Judge: Thomas Falls, Case: BC649021, Date: 2023-02-01 Tentative Ruling
Case Number: BC649021 Hearing Date: February 1, 2023 Dept: O
HEARING
DATE: February 1, 2023
RE: GUADALUPE M LOPEZ VS EL MONTE CITY SCHOOL DISTICT ET AL (BC649021)
______________________________________________________________________________
Hearing re Minor’s Compromise and Approval of Special Needs
Trust
Tentative Ruling
Hearing re Minor’s Compromise and Approval of Special
Needs Trust is GRANTED, contingent upon the Plaintiff incorporating the minor
required changes below, the matter needs to be continued for notice reasons discussed
below.
Background
This civil action arises from allegations of injury while in
the care of a school. Plaintiff,
Guadalupe Lopez, is 14 years old.
Petitioner, Patricia Diaz, now brings a Petition to Approve Compromise
as parent of plaintiff. The parties
tentatively have settled the action for a gross $3.5 million, with a net of
$1,720,026.26 payable to plaintiff after deduction for fees, costs, etc. (Calculations of the net proceeds are in the
Petition to Approve Compromise. The
December 13, 2021 order on the prior compromise petition indicated
$1,735,909.51 in net settlement funds.)
Petitioner now proposes to distribute the net settlement proceeds into a
special need trust (SNT) for the benefit of plaintiff. Specifically, petitioner seeks to fund
$1,370,026.26 cash to the SNT and use the remaining $350,000 to buy an annuity
that would pay into the SNT at $1,778.05 per month for 20 years
guaranteed.
Discussion
The
Probate Department suggests the following changes:
THE PROPOSED SNT
TRUST INSTRUMENT
Petitioner provides briefing of the SNT issues at Attachment
18b(4) (court’s pdf at p. 171). The
proposed SNT is provided as Exhibit B (court’s pdf at p. 214). The SNT instrument meets legal
requirements and is ready for approval as detailed below:
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 adequate
payback provisions in Article Six, Section 2 of the proposed SNT (court’s pdf
at p. 225).
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 and is ready for
approval.
ADDITIONAL REQUESTS FOR RELIEF:
The following requests for
additional relief beyond those required to create and fund a SNT are made in
the SNT briefing at Attachment 18b(4):
·
Petitioner
requests authority for trustee to invest in mutual funds and bonds with
maturity dates greater than five years to provide for a higher rate of
investment return. (Court’s pdf at p.
180.) 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). COURT GRANTS THIS REQUEST.
·
Petitioner requests authority to purchase a
specially equipped handicapped accessible vehicle to transport plaintiff, using
SNT funds up to $89,000. Petitioner
provides an estimate for the vehicle at Exhibit D. (Request at court’s pdf, p.
181. Estimate at court’s pdf, p.
236.) Title would be held by petitioner,
with the trust indicated as lienholder to secure the trust’s interest in the
vehicle. The trust would pay for
insurance, registration, and maintenance.
COURT GRANTS THIS REQUEST.
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):
TRUSTEE AND BOND
Petitioner proposes LeeAnn Hitchman and Annelise Hitchman,
private professional fiduciaries (PPF), shall act as initial SNT trustee. Normally, bond must be required of a trustee
unless the trustee is a corporate fiduciary.
(California Rules of Court, Rule 7.903(c)(5), Probate Code section
2320.) A PPF does not meet that
requirement and bond should be required.
In the SNT briefing, petitioner calculates $1,565,957.71
based upon the SNT funding amount, annual income (annuit payments), investment
returns, and the additional statutory amount required for any recovery on the
bond, which appears to be correct. The
figure is rounded up to $1,566,000 in the proposed order. **** COURT
REQUIRES A $1,566,000 bond (Yep need an additional $42.29).****
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).) A separate proof of
service filed 1/27/23 indicates this notice of hearing and proof of service but
it indicates mailing on 1/27/23, only five days prior to the 2/1/23 hearing. Service must be 15 days by mail. ****THE COURT CONTINUES THE HEARING TO
SATISFY THE NOTICE REQUIREMENT.**** Be prepared to select a date that gives
appropriate notice.
THE PROPOSED ORDER
A proposed order bearing a 10/31/22 Received stamp was
reviewed in eCourt. The following
requirements apply to an order on the SNT:
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. The text can be attached to the Judicial
Council form order approving the Petition to Approve Compromise. Satisfied.
The order also should include any additional orders made, including bond
requirements, and any allowed fees or rulings on special requests for
relief. Satisfied at Attachment 8b(2)
(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. Satisfied at Attachment 8b(2).
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
at Attachment 8b(2), para. 14, which sets a 2/28/23 due date for the first SNT
accounting. ****Date should be in
2024 and around April to allow for 14 months. Need correction.****
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. A name search does not indicate that a
trust supervision case was ever opened in probate based upon the court’s prior
December 14, 2021 order granting the compromise and approving the SNT. The requirement of a filing of a trust action
is generally stated at Attachment 8b(2), paragraph 9.
The civil court will set an OSC in
its own department 60 days following the next appearance 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. The
requirement of an OSC is stated in the order at Attachment 8b(2), paragraph 9. ****The court will insert a 60 day
date in the blank provided there for the OSC on the next court date.****
Attachment 8b(2) addresses the
additional requests for relief discussed in this memo (investment authority and
authority to purchase the $89,000 vehicle).
****AS COURT GRANTED THOSE requests the proposed order will need to
be changed.****
Based on the foregoing, this case is continued one last time
to TBD.