In 2012, New York County Surrogates Court released their opinion for JP Morgan Chase Bank, N.A. v. Marie H. This case is now a decade old. Unlike most of the stories we relate here, it is not an appellate decision. But it still teaches us important lessons about fiduciary duty and the importance of selecting the right trustee.
For some background, the issue in JP Morgan Chase Bank, N.A. v. Marie H. really centers around Mark and his trust. Mark was a severely disabled 16 year old when his mother died. Prior to her passing, Mark’s mother moved him into a residential school and prepared a trust for him. The trust would be funded with about $5 million when she died. The trust instructed that distributions should be made for Mark’s “care, comfort, support and maintenance.”
The trustees were JP Morgan Chase Bank and the mother’s attorney. That attorney drafted the trust document, and claimed to be an expert in planning for children with special needs.
Despite his multi-million dollar trust, Mark was largely forgotten about once his mother died. The trustees of Mark’s trust made no distributions for Mark’s benefit. No one visited Mark for five years. He continued to live at the residential school, paid for by his government benefits alone.
Mark’s case does ultimately have a happy — or at least happier — ending. Once the co-trustees were called to task, a certified care manager was hired to attend to Mark’s needs. Once the care manager was able to get him tools and supports, Mark’s quality of life and functional capacity improved significantly. But this case raises important questions about the obligations of fiduciaries, including institutional trustees, to beneficiaries with disabilities.
The bottom line: it is not enough to take good care of the money. The beneficiary’s well-being is important, and a fiduciary must be (or get) familiar with the beneficiary’s needs.
So, why are we talking about Mark’s trust now? Well, there are some lessons to be learned from Mark’s story. First, a fiduciary’s failure to act can be a breach of duty. Second, that you should select your fiduciary carefully.
Failure to act can be a breach of fiduciary duty
A breach of fiduciary duty occurs when a fiduciary fails to act responsibly in the best interest of their client. When we think of breach of fiduciary duty, we often think of malicious or irresponsible management of money. Our minds jump to fraud or improper accountings. While those are examples of breaches of fiduciary duties, this case shows us that failure to spend the money at all can also be a breach of fiduciary duty.
As co-trustees of Mark’s trust, both JPMorgan Chase Bank and the attorney were serving as Mark’s fiduciaries. Mark’s trust gave his trustees “absolute discretion” to spend trust funds for the “care, comfort, support and maintenance” of Mark and his descendants. By failing to use the funds in Mark’s trust for those purposes outlined in the trust, the trustees breached their fiduciary duties to Mark.
Instead of working to improve Mark’s quality of life, the trustees focused on managing the funds. The bank trustee proudly noted that they had grown the trust over the years. The attorney trustee pointed out that Mark’s basic needs were provided.
Meanwhile, both bank and attorney collected generous fees. No one focused on visits to Mark, hiring caregivers or care managers, or otherwise trying to find good uses of the funds for Mark’s benefit.
That’s why the trial judge wrote a strongly worded opinion ordering JPMorgan Chase to account more fully. The judge ordered a more complete accounting, and sternly directed the attorney to arrange for assessment and care for Mark.
Select your trustee carefully
Mark’s mother took care in planning for her son. She found a place for him to live, found people to take care of him, and set up a trust for him. Where there was trouble was with the two co-trustees. In this case, the two co-trustees were a major banking institution and the mother’s attorney, who held himself out to be an expert in planning for children with disabilities. These two probably were not the right choice.
It can be hard to tell who is a good fit to be your trustee. What is important is picking someone responsible. You need to be able to trust them to carry out your wishes. This is especially important when planning for a person with special needs who may not be able to advocate for themselves.
A close friend or family member could be a good choice for your fiduciary. They likely care about the person who needs services and may be more attuned to their needs. The downside is that they may not be familiar with fiduciary work. Your family and friends likely don’t know all of the rules surrounding being a trustee. It’s also a lot of work to serve as a fiduciary, and not everyone wants to do it. In Mark’s case, his mother originally appointed her sister to serve as trustee and she declined or was unable.
You also can hire a professional (like Fleming & Curti, PLC) to be your fiduciary. Institutions that offer fiduciary services are familiar with the rules and record keeping required to be a good trustee. Institutions serving as trustee can also be more removed and prevent emotional attachments from getting in the way of good decision making.
Regardless of who you choose, make sure that you trust them, that they are good at record keeping, that they are responsible, and that they won’t forget about your beneficiaries.