$23M Award Highlights Problems with Insufficient Vetting of Trustees

A California jury recently returned a $23 million verdict against a contractor who took advantage of a trustee of a special needs trust who suffered from depression and substance abuse.  While the contractor's actions were egregious, the case also highlights the danger of naming family members as trustees of special needs trusts.

Dolores McGinty died in 2009 and named her son, Timothy McGinty, as the successor trustee of a special needs trust designed to hold her home for the benefit of her daughter, Kathleen McGinty, who has autism.  Timothy had suffered from substance abuse and depression for years, but this did not prevent his mother from naming him as the trustee who would succeed the original trustee if he or she could no longer serve.

Following the death of the original trustee, Timothy engaged a contractor to make minor repairs to his sister's home.  The contractor ended up charging the trust more than $800,000 for work that allegedly cost less than $110,000, and when the trust could not make the payments, the contractor convinced Timothy, who had just spent two weeks in the hospital, to sign the property over to him.  The contractor then attempted to sell the property for $1.5 million.  The sale was stopped and a jury eventually awarded the trust $23 million in damages, including more than $21 million in punitive damages.

Although the jury's award will make the trust whole, the entire case illustrates the problem with naming family members as trustees of special needs trusts.  In this case, Ms. McGinty, like many people who set up trusts, named a family member as the trustee, apparently without considering his many problems and his relative lack of sufficient experience.  Had Ms. McGinty named a professional trustee or co-trustee, this problem could have been avoided.