Trust Beneficiaries: Hold Your Trustees Accountable

In a recent case, a New York trial court has ordered BNY Mellon to pay back a Special Needs Trust nearly $180,000 for its failure to ensure that the trust’s beneficiary qualified for public benefits.

In Liranzo v. LI Jewish Education / Research (N.Y. Sup. Ct., Kings Cty., No. 28863/1996, June 25, 2013), the court claimed that BNY Mellon, which was the trustee of the trust, misspent trust assets on private caregivers, cab rides, and medications that could have been acquired from government sources.

Eirol Liranzo was injured as a child, and in 2003, the remaining assets from the settlement of his personal injury lawsuit, $422,012.54, was placed into a special needs trust for his benefit. The trustees were authorized to spend not less than $1,500 a month on Liranzo’s living expenses, but the trust als specifically stated that the trustees must 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 the trustees to take Liranzo’s eligibility for government benefits into account before making discretionary payments to him or his family.

BNY Mellon, as trustee of the trust, ignored the terms of this trust and by 2009, only $3,253.03 remained in the trust. When BNY Mellon 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 Liranzo could qualify for Medicaid payments for his care. BNY Mellon had also paid for $56,320 worth of cab fares for Liranzo’s family and also made payments to the family that rendered Liranzo ineligible for Supplemental Security Income and Medicaid.

The Supreme Court of New York, Kings County, found that BNY Mellon breached its duty under the trust agreement and failed to properly administer the trust. The court ruled that BNY Mellon must repay the trust for the $176,905.99 that it improperly spent while it was trustee. The court also found that BNY Mellon failed to make the necessary inquiries to ensure the longevity of the trust fund.

This is an example of a bank behaving badly. A trustee’s main duties are to preserve and protect the assets of the trust and to administer the trust according to its terms. In this case BNY Mellon failed to meet its duties.