Theresa Givens settled a personal injury lawsuit in 2011. She would receive a little over $250,000 in settlement proceeds. In order to keep her Medicaid benefits, she put her lawsuit settlement into a pooled special needs trust. Before she could even get any serious benefit from the trust account, she died in November, 2011.
Pooled special needs trust
The kind of special needs trust Ms. Givens signed up with is a little bit different from what most people think of when they hear about a special needs trust. The pooled special needs trust holds funds for the benefit of several individuals, but accounts for each sub-trust separately.
These separate accounts do share one characteristic with other self-settled special needs trusts. On the death of a pooled special needs trust beneficiary, the remaining assets in the trust must first be used to pay back the state Medicaid agency — to the extent that the beneficiary has received Medicaid services. There is one important caveat, though: if the trust balance is held for the benefit of other trust participants, the payback requirement is not enforced.
Ms. Givens lived in Missouri. That state’s Medicaid program paid for her dialysis and other care. Because she died so soon after the pooled special needs trust account was funded, nothing was owed to the state. The remaining $234,000 in the trust would therefore go to her designated beneficiary.
Beneficiary forms
The trustee of Ms. Givens’ pooled special needs trust was an Indiana company, the National Foundation for Special Needs Integrity. When Ms. Givens signed up, she had filled out several forms for the trustee. She indicated her choice of beneficiary for any remaining funds at her death. Unfortunately, she may have misunderstood the choices. The form asked her to name “to whom you would like us to pay out the Remainder of your trust Sub-Account should there be any money left after the state of Missouri has been reimbursed for the Medicaid services it has rendered to you during your lifetime.” Ms Givens (or someone — it is not clear whose writing was in the space) wrote “Theresa Givens”.
What did Ms. Givens mean by putting her own name in the beneficiary designation? That became the central question in negotiations, and then litigation, after her death.
The Foundation, as trustee, argued that she must have meant to identify herself as the only individual to receive benefits from the pooled special needs trust account. Ms. Givens’ children argued that she must have meant that the money should go to her estate.
Of course, pooled special needs trust accounts will usually go to the state Medicaid agency. That’s because the accumulated Medicaid costs almost always exceed the remaining trust balance. Many pooled special needs trust accounts name the trust itself as beneficiary, in order to reduce the amount returned to Medicaid coffers. That turned out not to be the issue in Ms. Givens’ case, since her Medicaid reimbursement bill was zero.
Litigation between the trust and the family
The Missouri courts appointed Ms. Givens’ son as personal representative of her estate. He asked the National Foundation for Special Needs Integrity to turn over the remaining account balance to the estate. The dispute did not move to the courts, though, for four years after her death.
The trustee actually filed the first court proceeding. It asked a federal District Court in Indiana to declare that it was right to keep the remaining balance. The family counterclaimed, asking the court to order distribution of the funds to the estate.
The District Court ruled against the estate and the children, finding that they had waited too long to make their claim. It also pointed to the language of the agreement itself, which said that if there was no beneficiary named the money would go to the trust.
The Seventh Circuit Court of Appeals disagreed. In a ruling last week, the appellate court decided that the language of the agreement was ambiguous, and that the court should have considered other evidence to determine Ms. Givens’ intent. That other evidence indicated that she intended to benefit her family. National Foundation for Special Needs Integrity, Inc., v. Reese, February 7, 2018.
The rest of the story
Although the Court of Appeals decision seems to have resolved pending legal issues, it barely mentions the background to the case. That background story was actually important in understanding the development. It also reinforces the need for transparency and disclosure in pooled special needs trust administration — and, in fact, in all special needs trust management.
The National Foundation for Special Needs Integrity has had a recently rocky history. It, and its founder and former director, have been the subjects of considerable investigation and litigation.
Founded by attorney Shane Service in 2007, the National Foundation for Special Needs Integrity had served as trustee in pooled special needs trust accounts across the country. It grew steadily until, in 2014, Foundation officers removed Mr. Service and replaced him. The Givens dispute was well underway by that time, though legal proceedings were not filed until the next year. In fact, all of Ms. Givens’ trust sub-account had been transferred to the Foundation by February of 2014.
Mr. Service was indicted for theft for trust behavior after he left the Foundation. His license to practice law has been indefinitely suspended. Other litigation may establish wrongdoing in unrelated cases.
Pooled special needs trust arrangements are very beneficial to many individuals. As always, a trustee needs to be very clear about how trust funds are being administered. Every action by a trustee or other fiduciary must be for the benefit of the beneficiary, and not in the trustee’s self-interest.
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