A special needs trust is set up to provide money for the care and support of the beneficiary with special needs.
A trustee is then named or appointed to manage the trust’s assets and act in the best interests of the beneficiary. The duty a trustee owes to a beneficiary is a fiduciary duty which is the highest duty the law creates for one person to another. It is much like the duty a parent owes to a minor child.
But what happens if a dispute arises with a Special Needs Trust?
It’s not hard to imagine a scenario in which the beneficiary may want money for a particular purpose, and the trustee doesn’t agree that the expense is within the terms of the trust or believes the expense would breach the trustee’s fiduciary duty toward the beneficiary.
Even though the terms of the trust have been long established, does the beneficiary have any rights to challenge the trustee or dispute the terms of the trust itself? Special needs trusts are typically irrevocable, which means that the trust’s terms and its assigned beneficiaries cannot be changed without a court’s intervention.
Beyond that, does the beneficiary of a special needs trust have any rights? Fortunately, thanks to something called the Uniform Trust Code, or UTC, they do. Drawn up in 2000 by the Uniform Law Commission, the UTC is a non-binding set of guidelines relating to trusts. State legislatures can vote to adopt the UTC into state law, with their own modifications if they so choose.
Five Common Rights of Beneficiaries Recommended by the UTC
There are five common rights of beneficiaries recommended by the UTC, any of which might come into play in a dispute between the special needs beneficiary and the trustee. These would be brought forward in a court and decided according to state law.
- Payment: The special needs beneficiary has the right to distributions that pay for his/her care and support as detailed in the trust’s terms and conditions.
- The right to be informed: Beneficiaries are entitled to the trust’s financial information, such as tax returns, annual reports, quarterly earnings statements, and so on. These can be provided on a regular basis or on the beneficiary’s request.
- The right to an accounting: If a beneficiary has questions about the trusts’ performance or assets, he can request a thorough accounting from the trustee.
- Removal and replacement of trustees: If a trustee has demonstrated behavior that violates the purpose of the trust or does not adequately protect the beneficiary’s interests, that trustee can be removed and replaced with someone else.
- Termination: If the trust has failed to fulfill its purpose, or is no longer valid, the beneficiary may petition to terminate the trust altogether. It’s important to keep in mind that these rights are codes, drawn up by the Uniform Law Commission to guide state legislatures. They are only binding if state law puts them into effect. States have made their own modifications to the UTC guidelines or enacted them only selectively.
If you are a special needs beneficiary and have questions about your rights, you will first need to find out if your state has adopted the UTC, and to what extent the beneficiary rights and protections are provided by law. Your special needs planner is the best person to give you a complete picture of beneficiary rights where you live.
As always, we at Creative Planning more than happy to help you with any special needs planning issues you may have. If you have questions or concerns about special needs trusts, please request a meeting today. We will be happy to speak with you!
