In Re: Mark Anthony Fowler Special Needs Trust (Wash. App. Ct., No. 39729-3-II, Feb. 8, 2011)

In an unpublished opinion, the Washington Court of Appeals reverses a trial court's order that would have forced the trustee of a special needs trust to allocate a substantial portion of the trust's assets to FDIC insured accounts. In Re: Mark Anthony Fowler Special Needs Trust (Wash. App. Ct., No. 39729-3-II, Feb. 8, 2011).

In 2001, Wells Fargo was named as the trustee of a special needs trust that was established to hold the proceeds from a 13-year-old's personal injury settlement. The trust was funded with $940,000 and an annuity that paid $1,380 per month. Wells Fargo allocated the assets using a balanced investment approach, with 60 percent of the trust consisting of equity investments and the remainder made up of fixed-income securities. Despite significant annual distributions, the trust fund had grown to more than $1 million by September 2007. During this time, the court approved Wells Fargo's six annual accountings.

In December, 2008, Wells Fargo filed its seventh annual accounting showing a 12.13 percent loss, which it claimed was due to the stock market crash. After reviewing the account, the trial court repeatedly demanded that Wells Fargo allocate more of the trust funds to FDIC-insured instruments, like CDs. The trial court also appointed a guardian ad litem to investigate whether Wells Fargo violated the prudent investor rule, but the guardian ad litem determined that the bank's refusal to allocate more funds to insured accounts was not only prudent but actually called for given the age of the trust beneficiary and the low rate of return for those accounts. Despite the G.A.L.'s report, the trial court ordered Wells Fargo to file a plan transferring a portion of the assets to insured accounts and it also enjoined the bank from transferring or liquidating trust assets until the court approved the plan. Wells Fargo appealed.

The Court of Appeals of Washington reverses the trial court's order. The court finds that "[a]lthough the trial court's concern about the sharp decline in the market value of the trust's assets was certainly understandable, the trial court's power to "review and approve" the annual accounting did not give it authority to order a reallocation plan where the trustee did not breach any fiduciary duties or otherwise abuse its discretion."