SEPTEMBER 21, 2015 VOLUME 22 NUMBER 34
What plans should you make when you have a child receiving Supplemental Security Income (SSI) or Medicaid benefits? Should you create a special needs trust? Disinherit that child so their benefits won’t be affected? Leave their “share” of your estate to another child or children instead?
We get asked this question regularly. Most of the time our answer is easy, and strongly delivered: create a special needs trust. Choose a trustworthy child to administer the trust, or maybe a professional trustee. Let the trustee act as your surrogate after your death — deciding how to use the trust’s money to best benefit your child.
Do not, whatever you do, leave your child’s inheritance to another child with instructions to take care of their sibling. Do not do that even if you completely trust that child. Do not do it even if you are prepared to write something that makes clear that they are not required to behave honorably — that you are not trying to create a de facto trust for your child with disabilities.
Why not? Because bad feelings will be generated. Litigation is likely to be involved. Your children, and their children, and your sons-in-law and daughters-in-law, can not be counted on to all agree about how they should behave — especially with you not around to exercise moral authority over them.
How do we know this? Because of Mary Jane. Let us explain.
Mary Jane had several children. We’re going to call them Robin, Randi, Rachel, William and Walter. Robin is developmentally disabled. In 1995, Walter died in a terrible accident. At the time, Mary Jane received a settlement from Walter’s death; she gave $51,000 of her settlement money to each of her children, except that she gave $102,000 to Randi and less than $1 to Robin.
Did Mary Jane intend to have Randi use the “extra” $51,000 share for Robin’s benefit? At the time she said not — there was explicitly no restriction on how Randi could use her gift. The family problem created by this uncertainty didn’t become active until almost two decades later.
After she made the gifts to her children, Mary Jane did her own estate planning. She created a special needs trust for Robin, naming William as trustee. An equal share of her estate was to go to the special needs trust upon her death. She also helped Robin sign a power of attorney, naming William as her agent after Mary Jane’s death. Then, in 2003, Mary Jane died.
After Mary Jane’s death, her third daughter (Rachel) began asking Randi what she had done with what she, Rachel, thought of as “Robin’s” $51,000 gift from back in 1995. Randi declined to tell her. Rachel then turned to William, insisting that he should make Randi answer her questions. He, in turn, also declined to act.
At this point, it’s worth reviewing the players. Robin was to receive an equal share of Mary Jane’s estate, though in a special needs trust. But Robin had not received an equal gift from the settlement of Mary Jane’s claim arising from Walter’s death. Instead, Randi had a double share. Meanwhile, William had been put in charge of Robin’s inheritance and also managed Robin’s own affairs. Rachel had no apparent standing or role in any of these arrangements.
Still, when Rachel did not get a satisfactory answer, she filed a lawsuit. She sued Randi (for not agreeing that half of her 1995 gift was really for Robin) and William (for not insisting that Randi account for that gift). She asked that the court make Randi account, and that the $51,000 (plus interest) should be held in trust for Robin’s benefit.
The trial judge dismissed Rachel’s lawsuit, finding that she had produced no evidence that the gift from Mary Jane was in trust at all. Rachel appealed.
The Wisconsin Court of Appeals upheld the dismissal. The appellate judges agreed that there was no evidence that Mary Jane had intended the “double” gift to Randi to be a trust for Robin. Dismissal of the lawsuit was proper. Robbins v. Foseid, September 3, 2015.
How does Mary Jane’s case establish the importance of actually creating a trust? After all, assuming that she did not intend to make Randi’s “double” gift a trust, the courts upheld her intentions, right?
Yes, but at a significant cost — both in legal fees and in family disharmony. Of course we don’t have enough information about her family to know if they generally got along well before the death of Walter and Mary Jane’s gifts to her children. If they did mostly get along, however, her failure to be clear about her intentions might be a significant part of the later decline in the relationship.
If, on the other hand, Mary Jane actually did intend the double gift to benefit Robin, those intentions are now completely dependent on Randi’s goodwill toward Robin. Maybe Randi will do exactly the right thing, but wouldn’t it have been more effective and better thinking for Mary Jane to have made the original gift into a special needs trust — probably just like the one she created a year later as part of her estate plan? And what happens now if Randi should die, leaving her estate to her husband, or her children, or her creditors?
Our basic point: when you are making plans for your child who has a disability, you should not count on everyone correctly guessing your intentions, or acting honorably, or even living long enough to carry out the tasks you are implicitly setting for them. Make your intentions explicit, and the lines of authority clear. Create a special needs trust.
