Trustee Held Responsible for Excessive Distributions
By Ronald A. Fatoullah, Esq.
Being a trustee is not a simple task. Trustees of special needs trusts (SNT) must be careful to explore the possibility of using government benefits to pay for expenses of the beneficiary, or risk having to reimburse the trust for having misspent trust assets.
On June 25, 2013, a New York trial court ordered a trustee of a SNT to reimburse the trust for nearly $180,000 that was misspent on private caregivers, cab rides, and medications that could have been obtained from government sources.
The beneficiary of the trust was injured as a child. In 2003, $422,012.54 from the beneficiary’s personal injury lawsuit was placed into a special needs trust for his benefit. The trust specifically stated that the trustees had to make a good-faith effort to determine whether Medicaid would cover home health care services prior to expending trust funds for that purpose. The trust also required that the trustees take the beneficiary’s eligibility for government benefits into account before making discretionary payments to him or to his family.
By 2009, only $3,253.03 remained in the trust. When BNY Mellon, the trustee, filed an order requesting that the court approve its account and release it as trustee, the court opened an investigation. The independent examiner discovered that BNY Mellon had paid for $118,064.50 worth of home health care without making an inquiry into whether the beneficiary could qualify for Medicaid payments for his care. BNY Mellon had also paid for $56,320 worth of cab fares for the beneficiary’s family and had made payments to the family that rendered the benefiary ineligible for SSI and Medicaid.
The Supreme Court of New York, Kings County, ruled that BNY Mellon must repay the trust for $176,905.99 that it improperly spent while it was trustee. The court found that “it is clear that the trustee relegated [its duties] to others, failing to make the necessary inquiries to ensure the longevity of the Trust Fund. It is clear to the Court that BNY breached its duty under the Trust agreement and failed to properly administer the Trust.”
A special needs trust, also known as a supplemental needs trust, is a trust specifically designed to preserve the assets of a disabled person without jeopardizing his or her eligibility for government benefits. This enables the disabled person to have a better quality of life by having the funds in the SNT to supplement “luxury” expenses that are not covered by any governmental program.
Not only is it prudent, but it is a requirement that a trustee explore the possibility of a governmental program being able to cover certain expenses of the beneficiary. For example, Medicaid can pay for home care services if the beneficiary needs them. Furthermore, if a beneficiary is already receiving government benefits, the trustee must ensure that the trust distributions do not disrupt the beneficiary’s continuing eligibility. For example, if a beneficiary is receiving Supplemental Security Income (SSI), the trustee may not want to use trust funds to pay for expenses of shelter or food for the beneficiary, as those payments will affect SSI benefits.
Whether you are currently serving as trustee or are considering accepting an appointment as a trustee of a SNT, it is important to consult with an elder law/special needs attorney regarding your duties and obligations as the trustee. An experienced attorney can also advise you about the various government benefits that you should be mindful of when making decisions about distributions.
To find Elder Law Attorneys and Special Needs Attorneys near you who can help you with Special Needs Planning, go to: ElderCareMatters.com – America’s National Directory of Elder Care / Senior Care Resources, including Special Needs Resources.
Ronald Fatoullah, Esq., CELA
Great Neck, New York
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