Date: August 19, 2013
Our past few issues of the Special Needs Estate Planner have focused on trustees of supplemental (special) needs trusts. In Part 1 we summarized our concerns over appointing family members as trustees. In Part 2 we highlighted some very common mistakes made by trustees (professional and individual trustees alike).
In this issue, we focus on a very important and, in our opinion, a particularly prescient decision from a downstate New York Surrogate’s Court. In New York, the Surrogate’s Court oversees probate, trust administration, and many guardianship proceedings. The decision, Matter of Mark C.H., 38 Misc.3d 363, generated significant attention among trustees and attorneys alike, and was the subject of an extensive article in the Village Voice (“The Decision That Could Change Everything for Disabled People with Million Dollar Trusts,” June 10, 2013, by Katia Savchuck). In fact, attorney Ed Wilcenski was interviewed for the Village Voice article, and continues to receive calls from clients and advocates who are concerned about the implications of the decision for trustees of supplemental needs trusts.
The case involved an “accounting” proceeding brought by the co-trustees of a supplemental needs trust established for an autistic man who was served by a residential program in upstate New York. The trust was established by the man’s mother, and held in excess of $2 million. The two co-trustees were an attorney and a well-known trust company, and in this proceeding they sought to have the Court “settle” their accounts. As we explained in Part 2 of this series, at some point every trustee must have its accounts reviewed and “settled” in order to be released from liability.
From the decision we learn that both of Mark’s parents were deceased, and there were no other involved friends or family members. As a result, Mark had plenty of money (through his trust). What he lacked was an advocate – someone whose primary obligation was to identify his needs and preferences, and then work with the trustees so that the funds in the trust could be used to satisfy them. Sure, he was in a Medicaid funded residential program for individuals with autism, but the program was focused on providing a safe and appropriate residential environment for its residents. While the program administrators could (and did) make suggestions about possible expenditures, they were not charged with determining how private dollars should be spent to supplement the care and attention that Mark was receiving. That was the responsibility of the trustees. Or so thought the man’s mother…
As the Court reviewed the accounts of the trustees – how funds in the trust were being spent – it discovered that the co-trustees regularly took their “commissions” (i.e. compensation), but they spent practically nothing on the beneficiary, and made no effort to determine if they should be doing so. And because Mark did not have a family member, guardian or advocate looking out for him, no one was the wiser for it.
Unfortunately, this is not an uncommon occurrence. We regularly encounter trusts which sit “dormant” for years. The trustees – sometimes professional trustees, sometimes family members – do not mishandle or misappropriate trust money. They keep the money prudently invested. They make sure tax returns are filed. And they usually take commissions. But if the beneficiary is not competent and no one is asking for distributions, the trustees do little or nothing else. Indeed, there is a line of thinking which supports this approach to trust administration. As the thinking goes, the trustee has a responsibility to “preserve” trust assets for (some undetermined) future need. We understand the concept, but we feel as if it is often misapplied in many cases involving supplemental needs trusts.
To explain, if a trust is being administered for a young child with no disability, our common life experiences tell us that there will likely be some significant future event which will require money: the purchase of a home, admission to a university, purchase of a car, financing a wedding, starting a business, or an uncovered medical expense. And as the beneficiary gets older, he will let the trustee know his preferences. For this young beneficiary, preservation of principal is an important objective, and the trustee – familiar with these life events – will limit distributions while the beneficiary is young so as to ensure that the funds will be there when the child gets older.
The future is different for a beneficiary with a significant disability, and this is unfamiliar territory for many trustees. An individual with a developmental disability will typically be entitled to Medicaid funded services through one of our “Waiver” programs. These programs provide housing, transportation, daytime activity, sheltered employment, and comprehensive medical care. And if any of these needs are not being met, or are not being adequately met, this beneficiary will never be able to communicate this to the trustee.
The problem is that many trustees, unsure of the beneficiary’s needs, and lacking a family member, guardian or advocate to provide this information, will simply do nothing. As a result, money that could be used to make the beneficiary’s life better – additional therapy and services, private case management and advocacy, better durable medical equipment, recreational opportunities – instead goes unused. Well invested perhaps, but unused.
In the past, so long as a trustee did no harm and tended to the traditional obligations of trusteeship – invested prudently, filed tax returns, kept good records – there would be no liability. This may be changing. In Matter of Mark C.H., the judge believed that the trustees were not entitled to compensation because they failed to be proactive in trying to identify the beneficiary’s needs. In the words of the judge:
“It was not sufficient for the trustees merely to prudently invest the trust corpus and to safeguard its assets. The trustees here were affirmatively charged with applying trust assets to Mark’s benefit and [were] given the discretionary power to apply additional income to Mark’s service providers. Both case law and basic principles of trust administration and fiduciary obligation require the trustees to take appropriate steps to keep abreast of Mark’s condition, needs, and quality of life, and to utilize trust assets for his actual benefit. While the accounting in this trust is not yet complete, their failure to fulfill their fiduciary obligations should result in denial or reduction of their commissions for the period of their inaction.” (emphasis added)
Ultimately, the trustees retained a private care manager to help ascertain how Mark’s life could be enhanced through the proactive use of trust funds, and Mark responded wonderfully.
Our clients and colleagues have heard us say it many times before: “money does not improve quality of life; money plus advocacy improves quality of life.” Millions of dollars sitting dormant in a trust account didn’t help Mark one bit. But a small fraction of those dollars, spent under the guidance of a dedicated advocate, made all the difference in the world.
We Told You So…
Our long time readers may recall an issue of The Special Needs Estate Planner from 2006 entitled “Private Oversight and Care Management Services for People With Disabilities: A Growing Need.” In that issue we expressed our concerns over the aging of the caregiver population (usually parents) and the continuing deterioration of the government-funded safety net. We argued that proactive families and fiduciaries should consider using private advocates to provide oversight services when family is no longer able to do so (or to supplement services that might be available through government funded programs). In the Mark C.H. case, the judge took the trustees to task for failing to locate a professional who could provide the trustees with insight and information on their beneficiary, and suggested that they should be surcharged for failing to do so.
In Defense of the Trustee
Both in the Court decision and especially in her comments to the Village Voice (the judge retired from the bench shortly after the decision), the judge did not have kind words for corporate trustees of supplemental needs trusts. Those of us who practice in New York know this judge to be a particularly vocal and progressive advocate for individuals with disabilities, and it seems to us that the judge used this trust and these trustees to make a point. We work closely with many excellent and proactive corporate and professional trustees, and we know how difficult these trusts can be to administer. The rules governing trust distributions often conflict from program to program, oversight by courts and government benefit agencies can be inconsistent, and many of those who review the actions of the trustee – including many judges – have very little appreciation of how tough it can be to make the right decision about the use of trust money for a beneficiary with a cognitive disability.
But that was not the issue in this case. Quite to the contrary, these trustees were not criticized for making the wrong decisions. Rather, they were criticized for making no (distribution) decisions whatsoever, and yet still collected compensation for their efforts (or the lack thereof).
We think this latter point to be an important one. A trustee is not going to be held to an unreasonable standard, so long as the trustee is being proactive in trying to ascertain how funds in its control can be used to enhance the quality of life of the a beneficiary with a disability. In those cases where the beneficiary lacks the cognitive capacity to communicate, or if there is no credible and reliable family member, guardian or other advocate who can communicate on the beneficiary’s behalf, then it becomes an affirmative obligation of the trustee to locate a professional who can provide this advocacy and assistance. For those trustees who fail to do so and who continue to take compensation, they may find a very unpleasant surprise at the time they seek to have their own accounts settled.
Request a Review and Assessment
Our law firm regularly prepares and reviews supplemental needs trust accountings for corporate and individual trustees. We have offered case management and advocacy services for years, having long recognized that individuals with disabilities, their family members, their guardians and their trustees are often ill-equipped to navigate the complex system of services and supports. Our case managers will conduct beneficiary assessments, and will work in conjunction with trustees, existing social services professionals, and involved family members in order to develop plans for using trust assets in a proactive (and Medicaid-compliant) manner. If you are a trustee, guardian or involved family member and are interested in learning more about this service, we encourage you to contact our office to discuss a review and assessment.
Acknowledging an Advocate
We recently learned about the publication of a book, No Horns, No Trumpets, which was written by long-time brain injury advocate and friend of the firm Alice Clark, together with her son Richard Clark. The book recounts Alice’s struggles as the parent of a young man with an acquired brain injury, and includes Richard’s own stories of challenge and success. Those of us who work in this area know all too well the frustrations that accompany life with a disability. Yet at the same time we are fortunate to be inspired by clients and colleagues who are able to overcome their limitations and develop active and productive lives. This is one of those inspirational stories. The book is available for purchase through the book’s website: www.nohornsnotrumpets.com
Firm Notes and News
Attorney Ed Wilcenski was recently awarded the Marie Ivancich Memorial Award from the Brain Injury Association of New York State. As explained by the organization, the award “is given to an outstanding professional whose support for the Association is evidenced by great personal commitment and professional involvement, resulting in strengthening the Association’s mission and goals.” Attorneys and staff at Wilcenski & Pleat PLLC have been long time supporters of the Brian Injury Association of New York State, a statewide non-profit membership organization that advocates on behalf of individuals with brain injuries and their families.
Wilcenski & Pleat PLLC has opened a new office in the historic Empire Theatre Plaza at 11 South Street in Glens Falls, New York. The office will serve the firms growing client base in the upstate area.
We are pleased to announce the addition of attorney Michael Dezik to our practice. Mike is an experienced and highly regarded estate planning and elder law attorney and is particularly well versed in Medicaid and long term care issues. Mike will work primarily out of the firm’s new office in Glens Falls.
Attorneys Tara Pleat and Mike Dezik have been elected as President and Secretary, respectively, of the Estate Planning Council of Eastern New York. The Council is a not for profit organization that provides quarterly educational programs on topics of general interest to the estate planning community.
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