Special Needs Trust Accountability
Posted Saturday, October 12, 2013 by John S. Palmer
There are a couple of common ways to ensure that the trustee of a Special Needs Trust manages trust assets properly and uses them for their intended purpose. While this is an issue common to most trusts, it is of particular concern with a Special Needs Trust because the beneficiary is often incapacitated and unable to protect his or her own interest in the trust.
One way to address this issue is to include provisions in the trust document for the creation of a Trust Advisory Committee. The committee can be formed immediately upon creation of the trust, or delayed until the occurrence of a future event; for example, a special needs trust with a close family member serving as trustee may require a Trust Advisory Committee if a bank or other professional fiduciary takes over as trustee. If a committee is to be created, the trust document should specify its size; how members are appointed, removed or replaced; and the pool of candidates to choose from. One approach is to direct the trustee to appoint family members, caregivers, and others directly involved in the beneficiary’s day-to-day life.
The committee is usually directed to provide advice and information to the Trustee pertaining to the beneficiary’s residential placement, emotional and social needs, medical and therapeutic issues, and any other matters likely to affect trust distributions. Typically the committee may request distributions, and the trustee is directed to give due consideration to such requests. The committee may be given the authority to remove and replace the trustee.
The other common way to monitor trust activity is to require the trustee to provide information about the trust to the beneficiaries or their legal representatives on a regular basis. In fact, Washington’s Trustee’s Accounting Act requires a trustee to provide an itemized statement of income and disbursements at least once a year to all “permissible distributees” of the trust. If the report reveals the existence of a potential claim against the trustee for mismanagement of the trust, the beneficiaries have 3 years after receiving the report to bring such a claim.
The Trustee’s Accounting Act also permits a trustee to file a financial accounting with the superior court and schedule a hearing to determine if it should be approved. Interested parties are to be given notice of the hearing and an opportunity to appear and object. At the hearing, the court “shall determine the correctness of the account and the validity and propriety of all actions of the trustee or trustees set forth in the account including the purchase, retention, and disposition of any of the property and funds of the trust, and shall render its decree either approving or disapproving the account or any part of it, and surcharging the trustee or trustees for all losses, if any, caused by negligent or willful breaches of trust.”
Earlier this month, the Washington Court of Appeals held that these provisions of the Trustee’s Accounting Act apply to Special Needs Trusts. The case (Anderson v. Dussault) involved a Special Needs Trust created in 1997 to hold the settlement proceeds from a child’s personal injury claim. Over the years the court approved periodic accountings submitted by the trustee under the procedure described above. Although the child’s father and grandmother wrote to the trustee in 2001-2002 asserting that certain expenditures (a car and part of the purchase price for a house) should have been borne by the mother as custodial parent, these expenditures were disclosed in accountings approved by the court. In 2011, the now-adult beneficiary sued the trustee, its attorney, and the members of the Trust Advisory Committee alleging these expenditures were a breach of the defendants’ fiduciary duties to her.
The court held that the beneficiary’s claims were barred by the Trustee’s Accounting Act. Although the beneficiary pointed to a specific provision of the Act stating it did not apply to trusts created by a court (a provision that, incidentally, was removed earlier this year), the Court of Appeals found that the trust was actually created by the parties to the personal injury lawsuit and merely approved by the court as part of the process for settling the claims of minors. Therefore, pursuant to the terms of the Act, the court’s approval of the trustee accountings was final, conclusive, and binding upon beneficiary.
The court rejected the beneficiary’s claim that she should be allowed to challenge the accountings because she was a minor at the time they were presented and no guardian ad litem was appointed to review them on her behalf. The Court of Appeals found that under RCW 11.96A.160, the appointment of a GAL for proceedings under the Trustee’s Accounting Act is discretionary, not mandatory; and that a decree approving a trustee’s accounting is deemed to be final, conclusive and binding on all parties with an interest in the trust, including incapacitated, unborn, and even unascertained beneficiaries, subject only to the right to appeal, which generally must be exercised within 30 days.
If you have any questions or would like to schedule an appointment, please call us at (425) 455-5513, toll free at (877) 455-5513, or info@palmerlegal.com.