Couple meeting with lawyer

Case Study: Protecting a Loved One’s Supplemental Needs Trust from a Predatory Caregiver

Families with loved ones who have special needs can use various estate planning tools to protect finances and provide support. One such tool is a Supplemental Needs or Special Needs Trust (SNT), a discretionary trust that holds and distributes assets on behalf of a disabled individual. Families may choose a SNT because it can supplement a beneficiary’s resources without jeopardizing their eligibility for needs-based public benefits.

As illustrated in this case study summarizing a matter recently resolved by Attorney Ky Jurgensen, a Supplemental Needs Trust can also be the target of bad actors who seek to profit by taking advantage of beneficiaries. When this happens, trustees need experienced counsel to fend off opportunistic attacks.

Background

Attorney Ky Jurgensen’s clients were a husband and wife. The man has a sister in her 60s who has special needs. When their parents passed, they left the sister an inheritance, which was placed in a Supplemental Needs Trust. Her brother served as the Trustee.

Supplemental Needs Trusts have specific legal requirements: The Trustee (our client) has total control of the money and the beneficiary (the sister) cannot dictate how the money is spent. This allows the sister to qualify for needs-based public benefits like Medicaid while still benefitting from trust assets.

After several years of this arrangement, a new man entered the sister’s life. Under his influence, the sister sued her brother and asked the court to dissolve the trust. If this were to happen, the sister would get all the money free and clear, compromising her eligibility for needs-based benefits and potentially putting her at risk of mismanagement or theft of the funds by the third party.

Ky’s clients were upset by the lawsuit but remained committed to protecting the sister and her assets from her new companion. They suspected that he would most likely use the money for himself and leave the sister alone and homeless.

Strategy

The Texas Trust Code lays out specific requirements to dissolve a trust. Under Section 112.054 of the Trust Code, the Court may dissolve a trust if any of the following conditions apply:

  1. the purposes of the trust have been fulfilled or have become illegal or impossible to fulfill;
  2. because of circumstances not known to or anticipated by the settlor, the order (to terminate the Trust) will further the purposes of the trust;
  3. modification of administrative, non-dispositive terms to the trust is necessary or appropriate to achieve the settlor’s tax objectives or to qualify a distribute for governmental benefits and is not contrary to the settlor’s intentions;
  4. continuance of the trust is not necessary to achieve any material purpose of the trust; or
  5. the order (to terminate the Trust) is not inconsistent with a material purpose of the trust.

Our attorney filed a no-evidence motion for summary judgment and won a ruling stating the sister failed to produce even a scintilla of evidence showing any of the conditions listed above. The Court dismissed her request to dissolve the Trust.

In response, the plaintiffs changed course and argued that if the trust would not be dissolved, the sister’s new companion should be made the Trustee. Ky and his clients next took the case to trial.

On cross examination, Ky was able to compel the aspiring trustee to admit he was taking advantage of the sister financially, that he took her Social Security check every month, and that he uses her money to pay all the rent and bills. He also admitted it was his idea to bring the lawsuit as a means of “retribution” against the brother.

During closing argument, Ky told the court that making this man Trustee would be akin to “setting the cat amongst the pigeons.”

Resolution

The Judge agreed with Ky and denied the plaintiffs’ request to appoint the self-professed freeloader as Trustee. Instead, a respectable local attorney was appointed as the new Trustee.

The new Trustee will make sure the sister can benefit from the trust funds as needed to cover expenses such as medical bills, transportation, and other essentials.

Although this case did not involve extravagant sums of money, it did have high stakes in that a ruling to dissolve the trust could have had devastating consequences for the sister and her well-being. It also serves as an important reminder of the need to work with experienced representation when defending against attacks that threaten a loved one’s SNT.

Hendershot Cowart P.C. has decades of experience helping clients navigate matters involving trusts and estate and probate litigation. If you have questions, contact our firm to speak with a Houston lawyer.

Categories