Loud and Clear: A Special Needs Conversation

Do I Really Need A Professional Trustee For My Special Needs Trust?

By Michael C. Walther, President, Oak Wealth Advisors

Serving as a trustee requires administrative and technical skills in addition to strong interpersonal communication skills. Identifying the appropriate trustee is difficult in general; a Special Needs Trust (SNT) presents additional challenges. While most families will name a relative to serve as the trustee of their family’s SNT, they are often unaware of the specialized knowledge needed to succeed in the role. In many cases, it makes sense to have a family member involved in some capacity in the care of the individual with special needs. However, the SNT beneficiary is almost always best served when a professional trustee with the specialized skills is named as the trustee or co-trustee.

In considering trustees to name for your SNT, we suggest evaluating your alternatives with respect to the following characteristics: administrative skills, communication skills, investment skills, knowledge of public benefits rules and regulations, available time to serve, desire to serve, and ability to stay informed of legal and policy changes as they relate to SNT administration.

All trustees owe a fiduciary duty to their beneficiaries. The fiduciary duty requires them to act in the best interests of the beneficiaries. The basic fiduciary requirements are as follows: maintain detailed records, never co-mingle trust assets with the trustee’s personal assets, invest the trust assets prudently, and file all required income tax and distribution reports on time.

Most trustees retain the right to delegate certain obligations of the trustee. These include the preparation of income tax returns, the management of the investments, and the annual accountings. While these roles can be delegated, the trustee always retains the fiduciary responsibility to confirm that they are done correctly.

It is essential for families to discuss their intentions of naming relatives as trustees before the SNTs are implemented. The results improve significantly when candid conversations are held in advance rather than after the parents pass away and the family member is informed that he or she is the trustee with no time to prepare for the role.

The reality is that few family members will possess all the necessary characteristics to be a successful trustee. Similarly, many large bank trust companies are not skilled in handling SNTs and are not structured to provide the level of care and contact most families want. Often, the optimal solution will be to pair a family member who possesses a strong relationship with the beneficiary and a professional trustee.

In situations in which there is no family member who is willing and able to serve as co-trustee, a recommended alternative is to name a family member, friend, or colleague as a trust protector. The role of the Trust Protector is to remove the existing professional trustee and replace them with a new professional trustee should the need arise. This removal power is not allowed to be granted to the beneficiary of a SNT.

A family should expect their SNT to pay fees to the trustee(s) of the SNT regardless of whether or not the trustee is a family member, a professional individual trustee, or a corporate trustee. Assuming that a family member will serve for free is a mistake. While some family members may initially serve as trustee for free, their opinions about fees often change once they fully understand the complexity and amount of work involved. In evaluating trustee fees, most often you get what you pay for. Professional trustees charge fees because they understand the importance of their roles and the value of their services. Saving hundreds of dollars in trustee fees may seem like a great strategy; however, losing governmental benefits because the trust was administered incorrectly can be a far more costly matter.

We believe there is a role for family members to play in the support and care of the family member with special needs. They can be companions, advocates, caregivers, or take on the legal roles of guardian or agent under various powers of attorney. While few family members possess all the skills required of a special needs trustee, many have the ability to be valuable in one or more of these other roles. If the trust beneficiary has difficulty communicating, it is essential to have a caregiver who can effectively communicate the needs of the beneficiary to the trustee. In discussing these various roles with family members, it is important to make sure that the family members you are considering for the roles are comfortable with what will be expected of them.

Communication among family members about the various support roles provides the opportunity for improved outcomes due to better coordination of efforts. In addition, collaboration with the fiduciaries who will provide the professional services allows the personal wishes of the family and the individual with special needs to guide the planning.

Posted: August 15th, 2014 | 2 Comments »

2 responses to “Do I Really Need A Professional Trustee For My Special Needs Trust?”

  1. Helen Bishop says:

    I am hoping someone can answer a couple of questions for me.

    1. My daughter who has been disabled all of her life, has been declared a forced heir on her Father’s estate. We have been told that his wife at the time of his death has to now be her trustee of the estate she will be getting from him. He have had her Special needs Trust set up for 10 years and doing quite well with it. Mike’s wife cannot stand my children, she did everything in her power to keep my children away from their father the remaining months of his life. She did not even allow him to see the gift cards my girls and grandchildren sent to him, she returned to sender. Now how can we expect her to take care of my daughter’s estate? I think the attorney we have is saying this simply because of her dislike for me. I would not allow her to take a percentage of the final distribution. At any rate it is my job yo protect my child and I have been doing it for 42 plus years. I will not allow anyone to upset my children .

    2. My daughter has a son with Muscular Dystrophy. He has no named father on his birth certificate and my husband and I are doing our best but …. I saw in one article where sometimes grandchildren are made forced heirs. can you tell me when that would apply ? Paula , my daughter has no but us to help her and I have nightmares thinking and worrying about will happen if something happens to us.

    Thanking you in advance.
    Helen Bishop
    hmbishop31@cox.net

  2. Debra J. Miller says:

    I agree with the article. My ST was taken care of by family members. My mom was meticulous in her record keeping and her understanding of the rules and communication. But when she died my brother came into charge. Apparently he doesn’t understand his role fully. It hasn’t caused an issue so far. But I regret that I thought he was smarter than he actually is.

Leave a Reply

Your email address will not be published. Required fields are marked *