Department 30, Spring Street Courthouse

December 5, 2022

21STCV30733

Petition to Approve Compromise of Pending Action of Ruben Soriano (Age 69) (SNT included)

The hearing is continued to permit the filing of amended documents as set forth below.

The parties are ordered to appear at the hearing to set a continued hearing date.

Amended documents must be filed at least two weeks in advance of the continued hearing date.

Moving party is to provide notice.  

The order appointing a Guardian Ad Litem has been entered. 

Claimant Ruben Soriano $600,000

Plaintiff Maria Soriano $250,000

Plaintiff Patrick Soriano $75,000

Plaintiff David Soriano $75,000

Injuries 

Claimant was under Defendant’s care for an endoscopic sinus surgery. Claimant was  allegedly injured during the procedure, causing brain bleeding. Claimant was hospitalized and underwent surgery to address the bleed. Claimant now suffers from cognitive impairments and has difficulty walking.

Medi-Cal $22,994.19

Although Petitioner requests $22,994.19 to be paid out of the remaining settlement funds, it appears that the Medi-Cal lien reduction is still ongoing. Petitioner attaches a preliminary lien as attachment 12b(4) reflecting a lien amount of $32,798.66. Petitioner provides no evidence justifying this reduction. A petition for court approval of a minor’s compromise must disclose evidence of medical liens because the information has bearing on the reasonableness of the compromise. (Espericueta v. Shewry (2008) 164 Cal.App.4th 615.) Here, Petitioner must disclose all information surrounding this lien to allow the Court to determine the reasonableness of the compromise.

Petitioner also failed to submit medical reports supporting her requests for medical expenses.

Litigation expenses (Ikuta Hemesath LLP) $11,130.10

Litigation expenses (Hodes Milman LLP) $10,977.30

Special needs trust fees (Cooper & Huber LLP) $5,000

Medicare set aside report (Medivest) $2,250

Total $29,357.40

Petitioner submits itemized costs as attachment 13(b). The costs include service fees, filing fees, expert fees, scanning, copying, records fees, and various other litigation expenses. These costs are allowable. 

Attorney’s fees $120,000

“A petition requesting court approval and allowance of an attorney's fee under (a) must include a declaration from the attorney that addresses the factors listed in (b) that are applicable to the matter before the court.” Cal Rules of Court, Rule 7.955(c).

Counsel seeks attorney’s fees in the amount of $120,000 or 20% of the gross settlement. Counsel submitted a declaration. Counsel states she lowered her fee to 20% from the original amount in her agreement with Petitioner. (Buxton Decl. ¶11.) The case involved heavily contested issues over liability and causation. (Id., ¶10.) Counsel is an experienced attorney with ten years of experience. (Id., ¶15.) Counsel has significant experience working on medical malpractice cases involving catastrophic injuries. (Id.) The requested fees are reasonable.

Although Counsel states she submitted a copy of the legal services agreement, no agreement was attached. The agreement must be attached.

Medical expenses $22,994.19

Costs $29,357.40

Attorney’s fees $120,000.00

Total fees and costs $172,351.59

Total Settlement $600,000.00

Less costs $172,351.59

Net settlement $427,648.41

Petitioner intends to disburse fees as described above. $275,000 of the remaining settlement will be used to purchase a single-premium deferred annuity. Petitioner properly attaches the terms and conditions of the annuity as attachment 18b(3).

Petitioner intends to transfer the remaining funds to a special needs trust. 

Petitioner now proposes to distribute $152,648.41of the net settlement proceeds into a pooled special need trust (SNT) for the benefit of Claimant.  

Pooled SNTs are mandated for beneficiaries over 65 and are used to reduce the costs of creating and maintaining a SNT. The pooled SNT already exists, and Claimant would join via a Joinder Agreement and related documents. A pooled SNT typically is hosted by a non-profit corporation to hold sub-accounts for each pooled SNT participant. Investment returns are apportioned to the sub-account holders and distributions for the benefit of each account holder are counted as reductions to each sub-account.  

This case has been referred to the Probate Legal Unit for review of the proposed SNT instrument that would receive the net settlement proceeds on behalf of Claimant.  

A SNT is used to receive the settlement funds in these situations so that a claimant does not lose Medi-Cal and SSI benefits eligibility. Generally, a person receiving Medi-Cal or SSI benefits may have only up to $2,000 in non-exempt assets, and any additional non-exempt assets over $2,000 will cause the loss of benefits eligibility under the relevant federal and state law. Funds held in a valid SNT, however, are exempt assets that do not count toward the $2,000 asset limit for purposes of calculating benefits eligibility.  

On July 1, 2022, the Medi-Cal asset qualification limit was raised to $130,000 for individuals. The net settlement is greater than that amount and the $2,000 asset limit for benefits eligibility did not change for SSI, therefore there remain reasons for funding the settlement proceeds into a SNT.  

Petitioner provided briefing at Attachment 18b(4). The pooled SNT instrument is provided at Exhibit A thereto. The SNT instrument meets legal requirements and is ready for approval, though there are other concerns listed below that prevent approval of the petition.

I. Payback Provision

A cornerstone requirement of an SNT instrument is that it have a “payback provision” whereby any trust assets remaining upon termination of the SNT by death of the beneficiary (or any other reason), the remaining trust assets shall be “paid back” to the state to the extent of benefits received by the beneficiary. The idea is that the assets in a SNT are deemed to be exempt from counting toward the $2,000 asset limit for purposes of calculating benefits eligibility, but then that fiction ends upon beneficiary’s death and the state recovers those funds before they are distributed to beneficiary’s heirs. The existence of this payback provision is the most basic requirement of a SNT instrument. Without that provision, the SNT beneficiary would almost immediately lose benefits eligibility. Put another way, the SNT assets would not qualify as exempt and instead they would be counted toward beneficiary’s $2,000 asset limit. The SNT instrument here contains an adequate payback provision in Article 7 of the proposed SNT instrument..  

II. CRC Rule 7.903(c) and LASC Rule 4.116 Requirements

The main requirements for court created or funded trusts are set forth at California Rules of Court (CRC), Rule 7.903(c) and LASC Rule 4.116(b).  The proposed SNT instrument meets those requirements.  

III. Joinder Agreement

The Joinder Agreement is included among the documents provided with the pooled SNT instrument.  A Joinder Agreement is a document entered into between the pooled SNT and the specific SNT beneficiary by which the terms of the beneficiary’s participation in the pooled SNT are supplemented.  The Joinder Agreement should be completed, though not yet executed until court approval, so that the court can review all of the terms of the plaintiff/beneficiary’s participation in the pooled SNT.  In essence, the terms of the trust instrument include the trust instrument and the Joinder Agreement.  In this petition, petitioner has merely provided an uncompleted blank Joinder Agreement.  While many of the terms of that document are not that important, there is a portion at p. 16 of 24 that has check boxes to state, upon plaintiff/beneficiary’s death, whether the remaining portion of plaintiff/beneficiary’s sub-trust after repayment of Medicaid/Medi-Cal shall be retained by the trust for charitable purposes. The section just below that provides a place to specify the beneficiaries of any other remaining funds.  These terms should not be left blank without court review prior to completion and signature of the document. More specifically, the court will want to specify that the trust shall not keep any remaining funds, and that the beneficiaries are stated as plaintiff’s “heirs at law,” mostly because the incapacitated plaintiff does not have testamentary capacity. Estate planning during the approval and funding of a SNT therefore is not proper under these circumstances. Petitioner must submit a completed (but unsigned) version of the Joinder Agreement for review. The No box must be checked and include the “heirs at law” beneficiary designation as discussed above.  

IV. Use of Annuity

Petitioner proposed to fund $152,648.41 cash into the pooled SNT and use the remaining $250,000 to purchase an annuity that would pay into the SNT at $2,206.86 per month, starting in March 2023 for 15 years guaranteed (not tied to claimant’s life – claimant’s life expectancy is only to age 74 as stated in Attachment 13a, paragraph 8). Petitioner should submit a separate declaration explaining the reasons for the purchase of a 15-year annuity given the four year life expectancy and whether the Claimant has special needs that could be paid in the short term if the settlement funds were not locked away in the longer term annuity.    

In the SNT briefing, Petitioner makes the following additional requests for relief that are beyond those fundamental to the creation and funding of a SNT:

Specifically, Petitioner requests authority for trustee to invest in proprietary funds, mutual funds, and bonds with maturity dates greater than five years to provide for a higher rate of investment return.  (Attachment 18b(4), paragraph 5.)  This request would provide for a broader investment authority than the statutory baseline but is common when the trust assets will be large and the investment horizon is long (where plaintiff is fairly young).  Neither component is found in this case as plaintiff is 69 years old with a four year life expectancy, and the funding amount is not large.  It appears instead that a conservative investment strategy should be invoked to provide for plaintiff over the next handful of years. On the other hand, the trustee of a pooled SNT logically has a toolbox of investments that are broadly used for all pooled SNT beneficiaries, including these requested investments. Petitioner should submit a separate declaration addressing this issue.   

When ultimately approving the establishment or funding of a SNT from settlement proceeds, the court must make the following findings pursuant to Probate Code section 3604(b) (there are factual allegations in the Petition to Approve Compromise and its attachments supporting the settlement that generally cover the requisite findings):

1. The SNT beneficiary has a disability which substantially impairs the individual’s ability to provide for her own care or custody and constitutes a substantial handicap;

2. The SNT beneficiary is likely to have special needs that will not be met without the trust; and

3. The money to be paid to the trust does not exceed the amount that appears reasonably necessary to meet the SNT beneficiary’s special needs.

The Court does not make these findings now but includes them here as a placeholder to be sure that these findings are made at next hearing.  

The SNT instrument indicates that Legacy Enhancement, the Texas non-profit hosting the pooled SNT, is the SNT trustee. Normally, bond must be required of a trustee unless the trustee is a trust company.  (California Rules of Court, Rule 7.903(c)(5); Probate Code sections 2320, 15602, 83.). Here, therefore, the Court does not require a bond.

When seeking approval of a SNT, notice of the hearing and service of the petition must be made upon three state agencies including the Dept. of Mental Health, Dept. of Developmental Services, and Dept. of Health Care Services. (Probate Code sections 3602(f), 3611(c).)  The proof of service attached to the petition indicates this service and notice is complete.      

A proposed order for this petition bearing an 11/4/22 Received stamp was reviewed in eCourt. The following requirements apply to an order on the SNT issues.  

I. General Orders

The order approving the SNT must include a copy (or the terms) of the proposed SNT instrument to capture the text of the trust being approved. This requirement is satisfied.    

The order also should include any additional orders made, including bond requirements, and any allowed fees or rulings on special requests for relief.  General orders are made at Attachment 13 of the proposed order (order pdf at p. 8).  

II. Housekeeping Orders

The proposed order should address the general findings set forth in the Findings section of this memo above.  This requirement is satisfied at Attachment 13.  

When the funding of a SNT is allowed, the court order should include language requiring petitioner to file an accounting within a year, with a specific 14 month date specified to allow time for drafting and filing.  Satisfied in part, but an actual 14 month calendar due date at Attachment 13, paragraph 5 (order pdf at p. 8) must be inserted.

An order establishing an SNT also should include language requiring the submission of a Notice of Commencement of Proceedings for a Court Supervised Trust on LASC Form PRO 044 within 60 days. It is that filing that will hand the case off to start the trust administration for the SNT that will host the future SNT accountings and any bond issues or other trust issues. This requirement is satisfied.    

The order should also state that the civil court has set an OSC in its own department in 60 days to ensure that the probate case has been opened and that any required bond has been submitted. At the OSC, if those requirements have been met then the civil court can wrap-up its case.  This requirement is not satisfied and the order must be amended.