Court Opinion

ID: 5794058
Source: CourtListenerOpinion
Date Created: 2022-01-12 18:14:59.707756+00
Date Added: 2024-06-11T08:42:22.018463
License: Public Domain

Leventhal, J. (dissenting).
I respectfully dissent. I do not concur with the majority’s conclusion that there was a rational basis for the determination of the New York State Department of Health (hereinafter the DOH) that the transfer of the settlor/ parent’s recurring income into a supplemental needs trust (hereinafter SNT), created for his or her disabled adult child, must be counted toward his or her net available monthly income (hereinafter NAMI) for calculation of his or her own Medicaid post-eligibility benefits. For the reasons stated below, I believe that 42 USC § 1396p (d) does not mandate that result, and that the DOH’s determination that the settlor/parent here was required to contribute virtually her entire NAMI toward the cost of her post-eligibility Medicaid services during her lifetime, thereby effectively cutting off funding to the valid SNT created for her disabled son, was arbitrary and capricious and contrary *114to the federal and state laws that govern Medicaid post-eligibility benefit contributions.
This Court should affirm the judgment entered January 12, 2007 for several reasons. First, this Court is not bound by the federal statutory and regulatory authorities that address this issue since federal law does not preempt New York law in this area. Second, in deciding this case on state statutory and regulatory grounds, both the Social Services Law and the DOH regulations provide no guidance on the issue of whether corpus and income deposited by a settlor into a third-party SNT must be included in the Medicaid benefit contribution of the settlor of the SNT. Therefore, this Court should look to EPTL 7-1.12 as an interpretational gap-filler. Third, New York law favors the policy underlying EPTL 7-1.12 since it preserves the viability of a third-party SNT as a mechanism for planning for the future care of disabled relatives. Finally, contrary to the DOH’s assertion, exempting the corpus and income deposited into third-party SNTs from Medicaid post-eligibility benefit contributions will not create an opportunity for widespread abuse.
It is undisputed that, on September 15, 2004, the petitioner’s decedent, Mattie Lou Hammond, established a third-party, irrevocable SNT for the benefit of her then 52-year-old son, Frediland Hammond. The trust agreement creating the SNT (hereinafter the SNT agreement) included the required “payback” provision, which provided that the trust would terminate upon Frediland’s death, with any remaining principal and accumulated interest to be used to reimburse the appropriate Medicaid entity in New York for the medical assistance provided to Frediland during his lifetime, prior to distributing any remaining trust assets to his estate. I agree with the majority that Hammond created a valid SNT for her disabled son, but disagree with their determination that, under the circumstances of this case, she could no longer fund that trust during her lifetime without severely reducing the amount of her Medicaid benefits.
Background
Medicaid is a jointly funded federal and state medical assistance program that was established by title XIX of the Social Security Act (42 USC § 1396 et seq.) and is implemented in New York State by article 5, title 11, of the Social Services Law (hereinafter together the Medicaid statutes). The purpose of the program is to pay for necessary medical care for eligible individuals whose income and resources are insufficient to meet *115the costs of their medical care (42 USC § 1396; Social Services Law § 363; Arkansas Dept. of Health & Human Servs. v Ahlborn, 547 US 268, 275 [2006]). As a condition to the receipt of federal program funding, state Medicaid plans must conform with the statutory standards established by federal law and the regulations promulgated by the Secretary of the United States Department of Health and Human Services (42 USC § 1396a; Social Services Law § 363-a [1]). To comply with the Medicaid statutes, a state’s plan must include, inter alia, “reasonable standards ... for determining eligibility for and the extent of medical assistance under the plan” (42 USC § 1396a [a] [17]). 42 USC § 1396a (a) (17) requires states to consider available “income” and “resources” when making two separate determinations as to whether an individual is eligible for Medicaid, and the amount of benefits to which he or she is entitled (see 42 USC § 1382a [defining income]; 42 USC § 1382b [defining resources]).
In 1993 Congress amended the federal component of the Medicaid statutes when it passed the Omnibus Budget Reconciliation Act of 1993 (hereinafter OBRA) (Pub L 103-66, 107 US Stat 312 [103d Cong, 1st Sess, Aug. 10, 1993]). The amendments inserted 42 USC § 1396p (d)1 into the Medicaid statutes. That section addresses the treatment of trust amounts for eligibility and benefit contribution purposes. Paragraph (1) of subsection (d) provides that, subject to paragraph (4), the rules specified in paragraph (3) shall apply to a trust established by an individual and shall be considered in determining both that individual’s Medicaid eligibility and benefits. Regarding the treatment of an irrevocable trust, 42 USC § 1396p (d) (3) (B) provides that the corpus of such a trust “shall be considered resources available to the individual,” and that payments from the trust “shall be considered income of the individual.” Paragraph (4) includes an exemption, which provides that all of subsection (d) does not apply to, among other things, an SNT trust
“containing the assets of an individual under the age of 65 who is disabled . . . and which is established for the benefit of such individual by a parent, grandparent... if the State will receive all amounts remaining in the trust upon the death of such indi*116vidual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this title” (42 USC § 1396p [d] [4] [A]; see Keith v Rizzuto, 212 F3d 1190, 1193 [2000], cert denied 531 US 960 [2000]).
42 USC § 1396p does provide guidance, insofar as to Medicaid eligibility, to a situation where, as here, a settlor transfers assets to an SNT. Specifically, 42 USC § 1396p (c) (2) (B) (iii) and (iv) provide that a person will not be ineligible for Medicaid benefits when that person transfers assets to an SNT for the benefit of a disabled child or spouse under the age of 65 (see Social Services Law § 366 [5] [d] [3] [ii] [C], [D]). However, 42 USC § 1396p (d) (4) does not address how, if at all, a parent/ settlor’s transfer of assets to an SNT would affect that parent’s Medicaid benefits determination.
The Medicaid statutes generally require Medicaid recipients who receive nursing home care to significantly defray the costs of such care (see 42 USC § 1396a [q] [1] [A]). In November 1994 the Centers for Medicare and Medicaid Services (hereinafter the CMS) added section 3259.7 to the State Medicaid Manual (hereinafter SMM)2 to fill a “perceived statutory gap” in the exemption created by 42 USC § 1396 (d) (4) (Sai Kwan Wong v Doar, 571 F3d 247, 253 [2009]). SMM § 3259.7 provides that income placed in an SNT is subject to the post-eligibility rules in the Code of Federal Regulations (SMM § 3259.7 [C] [5] [b]). The CMS, under the aegis of the Department of Health and Human Services (hereinafter HHS), promulgated 42 CFR 435.832 “[t]o implement this requirement” (Sai Kwan Wong v Doar, 571 F3d at 251). Under 42 CFR 435.832, the CMS subtracts “required deductions” from a Medicaid applicant’s monthly income, with the difference between those two figures constituting the applicant’s expected contribution to his or her own cost of care.
Thus, although Congress expressly stated that the trust corpus and income inclusion rule did “not apply” to SNTs established for the sole benefit of disabled children and grandchildren, the CMS apparently interpreted this language “as a delegation of authority ... to determine what eligibility and post-eligibility rules shall apply to those trusts” (Sai Kwan Wong v Doar, 571 F3d at 252). The CMS inferred from the pro*117hibitive language that Congress inserted into 42 USC § 1396p (d) (4) a directive to affirmatively regulate the role of SNT corpus and income for the purposes of post-eligibility benefit contributions. The CMS then used this inferred authority to require Medicaid applicants to apply the corpus and income that they deposited into a third-party SNT to their post-eligibility benefit contributions, effectively overturning Congress’s explicit 42 USC § 1396p (d) (4) exemption. The SMM does not provide any rationale for the CMS’s interpretation of 42 USC § 1396p (d) (4). By electing to treat the SNT corpus and income as available resources or income to the SNT settlor for the purpose of calculating the settlor’s required benefit contributions, the CMS performed an end run around 42 USC § 1396p (d) (4) (A) and eliminated that statute’s exemption.
The majority concludes that both the federal and state statutory frameworks expressly require that Hammond’s transfer of income into the third-party SNT, created for the benefit of her adult disabled son, was required to be included in the calculation of her own Medicaid post-eligibility benefits during her lifetime. However, the record before this Court demonstrates that SMM § 3259.7 is the only Medicaid regulation or guideline that requires income placed in a third-party SNT to be included in an applicant’s post-eligibility benefit contribution. Moreover, contrary to the majority’s assertion, 42 USC § 1396p (d) (1) does not state that income placed in a trust, and disregarded for eligibility purposes, shall be counted “for purposes of determining an individual’s . . . amount of . . . benefits.” While the Medicaid statutes are “statute[s] of unparalleled complexity” (DeJesus v Perales, 770 F2d 316, 321 [1985], cert denied 478 US 1007 [1986]), that complexity does not warrant a statutory interpretation that is erroneous. Furthermore, the SMM “is not promulgated under the notice and comment provisions of the [Federal] Administrative Procedure Act and thus does not ‘have the force and effect of law’ ” (Hobbs v Zenderman, 579 F3d 1171, 1186 n 10 [2009], quoting Ramey v Reinertson, 268 F3d 955, 963 [2001]). The CMS asserts that SMM § 3259.7 is “binding on Medicaid state agencies” (SMM Foreword). However, SMM § 3259.7 contradicts New York legislative policy favoring the preservation of SNTs. Specifically, EPTL 7-1.12 embodies New York State policy, which favors SNTs as vehicles for families who wish to plan for the care of their surviving disabled children after nondisabled family members die. As discussed below, federal law does not preempt this state policy.
*118Federal Law Does Not Preempt New York Law
Congress may only preempt state law in two permissible ways. Congress may either expressly or impliedly preempt state regulations. 42 USC § 1396p (d) and SMM § 3259.7 do not preempt EPTL 7-1.12 and other provisions of New York law governing post-eligibility Medicaid benefit contributions. Consequently, this Court may render a decision in this case solely on state-law grounds.
A, Express Preemption
Where “ ‘Congress legislate^] in a field which the States have traditionally occupied . . . [w]e start with the assumption that the historic police powers of the States were not to be superseded by the [federal legislation] unless that was the clear and manifest purpose of Congress’ ” (Medical Socy. of State of N.Y. v Cuomo, 976 F2d 812, 816 [1992], quoting Rice v Santa Fe Elevator Corp., 331 US 218, 230 [1947] [holding that federal law did not preempt a provision of the Public Health Law, which limited the amount that physicians could charge their patients under the Medicare Act]). The United States Supreme Court requires “ ‘compelling evidence of an intention to preempt’ in traditionally state-regulated fields” (Medical Socy. of State of N.Y. v Cuomo, 976 F2d at 816, quoting General Motors Corp. v Abrams, 897 F2d 34, 41-42 [1990]). It is well settled that the disposition of trusts and estates falls within such a field (see EPTL art 7). “Supplemental needs trusts are governed by state law” (Wong v Daines, 582 F Supp 2d 475, 479 [2008], affd sub nom. Sai Kwan Wong v Doar, 571 F3d 247 [2009]). Likewise, the means and methodology by which states choose to allocate the costs of medical care are components of a “traditionally state-regulated field.” (Medical Socy. of State of N.Y. v Cuomo, 976 F2d at 816.) “The regulation of public health and the cost of medical care are virtual paradigms of matters traditionally within the police powers of the state” (Medical Socy. of State of N.Y. v Cuomo, 976 F2d at 816).
The language of 42 USC § 1396p (d) does not evince Congress’s express intent to preempt state law with respect to the formation and sustainability of third-party SNTs. Nor did Congress expressly intend the Medicaid program to be solely administered by the federal government. The EPTL, the Social Services Law, and DOH regulations implementing the Medicaid statutes govern “traditionally state-regulated fields.” Consequently, federal law does not supersede New York law, since Congress did not provide for express preemption in the text of 42 USC § 1396p (d).
*119B. Implied Preemption
If Congress does not use explicit preemptive language in its statutory scheme, implied preemption may exist in the form of either field preemption or conflict preemption. Field preemption occurs when a federal regulatory regime is “so pervasive as to make reasonable the inference that Congress left no room for the states to supplement it” (Gade v National Solid Wastes Management Assn., 505 US 88, 98 [1992]). Conflict preemption, on the other hand, renders “compliance with both Federal and state regulations ... a physical impossibility,” or exists where “state law ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress’ ” (id., quoting Hines v Davidowitz, 312 US 52, 67 [emphasis added]). As discussed below, 42 USC § 1396p (d) does not impliedly preempt New York law.
1. Field Preemption
In order for field preemption to exist, federal regulation must be “so pervasive” that Congress could not have intended for the states to “supplement it.” The Medicaid program is a hallmark of “ ‘cooperative federalism’ ” and “administered jointly by state and federal governments” (Rebaldo v Cuomo, 749 F2d 133, 139 [1984], cert denied 472 US 1008 [1985], quoting Massachusetts Gen. Hosp. v Sargent, 397 F Supp 1056, 1061 [1975] [holding that ERISA did not preempt the Public Health Law, which limits the rates that hospitals may charge to employee benefit plans]). Paraphrasing the United States Supreme Court, the United States Court of Appeals for the Second Circuit accurately described Medicaid as a “ ‘cooperative endeavor,’ a ‘cooperative program of shared financial responsibility’ between the states and the federal government” (Rebaldo v Cuomo, 749 F2d at 139, quoting Harris v McRae, 448 US 297, 308-309 [1980]). Hence, the very nature of the Medicaid program nullifies any claim that New York law is field preempted by 42 USC § 1396p (d). Regarding Medicaid, “the case of federal preemption becomes a less persuasive one,’ ” rendering field preemption analysis of no consequence (G. ex rel. K. v Hawai’i, Dept. of Human Servs., 2009 WL 1322354, *20, 2009 US Dist LEXIS 120529, *60 [D Hawaii 2009], quoting Guzman v Shewry, 544 F3d 1073, 1080 [2008]; see Pharmaceutical Research & Mfrs. of Am. v Concannon, 249 F3d 66, 74 n 6 [2001], affd sub nom. Pharmaceutical Research & Mfrs. of America v Walsh, 538 US 644 [2003]).
*1202. Conflict Preemption
There is no conflict between 42 USC § 1396p (d) and New York law with respect to whether a Medicaid applicant’s monthly income, deposited into an SNT for his or her disabled child, must cover the Medicaid applicant’s own cost of care. Neither federal statute nor New York law fosters a scenario where Medicaid applicants will encounter a “physical impossibility” in order to comply with both regimes. 42 USC § 1396p (d) (4) (A) solely exempts third-party SNTs, created by a parent or grandparent for the Medicaid applicant, from benefit calculations. 42 USC § 1396p (d) (4) (A) contains no express language requiring the exempt SNT corpus or income to then be included in the SNT settlor’s expected Medicaid contribution when he or she applies for Medicaid on his or her own behalf. Additionally, New York law is hardly “an obstacle to the accomplishment and execution of the full purposes and objectives of’ (Pharmaceutical Research & Mfrs. of Am. v Concannon, 249 F3d at 75) the federal component of Medicaid statutes. In fact, EPTL 7-1.12 furthers the “full purposes and objectives” of Medicaid, which are to provide affordable medical care to “those whose ‘income and resources are insufficient to meet the costs of necessary medical services’ ” (Pharmaceutical Research & Mfrs. of Am. v Concannon, 249 F3d at 75, quoting 42 USC § 1396, now § 1396-1). States must administer their own Medicaid programs “ ‘in a manner consistent with simplicity of administration and the best interests of the recipients’ ” (id. at 75, quoting 42 USC § 1396a [a] [19]).
Similarly, the Legislature designed EPTL 7-1.12 with the intent “to benefit individuals with a wide variety of disabilities” (L 1993, ch 433, § 1). Its purpose “is to encourage future care planning by instilling greater confidence in families and friends of persons with disabilities that the trusts they establish for recipients of government assistance will be used for the purposes they intend” (id. [emphasis added]). EPTL 7-1.12 furthers the “full purposes and objectives” of Medicaid because it allows families to plan for the needs of their disabled children beyond what Medicaid would otherwise cover.
Furthermore, SMM § 3259.7 cannot preempt New York law where 42 USC § 1396p (d) failed to do so. Federal guidance manuals cannot overstep the bounds of their enacting statutes. “[A]n agency has no more power to preempt state law than is delegated to it by Congress, and the ‘clear and manifest purpose of Congress’ is required to dispel the presumption against *121Federal preemption of traditional state police powers” (Garrelts v SmithKline Beecham Corp., 943 F Supp 1023, 1050 [1996], quoting Rice v Santa Fe Elevator Corp., 331 US 218, 231 [1947]). A ruling to the contrary would “accord [such] deference to agency intent as [to make it] sufficient to overcome the presumption” and “permit an agency to expand its power beyond the limits Congress intended” (Garrelts v SmithKline Beecham Corp., 943 F Supp at 1050). Courts “should be ‘both unwilling and unable to’ ” confer such authority (id., quoting Louisiana Pub. Serv. Commn. v FCC, 476 US 355, 374-375 [1986]). It appears that the CMS has attempted to legislate around Congress’s intent, thus reaching beyond the scope of its enacting statute.
As the above discussion makes evident, 42 USC § 1396p (d) and SMM § 3259.7 do not preempt EPTL 7-1.12 and New York law governing post-eligibility Medicaid benefit contributions. Absent any such preemption, the DOH’s determination that Hammond or her estate can no longer fund the SNT at issue without adverse consequences is irrational and illogical, and affected by an error of law.
The majority properly notes that the “construction given statutes and regulations by the agency responsible for their administration, if not irrational or unreasonable, should be upheld” (Matter of Howard v Wyman, 28 NY2d 434, 438 [1971]; see Matter of Gaffney v Village of Mamaroneck, 21 AD3d 1031 [2005]). “Where, however, the question is one of pure statutory reading and analysis, dependent only on accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the administrative agency” (Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459 [1980]; see Matter of Gaffney v Village of Mamaroneck, 21 AD3d 1031 [2005]). “In such a case, courts are ‘free to ascertain the proper interpretation from the statutory language and legislative intent’ ” (Seittelman v Sabol, 91 NY2d 618, 625 [1998], quoting Matter of Gruber [New York City Dept. of Personnel—Sweeney], 89 NY2d 225, 231-232 [1996]). The DOH construes the statute and regulations as permitting Hammond to create a valid SNT for Frediland, but then comes to the illogical and irrational conclusion that she should not have been able to fund that trust without severe adverse consequences to herself.
Here, it should be noted, there is “no significant legislative history regarding § 1396p (d) (4)” (Wong v Daines, 582 F Supp 2d at 481 n 3; see Hobbs ex rel. Hobbs v Zenderman, 542 F Supp *1222d 1220, 1228 [2008], affd 579 F3d 1171 [2009] [“Court’s own best efforts have uncovered no sign that Congress ever mentioned this provision in any published report”]). Therefore, the issue of whether corpus and income deposited into a third-party SNT by a settlor must be included in the settlor’s Medicaid benefit contribution should be decided on state law grounds.
The Social Services Law and DOH Regulations Provide No Guidance on Third-Party Special Needs Trust Exemptions
The Social Services Law and DOH regulations do not address whether the income and corpus deposited into a third-party SNT can be used to cover the settlor’s “cost of care.” Social Services Law § 366 (2) (b) (2) (iii), which parallels the language in 42 USC § 1396p (d) (4) (A), exempts from Medicaid benefit contributions the income and corpus deposited into SNTs that were created for the sole benefit of a disabled Medicaid applicant. Social Services Law § 366 (2) (b) (2) (iii) contains no language requiring that income or corpus deposited into an SNT must then be included in the SNT settlor’s expected Medicaid contribution when the settlor becomes Medicaid eligible. Quite simply, “[t]here is no statutory provision to which [the State] can point that requires this classic bureaucratic Catch-22, or even suggests it” (Matter of Kaiser v Commissioner of N.Y.S. Dept. of Health, 13 Misc 3d 1211[A], 2006 NY Slip Op 51786[U], *3 [2006]).
18 NYCRR 360-4.9, the DOH regulation governing Medicaid benefit contributions, is also silent on this issue. The regulation “simply does not address income flowing into [third-party SNTs]” (Matter of Kaiser v Commissioner of N.Y.S. Dept. of Health, 13 Misc 3d 1211[A], 2006 NY Slip Op 51786[U], *3 [2006]). In response to the petitioner’s contention in this regard, the DOH contends that 18 NYCRR 360-4.9 sets forth a broad default rule, requiring that “all income must be applied toward the cost of care . . . including income disregarded or considered unavailable for determining MA [medical assistance] eligibility” (18 NYCRR 360-4.9). The DOH argues that the only permissible exemptions to this scheme would be those specifically exempted by the regulation. The DOH further asserts that these listed exemptions are exclusive, that 18 NYCRR 360-4.9 does not mention deposits into third-party SNTs, and that any other source of income not exempted must be applied to a Medicaid applicant’s “cost of care.”
The DOH’s construction is unpersuasive because the exceptions listed in 18 NYCRR 360-4.9 are merely illustrative and not *123exclusive. This is demonstrated by the fact that 18 NYCRR 360-4.9 does not exempt the corpus and the income deposited into a third-party SNT, which are funds expressly exempted by the very statute which the DOH is obligated to implement. This illogical result suggested by the DOH undercuts its contention that 18 NYCRR 360-4.9 provides an exclusive list of exemptions from the default income inclusion rule. Instead, the silence of this regulation on the treatment of corpus and income deposited into a third-party SNT creates a vacuum of authority on this point of law. EPTL 7-1.12 fills this void.
EPTL 7-1.12
The Legislature imbued EPTL 7-1.12 with a clear and unambiguous mandate to protect third-party SNTs. Indeed, as the majority concedes, Matter of Escher (94 Misc 2d 952 [1978], affd 75 AD2d 531 [1980], affd 52 NY2d 1006 [1981]) permitted a parent to create a trust for a disabled adult child, without jeopardizing the child’s eligibility for government benefits. The DOH’s determination at issue serves to frustrate that parental right.
SNTs serve a dual, but equally important purpose. First, SNTs cover the cost of quality-of-life expenses for disabled beneficiaries without diminishing the amount they receive in government assistance (see EPTL 7-1.12 [a] [5] [ii]).3 Second, SNTs provide the families of disabled beneficiaries with the peace of mind that the beneficiaries’ future care expenses are well funded. New York law promotes both of these goals. As indicated above, EPTL 7-1.12 strives “to encourage future care planning by instilling greater confidence in families and friends of persons with disabilities that the trusts they establish . . . will be used for the purposes they intend” (L 1993, ch 433, § 1). Established state policy “favors planning to permit disabled individuals to secure the financial benefits of Medicaid, while retaining supplemental income and assets” (Matter of Kamp, 7 Misc 3d 615, 621 [2005]). EPTL 7-1.12 effectuates these objectives by exempting corpus and income deposited into a third-party SNT from Medicaid benefit contributions.
EPTL 7-1.12 also specifically contemplates the third-party SNT that Hammond created. Hammond’s creation of the trust *124comported, with the purposes and requirements of EPTL 7-1.12. Hammond established a third-party SNT for her disabled son to plan for his care after her death, and preserve the maximum Medicaid benefit assistance to which he would be entitled. The SNT agreement also included a statutorily mandated “payback provision” (see Social Services Law § 366 [2] [b] [2] [iii]; EPTL 7-1.12 [a] [5] [v]). The “payback provision” provides that the SNT agreement would terminate upon Frediland’s death. At that time, any remaining principal and interest would be paid to the New York State Department of Social Services, the DOH and “any other appropriate ‘Medicaid entity.’ ”
In light of the subject SNT’s compliance with EPTL 7-1.12 and Social Services Law § 366 (2) (b) (2) (iii), this Court does not have the authority to permit the DOH to divert Hammond’s Social Security retirement income and widow’s pension, or raid the SNT corpus, to pay for her own Medicaid benefit contributions. The Social Services Law requires the DOH to “make such regulations, not inconsistent with law” (Social Services Law § 363-a [2]). However, the DOH’s interpretation of Social Services Law § 366 (2) (b) (2) (iii) and 18 NYCRR 360-4.9 is inconsistent with the federal and state statutory scheme.
The majority concludes that the manner in which Hammond funded Frediland’s SNT provides two grounds for rejecting the contentions made by Jennings. It posits that: (1) Social Security retirement benefits are unassignable and, therefore, Hammond could not deposit them into Frediland’s SNT; and (2) those benefits were “meant to help Hammond with her immediate needs [during her lifetime] and not to be preserved as future financial security for a third-party.” On the contrary, Hammond did not assign her Social Security retirement income to Frediland’s SNT. She merely received the income and placed it into the SNT. Further, the majority fails to distinguish between Social Security retirement benefits and Supplemental Security Income (hereinafter SSI). Hammond received Social Security retirement benefits, not SSI. The majority relies upon Singer v Secretary of Health & Human Servs. (566 F Supp 204, 208 [1983]) for the proposition that Hammond received Social Security retirement benefits “to provide a means of assuring future financial security [for herself,] but only to provide income when it is actually needed.” However, Singer only pertains to SSI, a program whose participants must demonstrate actual need in order to receive benefits, while Hammond received Social Security retirement income, a program whose purpose is to “provide *125a continuous source of benefits to meet the presumed need a wage earner and his or her dependents face when he or she leaves the workforce as a result of old age” (Casalvera v Commissioner of Social Sec., 998 F Supp 411, 415 [1998], affd 176 F3d 471 [1999]). Therefore, Hammond was entitled to receive her Social Security retirement benefits independent of her “actual” needs, and she was free to dispose of them as she saw fit.
The DOH contends that exempting the subject third-party SNT would open the door to unintended consequences. It argues that such a result would “enhanc[e] the ability of Medicaid applicants to simultaneously shelter their wealth and receive government medical benefits.” On the contrary, these exemptions would only apply in a narrow set of circumstances. First, both EPTL 7-1.12 and Social Services Law § 366 (2) (b) (2) (iii) set forth specific guidelines regarding who may create and benefit from third-party SNTs. For instance, only parents or grandparents would be permitted to set up such SNTs for their disabled children or grandchildren. Moreover, according to EPTL 7-1.12, a third-party SNT beneficiary must be a “[p]erson with a severe and chronic or persistent disability” (EPTL 7-1.12 [a] [4]). Similarly, Social Services Law § 366 (2) (b) (2) (iii) requires a “disabled” person to be “unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months” (42 USC § 1382c [a] [3] [A]). Second, any trust agreement creating a third-party SNT must itself follow a specific statutory blueprint. To qualify the relevant SNT for the statutory exemptions previously discussed, such an agreement must contain a “payback” provision where, upon the death of the beneficiary, the trust would reimburse the state “up to the total value of all medical assistance paid on [his or her] behalf’ (42 USC § 1396p [d] [4] [A]; see EPTL 7-1.12 [a] [5] [v]). The exemption would not apply to any SNT that failed to include this language. Finally, third-party SNT settlors must themselves apply and be eligible for Medicaid prior to any consideration of an exemption.
In sum, the DOH’s determination at issue is irrational, as it permits Hammond to create a valid SNT for her disabled son, but frustrates the funding of that trust, thus effectively rendering it a nullity. Accordingly, the judgment entered January 12, 2007 should be affirmed, since the DOH’s determination did not *126have a rational basis in the record, was arbitrary and capricious, and was affected by an error of law (see Matter of County of Monroe v Kaladjian, 83 NY2d 185, 189 [1994]; Matter of Pell v Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 NY2d 222, 231 [1974]).
Prudenti, P.J., and Fisher, J., concur with Balkin, J.; Leventhal, J., dissents in a separate opinion.
Ordered that the judgment is reversed, on the law, without costs or disbursements, the determination is confirmed, the petition is denied, and the proceeding is dismissed on the merits.

. 42 USC § 1396a (a) (18) requires that state Medicaid plans comply with 42 USC § 1396p (d).

. The SMM “ ‘makes available to all State Medicaid agencies, in a form suitable for ready reference, informational and procedural material needed by the States to administer the Medicaid program’ ” (Sai Kwan Wong v Doar, 571 F3d at 253 n 6, quoting SMM Foreword).

. SNT funds are used “to provide additional health care services and equipment, specialized or unique therapy, private health insurance, educational and vocational training, computers and software, case management services, and recreational activities” for the disabled child or recipient herself (Rosenberg, Supplemental Needs Trusts for People With Disabilities: The Development of a Private Trust in the Public Interest, 10 BU Pub Int LJ 91, 95-96 [2000]).