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What Happened When Trustees Failed to Use Funds for a Beneficiary with Special Needs

** This article has been revised from its original version which was published on October 31, 2013.

The special needs planning attorneys at Russo Law Group, P.C. have fulfilled the complex role of trustee for many of our clients. We take protecting assets for the benefit of their loved ones very seriously. It requires understanding the terms of the trust in great detail to avoid breaching fiduciary duty.

The case of JP Morgan Chase NA v. Marie H. in 2012 was a wake-up call to trustees to educate themselves about their obligations to the beneficiaries of the trusts they administer, especially when those beneficiaries have special needs.

In this case, Marie took the appropriate steps to set up an estate plan for the care of her two children when she learned she had terminal cancer. When Marie died, she left her $12 million estate to her revocable trust that created two trusts for the benefit of her sons, Charles and Mark, then 17 and 16 years old. Both children were minors, but Mark suffered from severe disabilities, and it was especially important for Marie that her estate plan include special needs planning with a special needs trust (SNT) to ensure he would receive quality care for the rest of his life.

A Successor Trustees Fails to Inquire about the Beneficiaries

Marie’s sister, Betty, was named the executor of her estate, guardian of the person and property of Charles and Mark, and co-trustee of Mark’s trust. However, Betty predeceased Marie, so Marie’s attorney and JP Morgan Chase were named co-trustees of Mark’s multi-million dollar special needs trust.

Despite all of Marie’s planning and efforts to provide for the care of her severely disabled and vulnerable son, Mark remained in an institutional setting for several years without receiving any benefits of the special needs trust funds his mother left him.

Penalties for Breached Fiduciary Obligations

After uncovering the neglect Mark had suffered, New York County Surrogate’s Court Judge Kristin Booth-Glen found that the co-trustees of Mark’s trust breached their fiduciary obligations by failing to visit Mark, inquire about his needs, or apply any of the special needs trust income towards improving his condition. Accordingly, the co-trustees were subject to denial or reduction of commissions, among other remedies.

The court found that the trustees failed to exhibit a reasonable degree of diligence toward the beneficiary. It wasn’t enough that the trustees prudently invested and safeguarded the trust’s assets. The court found that the co-trustees failed in their obligation to use trust assets for Mark’s benefit.

Had the co-trustees taken the time to fully inform themselves of Mark’s needs, steps could have been taken to vastly improve his quality of life. It’s not enough that trustees take care of the trust assets. They need to make sure they are educating themselves about the needs of beneficiaries, and providing for those needs accordingly. At Russo Law Group, P.C., our special needs planning attorneys in New York pride ourselves on doing our due diligence when accepting the role of trustee.

When implementing an estate plan for the benefit of minors, especially those with special needs, it’s important to consult with and retain experienced estate planning or special needs planning attorneys in New York. The knowledgeable and compassionate team at Russo Law Group, P.C., provides professional services and advice regarding special needs trusts and can serve as your trustee or successor trustee. Take advantage of our comprehensive website as well as our free seminars and webinars to learn more about how Russo Law Group, P.C. provides peace of mind. Please contact our law firm to speak with one of our experienced  estate planning and special needs planning attorneys today at 1 (800) 680-1717.

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