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A Rule 62 Petition -Obtaining Court Approval of a Personal Injury Settlement

Under Rule 62 of the Colorado Rules of Probate Procedure (“Rule 62”), a guardian or conservator of a minor or an incapacitated person (the “protected person”) must obtain court approval of a proposed settlement of the ward’s claim. Rule 62 details the requirements of the Petition for Approval of a Settlement. This article will outline the requirements for filing a petition under Rule 62.

Rule 62. Petitions are filed most often in connection with personal injury, wrongful death, or medical malpractice cases. An attorney who represents a plaintiff in personal injury, and medical malpractice cases generally may not have extensive experience in probate or protective proceedings and, as a result, procedural problems often emerge. In complex cases, it is important for the personal injury attorney to retain probate counsel early on in the process to assist with appointing a conservator, preparing the necessary trusts, and assisting with the preparation of the Rule 62 petition and hearing.

Parents are the natural guardian of their minor child. A guardian does not have authority over a child’s property. A child’s interest in a personal injury settlement is a property right. An adult that lacks capacity does not have the ability to make decisions with regard to a settlement of their personal injury case. In both situations, a conservator or special conservator must be appointed by a court to settle the personal injury claim case. The appointment of a conservator or special conservator should be completed early on and must be filed in the county where the protected person resides

All Rule 62 Petitions are set for an evidentiary hearing. Because they are considered “protective proceedings” in the probate code, the procedure set out in the Colorado Uniform Guardianship and Protective Proceedings Act (“UGPPA”) apply to hearing procedures. Colorado law does not require the Rule 62 Petition to be filed in the court where the conservator was appointed. The Rule 62 Petition may be filed in the court where the personal injury case was filed. The personal injury attorney should consult with probate counsel to determine the best court to file the petition.

After securing a hearing date and time, attention must be given to proper notice procedures. Under the UGPPA, notice to the protected person in any protective proceeding must be by personal service. Without personal service, the court lacks jurisdiction to proceed. The only known exception to this rule is notice to a minor child under the age of 12, who must be given notice by mail. The respondent cannot waive the notice requirement. Failure to give personal service to the respondent ten days prior to the Rule 62 Petition hearing will result in the hearing date and time being vacated by the court.

Notice to others is also required. Interested persons under the UGPPA include the “persons listed in the Petition.” This would include, in a personal injury settlement case:

  • The tortfeasor(s);
  • The insurance company;
  • Any party having a subrogation right (including medical providers or attorneys who played a prior role in negotiating the settlement);
  • Notice to the Colorado Department of Health Care Policy and Finance is mandatory when the claimant is receiving Medicaid.
  • Parents (if a minor is involved);
    • —Other related parties (if a conservatorship is being sought);
    • “Any other person as ordered by the court;”
    • The Attorney General’s office may make an entry of appearance in the case if there is a Medicaid lien or special needs trust;
    • Guardian Ad Litem – if appointed;
    • Fiduciary;
    • Structured Settlement Broker;

The judge may appoint a guardian ad litem or an independent expert to investigate and make recommendations to the court whether the terms of the settlement are in the best interest of the ward. The appointment of a guardian ad litem will likely slow down the settlement process. The appointment of a guardian ad litem is less likely if the judge is familiar with the probate attorney. If a guardian ad litem is appointed, it is important that probate counsel communicate with the guardian ad litem throughout the settlement process.

The court will require evidence that the amount of the settlement is reasonable based upon the facts of the case. Some of the factors a court will review will be the complexity of the case, the likelihood of an adverse verdict if the case went to trail, the limitation of insurance coverage, the amount of the liens and subrogation claims, and ability of the defendants to pay damages above insurance coverage.

In assessing a proposed settlement, the court must take into account solely what is in the best interests of the protected person. One of the prime responsibilities of the court in a rule 62 petition is to determine if the attorney fees are reasonable based upon the outcome and complexities of the case. The court will review the terms of the personal injury attorney’s contingent fee agreement. The court will not automatically approve the attorney’s contingency fee. I have seen cases where the personal injury attorney fee was substantially reduced due to inadequate proof and preparation for the hearing. The court will review the following factors to determine if the fee is reasonable and allowed:

  • Fee is reasonable in this community;
  • Difficulty and complexity of the case;
  • Reputation and experience of the attorney;
  • Skill necessary to litigate and settle this type of case
  • Did you have a signed fee agreement?
  • Did you review the terms of your fee agreement with the Parents, Guardian, Conservator?
  • How are the contingency fees calculated?
    • How are your fees calculated – net or gross?
    • Did you waive any fees or costs in this case?
    • Do you believe your fees are reasonable for the work that you completed?
  • To further justify the contingency fee, it is important for the personal injury attorney to explain the difficulties of this case.
    • Length of case
    • Discovery – number of depositions
    • Records secured and reviewed
    • Experts retained and interviewed
    • Experts required to provide written reports
    • Cost and expense of discovery
    • Mediation and settlement conference
    • Number of staff involved in the case
    • The Rule 62 Petition requires the personal injury attorney to provide an estimate of the total hours of attorney and staff time spent on the case.

The Rule 62 petition must state if a special needs trust will be created and funded with the personal injury settlement. If the protected person is receiving or may need to receive public benefits in the future, the personal injury attorney should consult with an experienced probate attorney to determine if a special needs trust is necessary. The attorney retained must be an expert on special needs trusts, Medicaid, Medicare, tax issues related to the settlement, and guardian and conservatorship proceedings. All public benefit programs have different financial and medical eligibility rules. Not all public benefit programs require a special needs trust. Medicare and Social Security Disability Income (SSDI) do not have financial limitations and therefore do not require a special needs trust. Medicaid and SSI based programs do have income and resources limitations that require a special needs trust for the protected person to receive or maintain eligibility. I often see cases where a special needs trust was created when it was not necessary.

Colorado Medicaid rules required that all special needs trust be submitted to the Department of Health Care Policy and Financing (HCPF) for approval. HCPF is notoriously slow in approving trusts. HCPF regularly requires changes to trust provisions in order to receive approval. We submit trusts to HCFP on a monthly basis. We are often the first law office to know of a new requirement made by HCFP. We immediately update our trusts to make sure we stay on top of any new changes required by HCPF.

A special needs trust cannot be submitted for review by HCPF until proof that the Medicaid lien has been paid. A canceled check is not sufficient proof that the lien has been paid in full. The personal injury attorney must receive a letter from Medicaid confirming the lien has been paid. It is not unusual for the Medicaid agency to cash the check and provide confirmation of the payment of the Medicaid lien. Additionally, Medicaid regulations require proof of the beneficiary’s disability to be submitted with the trust. Proving disability can be a difficult process with HCPF. Even though the protected person’s disability is obvious from the injuries incurred from the accident, HCPF will not accept a doctor’s letter as adequate proof. HCPF will require a disability determination from the Social Security Administration or from the Medicaid contractor that completes all disability assessments for Medicaid applications. Both of these processes can take a significant time to complete.

It is not unusual for a protected person to be receiving both Medicare and Medicaid at the time of settlement. If the protected person is on Medicare, the personal injury attorney must make sure the Medicare claim has been paid in full at the time of settlement. The personal injury attorney should consult with the probate attorney to determine if a Medicare set-aside is required to cover future medical expenses.

In many cases, Colorado law allows an allocation to damages between spouses and parent and child. In some situations, it may be beneficial to allocate some damages to the parents to limit the amount that must be funded into the special needs trust for the child. The special needs trust for the child must have a payback provision. The parents can use the money allocated to them from the settlement to create a special needs trust for their child. Since the parents are using their own money to create the trust, it is called a third-party special needs trust. A third-party special needs trust does not require a payback provision. When the disabled individual dies, none of the remaining money in the third-party special needs trust is paid back to the state. This is just one example of how an experienced special needs attorney can limit the amount that is paid back to the state.

As a condition for approving the Rule 62 motion, the personal injury attorney must hold the settlement proceeds in his or her trust account. The court order will preclude payment of attorney fees until proof that the settlement has been paid to the injured party. When a special needs trust is required, the attorney cannot be paid attorney fees until the trust is funded. The trust cannot be funded until HCPF has approved the trust as a valid special needs trust. Any assets transferred to the trust before it has been approved will be considered an available resource and disqualify the beneficiary from Medicaid and Social Security benefits. Obtaining trust approval can be minimized provided the personal injury attorney contacted an experienced special needs attorney early in the process.

To make matters more complex, recently HCPF issued regulations stating that settlement proceeds held in the personal injury attorney’s trust account are an available resource to the claimant. The claimant would immediately lose their eligibility for Medicaid benefits until the money is transferred to the special needs trust which cannot occur until the trust is approved by HCPF. To the best of my knowledge, HCPF has not disqualified a claimant from Medicaid while the settlement proceeds are held in the attorney’s trust account. The personal injury attorney should consult with the probate attorney to minimize the possible impact of the new regulations to the claimant. In more complex cases, creating a Qualified Settlement Fund to hold the settlement proceeds may be a possible solution.  

The selection of the right trustee for the special needs trust is a critical decision. The ward’s family may demonstrate convincingly through their own testimony that they lack the background or experience to deal appropriately with a large sum of money. Some admit that they do not understand the duties of a fiduciary; some have criminal or credit histories that suggest a lack of appreciation for the high level of fidelity and care necessary to discharge the duties of a custodian, agent or conservator. The family may have unrealistic expectations on how the money should be used. The family may want to buy a large home, expensive vehicles or take expensive trips. It is important to counsel the family early on in the process to make sure they understand that they will not be in control of the settlement.

It is a very common misconception that special needs trusts are restricted on what the trust money can be spent on. There are complex rules that govern the administration of a special needs trust. A common misconception is that a trust cannot pay for shelter expenses. In most cases, a skilled trustee will know how to maneuver around these rules and allow the trust to pay a beneficiary’s shelter expenses. The one distribution that cannot be made is payments made directly from the trust to the beneficiary. The trust can purchase personal items on behalf of the beneficiary. A few examples include computers, TVs, furniture and entertainment costs. The trust is also allowed to purchase a vehicle and a home for the beneficiary.

It is important for the family to be educated on the payback provision required for a special needs trust. A special needs trust funded with assets of the disabled beneficiary must contain a provision that states upon the beneficiary’s death or when Medicaid is no longer required in the state of Colorado, any remaining money in the trust must be paid back to the State of Colorado or any other state that has provided Medicaid services to the beneficiary. The payback cannot exceed the remaining trust assets. If the payback amount is $500,000 and the trust balance is $10,000, then the amount paid back to the state if $10,000. If the payback is less than the trust assets, then the beneficiary can direct who receives the remaining trust assets in their will. If the beneficiary does not have a will, then the remaining trust assets will pass to their heirs at law.

If a special needs trust or other trust is not used, the court will either require the conservator to obtain a bond or will require the settlement fund to be held in a restricted account in a local federally insured financial institution. A bond should be avoided due to the costs to obtain a bond. For a restricted account the financial institution must signed acknowledgment of the creation of the account. Prior court approval must be obtained to withdraw money from the restricted account. The conservator must file a financial plan when the conservatorship is established and file annual accountings with the court. The conservatorship will terminate on the protected person’s 21st birthday. If the protected person is incapacitated when he or she turn 21, then a new petition for a permanent conservatorship must be filed. If done properly, the court may permit a trust to be created and funded with the conservatorship assets for the benefit of the protected person. The trust will terminate the conservatorship and the funds can be privately administered by a professional trustee.

As outlined in this article, there are many post settlement decisions to make when settling a personal injury claim for a minor or incapacitated person. Each of these decisions will impact the protected person’s financial security and quality of life. The Law Office of Bradley J. Frigon can handle all aspects of the settlement process.

Law Office of Bradley J. Frigon, LLC
P.O. Box 271621, Littleton, Colorado 80127
Telephone: (720)-200-4025
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