Court Establishes That Special Needs Trust Is Set In Stone

In 2010, Claude Newsome, who was already legally blind due to macular degeneration, became a quadriplegic as a result of an automobile accident.  After a personal injury action was filed on his behalf, he received a settlement which netted nearly $4 million.  His attorney recommended that he establish a special needs trust with these funds.  In light of apparent undue influence from his agent under a power of attorney, Newsome rejected this recommendation and stated that he wanted his money paid outright to him.  In a management conference approving the settlement, Newsome’s attorney conveyed his concerns that Newsome may be subject to exploitation.  As a result, the Court, without Newsome’s participation, established a special needs trust and appointed an independent bank as trustee.

Within a year, Newsome hired a new attorney who sought to have the bank terminate the trust and pay the funds outright to Newsome stating that the trust was unnecessary.  After the bank went to court seeking directions, Newsome, through his new attorney, filed an application to terminate the trust.  In Newsome v. National Casualty Company (5th Cir., No. 15-30573, Aug. 11, 2016), the Fifth Circuit Court of Appeals rejected this application.  It did so by noting that the dissolution of the trust should have been made as part of an appeal from the order establishing it.  As Newsome had other counsel at the time the trust was established who did not file such an appeal in a timely fashion, the Court of Appeals found no reason to set aside the trust.  It particularly made this holding in response to the claim that establishing the trust was an error.  The Court stated that an error was nevertheless not going to be set aside if the concern for same was not brought to the court in the time period in which an appeal could have been filed.  Although not stated outright, some language in this decision seemed to affirm the need for a trust for Newsome.

The takeaway from this case is that special needs trusts will be protected once established.  In doing so, the case calls for a careful analysis of the need for a trust and selection of a trustee prior to its establishment.  Although not uniformly followed by all courts, the case demonstrates that a court, on its own accord, may set up a protective arrangement for those whom it feels may warrant special care.



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