Date: March 24, 2022

Vice might be nice, as the old saying goes, but can things like cigarettes, alcohol and pornography be paid for out of a special needs trust (“SNT”)?

The answer is… it depends. Obviously, if such activities are specifically ruled out in a third-party trust, then no cigar. If, for example, the person who funded and established the trust (sometimes referred to as the Grantor or Settlor) stipulated in the trust’s terms that it not be used to purchase alcohol or cigarettes, then it is the trustee’s duty to enforce those prohibitions. In many ways, the trustee serves as a referee calling the shots with the regard to what can and cannot be purchased using trust assets. But many trusts do not address such activities, so what is a trustee to do when a beneficiary wants to light up, pour a drink, and settle down to a pornographic pay-per-view movie on the trust’s dime?

The government, for one, does not have a problem with SNT expenditures on tobacco and pornography. Things are slightly less clear regarding alcohol, as the Social Security Administration stipulates that SNTs cannot be used for food or shelter, because the purpose of these trusts is to provide benefits over and above what government programs offer. But the Social Security Administration does not define food, therefore, alcohol can easily fit into that category.

But even if the government approved of expenditures out of SNTs on alcohol, what if the trustee does not want to make distributions for this purpose? Trustees are charged with administering trusts in the best interests of the trust beneficiary, therefore trustees are given considerable discretion in these matters. So, the question turns on how the trustee defines “best interest” for the individual trust beneficiaries. Even the brightest minds can disagree over what course to take when it comes to such pastimes such as drinking, smoking and pornography. With some folks falling into the “anti-vice” camp, and others falling into the “everything in moderation” camp, I think it is important that trustees try to avoid imposing their own personal views and tastes on such issues, at least when it comes to beneficiaries with physical, rather than psychological disabilities. Why should people with special needs trusts be dictated to on such matters any more than anyone else, after all? But even allowing for that, trustees still have other best interests to consider, such as their fiscal responsibility to ensure that the trust is not drained by these or any other pursuits.

Balancing these issues can be tricky, and trustees are advised to seek out knowledgeable counsel. Disagreements between the two “camps” aside, the best course of action regardless of what camp a trustee may fall into is to hire experienced special needs counsel who understand the beneficiary’s situation and who will be able to provide guidance to you, as the trustee, about trust distributions and other more beneficial alternatives that may exist. The Special Needs department at Mandelbaum Barrett PC is available to answer any questions you may have.