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.
What happens, though, if disputes arise? Perhaps the beneficiary wants money for a particular purpose, for example to pay for an alternative form of treatment or therapy, and the trustee refuses to comply, believing such an expense is not within the terms of the trust or would breach the trustee’s fiduciary duty towards 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. Does the named beneficiary of a special needs trust have any rights beyond that? In general terms, yes, thanks to something called the Uniform Trust Code, or UTC. Drawn up in 2000 by the Uniform Law Commission, the UTC is a nonbinding 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, and as of January 2020, 34 states had done so.
Here 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 from the trust, to pay for 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 accounting: If a beneficiary has questions about the trust’s 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. Some, such as California, haven’t adopted them at all, although these states’ laws governing trusts also likely include protections for beneficiaries.
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, and if not, what beneficiary rights and protections your state’s law provides. Consult with your special needs planner to get a complete picture of beneficiary rights where you live.