Choosing a Trustee for a Special Needs Trust

When you create a special needs trust for a loved one, you will probably name yourself as trustee to manage trust while you're alive But who will take over the trust when you're no longer around to make sure that things go right?

Picking reliable people to manage the trust is crucial because trusts operate pretty much on the honor system. It's true that the law imposes a duty on trustees to honestly and faithfully carry out the trust's terms, but in most cases there's no court supervision.

Ideal Qualities for a Trustee

The job of trustee requires a unique balance of care for the beneficiary, fiscal responsibility, ability to understand Supplemental Security Income ("SSI") and Medicaid laws, and more.

Willingness to Serve

Every trustee and successor trustee you name must be willing to serve, so talk to all potential trustees in advance. Clearly explain under what conditions they would serve and what their duties would be. Before you name your trustees in the trust, make sure they accept the role you assign to them. Otherwise, when it comes time for them to serve, they might decline.

You might consider giving them a letter describing their duties, as discussed in The Trustee's Job.

No Conflicts of Interest

A special needs trust must be managed for the benefit of the beneficiary. This means that trustees must not act in their own interests—or the interests of others—when making investment or spending decisions.

In real life, however, it's not uncommon to name the same person as both successor trustee and remainder beneficiary, named to get the "leftover" trust property when the trust ends. This creates a conflict of interest because every dollar spent on the beneficiary is a dollar that the remainder beneficiary won't receive.

However, an honest and honorable trustee will make decisions based solely on the beneficiary's needs. And if you don't expect the remainder beneficiary to inherit anything—for example, if the trust funds just won't last that long—this might not be a big issue for you.

Familiarity and Empathy with the Beneficiary

For special needs trust to function smoothly, the person serving as trustee should have a good working knowledge of the beneficiary's needs. This relationship requires communication that's most likely to exist if the trustee has—or is able to develop—a close personal relationship with the beneficiary.

A good relationship makes it easier negotiate requests that the trustee might be reluctant to grant because they threaten to deplete trust assets. Also, the more familiar a trustee is with a beneficiary, the less likely it is that the trustee's decisions will be based on bias or misconceptions about people with disabilities that are, unhappily, all too common.

To facilitate understanding between the trustee and the beneficiary, you might consider giving the trustee a letter describing the beneficiary's needs, as we discuss in The Trustee's Job.

Closeness in Age to the Beneficiary

When you're choosing a trustee, you should do your best to find a trustee who will be around as long as the beneficiary needs the trust. This means you need to think about both the trustee's life expectancy, and the life expectancy of the person with special needs.

If you your ideal trustee isn't the right age, in the trust document, you can give the trustee the ability to appoint a successor. Or, you could empower a trust protector to name a successor. (See below.)

Willingness to Get Help with Government Rules

Each trustee you name will need to become familiar with the rules that determine eligibility for SSI and Medicaid—and how the special needs trust can be used to supplement the beneficiary's needs without violating these rules.

Some of the basic rules can be understood fairly easily. However, unless the trustee already has some experience with the rules of the public benefits programs, it might be best to get help from a professional—either a special needs planning lawyer or a nonlawyer with an expertise in public benefits counseling—at least until the trustee understands the rules. Learn more about How Special Needs Trust Funds Can Be Used.

Financial Knowledge and Competence

Using trust money to provide for the special needs of a beneficiary is usually the fun part of being a trustee. Not so much fun is the business side of trust management: making reports, keeping records, filing tax returns, and making appropriate investment decisions.

If you're not sure whether the trustee you have in mind is up to the task, you could name cotrustees or a trust advisor. (See the sections below.) Also keep in mind that a trustee who doesn't have the financial knowledge required to manage the trust can always get help from financial planners, tax professionals, and lawyers.

Naming Cotrustees

You might consider naming cotrustees if:

• you want a couple to serve together
• you want to pair one trustee who knows the beneficiary well with another who has stronger financial skills, or
• you want two or more people to share the burden of managing the trust.

But if you go this route, keep in mind that naming cotrustees creates additional questions and concerns. Will the cotrustees cooperate? Should each be able to act for the trust alone, or must all agree to every action?

Naming a Professional or Corporate Trustee

If you don't want to put the special needs trust funds into the hands of a family member or friend, and a pooled trust doesn't seems like the right choice either, you have another option: You can hire an expert—a professional or corporate trustee.

A professional trustee is an individual who administers the trust for a professional fee. Corporate trustees are financial institutions such as banks, savings and loan institutions, and some brokerage houses that will administer a trust for a fee. (Many corporate trustees will assume responsibility only for very large trusts—for example, trusts worth more than $250,000, or even $1,000,000.)

Using a Trust Protector

In addition to naming trustees, some special needs trusts name people to serve as "trust protectors" or "advisors" to the trustee on various issues, such as investment strategies or compliance with SSI and Medicaid rules. These advisors have no legal authority over the trust, but the trustee is asked to consult them in certain matters.

More About Special Needs Trusts

To learn more about special needs trust, go to the Special Needs Trusts section of Nolo.com.

This article was excerpted from Special Needs Trusts, by Steven Elias and Kevin Urbatsch (Nolo) which provides detailed information about a trustee's job and how to choose the right trustee for your special needs trust. The book also provides all of the information and forms you need to create your own special needs trust.