It is common for a parent to want to be trustee of a special needs trust benefitting her child, especially when the parent is the one creating or funding the trust. There are many reasons why this makes sense. It positions the parent to have complete control over trust distributions. It is also unusual for anyone else to match the loyalty and dedication of a parent. The parent is often the person most familiar with the child’s specific needs that the trust must fulfill. Another advantage is that the parent will usually work without compensation.
Challenges of the Parent Trustee
Despite all this, a parent serving as trustee can also face difficulty navigating the trust laws and public benefits regulations that affect a special needs trust. The laws governing trusts vary from state to state, and public benefits rules can also vary in different parts of the country. The federal regulations are complex, highly technical, and subject to change. Even tax laws can cause headaches.
Alternative 1: Corporate Trustee
One alternative is a corporate trustee, which brings objectivity and knowledge in areas such as investments, accounting, tax and trust laws, and public benefits. Corporate trustees have specialized training and are required to review the trust documents on a regular basis. They also usually have systems in place to keep current with changes in the law and disability benefits rules. However, it is not unusual for a parent to feel uncomfortable giving responsibility for their child’s trust over to an impersonal professional trustee.
Alternative 2: Co-Trustees
One solution is for the parent and professional trustee to serve together as co-trustees. The parent knows the needs of the child, while the professional trustee has expertise in financial matters and law. This is especially a good combination for a trust of substantial size.
Alternative 3: Trust Protectors
Perhaps an even better alternative is to consider the use of a trust protector to oversee the corporate trustee. A trust protector is an independent third party whose role is to “look over the shoulder” of the trustee. The trust protector’s job is to ensure that the trust is operating the way the grantor intended. The trust agreement typically details the trust protector’s responsibilities and areas of authority.
It is even possible to use a corporate trustee while naming the parent as trust protector. This arrangement allows the parent to oversee the trust, while the corporate trustee manages technical and legal trust issues.
A parent who wants to be involved in the operation of a special needs trust is commendable. But deciding whom to name as trustee, co-trustee or trust protector should involve a careful consideration. Often the combination of parent and professional trustee forms the best team to oversee a special needs trust.
Revised and published with permission from the American Society of Special Needs Planners.