by: Thomas D. Begley, Jr.

Two recent New York cases and an unofficial conversation with an unnamed official at the Pennsylvania Department of Public Welfare show trustees the importance of understanding their duties as trustees and putting the beneficiary first.  The cases are on opposite ends of the spectrum.  The first case[1] involved a Special Needs Trust with J.P. Morgan Chase Bank and the beneficiary’s attorney serving as co-trustees.  Mark was 16 years old when his adoptive mother, Marie, died in 2005.  Mark was then living in a group home where his mother placed him after learning that she was terminally ill.  Marie’s Will left $12,000,000.   The Special Needs Trust should have been funded with a sum of approximately $4,000,000, but for some unexplained reason all of the estate taxes were allocated to Mark’s share of the estate, rather than divided equally between his brother’s share and his share.  Five years after Marie’s death an Accounting was filed showing that significant sums were expended on trustees’ commissions and counsel fees.  However, the only money expended for the beneficiary, Mark, over a period of five years was $3,525 for a care manager.  Mark was mentally retarded, suffered from Autism, required constant supervision and assistance with all ADL’s.  It was revealed that no one visited Mark during the five years from the date of his mother’s death to the date of the hearing.  Chase’s excuse for inaction was its lack of institutional capacity to ascertain or meet the needs of this severely disabled, institutionalized young man.  The court instructed Chase to retain the services of a care manager.  The care manager had Mark moved to a more suitable facility, arranged for him to take vacation, to attend classes, to obtain equipment such as computers and iPads to enrich his life, and eventually Mark began to recognize the care manger and to wave to her.  The court held that this case brings in to sharp focus the obligations of trustees to beneficiaries of trusts, especially those with disabilities.  The court pointed out that the trustee’s obligation was not satisfied by investing trust assets properly.  The court stated that the trustee must exercise its discretion spend money to enrich the life of the disabled beneficiary.

The second case showed problems at the opposite end of the spectrum.  In that case[2] BNY started with $403,000 in a trust.  The trustee expended almost $60,000 per year only $3,253.03 was left at the time of the accounting.  The court held that the trustee breached its fiduciary responsibilities to the beneficiary by failing to make decisions based on the long-term needs of the beneficiary that would extend the life of the trust for as long as possible.   BNY breached its fiduciary duty by authorizing each and every discretionary disbursement requested by the infant plaintiff’s mother.  A significant portion of the trust assets were expended on caregivers.  The court held that the trust had an obligation to inquire as to whether those services could be covered by Medicaid.  BNY did not show a good faith effort to seek Medicaid’s assistance for home health services.  BNY claimed that it was aware of communication that others had with Medicaid.  The court held that it was the duty of BNY, not the plantiff’s mother, to pursue Medicaid.  The court pointed out that considerable funds were expended on taxi services, i.e., in excess of $50,000 over four years.  The court held that this expenditure was excessive and inappropriate.  Funds were also expended for security deposits for housing, but when the beneficiary’s mother moved from one residence to another, no effort was made to obtain a refund of those security deposits from the landlords.  It was noted that notwithstanding the fact that the beneficiary was on SSI and Medicaid (excluding Home Health Services) considerable trust funds were expended for medicine that should have been paid by Medicaid.  The court also held that BNY breached its duty by failing to investigate whether $400 monthly payments to the beneficiary’s mother for food and clothing could have a negative impact on the beneficiary’s SSI and in turn on their Medicaid benefits.  The court pointed out that BNY made no effort to consult a professional on government benefits or assistance programs as required by the trust.  The conclusion stated that as one trust representative stated, “It was easier to accede to Mrs. Beltres’ monetary requests than to deny them.”

[1] Matter of J.P. Morgan Chase Bank, NA, 2012 N.Y. Slip Op 22387 (Dec. 31, 2012).

[2] Liranzo v. L.J. Jewish Education/NY Sup. Ct., Kings Cty., No. 28863/1996 (June 25, 2013).