By Bernard A. Krooks, Esq.
With any trust, there are often questions about what kinds of payments may, or should, be made; for a special needs trust, these issues can be exacerbated since the primary purpose of a special needs trust is to improve the quality of life of an individual with special needs, while maintaining eligibility for means-tested government benefits. It is not uncommon for trustees to be called upon to answer questions about whether trust expenditures are appropriate. These matters can be complicated if the trustees are related to the individual with special needs as was the situation in a recent case.
Charlotte Smith (not her real name) suffered terrible injuries during the birth of her children. While she and her husband were blessed with the delivery of triplets, Charlotte suffered catastrophic injuries. She is not able to walk, talk or otherwise communicate. Charlotte’s husband and parents sued the hospital and a settlement was reached. The net proceeds of the settlement (approximately $1 million) were placed into a special needs trust. In addition, the trust was to receive monthly annuity payments in excess of $30,000. Charlotte’s mother and father were named as trustees of her special needs trust and as her legal guardians.
After the trust was established, Charlotte’s husband decided he wanted a divorce. Charlotte’s parents sought visitation rights with respect to the triplets, who were being cared for by their father. All of the legal proceedings took place in South Dakota, where the couple had lived together when the triplets were born. Initially, Charlotte’s parents moved to South Dakota to help take care of her, and to have her remain close to her family. Ultimately, however, Charlotte was moved back to her parents’ home state of Illinois.
Charlotte’s parents’ request for visitation rights with respect to their grandchildren was challenged in court by Charlotte’s ex-husband, resulting in significant legal fees for both sides. Charlotte’s ex-husband eventually filed an action in Illinois to try to prevent Charlotte’s parents from paying those costs from the special needs trust. He brought his action against them as trustees and argued that the triplets’ interests in the trust were being compromised by the legal expenses.
In response, Charlotte’s parents asked the Illinois court to expressly approve legal fees they had paid totaling almost $500,000. They also asked that the trust be modified to make it clear that they could pay legal fees without prior court approval. The court appointed three different lawyers in the case: one as guardian ad litem to represent the triplets’ interests in the trust; another as Charlotte’s guardian ad litem, and a third as attorney for Charlotte.
While the central dispute in the case involving legal fees is not uncommon, there were several complicating factors, including a dispute being litigated in two states, three different attorneys appointed to be involved in the case, and a multi-day trial. Nevertheless, it seems as though this is a classic case of the amount of the legal fees not being justified in relation to the value of the trust assets and the benefit of the proceedings to the trust beneficiaries.
While we understand that the facts of this case present a very complex and difficult situation for all parties involved, perhaps with better trust drafting some of these expenses could have been avoided. If the trust terms were clear as to what expenses (including legal) could be paid from the trust, and in what amounts, that would have gone a long way towards minimizing expenses. For example, if the trust provided that all legal fees must be court approved before they can be paid by the trust, then the parties would have been on notice that they would be personally responsible for any fees that were not approved by the court.
Serving as a trustee of a special needs trust (or any trust) is not an easy job. It is a complex job that involves important decisions regarding the use of trust assets. That’s why there are professional trustees out there who do this for a living (for a fee, of course). Selecting the proper trustee for your trust is one of the most important decisions you can make and is the key to having your trust be administered properly.
Bernard A. Krooks, Esq., is a founding partner of Littman Krooks LLP and has been honored as one of the “Best Lawyers” in America for each of the last seven years. He is past President of the National Academy of Elder Law Attorneys (NAELA) and past President of the New York Chapter of NAELA. He has been selected as a “New York Super Lawyer” since 2006. 914-684-2100, elderlawnew york.com.