A “special needs” trust is a wonderful planning tool for individuals with a disability. It helps to assure a continuum of care and quality of life for the person with special needs even after his or her loved ones are unable to provide the care and support themselves. However, a special needs trust only works when it is managed correctly.
Who to choose as trustee of a special needs trust is one of the most difficult choices parents must make when deciding who will manage a special needs trust for their child when they have died. The short answer is that it cannot be the person with a disability, i.e., the beneficiary.
Choice 1: Qualified Family Member or Friend
Friends and family are most familiar with and understand the special needs of the disabled individual. However, in most cases, this family member or friend will never have served as trustee and may have no idea what will be required to take on the role of a trustee. The responsibilities of a special needs trust trustee are complex and extensive, and may include the following:
■ Understand the beneficiary’s situation and needs.
■ Maintain communication with and serving as the link between the beneficiary, caregivers and service providers
■ Hire and regularly monitor agents and service providers.
■ Become familiar with the language and intent of the trust.
■ Obtain IRS tax identification status for the trust.
■ Receive and conduct an inventory of trust assets.
■ Establish accounts for management of trust assets.
■ Collect income and prudently manage investment assets.
■ Pay bills, help to secure housing and medical care.
■ Monitor government benefits such as Supplemental Security Income (SSI), Medicaid (MassHealth in Massachusetts) and Section 8 housing.
■ Maintain good records for all income and principal transactions, as well as prepare periodic accountings.
■ Monitor all disbursements to ensure maintenance of any benefit entitlements.
■ Assist in emergency situations to preserve the lifestyle of the beneficiary as allowed by the trust.
■ Prepare and file annual federal and state income tax returns.
While every special needs trust is different, serving as trustee can often seem like a full-time job, depending on the beneficiary’s needs. The trustee is responsible to make sure that the purpose of the trust is carried out and that the trust is properly managed. For maximum benefits from the trust, the trustee must make sure that money is used only as allowed by applicable laws to ensure valuable government benefits are not reduced or even stopped.
A family member or friend of a special needs beneficiary may not be able to fulfill all of these tasks when needed and may seek the help of a professional trustee.
Choice 2. Professional Trustee
A bank or trust company, or an individual, such as an attorney who is in the business of serving as trustee, is often an ideal choice to manage a special needs trust. A professional trustee with experience will already be familiar with the complicated and contradictory rules governing special needs trusts and will make decisions with these rules in mind. Also, professional trustees have the resources and skill to properly manage the trust funds.
In addition, if the beneficiary of a special needs trust is aware of its existence and mentally capable of interacting with the trustee, this can sometimes make life very difficult for the family member or friend who is serving as trustee. This often happens when the beneficiary is the recipient of a personal injury lawsuit, believing he is entitled to the proceeds. If the beneficiary demands distributions, this can often put a significant strain on the relationship and pit relatives and friends against each other. The use of an independent trustee can avoid inter-familial complications.
While a professional trustee charges fees, by investing carefully and avoiding mistakes around distributions, they call more than pay for themselves. On the other hand, many banks and trust companies have a minimum trust balance required in order to serve as trustee and in those cases where the amount in trust is less than $100,000, a professional trustee may not be appropriate.
Choice 3. Combination
Often a good solution is to have a family member and professional as co-trustees, each bringing his strengths to preserving the trust funds and providing for the beneficiary.
Choice 4. Pooled Disability Trusts
If there is no family member available with the necessary skill and experience, and the amount of assets in a special needs trust is relatively small, the costs of operating the trust may be too high and banks and other financial institutions may not wish to serve as trustees. In these cases, pooling assets from several persons with disabilities can help provide them with the advantages of independent special needs trusts.
There are several pooled trust companies in Massachusetts. For more information on pooled disability trusts, click here.