SNT Trustee Ordered to Reimburse Some Conservator Expenses

SNT Trustee Ordered to Reimburse Some Conservator Expenses

In Weidner v. Stevenson (Cal. App. 2nd Dist. May 13, 2024), Roberta Davis established a special needs trust inside her living trust for her disabled adult son, Daniel. Daniel was under a conservatorship. Daniel’s aunt, Charlyne, was the successor trustee of the trust after Roberta’s death, while another aunt, Patty Wiedner, became Daniel’s successor conservator. Patty was excluded from the trust.

Patty sought reimbursement from the trust for certain expenses, items provided for Daniel and her conservator fees. Her argument was that the trust should pay because it was part of Daniel’s estate. The court anaylzed the trust, finding that it was a third party trust and was not part of Daniel’s estate. Most Courts do not provide the type of anaylsis provided in this case distinguishing third party SNTs and self-settled special needs trusts so we’re including that language from the opinion.

Daniel was not the owner of any of the assets in the SNT. He was the beneficiary of what is known as a “third-party” special needs trust. A third-party special needs trust—in contrast to a “first-party” special needs trust—”is established by one person (usually a parent) using his or her own funds for the benefit of another, the person with a disability. It does not involve any assets of the person with a disability.” (See Fay Blix, The World of Special Needs Trusts (Nov. 2008) 50 Orange County Lawyer 10, *11 (Blix); see also Hook & Kefalas Dudek, Special Needs Trust Handbook (Dec. 2023) § 5.01[B] (Hook) [a third-party special needs trust preserves “public benefits for the trust beneficiary while supplementing the beneficiary’s lifestyle with private funds” and “protect[s] the private third-party funds from the state”].)

“The purpose of a special needs trust is `to enhance the beneficiary’s quality of life through the purchase of additional goods and services that are not covered or adequately provided by SSI . . . and Medicaid.'” (Gonzalez v. City National Bank (2019) 36 Cal.App.5th 734, 743-744 (Gonzalez).)

On Daniel’s death, any funds remaining in the SNT would go to the named remainder beneficiaries. More importantly, although the purpose of the SNT was “to supplement any public benefits available to [Daniel] during his lifetime,” he had “no right to compel the trustee to release principal or income to him or for his benefit or otherwise to have any access to any of the trust assets.” Accordingly, the trust funds were not available to him and thus not part of his estate.

A first-party or self-settled special needs trust, on the other hand, is funded by the disabled person’s own assets. (Blix, supra, at *11.) Those assets are not considered in determining the beneficiary’s eligibility for needs-based benefits like SSI and Medi-Cal. (Ibid.) After the beneficiary dies, however, the government provider of the benefits, such as Medi-Cal, is entitled to reimbursement from any funds left in the first-party special needs trust. (See Gonzalez, supra, 36 Cal.App.5th at p. 744 [“so long as the state will recover for the Medicaid services provided to the special needs trust beneficiary during her lifetime, the beneficiary remains eligible for such services, even if the amount in the trust otherwise would disqualify the beneficiary from receiving such benefits”]; id. at p. 745 [“California regulations also provide that for a qualifying special needs trust to be considered `not available’ when determining Medi-Cal eligibility, the trust must be set up so that `[t]he State receives all remaining funds in the trust, or respective portion of the trust, upon the death of the individual . . . up to an amount equal to the total medical assistance paid on behalf of that individual by the Medi-Cal program'”]; 42 U.S.C. § 1396p(d)(4)(A) [trust containing assets of a disabled individual under age 65 established for the individual’s benefit is not considered in determining individual’s eligibility for state Medicaid benefits if the state “will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total” benefits paid].)

A third-party special needs trust, however—because it is not funded by the beneficiary’s assets—need not include such a “payback provision.” (Loring & Rounds, A Trustee’s Handbook—Rounds and Rounds (2024) § 9.3, p. 1482 & fn. 25; Special Needs Alliance, Administering a Special Needs Trust: A Handbook for Trustees (2024) p. 5 [as of May 10, 2024], archived at (Handbook) [self-settled special needs trusts, unlike third-party trusts, “must include a provision directing the trustee, if the trust contains any funds upon the death of the beneficiary, to pay back anything the state Medicaid program has paid for the beneficiary”]; id. at p. 6 [third-party special needs trust is established by someone other than the person with disabilities “with assets that never belonged to the beneficiary” and are not required to include a “`payback’ provision for Medicaid benefits upon the beneficiary’s death”].)

The court’s decision, however, did not stop there. The purpose of the trust was to “satisfy Daniel’s “special needs”—the “requisites” for maintaining his “good health, comfort, safety, and welfare”—as the trustee in her “sole discretion . . . deem[ed] necessary or advisable.” The terms of the SNT expressly stated Daniel’s special needs “shall include, but not be limited to” his medical and dental care, travel needs, and recreation—among other delineated items—to the extent not provided for or reimbursed by public benefits. Thus, in the court’s view, “In a perfect world, Daniel would have lived a much longer life and died spending the last penny of the trust doing something that brought him joy.” As the trial court put it, the terms of the SNT “allow[ed] for payment of those `extras’ for Daniel that public benefits did not cover.” We agree with the trial court’s assessment of the trust instrument.”

Apparently Charlyne did a poor job of keeping up with Daniel’s needs. For example, she didn’t know the radios she bought for him were broken. Although Charlyne gave Daniel her cell phone number, Charlyne’s voice mail wasn’t set up. Charlyne didn’t keep in touch enough to know that Daniel needed new clothing. Patty made provision for Daniel and requested reimbursement without first consulting with Charlyne. The Court concluded that concluded Charlyne was not regularly asking Daniel about his needs, so the trial court did not err in ordering Charlyne to reimburse Patty. Other expenses, such as attorneys fees, mileage, cash deposits Patty made before her appointment as conservator were analyzed separately, with the Court determining whether they were for Daniel’s benefit (or covered by another source) before making a decision regarding Patty’s right to reimbursement.