Who Should Be The Trustee of A Special Needs Trust?

Who Should Be The Trustee of A Special Needs Trust?

special needs trust | Mercer Elder Law

Who Should Be The Trustee of A Special Needs Trust?

A special needs trust is a common planning technique for people trying to preserve assets and also provide for a loved one (often a child) under 65. In addition to the planning and logistical considerations that grantors of such trusts go through, the most common question is who they should choose as a Trustee. Especially given that the trust is irrevocable, the choice of the Trustee and successors deserves a great deal of thought and consideration, because it will affect the way benefits are distributed to the beneficiaries during the life of the Trust. There a couple of common options, those being naming family or close friends, or some sort of professional (most commonly a financial institution). Your attorney can draft a Trust containing either or both as a Trustee, but to help you choose here are some facts about both choices to assist you in the meantime:

Professional trustee:

  • The trustee typically although not always manages investments in-house.
  • If the trustee is a non-profit organization or group, a “pooled” can be established on behalf of its members. This is ideal for small trusts. The idea is to open a sub-account with the trust, which will be recognized separately but pooled together with all the other shares for investment purposes.
  • Even if you end up choosing to go with an individual or private trust, you can still appoint a professional organization as a “co-trustee”. A co-trustee acts as a financial manager, particularly for large trusts.
  • One concern typically is cost, especially for smaller trusts. A financial institution will typically not be cost-effective for a trust under $300,000 to $500,000, and sometimes quite a bit more. Also, if the Trust requires a separate money manager, the annual costs of administering the trust can be substantial (as much as 2%).
  • The other primary concern is that a professional trustee must make special efforts to become familiar with the family dynamics and the beneficiary’s needs so they can make distributions appropriately and satisfy the intent of the grantors of the Trust.

Family member:

  • Naturally, you or another family member would be an obvious choice. You know the family best and know what distributions should be made.
  • Typically the costs of having an individual or family trustee are quite a bit less than a corporate trustee, even if the trustee hires someone to manage the trust funds.
  • There are downsides, though. As a trustee, you or that family member should still have reasonable financial knowledge, not to mention understanding of the requirements for distributions from a Special Needs Trust. It makes sense for a Trustee to retain legal counsel.
  • It is imperative that the Trustee have a stable and/or impartial working relationship with the family and the beneficiary, because any conflict with the Trustee could open all parties to expensive and frustrating litigation.

The decision is an important one and should not be undertaken without a great deal of thought and consideration. You should enlist the help of trusted advisors, including an attorney, to assist you when you need it.

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