Posted by: BlogMaster | January 21, 2013

The Special Needs Trust – What Happens After the Parent Dies?

In 2010, I discussed in this blog a New York State Surrogate’s Court case called Mark C.H.

In that case, a parent with a developmentally disabled (nonverbal) young male child had established a special needs trust (SNT) and, knowing her death was imminent due to cancer, placed her son in a residential program. The mother’s long-time attorney agreed to serve as 17A guardian and as co-trustee, with JP Morgan Chase Bank, of the inherited special needs trust. 

The crux of this case and the Surrogate’s 2010 decision, was the sad realization that in the two years following his mother’s death, a $3 million trust had not been used for Mark, and neither the trustee – including JP Morgan Chase – nor the guardian, appeared to know what Mark’s special needs might be.

Significantly, neither trustee had tried to determine Mark’s special needs nor to hire an expert to inform them. The Surrogate’s Court had determined that the trustees did not exercise even a reasonable degree of diligence towards the beneficiary – although they paid themselves commissions – and “failed to take the steps necessary to keep themselves fully informed of beneficiary’s residential situation and ancillary services.”

On December 31, 2012, the case returned to Surrogate’s Court. The decision is significant not only for its report of success in the use of the trust funds for Mark C.H., but for all parents in similar situations who ask, “How do I know the trustee I designate will do what they are supposed to do?”

If you search the Internet for the phrase ‘Letter of Intent’, you will find samples of this non-legal document which helps parents describe their wishes for their disabled child or adult after their own death – including religious, social and housing preferences.

But remember that this is not a legally enforceable document and should be considered more of an organizational tool. Be wary, as well, of legal fees someone may try to charge you for this document, which does not require an attorney. 

In Mark C.H., and sadly in other cases as well, the trustee tried to argue that it owed no direct legal duty to the beneficiary. But this Surrogate Court rejected that argument. And, in a strongly worded decision, added, “The legal consequences… should provide a clarion call for all fiduciaries of trusts whose beneficiaries are known to have disabilities to fulfill their ‘unwavering duty of complete loyalty to the beneficiar[y]’. ”

The advantage of your estate planning with an inherited special needs trust is that your goals and information, which might have been expressed in a letter of intent, can be drafted by an experienced lawyer into a will or any trust, becoming an enforceable obligation against the trustee of the special needs trust. 

Better, still, you might consider a requirement that the trustee of the SNT – whether family or corporate, such as a bank – retain a professional or nonprofit with particular expertise in your child’s specific impairment, to advise the trustee on the needs of and services for the disabled person. Then, regardless of impairment – physical, developmental, or mental illness – there is a legal obligation for the trustee to act appropriately.

You may also want accountability – particularly in larger trusts – by the trustee. But if the beneficiary is intellectually impaired, who is watching the ‘hen house?’ – the issue raised in the first Mark C.H. case. In that situation, your estate planning documents can direct the person to whom an accounting must be delivered for review.

Special needs planning as part of your estate requires an experienced legal practitioner. Contact my office to arrange a consultation.

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