Trustees of Supplemental Needs Trusts: Do Not Take Your Duty LightlyApril 25, 2014 – Articles Estate Planning Blog
If trustees of Supplemental Needs Trusts were not aware of their enhanced duty to the disabled beneficiary of these types of trusts, after Matter of J.P. Morgan Chase, they should be. A Supplemental Needs Trust is a trust that is funded with the assets of a third party for the benefit of a disabled individual. A Special Needs Trust, on the other hand, is a trust that is funded with the disabled individual's own assets. Both types of trusts are carefully drafted such that the distribution powers of the trustees do not disqualify the disabled individual from means-tested government benefit programs like Medicaid and Supplemental Security Income (SSI).
In Matter of J.P. Morgan Chase, J.P. Morgan Chase and an experienced estate planning attorney, the trustees of a Supplemental Needs Trust for the benefit of an autistic man, filed an interim account for this $2.7 million trust. The trustees claimed combined commissions of more than $52,000, yet they didn't visit or inquire about the disabled beneficiary's needs for more than three years or spend a single dollar for his benefit during such time. The bank, as somewhat of an excuse, claimed that it lacked the institutional capacity to meet the needs of the disabled beneficiary. Due to this lack of care, the New York County Surrogate's Court, in denying the trustees' commission for the period, stated that the trustees had a fiduciary obligation to be proactive "in keeping abreast of the beneficiary's condition, needs and quality of life, and to utilize trust assets for his actual benefit."
This case serves a reminder that trustees of a Supplemental Needs Trust, whether an individual or corporate trustee, must pay special attention to needs of the disabled beneficiary and, if they are not suited to do so, then they should either hire an agent that can handle the responsibility or resign. In other words, "Don't bite off more than you can chew."