Leaving Money Directly to an Adult Child With Special Needs

In a recent New York case, a court ordered the trustee of a special needs trust to repay trust funds the trustee had misspent on herself and her husband. The case illustrates the importance of planning in advance for a child with special needs as well as of choosing the proper advocate for your child.

Shortly before she passed away in 2005, Carmella M deeded her home to her developmentally disabled 56-year-old daughter, Ms. M. Since Carmella did not create an estate plan that was designed to look after an adult child with special needs, Ms. M. was forced to fend for herself following her mother's death.

Less than a month later, Ms. M named Victoria M (the opinion does not specify Victoria's relationship to Ms. M, if any) as her attorney-in-fact and also placed approximately $86,000 of her own funds into an irrevocable trust that named Victoria M as trustee. The trust was designed to hold Ms. M's assets so that she could still qualify for government benefits.

In September 2006, Adult Protective Services removed Ms. M from her home and placed her in a group facility, where she continues to live. At that time, the state alleged that Victoria and her husband spent approximately $70,000 of the trust's assets on personal vehicles, including a snowmobile, child support payments for Victoria's husband, and other personal expenses. Victoria and her husband routinely failed to appear for scheduled court dates and never provided an accounting to the court.

As a result, the court appointed a guardian for Ms. M, and ordered Victoria and her husband to reimburse the trust for the $70,000 they had spent on themselves. The court found that the "record confirms that [Victoria] egregiously breached her fiduciary duty as trustee and attorney-in-fact in utilizing Ms. M's funds for the benefit of herself and her husband. The purchase of two motor vehicles and a snowmobile are glaring examples of the flagrant misuse of Ms. M's funds."

Carmella M could have avoided all this trouble for her daughter had she sought out an experienced special needs planner before her death, who would have helped her set up a trust for Ms. M. and name a trustworthy trustee.

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Check out the full text of the case, Matter of Sally A.M. (NY Slip Op 50843, unpublished, Feb. 25, 2008).