So you have decided to establish a Special Needs trust (SNT). The previous Disability Insights article mentioned that the naming of a successor trustee of an SNT is a critical appointment, for that person will have full discretion in maintaining and distributing assets on behalf of the disabled individual. Because it is such an essential job, many families get stuck in this part of their estate planning. The goal of this article is to provide direction in choosing whom you should designate as an SNT trustee.
The trustee, as the person or firm that holds and administers the assets of the trust for the benefit of the individual with disabilities and of anyone else named in the trust document, needs to be someone you can trust with this authority. Trustees cannot use trust assets for their own personal benefit (unless the trust authorizes it) and must treat all beneficiaries impartially. Although it is permissible for a trustee to be named as the “remainder beneficiary,” that is, the person who gets the leftover trust property when the trust ends, he or she must be willing to put the needs of the individual with disabilities above their own interests. Under the parameters set by the trust document, the trustee needs to balance the goals and needs of each beneficiary named by the trust. Finally, the trustee can delegate responsibility to others but cannot avoid liability by doing so.
Ideal Characteristics of a Trustee
Clearly, it is important to choose not only someone who can be depended on to carry out the demands of the trust but also someone who understands the unique needs of the disabled individual. Often this is a family member or close friend who knows the individual well.
Other qualities to look for:
- Willingness to Serve: At times, the role of the trustee can be time-consuming and difficult.
- Likely to Outlive the Beneficiary: Although the trust can give the trustee the power to name a successor trustee, you will want to delegate responsibility to a person who is likely to live as long as the beneficiary.
- Willingness to Get Help: Administering a trust involves record keeping, tax filings, and asset distributions. Since SNTs are subject to both Medicaid and Social Security rules, the trustee will need to have some understanding of these programs to avoid incurring penalties on the trust. The trustee will most likely need to rely on the professional expertise of a special needs estate planning attorney and other financial professionals to help administer the trust.
Naming an Institution as Co-Trustee
One way to ensure that the needs of the individual with disabilities are adequately taken care of and that the trust is professionally administered is to name both a family member and an institution as co-trustees. The bank or trust company could be used to handle administration of the trust, including tax preparation, management, accounting, and investments of the trust. The family member would decide when and what kind of withdrawals were best suited to meet the needs of the individual with disabilities. Both the family member and the institution would need to work together in administering the trust. The downside of naming an institution as co-trustee is that the fund would have to pay additional management fees to the institution. In addition, institutions often have minimum asset requirements for trust administration. When trust assets are below $500K, the expenses incurred to maintain a professional trustee become harder to justify.
Naming a trustee for your SNT is an essential step in completing the estate planning process for your loved one. Although the trustee’s role is important, a responsible reliable person can, with assistance, carry out the requirements of the trust. Knowing the roles and responsibilities of the trustee will make it easier to decide who might best fulfill this critical role.
References:
- The American Bar Association “Choosing the Executor or Trustee”
- Nolo.com “Choosing a Trustee for a Special Needs Trust”
https://www.nolo.com/legal-encyclopedia/choosing-trustee-special-needs-trust.html.
- Special Needs Alliance. 2016 Handbook for Trustees. Link:
https://www.specialneedsalliance.org/wp-content/uploads/2016/04/2016-Handbook-for-Trustees.pdf
- Estate Planning.com “Understanding the Duties and Responsibilities of a Trustee.” Link https://www.estateplanning.com/Duties-and-Responsibilities-of-a-Trustee/.
