When George Riddell and his wife Irene prepared their estate plans, they could not know that their granddaughter Nancy would, long after their deaths, be diagnosed as mentally ill, or that she would be institutionalized in a state mental hospital. They did know that they wanted to provide management of their funds after their deaths.

The several trusts (including a life insurance trust) established by the Riddells all provided that their son Ralph would be trustee and primary beneficiary for his entire life, with his wife Beverly to become beneficiary after his death, and their grandchildren to be beneficiaries after the death of both their son and their daughter-in-law. If the grandchildren had not reached age 35 by the time their parents both died, the trusts were to continue until that age.

After both Mr. and Mrs. Riddell died, and after both of their grandchildren had reached the age of 35, son Ralph asked the local court to consider modifying the trust’s terms. If his parents had had any inkling of how ill Nancy would turn out to be, argued Ralph, they surely would have established a “special needs” trust for any share of the money that would eventually benefit her. That much seemed evident from the fact that they had delayed Nancy’s (and her brother’s) enjoyment of the money until they had reached a certain level of maturity and presumed ability to handle money—the age 35 restriction included in the trust.

The trial judge refused Ralph’s request, ruling that the clear purpose of the trust was to provide for, among other things, the support and medical care of its beneficiaries. To allow the trust to be converted into a special needs trust would be “more advantageous to the beneficiaries,” but would primarily allow the Riddell family to “immunize itself financially from reimbursing the State for costs of care.”

The Washington Court of Appeals reversed. Mr. and Mrs. Riddell, ruled the appellate judges, intended “to provide for their grandchildren’s general support, not solely for extraordinary and unanticipated medical bills.”

Pointing out that Congress has authorized the creation of similar special needs trusts when established with a beneficiary’s own money, the appellate court endorsed the notion that Mr. and Mrs. Riddell would have included special needs provisions if they had known about Nancy’s illness. The trial judge should have considered the doctrine of “equitable deviation,” which permits modification even after a trust becomes irrevocable if there are circumstances unknown to the settlor, and the change would further the trust’s purposes. Riddell Consolidated Trusts, May 8, 2007.

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