Judge: Michael Shultz, Case: 20STCV00783, Date: 2022-12-08 Tentative Ruling
INSTRUCTIONS: If the parties wish to submit on the tentative ruling and avoid a court appearance on the matter, the moving party must:
1. Contact the opposing party and all other parties who have appeared in the action and confirm that each will submit on the tentative ruling.
2. No later than 4:00 p.m. on the court day before the hearing, call the Courtroom (310-761-4302) advising that all parties will submit on the tentative ruling and waive hearing; and
3. Serve notice of the Court's ruling on all parties entitled to receive service.
If this procedure is followed, when the case is called the Court will enter its ruling on the motion in accordance with its tentative ruling. If any party declines to submit on the tentative ruling, then no telephone call is necessary, and all parties should appear at the hearing. If there is neither a telephone call nor an appearance, then the matter may either be taken off calendar or ruled on.
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Case Number: 20STCV00783 Hearing Date: December 8, 2022 Dept: A
20STCV00783
Z.M. a minor, v. Los Angeles Unified School District
[TENTATIVE] ORDER
The
Third Amended Complaint filed on November 24, 2021, alleges that Plaintiff was
a second-grade student at 116th Street Elementary School, operated by Defendant
on January 10, 2019. Plaintiff alleges she returned from school with multiple
bite marks on her arm. Plaintiff has a rare genetic disorder which limits her
ability to move independently. Defendant allegedly failed to supervise
Plaintiff for her safety and protection. Plaintiff alleges claims for (1)
Negligence, (2) Negligent Hiring, Supervision, and Retention; (3) Negligent
Supervision, and (4) Intentional Infliction of Emotional Distress.
On April 25,
2022, Plaintiff filed a Notice of Settlement of Entire Case. On July 5, 2022,
Plaintiff filed this petition to approve the settlement. Plaintiff has agreed
to accept $60,000 in settlement of her claims with the court’s approval. Plaintiff
proposes to distribute the net settlement amount of $38,043.52 to a “pooled”
special needs trust (“SNT”) for the benefit of the minor pursuant to Probate
Code section 3604. Petition, page 8, ¶ b.(4). The Probation Division has
completed its review of the proposed SNT, which this court has also reviewed. CA
R LOS ANGELES SUPER CT Rule 4.115(c).
Pooled SNTs are used to reduce the costs of creating and maintaining a
SNT. The pooled SNT already exists, and
plaintiff 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.
A SNT is used to receive the
settlement funds in these situations so that plaintiff 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.
THE POOLED
SNT TRUST INSTRUMENT
Petitioner did not provide
specific briefing regarding SNT issues but did provide the setup documents,
including Joinder Agreement, and pooled SNT instrument at Attachment 18b(4)
(court’s pdf at p. 38). The SNT
instrument meets legal requirements and is ready for approval, though there are
other concerns listed below that might prevent approval of the petition:
A.
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), 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 (court’s pdf at p. 61).
B.
Cal. Rules of Court, 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, rule
7.903(c) and LASC Rule 4.116(b). The
proposed SNT instrument meets those requirements.
C.
Amount of Pooled SNT Funding
As noted above, the pooled SNT
would only be $38,043.52. The costs
associated with the establishment of a SNT, opening a case in the probate
division for oversight of the trust administration, etc. typically makes it difficult
to justify the opening of a SNT for less than $100,000. While that figure could be less for pooled
SNTs, since they are already in existence and share administration costs among
the pooled SNT’s beneficiaries, there are still hard costs to open a
sub-account in a pooled SNT. There is a discrepancy in the $1,000 setup fee
stated in the Joinder Agreement (court’s pdf at p. 44) or the $2,000 setup fee
stated in the director of the pooled SNT (court’s pdf at p. 79).
There also will be filing fees and
attorney fees for opening the probate administration case in probate and
ongoing trustee and attorney fees. The
concern is that the net settlement amount would be consumed by costs and not
allow for benefit to plaintiff. On the
other hand, at least SSI benefits will be maintained via the use of the
SNT.
This concern is amplified by the
assertion in the declaration of attorney Omar Qureshi filed on December 6,
2022, that the minor plaintiff “does not have much longer to live.” It is therefore even more questionable why
petitioner and counsel would go to the expense and complexity of funding a
pooled SNT. Also, as will be noted in
the next section, it appears that the non-profit hosting the pooled SNT will be
entitled to keep plaintiff’s trust assets upon the death of plaintiff, which
would not happen if the pooled SNT is avoided.
Because of these considerations, the
parties are ordered to counsel shall address whether funding a pooled SNT as
opposed to distributing net
settlement proceeds into plaintiff’s counsel’s client trust account, selecting a
spend-down for items that could be used for plaintiff’s benefit, and set an OSC
in 90 days to reconcile that spending. By
not distributing the net settlement funds to Plaintiff’s own bank account, Plaintiff’s
benefits eligibility would not be affected. This is a common method to avoid the use of a
SNT for small settlements while maintaining benefits eligibility.
D.
Pooled SNT to Keep a Portion of
Plaintiff/Beneficiary’s Trust Assets Upon Death of Plaintiff
The pooled SNT indicates that upon
plaintiff’s death, if there are trust assets remaining then the non-profit that
hosts the pooled SNT will keep either 50% of the assets (if the Medi-Cal
payment amount is more than the remaining trust assets) or 5% (if there are
excess assets after Medi-Cal payback that would be distributed to plaintiff’s
heirs). (Section 7.2, paragraph D,
court’s pdf at pp. 61-62.) While this
provision is not unusual and is not fatal to approval and funding of the pooled
SNT, the court points out this provision to make petitioner aware of it and consents
to its inclusion in the trust instrument.
Also, for the final amount to be paid back to heirs at law, Section 7.5,
paragraph B of the pooled SNT instrument states that the final amounts shall be
paid “pursuant to the Joinder Agreement.”
(Court’s pdf at p. 63.) The
Joinder Agreement, however, fails to specify any remainder beneficiaries in the
appropriate section of that document.
(Schedule C, Section C, Court’s pdf at p. 45.) A term toward the top of that page states
that if there is a failure to designate any beneficiaries then the non-profit
shall retain all funds. It therefore
appears that no matter the circumstance, this pooled SNT would receive all
remaining settlement/trust funds upon plaintiff’s death. This issue is made more concerning by
counsel’s statement that plaintiff will not live much longer. If that happens then plaintiff and the family
would lose all settlement funds, and the funds would be kept by the non-profit
hosting the SNT. Counsel shall address
this issue.
FINDINGS
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):
The court will determine whether
these requirements are met prior to approval of the trust.
TRUSTEE AND
BOND
The SNT instrument indicates that
the 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.). Under the circumstances, the court does not require bond.
NOTICE
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).) In the
most recent counsel declaration filed on December 6, 2022, paragraph 9, counsel
states that after the court pointed out the need to serve the three state
agencies:
On November 15, 2022, counsel
stated he mailed by United States Postal Service the October 6, 2022, minute
order scheduling the December 8, 2022, hearing with the Court as well as the
minor’s compromise documents filed with the Court to the Department of Mental
Health, the Department of Developmental Services, and the Department of Health
Care Services.
The problem is that the statutes
require service of the documents upon the state agencies. That does not appear to have been done
according to the language stated in counsel’s declaration in which he states
that he merely mailed a prior minute order to the state agencies to indicate
the December 8 hearing date for this petition as well as “minor’s compromise
documents.”
There is no indication that
counsel mailed the petition, the pooled SNT instrument, and Joinder Agreement. Counsel’s attempt at notice is
inadequate. The court is inclined to continue the hearing
so counsel can cure the defect. Counsel
is ordered to address this issue.
THE PROPOSED
ORDER
A proposed order for this petition
bearing a 7/5/22 Received stamp was reviewed in eCourt. The proposed order does not satisfy the
following:
A.
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. Here, the proposed order is merely the
four-page Judicial Council Order Approving Compromise without any attachments
to address trust issues. Petitioner did
not complete Section 8b(c) of the form order regarding repayment of the
Medi-Cal lien. The petition (section
12b(4), court’s pdf at p. 4) indicates a Medi-Cal lien to be paid as part of
this compromise.
B.
Housekeeping Orders
The proposed order should address
the general findings set forth in the Findings section of this memo above. The proposed order should also include
language requiring Petitioner to file an accounting within a year.
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. Counsel has not included this language.
The order should also include that
an OSC is set for 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 this court can
conclude its proceedings.
Based on the
foregoing, court rules as follows: