Sunday, February 11, 2018
On February 7, 2018, the Seventh Circuit ruled as a matter of law that language in documentation attempting to create a Special Needs Trust was ambiguous. In its decision in National Foundation for Special Needs Integrity, Inc. v. Reese, the Court resolved the ambiguity in favor of the children of the Missouri woman who had established the trust, using proceeds of her personal injury settlement.
The Court, with jurisdiction that appeared to be based on diversity, ordered an Indiana foundation that was named as the trustee of the account to reimburse the estate of the deceased Missouri woman. The amount awarded is more than $243K, plus prejudgment interest. The decision by itself is interesting, especially as it touches on issues such as the intention of the settlor, a defense of laches and the roles of a law office or others in counseling the Missouri woman, who was reportedly unable to read, on how to complete the trust documents. Even more interesting is news indicating that the foundation was created by "a suspended Indiana attorney facing charges that he stole from other clients' trusts." See The Indiana Lawyer's report on Seventh Circuit Reverses, Orders Special Needs Trust Group to Pay Estate.
In the lawsuit, the foundation argued it was entitled to keep the funds designated in the trust, based on a variety of theories including laches; the laches defense failed when the court, in an extended footnote, observed there was no evidence the foundation ever notified the woman's personal representative of outstanding trust amounts, allowing the PR to believe that any proceeds had been used to reimburse the state for Medicaid expenditures. Instead, the court concluded the foundation simply transferred portions of the mother's account into other accounts, which might have been permitted under certain guidelines, if it had been clear the trust was intended to be a "pooled" special needs trust.
For another "great and timely" discussion (I have that description on good authority!) of the Foundation v. Reese case, see Arizona lawyer Robert Fleming's newsletter here. As Robert says, "the background story . . . reinforces the need for transparency and disclosure in pooled special needs trust administration -- and in fact, in all special needs trust management."