Trusts and Estates

McGee v. State Dept. of Health Care Services

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Cite as C093796
Filed May 24, 2023
Third District

By Michelle Barnett Batista
Aaron, Riechert, Carpol & Riffle, APC
www.arcr.com

Headnote:  Special Needs Trusts – Trustee Discretion

Summary:  Trial court abused its discretion by applying the wrong legal standard when it defined “special needs” more narrowly than allowed under the trust instrument and special needs trust law in general.

Daniel, successor trustee of a special needs trust for the benefit of Dianna, filed a fourth account and petition for settlement.  The trial court determined that Daniel abused his discretion and breached the trust by making distributions for items and services that did not constitute “special needs” as defined by the instrument.  The trial court interpreted the term “special needs” to refer only to “the beneficiary’s special needs as created by the limitations due to her condition” and surcharged Daniel for any expenditure that fell outside such purpose.  Daniel appealed.  

The appellate court reversed and remanded.  Interpreting the trust as a whole and in its legal context, the appellate court concluded the trial court’s interpretation of “special needs” was overly narrow.  The trust instrument defines “special needs” broadly as including more than just items or services reasonably related to the beneficiary’s disability, and that definition is consistent with the interpretation of the federal statute and the Social Security Administration’s treatment of special needs trusts.  In determining whether the trustee abused its discretion on remand, the trial court is not permitted to substitute its judgment and discretion for that of the trustee so long as it acts within proper limits.  Where the trust requires the trustee to take into consideration the resource and income limitations of public assistance programs, the trustee may make distributions that reduce or eliminate the beneficiary’s eligibility for public benefits, but only if he independently determines such distributions would be in the beneficiary’s best interest.

https://www.courts.ca.gov/opinions/documents/C093796.PDF

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