Analyzing the Unique Duties and Obligations of Special Needs Trusts

, New York Law Journal


Robert M. Freedman, Barry I. Lutzky and Lauren I. Mechaly of Schiff Hardin write: Special Needs Trusts are commonly used in planning for disabled beneficiaries. Trustees of such trusts have different and additional responsibilities and obligations than trustees of other trusts.

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What's being said

  • not available

    This is an excellent article. However, not addressed is the role o the Surrogate's Court and it's responsibility to protect the Disabled. With the Court's discretion, it should be highly versed on the necessities of the Intellectually Disabled, Autistic and Aspbergers populations which are growing in numbers. In 2006, Westchester County Court Justice Anthony Scarpino allowed a felon, one Joseph Pisani, former NY State Senator, convicted on Federal Charges, Disbarred and reinstated some years later, to handle the estate of an Autistic Child's inheritance. While the Guardian appealed to the Courts to have this person removed as self-appointed Trustee and Executor of the will, this Court allowed Pisani to continue as Executor. No yearly filings since 2007 have been forthcoming and a Judicial Accounting not presented as yet. Where is Judge Scarpino? Where is this child's money? Many appeals have been made to this Court without success? Where is the Court's Discretion to protect? My daughter awaits these answers. Thank you.

    Ann Masotti

  • NYS Courts ex-wife

    One critical issue is the usury commission rates for attorneys allowed by NYS statutes for handling trusts and estates. Attorneys can collect up to 5% for receiving AND paying out all sums of money (note - the commissions are NOT calculated on actual time spent or actual number/level/type of transactions, or even on the net trust balance).

    Thus, all an attorney has to do is transfer a $100,000 trust between investments/assets once a year and collect $10,000 ($5,000 for paying the money out, $5,000 for collecting the money in). And all the attorney did was make a phone call or hit send on their computer. And chances are, the investment firm is also collecting fees from the trust for both transactions (and the lawyers are receiving "client" benefits from those firms to boot - dinners, golf outings, etc., benefits that should be going to the trustee).

    No attorney should be allowed to collect such usury rates for purely bookkeeping matters - writing a check, paying a bill, collecting rents, etc. should all be reimbursed at $15 an hour (bookkeeping rates). Period. It takes only a few minutes to write a check to pay a bill, (less if it's computerized) thus all the state should allow an attorney to collect for such a transaction is $3.75 (15 minutes tops, @ $15 an hour).

    At the current commission rates, families who foolishly thought they were providing for their loved ones would have $100,000 of their money eaten up by lawyers within a decade (assumptions: lawyers take 10% a year, trust earns stock market rates of 7%, the beneficiary only gets $5,000 in benefits annually). So the only people who benefit from the trust are the lawyers and their investment cronies (I audited one trust where the lawyer was also a partner in the investment consulting firm he was using - so he was double-dipping from the mentally disabled woman's trust and she was tossed into a state mental facility at one point despite having over $2 million in trust funds and an apartment building generating rental income and providing her with free housing).

    The critical problem with paying based on the level of trust funds is that attorneys do not want to reduce those funds since it will result in lower commissions for themselves - hence why the young woman above was tossed into a state facility which Medicaid would pay for. The emergency care she needed cost $20,000 a month in a private facility - that would have quickly reduced the lawyer's commissions' base. Hence why she was tossed into a facility alongside criminals (she is no longer there but the NYS courts still allow the attorney to manage her trust, even after such an egregious abuse. And yes, her funds are mostly gone, and he sold the apartment building, her home. But you knew that).

    Solution? The NYS statutes only govern commissions for lawyers. But there are many accountants who specialize in trusts (unlike lawyers, and accountants are professionally trained at managing/investing money, auditing assets and assessing needs, and can handle the tax returns to boot - the lawyers will have to pay someone else to do investments and taxes, depleting the trust further). If a trust states fixed rates based on type of transaction/service (no CPA rates for merely paying a bill), the trust stands a better chance to last the lifetime of the beneficiary.

    The NYS Moreland Commission needs to address these abuses for the sake of these beneficiaries who need our protection the most.

  • Norman Shaw

    Accolades to the authors for this extraordinarily lucid and succinct, and yet quite comprehensive, article.

    Norman Shaw

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