Trust companies and individual trustees have a fiduciary duty to act in the best interest of beneficiaries. When beneficiaries with mental health issues are encountered, trustees are tasked with making payments for mental health counseling and associated expenses. But what happens when trustees are unsure whether the beneficiary is complying with treatment recommendations or even attending sessions?
Mental health treatment is often confidential, and counselors are bound by strict ethical and legal guidelines that protect patient privacy, as established by HIPAA or applicable state statutes. This means that, unless specifically authorized, they can’t disclose whether a beneficiary is following treatment protocols. This lack of transparency makes it difficult for trust companies and individual trustees to determine whether their funds are being used effectively.
Legal and Ethical Complexities
Understanding the intersection of HIPAA, fiduciary duty and state laws is critical. In most cases, HIPAA prevents counselors from disclosing private patient information without explicit consent. Trustees may argue that as financial stewards, they need at least minimal confirmation of compliance. If a beneficiary suffers harm due to non-compliance while the trustee continues to fund treatment, questions of fiduciary responsibility may arise. Consulting legal counsel is necessary to structure agreements that balance ethical responsibilities and fiduciary oversight.
By implementing the following compliance verification strategies, trust companies and individual trustees can better ensure responsible mental health treatment funding while balancing and upholding ethical, legal and fiduciary responsibilities:
Prepayment with conditional compliance reporting. Such structures require the mental health professional to confirm compliance before receiving prepayment for future sessions. This can be achieved through a structured payment agreement in which:
Prepayments are made only on confirmation that the beneficiary is attending sessions and following treatment recommendations.
The counselor provides minimal but necessary information, such as attendance confirmation, without disclosing private details. For example, the trust can mandate that a trustee engage a case manager or treatment professional who provides periodic reports confirming that the beneficiary is attending treatment and adhering to prescribed care.Some trusts incorporate a tiered payment structure in which initial payments are made for assessment and treatment planning, with subsequent payments contingent on documented participation in therapy and demonstrated progress.
Prepayments are made after verification, reducing financial waste and helping to protect trustees from accusations of negligence and ensure funds are used effectively. Trustees who continue to fund ineffective or non-compliant treatment risk financial losses and potential legal liability.
Trust agreement clauses. When establishing a trust, grantors can include provisions that require compliance reporting as a condition for disbursement of funds. These clauses can be particularly valuable when a trust is designed to support a beneficiary struggling with addiction, mental health challenges or other behaviors requiring ongoing monitoring. By incorporating such provisions, a trust can ensure that distributions are aligned with the beneficiary’s well-being and that financial support doesn’t enable harmful behaviors.
To achieve this, trust agreements may include the following provisions:
Randomized testing and monitoring. The trust agreement may grant the trustee authority to require periodic drug testing, financial audits or other forms of monitoring. This provision ensures that distributions aren’t made if the beneficiary is found to be engaging in substance use or other harmful behaviors.
Restrictions for non-compliance. Suppose the beneficiary refuses to engage in treatment or violates the terms of the agreement. In that case, the trustee may have discretion to withhold distributions entirely or limit them to essential expenses, such as housing, utilities and medical care. The trust may specify that funds be paid directly to service providers rather than the beneficiary.
Independent professionals. In situations in which direct communication with a counselor isn’t feasible, trust companies and individual trustees can engage case managers or independent professionals who:
Monitor the beneficiary’s compliance with treatment.
Serve as intermediaries between the counselor and trustee.
Provide reports without breaching patient confidentiality laws.
Conditional fund disbursements. Trustees and individual trustees can set up reimbursement-based payments instead of prepaying for treatment. Under this approach:
Beneficiaries submit proof of attendance (without specific therapy details). A well-structured reimbursement model can mitigate financial misuse by ensuring that trust funds are only distributed after the beneficiary has engaged in meaningful treatment. Trust documents can outline specific verification methods, such as requiring receipts from treatment centers or confirmation from case managers.
Some trusts implement periodic evaluations to ensure ongoing engagement with treatment before additional funds are disbursed.
For cases involving substance abuse, trustees may require beneficiaries to complete random drug screenings before reimbursements are issued, adding another layer of accountability. The Transtheoretical Model of Behavioral Change, developed by James Prochaska and Carlo DiClemente, supports the idea that financial incentives tied to compliance can help beneficiaries progress through the stages of treatment.
*This article is an abbreviated summary of “Mental Health Counseling Payments From Trust Companies and Individual Trustees,” which appears in the May 2025 issue of Trusts & Estates.