There are many kinds of Trusts. The most well known is the so-called “Living Trust”, in which someone creates and funds a Trust, naming himself as Trustee and beneficiary, and in which that person can amend or revoke it at any time. But generally, for a variety of reasons, someone creating a Trust is going to name another as Trustee. Sometimes it makes sense to name an individual rather than a corporate entity. A Medicaid Asset Protection Trust is one example. But for most trusts, it usually makes more sense to name a corporate entity as Trustee, given the complexities involved. Such is the case with a special needs trust, or “SNT”. These are created to benefit incapacitated persons who, due to their incapacity, have special needs and challenges others do not.
Choosing the right person to serve as trustee of a SNT can be most challenging. Trustees are responsible for the following:
- managing the day-to-day operations of the SNT,
- making distributions to the trust’s beneficiary,
- investing the trust’s assets, and
- paying the trust’s bills.
The law is not particularly strict about who may serve as trustee. Trustees must be over 18 years of age and capable of managing their own affairs. They can be the beneficiary’s parent or other relative or a trusted friend. Or they can be a professional such as a lawyer, accountant, trust company, bank, or private professional fiduciary.
Here are some important considerations when deciding on who should serve as a SNT trustee:
- Is the potential trustee knowledgeable about public benefit programs?
The trustee of a special needs trust should be familiar with the different types of public benefit programs. An important but unique duty of a SNT trustee, not applicable to other types of trusts, is the responsibility for ensuring that the special needs trust beneficiary remains eligible for needed public benefits.Many government benefits like Medicaid, Supplemental Security Income (SSI), and Section 8 (low income) housing have complicated rules governing SNTs. The trustee of a special needs trust must know these rules well or, alternatively, work closely with an elder law attorney for guidance on the many special requirements for achieving and maintaining public benefits eligibility.
- Does the trustee have time to properly perform its duties?
For an individual, serving as the trustee of an active special needs trust can seem like a full-time job. Depending on the needs of the beneficiary, the trustee could indeed spend a good deal of time on any number of tasks. These may include the following:
- paying bills,
- monitoring government benefits,
- helping to secure housing,
- paying for medical care, and
- serving as a link between the beneficiary and a variety of service providers.
Very often, individuals serving as trustees find that they can’t perform all the necessary tasks in a timely manner. Or they feel they’re sacrificing their family life or other professional obligations to fulfill their duties as a trustee. Sometimes, even more alarming, are situations where trustees are blissfully ignorant of their many omissions and other failures until these eventually blossom into major problems. That is why it is prudent for the trustee of a SNT to be a corporate entity and, preferably, one that has special expertise in managing trusts for incapacitated individuals.
- Whom should you consider to select as a trustee?
There are a variety of professional trustees. They include attorney, accountant, trust company, investment firm, bank, or private professional fiduciary. Dionysios Pappas, an attorney with the law firm of Vasiliadis Pappas Associates, recommends that you “focus on corporate entities – trust companies, whose activities are limited solely to administering trusts.” In that regard, note that not all banks have trust departments. Moreover, in selecting a corporate entity, select one, if possible, with a deep understanding of public benefits programs in addition to other normal attributes of a corporate entity, such as specialized knowledge in investments, money management, and tax planning.
- Take special precautions when naming a corporate entity as trustee
It’s normal to feel uncomfortable with the idea of an outsider managing your loved one’s special needs trust. That’s why it’s important for a SNT to name a “trust protector”, that is, a trusted person familiar with the beneficiary. A trust protector has the power to review accounts and to hire and fire trustees. Very importantly, the trust protector can provide needed guidance to the trustee regarding the particular needs of the beneficiary.It is possible to appoint a family member and an independent trustee as co-trustees with the expectation that there is one trustee who is familiar with the beneficiary and has the best interests of the beneficiary at heart. This sounds good in theory but, in actual practice usually creates problems that outweigh the benefits.
- Consider a pooled trust as an option
If the funds set aside for a special needs beneficiary are an insufficient amount to be viable for establishing a stand-alone trust, consider placing the funds in a “pooled trust”. Nonprofit corporations administer these types of trusts, which pool together the resources of many beneficiaries. Pooling trust resources can reduce administrative fees and increase the total funds available for investment. These types of trusts also may permit beneficiaries access to better investment opportunities.Because a pooled trust accepts contributions from many beneficiaries, the trust is able to make more stable investments. It also can provide additional management services that a conventional special needs trust might not be able to afford. If your loved one’s special needs trust is modest in size, it may benefit from the low costs of a pooled trust. Also appealing to many families is the fact that the nonprofits managing these trusts support others with special needs.
Consult With Your Special Needs Planning Attorney
Stanley Vasiliadis, an attorney with the law firm of Vasiliadis Pappas Associates, is a charter member of the Academy of Special Needs Planners. He and the other lawyers at Vasiliadis Pappas can help you set up a Special Needs Trust and in particular, assist with selection of a trustee. Contact us today!