I hate to post such upsetting news, but bad people are part of the world we live in. We can't let them paralyze us and cause us to trust no one, for then they "win" by ruining our lives. But it is a reminder that reasonable prudence is the order of the day. Here's the story.
Indiana attorney Kenneth Service stole at least hundreds of thousands of dollars from the special needs trusts (SNTs) he managed for numerous clients with severe disabilities. I guess I should say "allegedly stole" to be safe but it does not really appear to be in question. I don't know if he will ever be able to repay the funds. But at least there has been some justice. He was disbarred from the practice of law, and the latest news is that he has now been arrested for the theft of those funds. After warrants for his arrest were issued by two different Indiana courts, Mr. Service was taken into custody and held without bond on October 2, 2018.
Mr. Service has been either involved or charged in a related string of cases. He has been accused of felony theft in three separate Indiana jurisdictions after authorities discovered that hundreds of thousands of dollars were stolen from some of his clients’ SNTs. The first criminal case against him was filed in December 2016 in Lawrence County, where he was charged with stealing more than $85,000 from two clients. The police officer investigating those allegations against Mr. Service believed it possible that he had “numerous victims in multiple states.”
That belief bore out with additional charges filed against him in June of this year. The Indiana Lawyer.com wrote that those charges, filed in Delaware County, alleged Level 5 felony theft for stealing $23,622 from a former client under guardianship. More charges were filed in Franklin County on September 18, alleging that Mr. Service committed Level 5 and Level 6 felonies. He is accused of stealing more than $102,500 from one client who was also under guardianship.
The first warrant for his arrest was issued on September 17 in Franklin County. A second arrest warrant was issued two days later in Delaware County when he failed to appear for a pretrial conference. Mr. Service is representing himself against all the charges. According to The Indiana Lawyer.com, he is scheduled for jury trial in Delaware County on October 29 and in Lawrence County on November 27.
Mr. Service also was implicated in the case brought against the ironically named National Foundation for Special Needs Integrity, the pooled SNT he founded. In National Foundation for Special Needs Integrity, Inc. v. Reese, the 7th Circuit Court of Appeals ordered the trust to repay the deceased beneficiary’s family $234,181 that it wrongfully retained, following an admission by Mr. Service that he “intentionally intended to confuse” government officials.
OK, so what can we learn from this?
Parents of special needs kids have a particularly difficult decision in naming those who will look out for their child when they (the parents) are incapacitated or dead. Who will do a good job of being not just a trustee, but a special needs trustee? The latter involves all of the requisites of being a good trustee, but also (1) technical and practical understanding of the various public benefits rules, and (2) that something extra, that something that makes the trustee someone who really looks out for the beneficiary and is pro-active about using the trust to give the beneficiary the best life possible; something more than sitting in a glass tower, watching investments, filing taxes, and having the Trustee Committee review requests for expenditures each month.
I will tell you from hard experience that family members, no matter how well intentioned, no matter how competent at money management, frequently do a poor job. We find that it is often better to put them in a supervisory role of one kind or another over a professional trustee.
Professional trustees cost money, yes, but it truly is a lot of work and really well worth it to get the job done right and relieve family members of the headache. If clients ask us about professional trustees, we have an in-depth discussion with them about what goals they are trying to achieve with the selection of trustee. The choices of professional trustees include: large to small institutional trustees such as banks; large to small law firms; large to small accounting firms; and some financial advisors (many are restricted by their firms or professional licensure from serving).
There are pros and cons to each. A large institution has deep pockets to cover mistakes, and is highly unlikely to ever engage in theft. On the other hand, many large institutions are no longer serving as trustee of SNTs, and in our experience the ones that do are just as prone to errors as smaller trustees, and smaller trustees tend to be ones with more of the "something extra" that parents are looking for.
The bottom line: (1) This isn't easy. Parents have to take care in choosing trustees. (2) Design your estate plan thoughtfully with your attorney; it is a lot more than filling in a few blanks on some papers. Should someone be appointed to watch over the trustee? Will that overseer have adequate powers to deal with a trustee who is acting suspiciously? What happens if overseer is no longer able to function as overseer? Remember, these trusts need to last for decades after you are gone!
OK ... breathe! Have a great weekend!
- Mark W. Worthington, Esq.