Serving as trustee for a special needs trust demands time and skill. Time to work with professionals who provide counsel, and time to make critical decisions that could impact a beneficiary’s quality of life and financial security.
So what’s involved and who should you choose as trustee?
First, it’s important to understand the 3 parties to a Special Needs Trust (SNT):
- Settlor/Grantor: the person who establishes an SNT
- Trustee: the person who determines what distributions can be made from the trust and is responsible for the overall management of the trust, which could include managing investments or working with a financial planner to manage investments
- Beneficiary: the person with disabilities for whose benefit the SNT is established
The role of the trustee
The trustee’s job is critical. He or she will be responsible for ensuring that the beneficiary retains government benefits and that the funds in the trust are only used to supplement those benefits. Under no circumstances can the beneficiary be a trustee as this would allow the assets to be considered available for purposes of government benefits.
A trustee must understand:
- The personal needs of the person with disabilities
- The wishes of the settler/grantor
- The various income and asset rules for government benefits programs.
A beneficiary can never compel nor control distributions. The trustee typically has sole, discretion regarding any distribution from the trust to the primary beneficiary. However, the assets in certain types of SNTs must be used only for the sole benefit of the beneficiary, primarily to supplement services not otherwise provided for.
The assets are not to be used for items which are fully covered by benefits. For example, Medicaid, Medicare or private insurance may cover prescription drugs; therefore the trustee should not use SNT assets for this purpose.
On the other hand, if a beneficiary wants to take a vacation, and, assuming the trust assets can financially support the trip, the SNT could pay for the cost of the trip. If the beneficiary needs a care-taker to accompany him on the trip, the SNT could also pay for travel expenses for the care-giver. For a list of permissible distributions, click here.
Who may serve as Trustee?
Anyone, other than the beneficiary, can serve as trustee. However, it must be someone who is willing to accept responsibility for managing funds and making distributions to beneficiaries.
If you are thinking about using a bank trust department for trust administration, it is important to know that they are not familiar with public benefit programs which mean that maintaining eligibility for these programs may inadvertently be diminished or lost if improper distributions are made from the trust. As a result, many banks are not willing to handle administration of Special Needs Trusts.
On the other hand, attorneys or non-profit trustees focusing on Special Needs Trust administration may be a wiser choice due to their in-depth knowledge of public benefit programs and the laws and public policies affecting special needs trusts.
If you end up deciding to give this responsibility to a family member or friend, contact us to ensure you are properly advised and guided on this important role.