A New York trial court recently approved a trustee's petition to reform his
deceased father's trust in order to protect his disabled sister's
Medicaid benefits. In Matter of Newman (2008 NY Slip Op 50127, Jan. 22, 2008).
When he died in 1988, William Newman established a trust in his
will for his disabled daughter. The will required the trustee to use
the trust income for the daughter's benefit and gave the trustee
discretion to spend the trust principal for her support and
maintenance. Mr. Newman's daughter lived on her own until 2006, when
she moved into an adult care facility and qualified for Medicaid. In
order to maintain her eligibility, her brother, the trustee, then
petitioned the court to reform the trust to make it a Supplemental
Needs Trust. The guardian ad litem opposed the petition, arguing that
the trustee, who was also a remainderman, had a conflict of interest.
The court approved the petition, finding that the trust meets
all of the statutory conditions for reformation. Specifically, the
court determined: 1. that the beneficiary is disabled; 2. that the
intent of the donor was to supplement her benefits; 3. that the trust
prohibits the trustee from using the assets to jeopardize her benefits;
and 4. that the beneficiary cannot compel distributions from the trust.
Finally, the court dismissed the guardian ad litem's argument regarding
the conflict of interest, calling the analysis "restrictive" and
contrary to the intent of the donor.
