The Importance of Special Needs Planning Language
This is why we include special needs planning language in every trust we draft even if there is no current beneficiary with special needs.
In re Ruby G. Owen Trust, 2012 Ark. App. 381 (Ark. Ct. App. 2012)
Courts Refuse to Modify Trust to Create Special Needs Trust
In 2009, Ruby Owen created a trust for the benefit of her grandchildren, including her
granddaughter, Kristian Owen. One year later, Kristian was diagnosed with
schizophrenia and shortly thereafter Ruby died. Pine Bluff National Bank, as successor
trustee, petitioned the Jefferson County Circuit Court to modify Kristian’s trust to
become a special-needs trust. The trial court rejected the petition, finding that the
proposed modification would violate Arkansas public policy forbidding the use of trusts
to sequester resources to qualify for government assistance. The trustee appealed.
On appeal, the trustee argued that under the Arkansas Trust Code a court can consent
to a modification of a trust if the court finds the modification would provide a general
benefit to the beneficiary or, separately, if the court finds the modification will further
the trust purposes given circumstances unanticipated by the settlor. The trustee further
argued that the trust instrument required the trustee to always consider other assets
available to Kristian before making distributions and to make preservation of principal a
priority. According to the trustee, these clauses indicated Ruby’s intention that the trust
assets be used as Kristian’s secondary resource and not her primary means of care.
The Arkansas Court of Appeals affirmed the trial court on the grounds that: (1) Arkansas
law explicitly prohibits the use of trusts as devices to sequester assets to qualify for
medical assistance; and (2) because the purpose of the modification was to assist
Kristian in qualifying for public benefits, the modified trust terms would be void on
Tags: special needs, special needs planning