Choosing a Trustee for Your Special Needs Trust: Why a Professional is Key
Navigating the Complex Responsibilities of a Special Needs Trust: A Case for Professional Trustees
Often my clients will tell me they plan to have one of their children or a sibling serve as Trustee for their child with disabilities. I have a bias against using family or friends as a Trustee. In my opinion, this creates too much risk. This article is written from the perspective of why you should use a professional.
I understand it can be expensive to hire a professional Trustee. However, cost isn’t the only thing to consider. I feel you should also be thinking about everything a Trustee is responsible for. Remember, Special Needs Trusts are unique in that they do NOT count as assets when applying for means-tested benefits like Supplemental Security Income (SSI) and/or Medicaid. If something gets screwed up a person could lose their benefits.
The following is a layperson’s understanding of what a Trustee is responsible for. I encourage you to have your attorney clearly define what a Trustee’s duties are in your state when you have them create your Special Needs Trust. I’ve already admitted my bias towards using a professional Trustee, and now I’m going to suggest if price is an issue look into a Pooled Trust.
Responsibilities:
Fiduciary: When you have a fiduciary duty, you are required to put someone else’s interests ahead of your own. In this particular instance, you must make sure you are acting in the Trust’s best interests at all times. One example of when I’ve seen this go wrong is a Trustee with a high-risk tolerance investing the Trust’s assets aggressively. The intention of the Trust when created was to preserve the assets. The Trustee was acting in their interests, taking risks they were comfortable with. An aggressive investment strategy where you have an increased risk of losing money did not align with this intent.
Some family members don’t have very much experience with investments. A financial literacy poll commissioned by Ipsos in 2022 found that 1 in 3 Americans are not financially literate. Incredibly, approximately 25% of those who consider themselves financially literate turned out not to be. This scares me because the money in the Special Needs Trust is meant to last the beneficiary’s lifetime, which could be more than 50 years. The last thing I would want is to have it lost due to investments that were too aggressive.
In my experience, corporate Trustees (including Pooled Trusts) tend to err on the side of caution by investing more conservatively. You could (I would argue you should) create an Investment Policy Statement for the Trust. This will spell out how you want the funds invested when you’re not around. It doesn’t guarantee the Trustee will follow your directions, but it makes for a stronger case against them if they don’t. It’s also not a guarantee the Trust won’t lose money, all investments carry risk. If you only put money into a savings account you run the risk of losing spending power because of inflation.
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