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The Nassau County Supreme Court recently granted a preliminary injunction, temporarily restraining a bank from selling the home of a woman with disabilities. This is significant because the bank was the trustee of the very Special Needs Trust (SNT) that was set out to protect the woman who is the beneficiary.
The beneficiary’s father created an SNT for the benefit of his daughter who has special needs. In 2002, the SNT purchased a co-op for benefit of the beneficiary. The trustee of the SNT was a bank. After purchasing the co-op the SNT had remaining cash. From the time of the purchase to 2010 the bank trustee depleted the cash in the SNT by paying the woman’s housing costs and complying, without question, all her requests for expenditures, luxuries, and necessities. Once the cash was depleted, the bank trustee loaned the SNT money to continue paying the beneficiary’s bills.
After the bank had loaned the SNT more than $20,000 to pay the beneficiary’s costs, it decided to sell the beneficiary’s home to recoup the money. The main problem in this situation is that the bank trustee did not explore any options to provide liquidity to the SNT without the need for putting the SNT beneficiary at risk of losing her home.
Throughout the eight years from the purchase of the co-op (2002 -2010), theSNT beneficiary’s housing costs could have been paid from her SSI and SSI-guarantees-for-utilities. The bank trustee had knowledge that the SNT beneficiary lacked the ability to responsibly manage the funds she received from her SSI benefits or make reasonable requests for money, and it should have acted on this knowledge. The bank trustee could have pursued appointment of a representative payee for the SSI and prudently limited the trust expenditures so as to preserve the trust assets for many more years.
The court said in its decision that the bank was negligent in its fiduciary duties as trustee by extending loans to the trust that could not be repaid “without liquidation of the plaintiff’s affordable home.” The bottom line is that a trustee of an SNT should always explore options in order to maintain liquidity in the SNT.
The lesson to be learned is that the decision of who is going to be the Trustee of the Special Needs Trust is a critical decision. There are options: Family, Friends, Professional and Corporate. Another option worth exploring is the Trustee of Pooled Trusts that work just like a Special Needs Trust but there is no pay back to the State because the remaining funds are retained by the Charity. For more information on Pooled Trusts, go to https://www.vjrussolaw.com/resources/faqs/pooled-trust-frequently-asked-questions/.