.”

In the case entitled In Matter of Craig (82 NY2d 388 [1993]), the issue before the Court of Appeals was whether the Wayne County Department of Social Services was entitled to reimbursement from the estate of EC for Medicaid payments provided to her husband, N. In that case, N received Medicaid in 1983 in the amount of $4,373.79. Soon after, he died intestate. Wayne County did not seek reimbursement from EC during her lifetime. The Court of Appeals took note of the fact that it was undisputed that she lacked the financial means that would have made her a “financially responsible relative” during the time her husband was receiving benefits and until her own death. And, by way of further background, EC also received Medicaid in the amount of $10,478 prior to her death in 1989. She died leaving an estate worth $27,348.50, out of which the $10,478, the claim filed in connection to her care, was paid. It was the claim against EC’s estate for $4,373.79 (plus interest since 1983) for Medicaid provided to N that made its way to the Court of Appeals after the Surrogate’s Court and the Appellate Division disallowed it. According to the Court of Appeals, the Wayne County Department of Social Services was not permitted to require an individual to sell his home to pay for Medicaid. Hence, the surviving spouse of a Medicaid recipient is not a responsible relative solely by dint of the fact that he or she owned a house. But, an exception to the rule is allowed upon the death of a person who was over fifty-five when he received medical assistance. In that case, his house can be sold to recover Medicaid payments properly paid to the recipient. The Court of Appeals held that this was what was done in order for Wayne County to recover the payments made to EC. However, the Court found that “the exception is qualified and did not allow Wayne County to reach even farther back for recoupment as to her predeceased husband’s Medicaid payments.” The Court of Appeals stated that: “This scheme is set forth in Social Services Law § 369(2), which incorporates Social Services Law § 366(3). When medical assistance is furnished to an applicant who has a responsible relative with sufficient income and resources to provide medical assistance, the furnishing of such assistance shall create an implied contract with such relative. But a responsible relative by necessity and statute is determined by the sufficient ability to pay at the time the expenses are incurred. Social Services Law § 101 (Liability of relatives to support) only provides that the spouse or parent of a recipient of public assistance or care if of sufficient ability, will be responsible for the support of such person.” According to the Court of Appeals, EC’s estate was not liable for the Wayne County Department of Social Services’ claim for services rendered to N because EC did not have sufficient means at the time Medicaid payments were furnished to N. The Court found that Wayne County’s reliance on Social Services Law §104 to support its claim against EC was misplaced, because that “section does not take the sufficient means test out of contemporaneous assessment as of the time the Medicaid payments are made on behalf of a predeceased relative.” The Court of Appeals resolved that the “assertion of a nunc pro tunc obligation against the widow’s estate is not supportable under presently governing statutes, regulations and decisional reasoning.”

Between the facts in Matter of Craig and those before the instant court, there are three significant differences.

The first difference is, in Craig, EC was determined to have lacked sufficient means at the time N received Medicaid benefits; thus, the Court of Appeals concluded that Wayne County could not recoup the payments from her estate; while, here, a contemporaneous assessment was made by Nassau County DSS that LS had the requisite excess resources above the maximum community spouse resource allowance and income above the minimum monthly needs allowance, and that LS had refused to contribute for ZS’s care.

According to BS, an implied contract is indeed created between the Department of Social Security and the spouse of the recipient if the spouse has sufficient ability to contribute to the recipient’s care. However, BS refused to do so here on the ground that DSS failed to allege or prove that there was an implied contract between it and LS and that LS had the “sufficient ability” to pay at the time ZS was receiving Medicaid.

It is indisputable that LS refused to contribute his resources and income to ZS’s care. Attached as Exhibit 3 to DSS’s answer was his declaration to this effect. Further, the Budget Worksheet, which BS entirely ignored, showed that LS had excess income and resources at the time that ZS was receiving Medicaid, and that he could have contributed toward her care. Thus, it is the court’s conclusion that an implied contract was created between LS and DSS.

The second difference is that in Craig, the community spouse postdeceased the recipient spouse, whereas, here, the community spouse, LS, predeceased the recipient spouse, ZS. According to BS, since LS predeceased ZS, this forecloses any right of recovery DSS may have had against LS or his estate; a claim against the estate of a predeceased community spouse while the Medicaid recipient continues to receive benefits would require forestalling the closing of the community spouse’s estate until the recipient spouse was also deceased; and, since a claim could not be asserted until after the recipient’s death, the claim amount would continue to accrue and its value would only be known at the time of death of the recipient.

For Medicaid purposes, the community spouse is chargeable with the recipient spouse’s support only until the time of the community spouse’s death. Indeed, although ZS continued to receive Medicaid until her death on 3 December 2003, the end date of the claim by DSS is 3 October 2002, the date of LS’s death. The court can discern no reason why happenstance, that LS predeceased rather than post-deceased ZS, should vitiate the implied contract between him and DSS. BS was correct that there is no New York State authority directly on point.

Nonetheless, this is not the first time a New York State court has been faced with the situation where the Department of Social Services has asserted a claim against the estate of a predeceased community spouse for Medicaid payments provided, during the community spouse’s life, to the institutionalized spouse.

In the case entitled Matter of Tomeck (29 AD3d 156 [3d Dept 2006], lv granted, 7 NY3d 713 [2006]), the Appellate Division, Third Department, upheld the Saratoga County Surrogate’s denial of the Department of Social Service’s claim against the estate of the predeceased community spouse. According to the court, no implied contract existed between community spouse and the Department because the community spouse did not have sufficient income and resources to provide for her institutionalized husband at the time Medicaid payments were rendered on his behalf. It did not even enter into the Court’s discussion the fact that the community spouse died before the institutionalized spouse.

The third difference is that, here, LS and ZS were survived by a permanently disabled son, MS, which, according to BS, precluded DSS from recovering from LS’s estate. BS relied on Social Services Law § 369 (2), which states, in relevant part that “any such xxx recovery shall be made only after the death of the individual’s surviving spouse, if any, and only at a time when the individual has no surviving child who is permanently and totally disabled”; and, the cases of Matter of Burstein (160 Misc 2d 900 [Sur Ct, New York County 1994]) and Matter of Andrews (234 AD2d 692 [3d Dept 1996]).

In the case entitled Matter of Burstein, the issue was whether Social Services Law § 369 precluded the New York County Commissioner of Social Services from recovering payments for medical assistance paid on behalf of a decedent, who was survived by a permanently disabled child who did not depend on the decedent for support. Relying on the “plain language” of Social Services Law § 369 (2), Surrogate P determined that “where a spouse or disabled child receives a benefit from the estate, the statute should apply regardless of whether the spouse or disabled child received financial support during decedent’s lifetime, and even if some of decedent’s assets are bequeathed to others.”

In the case entitled Matter of Andrews (234 AD2d 692 [3d Dept 1996]), the Appellate Division, Third Department, affirmed the Rensselaer County Surrogate’s order denying the Rensselaer County Commissioner of Social Services’ application for a determination of the validity of a claim it made against the estate of LA for Medicaid benefits provided to her by the county. LA died intestate and was survived by two distributees, her children, one of whom was permanently and totally disabled. The Commissioner sought repayment only from LA’s non-disabled son’s distributive share, which would have left her disabled son’s share intact. According to the Third Department, it cannot endorse this approach because it runs afoul of Social Services Law § 366 (3) and § 101 (1), which limit the responsibility to contribute to the support of a Medicaid recipient to the recipient’s spouse or parent.

Here, however, BS failed to consider the Appellate Division, Second Department case, Matter of Samuelson (110 AD2d 187 [2d Dept 1985]), wherein that Court reached a different conclusion.

In the case of Samuelson, the Court was faced with the issue of “whether Social Services Law § 369 (1) (b) bars recovery of correctly paid medical assistance benefits from the estate of an individual who was the recipient of medical assistance while age 65 and older, and which recipient was survived by a legally blind and totally permanently disabled adult child who was neither a dependent of the recipient nor a named beneficiary under the recipient’s last will and testament.” This was answered in the negative by the Surrogate Court. The Second Department affirmed. According to the Court, the Surrogate recognized that a literal reading of the statute would have precluded recovery, but had “concluded that the rationale and intent of the statutory scheme warranted a contrary result”; that the literal language of Social Services Law § 369 (1) (b) would render New York City Department of Social Services’ claim unenforceable, but, like Surrogate L, concluded that a literal interpretation of the statute would “contravene and frustrate the legislative objective sought to be achieved by the statute.” The Second Department examined the legislative history behind Social Services Law § 369 (1) (b) and found an intent to comply with the federal enabling legislation, which it also examined, and in so doing, the Court found a: “legislative concern for the protection of those individuals who were financially dependent on the deceased recipient, namely the recipient’s surviving spouse, infant issue, or blind or disabled children. This protection is afforded by the statutory provisions embodied in 42 USC § 1396p (b) (2) (A) and Social Services Law § 369 (1) (b) which seek to insure that the assets of the deceased recipient’s estate, upon which these individuals rely, would not be depleted by the recoupment of medical assistance benefits. Hence, contrary to the petitioner’s position, the triggering factor of the restrictive recoupment statutes is not the mere existence of a surviving spouse, infant issue, or blind or disabled child. Instead, the statute is predicated on the assumption that the surviving spouse, infant issue or blind or disabled child was financially dependent upon the recipient prior to the latter’s death and that the protected individual is entitled to a share of the deceased recipient’s estate. Obviously, it is this latter group of needy individuals which the restrictive recoupment provision seeks to protect since the depletion of the assets of the deceased recipient’s estate would be directly detrimental to their future financial independence and self-care.”

The Second Department affirmed the Surrogate and concluded that a contrary result would undoubtedly undermine the purpose of the statutory scheme since the only recipient of the $28,801.88 windfall to the estate would be the petitioner who is not an intended beneficiary of the restrictive recoupment provision, relying on case law and the facts that in appropriate situations, courts are permitted to “depart from the literal letter of a statute in order to sustain the legislative objective of the statutory scheme.”

Here, LS left $15,000, to be placed in a supplemental needs trust, to his permanently disabled son, MS. There was no evidence that MS was financially dependent on ZS or LS. Thus, under the authority of Matter of Samuelson, the court found that the repayment of DSS’s claim is not precluded by Social Services Law § 369 (1) (b). Nonetheless, since LS bequeathed to MS $15,000 to be placed in a supplemental needs trust for his benefit, MS must receive that amount prior to the payment of the claim.

According to BS, DSS’s claim is barred by the equitable defense of laches; DSS should have brought suit against LS during his lifetime because, not having done so, LS reasonably concluded that because of his unique personal situation the Department of Social Services had acknowledged by its failure to act that he was not sufficiently able to contribute to his wife’s care during his lifetime and therefore would not seek financial contribution from him; this deprived LS of the opportunity to show that he did not have the sufficient ability to pay for the Medicaid payments made on behalf of his wife.

BS’s assertion is contrary to statute and case law. Pursuant to Social Services Law § 101 [1] and the case of Matter of Craig, supra, the time for DSS to make a determination about whether the community spouse has “sufficient ability” to contribute is “at the time the expenses are incurred.” At the time of the assessment, LS had the opportunity to request a hearing, Social Services Law § 366-c [8] [a] & [b]), to attempt to establish that the Medicaid minimum monthly needs allowance was inadequate based on exceptional circumstances which resulted in significant financial distress,” but he did not. Thus, his estate is foreclosed from arguing now that he did not have the sufficient ability to contribute his support to ZS. Moreover, repayment of the claim, except to the extent such money would come from funds designated for MS, will not injure any person the recoupment limitations were designed to protect.

The court is not persuaded by BS’s argument that federal law forecloses payment of the claim from LS’s estate.

According to BS, 42 USC § 1396p (b) (1) limits recovery to the recipient’s estate for medical assistance correctly paid when the recipient was over the age of fifty-five at the time he or she was receiving benefits. In support of her position, BS asked the court to consider the case of Hines v. Department of Public Aid (358 Ill App 3d 225 [App Ct, Ill 2005]) where the Appellate Court of Illinois determined that the Department of Public Aid could not recover from the estate of the recipient’s spouse for Medicaid benefits paid to the recipient. In that case the court stated, “because federal law does not provide an exception to the general rule prohibiting recovery of medical assistance payments that would permit recovery from the estate of the surviving spouse of the recipient, Illinois law to the contrary exceeds the authority granted under federal law.”

The instant court reviewed the Hines case and found itself in agreement with the dissenting justice who stated that the majority’s conclusion “ignores the federal mandate that the State shall seek adjustment or recovery of any medical assistance correctly paid on behalf of an individual at the appropriate time prescribed by statute.”

In the case of Commissioner of the Department of Social Services of the City of New York v. Spellman (173 Misc 2d 979 [Sup Ct, NY County 1997]), before the Supreme Court of New York County, the Department of Social Services relied on an implied contract theory under Social Services Law § 366 (3) (a) for its claim against the then-living community spouse. In that case, the issue was whether, under the Social Services Law, the Department may recover the Medicaid assistance paid for the care of an institutionalized spouse from the community spouse, or whether such recovery is barred because there is no analogous Federal statutory scheme. Upon reviewing the statutory framework of the title XIX of the Social Security Act, the court pointed out that it requires a state or local administering agency to take all reasonable measures to ascertain the legal liability of third parties to pay for care and services available under the plan. The court then analyzed, at length, whether or not the federal law preempted state law on this issue. The court found that it did not, and that the Department did not have the authority to bring the action while the community spouse was alive, but could bring an action after he died against his estate, since he had sufficient means during the period the medical assistance was rendered to his wife. According to the court, Social Services Law § 366 (3) (a) created an implied contract between the Department and the community spouse and Social Services Law § 366 (3) (c) specifically authorizes a proceeding to compel any responsible relative to contribute to the support of any person receiving or liable to become in need of medical assistance.

Based upon the governing statutes, Matter of Craig and its progeny, and Matter of Samuelson, the court found that Nassau County DSS’s claim against LS’s estate is valid and payable from his net estate, except to the extent payment of the claim would impinge on the $15,000 bequest to MS to be placed in a supplemental needs trust.

According to the guardian ad litem, in his report dated 15 May 2006, he spent 4.5 hours representing MS. Thus, to the extent the guardian ad litem spent additional time since then, he must file an affirmation of legal services within fifteen days, and his fee will be fixed thereafter.

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