rebuttal presumption that any assets disposed of by an institutionalized individual for less than fair market value during a period of sixty months before applying for Medicaid

 There is rebuttal presumption that any assets disposed of by an institutionalized individual for less than fair market value during a period of sixty months before applying for Medicaid

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

S.L.,

Petitioner-Appellant,

v.

DIVISION OF MEDICAL ASSISTANCE

AND HEALTH SERVICES AND ESSEX

COUNTY BOARD OF SOCIAL SERVICES,

Respondent-Respondent.

__________________________________

September 2, 2014

Argued October 23, 2013 – Decided

Before Judges Fuentes, Simonelli and Haas.

On appeal from the Department of Human Services, Division of Medical Assistance and Health Services, Docket No. 0710458345-01.

Lawrence A. Leven argued the cause for appellant (Mr. Leven, attorney; Debra D. Tedesco, on the brief).

Jennifer L. Finkel, Deputy Attorney General, argued the cause for respondent (John J. Hoffman, Acting Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Ms. Finkel, on the brief).

PER CURIAM

In December 2009, appellant S.L., then ninety-five years old, entered the Arbor Glen Care Center in Cedar Grove (Arbor Glen), after she fell and fractured four ribs the previous month in a rehabilitation center in Florida, where she was transferred to recover from a mild stroke she had suffered in June 2009. S.L. was able to pay for her stay at Arbor Glen until she depleted her personal funds and other assets in August 2010.

S.L. applied for Medicaid assistance to cover the cost of her stay at Arbor Glen. The Essex County Board of Social Services, also referred to as the County Welfare Agency (CWA), approved her Medicaid application but imposed a 5.57 month ineligibility penalty. The CWA imposed this penalty because S.L. had made four monetary transfers or "gifts" to her children totaling $40,000 during a two-year period from December 2007 to March 2009. The CWA determined S.L. was eligible to receive Medicaid assistance effective January 18, 2011.

S.L. appealed the CWA's decision to the Division of Medical Assistance and Health Services (DMAHS) in New Jersey's Department of Human Services. The DMAHS Director transferred the case to the Office of Administrative Law for an evidentiary hearing before an Administrative Law Judge (ALJ). Based on the record developed at this hearing, which included S.L.'s testimony, who was by then ninety-seven years old, the ALJ issued an initial decision finding no legal or factual basis to alter the decision of the CWA.

The federal standards for Medicaid eligibility adopted by Congress under 42 U.S.C.A. § 1396p(c)(1)(B)(i), and codified in this State by the DMAHS under N.J.A.C. 10:71-4(a) and N.J.A.C. 10:71-4.10(j), create a rebuttal presumption that any assets disposed of by an institutionalized individual for less than fair market value during a period of sixty months before applying for Medicaid assistance is done to establish Medicaid eligibility. The ALJ found in her initial decision that S.L. failed to rebut this presumption. The DMAHS Director adopted the ALJ's decision without modification.

S.L. now appeals the Director's final decision to this court. Based on our standard of review of decisions made by state administrative agencies, we affirm. We derive the following facts from the record developed before the ALJ and any submissions made by the parties to the DMAHS Director.

I

S.L. was born in 1914. She and her husband had two children, a son H.L., and a daughter M.L. Appellant moved from New Jersey to Florida in 1981, the year after her husband died. She was then sixty-seven years old. She lived a fully independent life in an apartment in Florida from 1981 until 2002, when her son H.L moved in with her after his divorce.

Appellant testified at the hearing before the ALJ held on November 7, 2011. She responded to all questions posed to her in a lucid, narrative style. She explained that after her son moved in with her in 2002, he helped her perform daily tasks of living. He drove her "around, took me to the doctor, took me to the movies, took me shopping. He did a lot of errands for me."

Appellant transferred $10,000 to her son in December 2007. She also issued a check in the amount of $10,000 to her daughter H.L. a month later in January 2008. She characterized these gestures on her part as "gifts" to her children. When asked directly by her lawyer to explain the reasons for giving these gifts to her children, she explained:

I had the money and I thought how nice it would be to see them spend it. . . . Well I thought it would be nice to see them enjoy the money that I had. I had everything I wanted.

Q. When you gave them the first $20,000 you still had money for yourself right?

A. Oh, yes, I didn't give them all my money.

Q. When you gave them the money, the first money, did you think, "Well I have to give them this money because I am going to go into a nursing home," or anything like that?

A. No, we never discussed nursing home. I was always the type of person I did everything myself [sic].

Appellant was ninety-four years old at the time she made these initial gifts to her children totaling $20,000. Appellant testified she stopped driving in 2004 when she was ninety years old. She nevertheless continued to have a car titled in her name until 2009. On March 9, 2009, she issued a check in the amount of $10,000 to a Mazda automobile dealer in Florida, as a down payment for a car her son purchased in his name. She testified that she wanted to buy a new car, but could not purchase one in her name because she did not have an active driver's license, and the car she previously had in her name was by then ten years old. She testified her son drove her everywhere she needed to go: "We were almost like husband and wife. . . . He took me to the movies, we went together as a couple although it was my son." On March 13, 2009, appellant issued a check to her daughter for $10,000.

Appellant's $40,000 in gifts to her children were all reported to the Internal Revenue Service as permissible tax-free gifts. All of the these checks written by appellant were in her own handwriting. She was ninety-three years old when she wrote her first $10,000 check to her son in 2007, and ninety-five years old when she gave her daughter the final $10,000 gift in 2009.

According to appellant, during the two-year period she made these gifts to her children she was completely lucid and managed her own affairs. With respect to physical health, other than "a slight loss of peripheral vision," she was not suffering from any physically debilitating conditions and "had not been diagnosed with any chronic or long term illness." At the time she made these gifts to her children, appellant was receiving a monthly social security benefit in the amount of $1,608.56, and a monthly pension distribution in the amount of $285.56. After the transfers, she retained approximately $60,000 in her savings account.

As was her custom since moving to Florida, appellant visited her daughter in New Jersey in the summer of 2009. She flew by herself and expected to return to her home in Florida in autumn. Appellant testified that sometime after she arrived at her daughter's home in June 2009, she "felt funny one day and thought it was something I ate." After feeling "woozy," she said her daughter told her to "lay down, take care." Appellant submitted a certification in which she described in more detail the medical event that led to this legal dispute:

The next day the headache was worse and my speech was slurred. My daughter drove me to the emergency room at Mountainside Hospital in Montclair.¹ I was admitted to the hospital on June 27, 2009, with a minor stroke. I was discharged to Arbor Glen Care Center in Cedar Grove, where I stayed until July 11, 2009. This incident was totally unexpected and was medically impossible for me to anticipate its occurrence.²

I returned home to Florida on July 12, 2009 and it was determined by my physician, Dr. Green, that I needed rehabilitation therapy. I was admitted to Lakeview Center, in Delray, Florida until October 2009.

Upon my release in October [2009], I went home. In November 2009 I fell at home and broke four ribs. My children and I agreed I needed more care than they could provide because they both work full time. I did not want to have full time nursing assistance in my home. We decided I would return to New Jersey and live at Arbor Glen. I picked Arbor Glen because when I stayed there in July 2009 I liked the facility. In addition, it is only ten minutes from where my daughter lives.

When I gave my children the gifts I anticipated living in Florida with my son for the rest of my life. I wanted to give these monies to my children while I was alive in order to see them enjoy the money. I emphatically deny that these gifts were given to my children because I was anticipating going into a nursing home and giving away my assets to become eligible for Medicaid.

Appellant's daughter M.L. corroborated her mother's testimony. She testified that neither she nor her brother contemplated a nursing home as a probable place for appellant's care at the time she accepted the gifts. Both she and her brother were convinced their mother "would live out her life in Florida[.]"

At the time appellant entered Arbor Glen in December 2009, she had approximately $60,000 in savings. She initially paid for her stay out of these personal funds until they were depleted in August 2010. She applied for Medicaid assistance that same month. The CWA approved her application effective January 18, 2011, subject to an ineligibility penalty of 5.57 months due to the "uncompensated value of transferred funds (40,000, given to children)[.]"

II

In the Initial Decision upholding the CWA's determination, the ALJ found it was not "unreasonable that [appellant] wanted to give her children money while she was alive[.]" However, noting appellant's age, health issues, and lifestyle restrictions, the ALJ concluded appellant had not overcome the presumption that Medicaid eligibility was a factor in her decision to transfer assets to her children.

Appellant filed exceptions to the ALJ's decision with the Director of the DMAHS, claiming that her previous medical issues were neither chronic nor debilitating, and stemmed only from a minor stroke she had in 1999. Appellant emphasized that she established her health and vitality when she testified at the hearing before the ALJ at age ninety-seven. She argued she satisfied her burden to rebut the regulatory presumption because the CWA could not produce any evidence that undermined the credibility of her testimony that she was not contemplating applying for Medicaid assistance during the two-year look-back period between 2007 and 2009. Finally, appellant argued to the Director that the ALJ partly relied on a letter dated May 27, 2011, claiming she had a significant mobility impairment in 2006. Appellant asserts she was not aware of this letter, and it was not produced to her lawyer before she testified.

In a Final Agency Decision dated February 3, 2012, the Director adopted the Initial Decision of the ALJ, finding the record showed appellant was not in "excellent health" at the time she made these gifts to her children. The Director determined appellant had not met her burden to rebut the presumption that these gifts were intended to accelerate appellant's eligibility for Medicaid assistance and upheld the penalty period imposed by the CWA.

III

As an appellate court, we have a limited standard of review of decisions made by a State administrative agency. Circus Liquors, Inc. v. Middletown Twp., 199 N.J. 1, 9 (2009). We must "'determine whether the administrative action was arbitrary, capricious or unreasonable.'"E.S. v. Div. of Med. Assistance & Health Servs., 412 N.J. Super. 340, 348 (App. Div. 2010) (quoting Burris v. Police Dep't, Twp. of W. Orange,338 N.J. Super. 493, 496 (App. Div. 2001)). We are bound to uphold the determination of an administrative agency as long as it is supported by "substantial credible evidence in the record as a whole." Ibid. (citing Circus Liquors, supra, 199 N.J. at 10).

The burden of showing the agency acted in an arbitrary, capricious, or unreasonable manner rests on the party opposing the administrative action. Id. at 349 (citing In re Arenas, 385 N.J. Super. 440, 443-44 (App. Div.), certif. denied, 188 N.J. 219 (2006)). It is not the function of the reviewing court to substitute its independent judgment on the facts for that of an administrative agency. In re Grossman,127 N.J. Super. 13, 23 (App. Div.), certif. denied, 65 N.J. 292 (1974).

We must also "'defer to an agency's technical expertise, its superior knowledge of its subject matter area, and its fact-finding role,'" and therefore are "obliged to accept all factual findings that are supported by sufficient credible evidence." Futterman v. Bd. of Review, 421 N.J. Super. 281, 287 (App. Div. 2011) (quoting Messick v. Bd. of Review, 420 N.J. Super. 321, 325 (App. Div. 2011)). Although we are not bound by an agency's interpretation of law, we accord a degree of deference when the agency interprets a statute or a regulation that falls "within its implementing and enforcing responsibility." Wnuck v. N.J. Div. of Motor Vehicles, 337 N.J. Super. 52, 56 (App. Div. 2001). Our authority to intervene is limited to "those rare circumstances in which an agency action is clearly inconsistent with the agency's statutory mission or with other state policy." Futterman, supra, 421 N.J. Super. at 287.

Our state participates in the federal Medicaid program under the New Jersey Medical Assistance and Health Services Act, N.J.S.A. 30:4D-1to -19.5. 42 U.S.C.A. § 1396a(a)(5) designates the New Jersey Department of Human Services to administer the New Jersey Medicaid program through DMAHS. N.J.S.A. 30:4D-5, -7; N.J.A.C. 10:49-1.1. Locally, CWAs are required to evaluate Medicaid eligibility. N.J.A.C. 10:71-2.2(a);N.J.A.C. 10:71-3.15. To establish eligibility, the applicant must:

1. Complete, with assistance from the CWA if needed, any forms required by the CWA as a part of the application process;

2. Assist the CWA in securing evidence that corroborates his or her statements; and

3. Report promptly any change affecting his or her circumstances.

[N.J.A.C. 10.71-2.2(e).]

"Medicaid is an intensely regulated program." H.K. v. State, 184 N.J. 367, 380 (2005). N.J.A.C. 10:71-4.5(c) provides that at the time of application, an individual will not be able to participate if his or her resources³ exceed $2,000.

An individual may not be eligible for Medicaid if he or she has "disposed of assets at less than fair market value⁴ at any time during or after the 60-month ["look-back"] period[.]" N.J.A.C. 10:71-4.10(a). A transfer during the look-back period gives rise to a rebuttable presumption that it was made to establish Medicaid eligibility. N.J.A.C. 10:71-4.10(j).

Medicaid subjects applicants who have made such transfers to a penalty calculated according to a specific formula. N.J.A.C. 10:71-4.10(m); E.S., supra, 412 N.J. Super. at 345. The penalty is a "period of time during which payment for long-term care level services is denied." N.J.A.C. 10:71-4.10(m). The applicant may rebut the presumption "by presenting convincing evidence that the assets were transferred exclusively (that is, solely) for some other purpose. . . . [T]he burden of proof shall rest with the applicant." N.J.A.C. 10:71-4.10(j).

The presumption that transfers were made to establish Medicaid eligibility may be rebutted only by showing that a transfer was made for some exclusive other purpose. Specifically:

(k) The presence of one or more of the following factors, while not conclusive, may indicate that the assets were transferred exclusively for some purpose other than establishing Medicaid eligibility for long term care services:

1. The occurrence after transfer of the asset of:

i. Traumatic onset of disability;

ii. Unexpected loss of other assets which would have precluded Medicaid eligibility; or

iii. Unexpected loss of income which would have precluded Medicaid eligibility;

2. Court-ordered transfer (when the court is not acting on behalf of, or at the direction of, the individual or the individual's spouse); or

3. Evidence of good faith effort to transfer the asset at fair market value.

[N.J.A.C. 10:71-4.10(k).]

Against this legal backdrop, we discern no basis to interfere with the Director's final decision upholding the 5.57 month ineligibility penalty imposed by the CWA based appellant's four monetary transfers or "gifts" to her children totaling $40,000 during a two-year period from December 2007 to March 2009. We are mindful that our society is at a pivotal point as it faces the challenges associated with the great number of "baby-boomers" who are reaching an age that has traditionally been viewed as "elderly."

Due to great medical advancements and other technological innovations, we are in the process of redefining the traditional meaning of "elderly." Our Legislature should seriously consider whether it is truly in the best interests of a just society to penalize a parent for trying to give her children a small part of resources she and her husband accumulated over a lifetime of work. Unfortunately, that public policy decision is not for this branch of government to make.

Affirmed.

1  Mountainside Hospital is actually located in the Borough of Glen Ridge.

2  At the time appellant was admitted to Mountainside, she was taking nine different types of medication, including oral medication for hypertension and high cholesterol. The hospital's discharge summary noted appellant also suffered from "carotid stenosis [which was] worked up several years ago at which time her primary care doctor felt that she was a poor surgical candidate, so there ha[d] been watchful waiting."

3  Resources are defined as:

any real or personal property which is owned by the applicant (or by those persons whose resources are deemed available to him or her, as described in N.J.A.C. 10:71-4.6) and which could be converted to cash to be used for his or her support and maintenance. Both liquid and nonliquid resources shall be considered in the determination of eligibility, unless such resources are specifically excluded under the provisions of N.J.A.C.10:71-4.4(b).

[N.J.A.C. 10:71-4.1(b).]

4  Fair Market Value is "an estimate of the value of an asset, based on generally available market information, if sold at the prevailing price at the time it was actually transferred." N.J.A.C. 10:71-4.10(b)(6). A transfer for "love and affection" is not considered a transfer for fair market value. N.J.A.C. 10:71-4.10(b)(6)(i).

Totten trust approved in MATTER OF TOTTEN 71 N.E. 748 (N.Y. 1904)

MATTER OF TOTTEN

• 71 N.E. 748 (N.Y. 1904) 

COURT OF APPEALS OF THE STATE OF NEW YORK.

In the Matter of the Accounting of WILLIAM H.B. TOTTEN, as Administrator of the Estate of FANNY AMELIA LATTAN, Otherwise Known as FRANCES A. LATTAN, Deceased. WILLIAM H.B. TOTTEN, as Administrator, et al., Appellants; EMILE R. LATTAN, Respondent.

Court of Appeals of the State of New York.

Argued June 1, 1904

Decided August 5, 1904 *113113

Benjamin F. Tracy and George Richards for appellants. *114114Reuben Leslie Maynard for respondent. *115115

---

VANN, J.

The first question presented relates to our jurisdiction to hear the appeal. As the reversal was upon the facts as well as the law, if there was a material question of fact we cannot consider the action of the Appellate Division in determining it, for we are confined by the Constitution to the review of questions of law. ( Matter of Thorne, 162 N.Y. 238.) The court below exercised its appellate jurisdiction by reversing the decree of the surrogate and its original jurisdiction by allowing the claim in controversy, and if either involved the decision of a question of fact we have no jurisdiction of the appeal. ( People ex rel. Cornell Steamboat Company v. Dederick,161 N.Y. 195; Code Civ. Pro. §§ 191, 2586 and 2587.) The Appellate Division, however, cannot create a question of fact by declaring that there is one and our first duty is to examine the evidence to see whether it presents a material question of fact. If it does our jurisdiction is ended, but if it does not we can review the questions of law duly raised by exception and see whether they authorized the Appellate Division to reverse the decree of *116116 the surrogate. ( Otten v. Manhattan Railway Company, 150 N.Y. 395,401.) While there is no conflict in the evidence, if the established facts permit such diverse inferences that one reasonable mind could infer that a controlling allegation was true, while another reasonable mind could infer that it was untrue, a question of fact arises, the determination of which we have no power to review. If, however, the inferences from the uncontradicted evidence all point in one direction, so that no reasonable mind could reach but the one conclusion, there is no question of fact and we are not divested of jurisdiction. The unanimous vote of the judges below has no controlling effect because the findings of the referee and surrogate were not affirmed but were reversed.

Beginning in 1886 the decedent and her sister Angelica each had numerous accounts in the Irving Savings Institution, the greater part in the name of the former individually, or as trustee. At various times there were sixteen of the latter class. While no single account in the name of the decedent ever exceeded $3,000 the aggregate amount of all her accounts always exceeded that sum and occasionally by several thousand dollars. At the same time many accounts were kept by her in other savings institutions, some in her own name simply and others with the addition of "trustee for" or "in trust for" some person named. It was her practice to draw from all these accounts at will, whether they were kept in her name as trustee or otherwise, and to close them and open others as she saw fit. She kept the pass books and no beneficiary named in any account ever drew therefrom except upon drafts signed by her. When she died intestate in March, 1900, accounts were outstanding in her name as trustee in favor of Emile R. Lattan and three other persons and they had the benefit thereof without controversy.

On the 2nd of January, 1886, the decedent opened an account in the Irving Savings Institution by depositing the sum of $355. A rule of the bank required the depositor to give the name of the person for whom he wished to place the money in trust, but the one making the deposit had absolute *117117 control of the account so long as he retained possession of the pass book. The pass book was numbered 42,728 and the deposit was entered thereon as well as on the books of the bank as an account with Fanny A. Lattan, trustee for Emile R. Lattan, depositor. At some time, but it does not appear when except that it was prior to May, 1893, the words "Trustee for Emile R. Lattan" were canceled by rulings in red ink. As at first entered in the ledger of the bank the account stood as at first entered on the pass book, but when carried forward to a new ledger in 1892 it stood as an account with the decedent individually. When she opened this account she had between $6,000 and $7,000 standing in her name individually and as trustee on the books of the same bank. Two other deposits were made in this account, the first of $5.10 on July 1st, 1886, and the second of $740, September 21st, 1886. Twelve drafts were drawn against it at various times. The first, dated January 27th, 1886, for $100 in favor of Lewis H. Lattan, was signed by the decedent as trustee, but all the rest, commencing with September 19th, 1890, were signed by her individually. July 8th, 1898, the account was closed by her individual draft for $1,104.06 and the pass book was surrendered. With the amount thus drawn she opened two new accounts in the same bank, the first No. 66,807 in favor of Fanny A. Lattan in trust for Rosalie M. Beam for the sum of $552.03, and the other No. 66,808 in favor of Fanny A. Lattan in trust for Emile R. Lattan for the same amount. Both of these accounts remained open at the time of the decedent's death and the pass books were delivered by her administrator to the parties named who drew the money accordingly. During the existence of account No. 42,728 the decedent at all times had possession of the pass book and Emile R. Lattan received no part of the moneys deposited to the credit of that account except as already mentioned.

On the 19th of September, 1890, the decedent had ten accounts amounting to between $8,000 and $9,000 standing in her name, individually or as trustee, on the books of the Irving Savings Institution. On that day she opened account*118118 No. 51,556 in that bank by depositing $462.03 in her name as trustee for Emile R. Lattan. Said amount was largely made up of sums drawn from other accounts in her name as trustee. She retained possession of the pass book, and no one, except herself and the officers of the bank, appears to have known of the existence of the account until after her death. September 19th, 1892, she deposited $100 in that account and September 13th, 1893, the further sum of $80.60. When it was closed on the 15th of November, 1894, it amounted with interest to $733.30, which she drew out and deposited in another account, in her name as trustee for Lewis H. Lattan, who after her death drew the amount thereof.

Emile R. Lattan was the son of Lewis H. Lattan, a spendthrift, who in 1884 turned over to his sisters Angelica Lattan and the decedent all his property, worth about $20,000, for their management, but without instructions as to their course in managing the same. No accounting was ever made to him with reference thereto, although he survived them both.

There was no evidence that the decedent ever spoke to any one about any of these accounts or stated what her intention was in opening them. The accounts in question were opened with her own money and no part thereof came from her brother Lewis. Out of thirty-one accounts in seven savings banks she paid over to the alleged beneficiaries the balance left when two thereof were closed, but in both of these instances, as well as in all other cases, she treated the accounts as her own, drawing against them and making new deposits from time to time as she thought best. All the pass books with a trust heading, containing accounts which had not been closed when the decedent died, were delivered to the respective beneficiaries who drew the balance on hand. Emile R. Lattan did not know of the existence of any accounts on which he relies in this proceeding until more than a year after the decedent died. Angelica Lattan, who was appointed and qualified as administratrix, died on the 10th of April, 1901, leaving the administrator as the sole representative of the estate. The personal property of Fanny A. Lattan was inventoried at the *119119 sum of $32,950.08, but owing to increase in values the amount on hand at the date of the final decree of distribution was more than $40,000.

The most favorable view of these facts and others of like character not mentioned does not permit the inference as matter of fact that the decedent in making the deposits in question intended to establish an irrevocable trust in favor of the respondent. Aside from what took place when the deposits were made, every act of the decedent, with one exception, is opposed to the theory of a trust. That exception is the closing of one account after the words of trust had been canceled and the deposit of part of the proceeds in the same form as the original. This is not enough when considered with the other facts to establish an irrevocable trust. ( Cunningham v. Davenport, 147 N.Y. 43.) No connection was shown between any deposit and the sum held in trust by the decedent and her sister Angelica for Lewis H. Lattan, who is still living and was sworn as a witness at the trial. A deposit in favor of the son would not have satisfied the claim of the father in the absence of a request from the latter, of which there was no evidence. In view of the practice of the decedent in doing business with savings banks, the custom of many other persons in that regard, the various objects which people have in making deposits in the form of a trust, the retention of the pass book with the corresponding control of the deposits according to the rules of the bank, the subsequent history of the various accounts with the frequent withdrawals and changes, we think that the form of the deposits as they appear upon the books was not strengthened by the other evidence. There was no question of fact in the case and the Appellate Division had no power to reverse upon the facts. We find no exception in the record warranting a reversal upon the law, unless the exception to the conclusion of the referee and surrogate that the claim should be dismissed upon the merits raises reversible error. This involves the question whether upon the conceded facts, as matter of law, an irrevocable trust was established. *120120

Savings bank trusts, as they are sometimes called, have frequently been before the courts during the past few years. When we considered the pioneer case but few instances of deposits in trust were known and a liberal rule was laid down without the limitations which later cases required. After a while when it became a common practice for persons to make deposits in that form, in order to evade restrictions upon the amount one could deposit in his own name and for other reasons, the courts became more conservative and sought to avoid unjust results by adapting the law to the customs of the people. A brief review of the cases will show how the subject has been gradually developed so as to accord with the methods of the multitude of persons who make deposits in these banks.

The case of Martin v. Funk (75 N.Y. 134) arose more than a quarter of a century ago when savings bank trusts were in their infancy. A lady had made a deposit of her own money to the amount of $500 in a savings bank, declaring that she wished the account opened in trust for the plaintiff, a distant relative. Entry was made accordingly on the books of the bank and on the pass book, which was delivered to the depositor and retained by her until her death. At the same time she deposited a like amount in the same manner in trust for a sister of the plaintiff. No change was made in either account except that the depositor drew out the interest for one year and no other act or declaration bearing on her intention was shown. Neither the plaintiff nor her sister knew anything of either deposit until the depositor died nine years after the account was opened. It was held that a trust was created and that the plaintiff was entitled to the money standing to the credit of the account.

That case was followed and the same judgment pronounced in Willis v. Smyth (91 N.Y. 297), where the facts were similar, except that the trust was in favor of a daughter and the first deposit of $288 was nearly all drawn out before the last deposit of $2,000 was made. The depositor retained the pass book and the money remained on deposit until her death,*121121 although she once offered to lend it. At the date of the last deposit she opened an account of $25 in trust for a grandchild.

The facts tending to establish a trust were much stronger inMabie v. Bailey (95 N.Y. 209), where the beneficiary had judgment. The depositor showed the pass book then in question to the mother of the plaintiff, who was his step-daughter, as well as other pass books in favor of other relatives. In subsequent conversations he recognized the deposits as a provision for the family "and no change of intention on his part was indicated." The question left undecided in Martin v.Funk, whether "surrounding circumstances may not be shown to vary or explain the apparent character of the acts and the intent with which they were done," was not expressly decided, but it was said "that the character of such a transaction as creating a trust is not conclusively established by the mere fact of the deposit, so as to preclude evidence of contemporaneous facts and circumstances constituting res gestæ, to show that the real motive of the depositor was not to create a trust, but to accomplish some independent and different purpose inconsistent with an intention to divest himself of the beneficial ownership of the fund."

In these cases all the money claimed by the respective plaintiffs was left in the bank until the death of the depositor, the sums withdrawn not being in issue. When the next case arose the court realized from the condition of business and the frequency of deposits in trust that conservative action was necessary in order to avoid subversion of the real intention of the depositor, and from that time forward the general doctrine laid down in Martin v. Funk was carefully limited. Thus, in Beaver v. Beaver (117 N.Y. 421) the deposit was by a father of his own money in the name of his son seventeen years of age. The father retained the pass book, deposited more money to the credit of the account and drew out some. The son died over twenty years after the first deposit without knowing anything about any of the deposits. Subsequently, the father died and it was held that the facts shown would not permit the inference that either a trust or a *122122gift was established. Judge ANDREWS said: "There was no declaration of trust in this case, in terms, when the deposit of July 5th, 1866, was made nor at any time afterwards, and none can be implied from a mere deposit by one person in the name of another. To constitute a trust there must be an explicit declaration of trust or circumstances which show beyond reasonable doubt that a trust was intended to be created. It would introduce a dangerous instability of titles if anything less was required, or if a voluntary trust inter vivos could be established in the absence of express words, by circumstances capable of another construction or consistent with a different intention * * * It may be justly said that a deposit in a savings bank by one person of his own money to the credit of another, is consistent with an intention on the part of the depositor to give the money to the other. But it does not, we think, of itself, without more, authorize an affirmative finding that the deposit was made with that intent, when the deposit was to a new account, unaccompanied by any declaration of intention, and the depositor received at the time a pass book, the possession and presentation of which by the rules of the bank known to the depositor, is made the evidence of the right to draw the deposit. We cannot close our eyes to the well-known practice of persons depositing in savings banks money to the credit of real or fictitious persons, with no intention of divesting themselves of ownership. It is attributable to various reasons; reasons connected with taxation; rules of the banks limiting the amount which any one individual may keep on deposit; the desire to obtain high rates of interest where there is a discrimination based on the amount of deposits, and the desire on the part of many persons to veil or conceal from others knowledge of their pecuniary condition. In most cases where a deposit of this character is made as a gift, there are contemporaneous facts or subsequent declarations by which the intention can be established, independently of the form of the deposit. We are inclined to think that to infer a gift from the form of the deposit alone would, in a great majority of cases, and especially where the *123123 deposit was of any considerable amount, impute an intention which never existed and defeat the real purpose of the depositor." (See, also, Matter of Bolin, 136 N.Y. 177, and Sullivan v. Sullivan, 161 N.Y. 554.) In the former case the deposit was first made in the name of the depositor, but the money was afterward withdrawn and deposited to the account of "Julia Cody or daughter, Bridget Bolin." The court said that "in the absence of other evidence, the transaction simply evidenced a purpose of the depositor of the moneys that they should be drawn out by either of the persons named. * * * The evidence must show that the donor intended to divest herself of the possession of her property and it should be inconsistent with any other intention or purpose."

The facts and the law in the next case to which we wish to call special attention are well stated in the syllabus, as follows: "An irrevocable trust in favor of another than the depositor is not established where the facts disclosed are to the effect that a depositor opened an account in a savings bank in his own name; that he thereafter changed it to his own name in trust for his brother; that the brother subsequently died and three days thereafter the depositor changed the account back to his own name; that the depositor at all times retained possession of the bank books until delivered up to the bank; that the brother was not informed of the account and the depositor is alive, denying the trust and claiming never to have intended to give the money represented by the account to his brother, nor to have ever intended it for his benefit, although the depositor does not disclose his reasons for opening the account in trust for his brother." Judge BARTLETT, in writing for all the judges, distinguished the early cases and said: "The doctrine laid down by this court in the previous cases amounts to this, that the act of a depositor in opening an account in a savings bank in trust for a third party, the depositor retaining possession of the bank book and failing to notify the beneficiary, creates a trust if the depositor dies before the beneficiary, leaving the trust account open and unexplained." ( Cunningham v. Davenport, 147 N.Y. 43, 47.) *124124

When a deposit is made in trust and the depositor dies intestate leaving it undisturbed, in the absence of other evidence, the presumption seems to arise that a trust was intended in order to avoid the trouble of making a will.

Cunningham v. Davenport was followed in Matter of Barefield(177 N.Y. 387), where an alleged savings bank trust was not sustained, but the effect of a simple deposit by one person in his own name in trust for another, although mentioned, was not decided, as there was other evidence bearing upon the intention of the depositor.

In Haux v. Dry Dock Savings Institution (2 App. Div. 165; affirmed, 154 N.Y. 736) William Haux deposited in the Dry Dock Savings Institution a small sum in trust for three of his children. Subsequently he made other deposits until at the time of his death the account amounted to $3,000. The children died before him and after their death he continued to use the same account, which originally consisted of the savings of all his children, including two not named in the account, but when his deposits in another savings bank amounted to $3,000 he began to deposit all his profits in the Dry Dock Savings Institution. He always retained control of the moneys, and on one occasion withdrew a part. On the same day, when the account in question was opened, he started another in the same bank entitled "William Haux in trust for William Haux," and delivered the pass book to his son, William Haux, Jr., who always retained possession thereof. It was held that there was no intention on the part of the depositor to create a trust in respect to the balance of the first account, which remained in the Dry Dock Savings Institution at the time of his death.

In Farleigh v. Cadman (159 N.Y. 169, 171) the deposit was the result of a family arrangement for the benefit of the plaintiff, who was duly informed of it, and was present when the account was opened accordingly.

Washington v. Bank for Savings (171 N.Y. 166) is suggestive in its facts, but as it turned wholly upon a question of evidence no further allusion to it will be made. *125125

In Robinson v. Appleby (69 App. Div. 509; affirmed,173 N.Y. 626) Helen C. Pratt deposited $2,695 in a savings bank and received a pass book headed, "Helen C. Pratt in trust for Freddie Hemingway Robinson." She made several deposits in and withdrawals from the account, and on May 31st, 1893, when the amount on deposit was $2,740, she surrendered the pass book and transferred the balance to a new account headed, "Helen C. Pratt in trust for Freddie H. Robinson. Note — Not to be paid to F.H.R. until he is 30 years of age." She also signed the following paper: "I desire to open an account with the Riverhead Savings Bank in my name in trust for Freddie H. Robinson. Said account to be governed by the by-laws, rules and regulations of the savings institution. After my death the balance then due on said account is not to be payable to said Freddie H. Robinson until he is 30 years of age." The second pass book was never given to Mrs. Pratt, but was retained by the bank. On the 20th of January, 1894, Freddie H. Robinson died and four days later Mrs. Pratt withdrew the entire deposit. In this case the written declaration was so full and explicit that we had no difficulty in sustaining the trust as irrevocably established when that paper was signed and delivered to the bank as custodian of the trust fund. There was much more than a mere deposit in the name of one person in trust for another, for an independent instrument was executed which not only declared the intention of the depositor, but directed when the account was to be paid to the beneficiary.

While we have considered we do not cite the numerous cases decided by the Supreme Court bearing upon the question, owing to the conflict in the opinions of learned justices in different appellate divisions. It is necessary for us to settle the conflict by laying down such a rule as will best promote the interests of all the people in the state. After much reflection upon the subject, guided by the principles established by our former decisions, we announce the following as our conclusion: A deposit by one person of his own money, in his own name as trustee for another, standing alone, does not establish an irrevocable *126126 trust during the lifetime of the depositor. It is a tentative trust merely, revocable at will, until the depositor dies or completes the gift in his lifetime by some unequivocal act or declaration, such as delivery of the pass book or notice to the beneficiary. In case the depositor dies before the beneficiary without revocation, or some decisive act or declaration of disaffirmance, the presumption arises that an absolute trust was created as to the balance on hand at the death of the depositor. This rule requires us to reverse the order of the Appellate Division and to affirm the decree of the surrogate, with costs to the appellants in all courts.

PARKER, Ch. J., O'BRIEN, BARTLETT, MARTIN, CULLEN and WERNER, JJ., concur.

Order reversed, etc.

Treasury reg 26 CFR 1.651(a)-2 - Income required to be distributed currently.

26 CFR 1.651(a)-2 - Income required to be distributed currently.

§ 1.651(a)-2 Income required to be distributed currently.

(a) The determination of whether trust income is required to be distributed currently depends upon the terms of the trust instrument and the applicable local law. For this purpose, if the trust instrument provides that the trustee in determining the distributable income shall first retain a reserve for depreciation or otherwise make due allowance for keeping the trust corpus intact by retaining a reasonable amount of the current income for that purpose, the retention of current income for that purpose will not disqualify the trust from being a “simple” trust. The fiduciary must be under a duty to distribute the income currently even if, as a matter of practical necessity, the income is not distributed until after the close of the trust's taxable year. For example: Under the terms of the trust instrument, all of the income is currently distributable to A. The trust reports on the calendar year basis and as a matter of practical necessity makes distribution to A of each quarter's income on the fifteenth day of the month following the close of the quarter. The distribution made by the trust on January 15, 1955, of the income for the fourth quarter of 1954 does not disqualify the trust from treatment in 1955 under section 651, since the income is required to be distributed currently. However, if the terms of a trust require that none of the income be distributed until after the year of its receipt by the trust, the income of the trust is not required to be distributed currently and the trust is not a simple trust. For definition of the term “income” see section 643(b) and § 1.643(b)-1.

(b) It is immaterial, for purposes of determining whether all the income is required to be distributed currently, that the amount of income allocated to a particular beneficiary is not specified in the instrument. For example, if the fiduciary is required to distribute all the income currently, but has discretion to “sprinkle” the income among a class of beneficiaries, or among named beneficiaries, in such amount as he may see fit, all the income is required to be distributed currently, even though the amount distributable to a particular beneficiary is unknown until the fiduciary has exercised his discretion.

(c) If in one taxable year of a trust its income for that year is required or permitted to be accumulated, and in another taxable year its income for the year is required to be distributed currently (and no other amounts are distributed), the trust is a simple trust for the latter year. For example, a trust under which income may be accumulated until a beneficiary is 21 years old, and thereafter must be distributed currently, is a simple trust for taxable years beginning after the beneficiary reaches the age of 21 years in which no other amounts are distributed.

(d) If a trust distributes property in kind as part of its requirement to distribute currently all the income as defined under section 643(b) and the applicable regulations, the trust shall be treated as having sold the property for its fair market value on the date of distribution. If no amount in excess of the amount of income as defined under section 643(b) and the applicable regulations is distributed by the trust during the year, the trust will qualify for treatment under section 651 even though property in kind was distributed as part of a distribution of all such income. This paragraph (d) applies for taxable years of trusts ending after January 2, 2004.

[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 9102, 69 FR 20, Jan. 2, 2004]