“Special Needs Trust” Needs Special Trustee
By Charles Amen
When children face a lifetime of significant medical expense, parents often turn to a “special needs trust.” The beneficiary is usually eligible for Medicaid benefits, or soon will be. The goal of a special needs trust is to provide a source of money to benefit a child without jeopardizing this eligibility.
Typical language provides that no payments can be made for the child’s support (such as food, clothing or shelter). Also, payments to benefit the child are completely controlled by the trustee. Because of this, naming a trustee becomes a very important choice.
The duties of a trustee may be divided into management and distribution responsibilities. Management duties consist of investing the trust assets, performing accountings, filing tax-related documents, collecting income, and paying expenses. Distribution duties include determining payments for the current beneficiary, and distributing property to the ultimate beneficiaries when the trust terminates. The special needs trustee enjoys total discretion over these distributions.
The options available when choosing a trustee are corporate or individual trustees. Many banks have trust departments that are very skilled in the management duties of a trustee. However, the creator of the trust must make sure that the bank employees have experience in the management issues specific to a special needs trust.
As to individual trustees, few will have the management skills necessary. While this favors choosing a professional trustee, the cost will be higher. On the other hand, distribution duties are frequently seen as requiring a more “human dimension,” in that the happiness and welfare of the special needs beneficiary is ultimately at stake. There are circumstances in which a corporate trustee can be engaged to perform the management functions while family members are used to control the distribution. It is a more expensive choice, but may be well worth it.
Still, choosing family members as distribution trustees, or as both management and distribution trustees, requires considerable thought. There may be conflicts of interest between a sibling trustee and the special needs beneficiary. For example, what if the trust property passes to the children of the trustee when the special needs beneficiary dies? Each dollar withheld from the beneficiary will pass to these children.
To help avoid temptation, co-trustees can be employed to limit any one trustee’s breach of duty. It might also help to employ an accounting firm to analyze the trust’s income and expenditures to ensure proper management. At times, the law firm preparing the trust document will perform an annual or bi-annual review of the trust’s activities. Of course, there must be a limit on the trustee’s ability to remove the accounting or law firm.
In the end, the creator of a special needs trust must consider both the financial and human dimensions of such a trust—as well as the management acumen, integrity and empathy of the trustee.
Mr. Charles Amen is a member of the American Academy of Estate Planning Attorneys and has been engaged in the practice of law for the last 20 years. For more information or to attend an upcoming seminar, call Purcell & Amen, L.L.C. at 314-966-8077.