The Importance of Choosing the Right Special Needs Trustee
by Don Drake, Connelly Law Offices, Ltd.
"When developing a Special Needs Trust (SNT) for a loved one with a disability, the person who creates and funds the trust typically becomes the trustee," stated professional fiduciary and certified elder law Attorney RJ Connelly III. "I cannot stress enough the importance of choosing a trustee who will manage the SNT properly so that it benefits the individual it was designed to serve. A successor trustee must also be selected, and that person must be honest and capable of stepping in when needed. In most cases, SNTs operate on the honor system unless serious issues necessitate a court intervention." Given that, let's look at the role of the special needs trustee.
The Role of the Trustee
As stated earlier by Attorney Connelly, the SNT trustee manages the trust for the benefit of the individual. Whoever is in that role is considered the trust's manager and guardian. Specifically, the trustee is responsible for:
Appropriate trust property investment
Accounting and bookkeeping of trust activities
Communication among trust beneficiaries
Tax filing for the trust
Proper distribution of trust assets to the beneficiary while considering current and future needs
Understanding and staying current as to the needs and welfare of the trust beneficiary
Ensuring the beneficiary retains eligibility for public benefits programs
Reporting to the agencies who administer benefits programs
Working in partnership with family members, guardians, social workers, teachers, and others who provide support for the trust beneficiary
Management and distribution of trust property after the trust’s termination or the beneficiary’s death
How to Select the Right Trustee
"The responsibilities are many, and there are also emotional issues that go along with the role," stated Attorney Connelly. "Identifying someone who can handle this role can be extremely challenging because an ideal successor trustee’s life expectancy should extend beyond the beneficiary’s. If the ideal trustee is not in the right age group, the trust document can give authority to the trustee to appoint a successor." Many families opt to hire a professional trustee, like Connelly Law Offices, who are well-versed in handling the responsibilities of a special needs trust. A family member may remain a co-trustee of the SNT.
A more modestly funded SNT trust can become part of a special needs pooled trust run by nonprofit groups to administer a master special needs trust efficiently and expertly on behalf of multiple individual beneficiaries with disabilities.
"A special needs pooled trust has positive and negative attributes. It may reduce administrative fees and increase investment funds, creating access to wealth-creation opportunities," stated Attorney Connelly. "However, a pooled trust is generally inflexible and limits the ability to own real estate or other non-traditional investments. The SNT pooled trust may act as a trustee or co-trustee. An elder law attorney or an attorney with experience in special needs planning can assess your situation and the needs of your loved one to determine if this trust type is the right choice."
Bring Your Questions to a Special Needs Attorney
"If you identify someone you believe is willing and capable of becoming an SNT trustee, there are talking points to address," said Attorney Connelly. "First and foremost, the proposed successor trustee needs to read and understand the trust document. Appreciating the full scope of the trust’s assets and responsibilities regarding its management and beneficiary’s needs may be more daunting than a potential trustee realized. If all agree, an elder law or special needs attorney can address specific questions and potentially amend certain trust sections. The grantor must outline specific duties if there are co-trustees. For instance, a bank or trust company will take charge of investments, tax, and accounting issues, while another trustee will manage the beneficiary’s personal needs. However, when you go to larger institutions, they tend to lose the personal touch and understanding of the situation that an elder law attorney with intimate knowledge of it."
If there is one successor trustee, they may seek professional consulting assistance or speak to a special needs planning attorney to manage the trust and achieve the grantor’s goals successfully. "The SNT should pay for any advisor or attorney related to the trust," Attorney Conelly points out. "The trust should state that a single successor trustee is not liable unless there is gross negligence or an intentional violation of their responsibilities. Because professional trustees tend to be held to higher standards than a family member trustee, liability issues are less problematic with a professional co-trustee."
Seeking Additional Support and Guidance
In most cases, a special needs beneficiary typically has a large support group, including a guardian, family members, counselors, teachers, and many more," said Attorney Connelly. "In addition to the specific responsibilities of a trustee, the select successor must stay in constant contact with these support groups to understand the beneficiary’s changing conditions and needs. The beneficiary’s daily routines, the services they receive, and how they are paid give essential information to the trustee, who can tailor the benefits management based on this information."
Serving as a trustee to a special needs trust requires compassion, competence, hard work, and a willingness to dedicate personal time. Even with many demanding tasks, family members and friends often serve as trustees without compensation. However, if the duties are overwhelming, compensation may be appropriate to incentivize a potential trustee to accept the role. An elder law or special needs planning attorney can help you structure the SNT to address compensation issues for the non-professional trustee. Professional trustees have varying billing rates to consider, but it may be worth the investment as they understand the changing laws and tax codes regarding trusts.
"...I can't stress this enough, the most crucial consideration when choosing a special needs trustee is to find an individual or organization who will act honestly." --- Attorney RJ Connelly III
"Finally, I can't stress this enough, the most crucial consideration when choosing a special needs trustee is to find an individual or organization who will act honestly," said Attorney Connelly. "A trustworthy trustee will fulfill their legal obligations and act in the beneficiary’s best interests to the best of their ability. A code of good faith conduct inherent to the trustee will have them seek additional help should the job become overwhelming or out of the scope of their experience or expertise."
There is no way to predict the future or foresee problems that may come down the road; what can be done is to put systems in place and ensure that competent people are assigned to manage the process. Working with an elder law or special needs planning attorney to structure a special needs trust and identify the right trustee(s) will provide the most advantageous circumstances for a loved one’s current and future well-being.