Justice Laura L. Jacobson, a  New York trial judge, held that a trustee of a special needs trust breached its fiduciary duty to the trust beneficiary and ordered reimbursement of nearly $180,000 that was misspent on private caregivers, cab rides, and medications that could have been obtained from needs-based government sources.  Liranzo v. LI Jewish Education / Research (N.Y. Sup. Ct., Kings Cty., No. 28863/1996, June 25, 2013).

Eirol Liranzo was injured as a child.  In 2003, $422,012.54 remaining from the settlement of his personal injury lawsuit was placed into a special needs trust for his benefit.  BNY Mellon was appointed trustee. The special needs trust document specifically stated that the trustees must make a good-faith effort to determine whether Medicaid would cover home health care services prior to expending trust funds for that purpose.  The trust also required the trustees to take Eirol’s eligibility for government benefits into account before making discretionary payments to him or his family.

By 2009, only $3,253.03 remained in the trust.  When the trustee filed an appplication requesting that the court approve its account and release it as trustee, the court opened an investigation.  The independent examiner discovered that BNY Mellon had paid for $118,064.50 worth of home health care without making an inquiry into whether Eirol could qualify for Medicaid payments for his care.  BNY Mellon had also paid for $56,320 worth of cab fares for Eirol’s family and had made payments to the family that rendered Eirol ineligible for SSI and Medicaid.

The Supreme Court of New York, Kings County, ruled that BNY Mellon must repay the trust for $176,905.99 that it improperly spent while it was trustee.  The court found that “it is clear that the trustee relegated [its duties] to others, failing to make the necessary inquiries to ensure the longevity of the Trust Fund.  It is clear to the Court that BNY breached its duty under the Trust agreement and failed to properly administer the Trust.” Specifically, the Court held in part as follows:

Here, it is apparent that BNY breached its fiduciary duty by authorizing each and every discretionary disbursement requested by the infant plaintiff’s mother Gloria Beltres. The court appointed BNY as trustee for the very purpose of prolonging the life of the Trust, and the distributions made by the Trustee ran counter to this purpose because they could have either been avoided or were unreasonable. The money awarded to the plaintiff from the initial suit was placed into the Trust for the purpose of protecting the assets long term, so as to provide support for the plaintiff for as long as possible. Here it is evident that the decisions of the Trustee failed to achieve this goal. Since almost all of the assets of the Trust have been dispersed (sic.) in less than seven years, the Trustee has clearly breached its fiduciary duty.

(Courtesy of ElderlawAnswers.com)