Should a Parent Serve as Trustee of a Special Needs Trust?

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.

Trustee

Don’t Confuse the Roles of Care Managers and Trustees of Special Needs Trusts

Trustees of special needs trusts wear many hats. They act as investment manager, bookkeeper, distribution manager, benefits advocate, and financial planner. Often trustees are in constant communication with the beneficiary and/or the beneficiary’s caregivers regarding many aspects of the beneficiary’s life. The trustee is responsible for approving distributions for major expenditures like the purchase of a vehicle, or even of a home.

Trustees of Special Needs Trusts are Responsible for Financial Decision-making

The trustee’s level of involvement can be confusing for beneficiaries and their families. Control over finances may create the impression that the trustee has decision-making power over all aspects of a beneficiary’s life. If a trustee can approve or reject the proposed purchase price of a home for the beneficiary, can’t they also decide where the beneficiary lives? In general, the answer is no.

The trustee is responsible for approving distributions from the trust for the beneficiary. However, the trustee’s duties do not generally extend to day-to-day decisions about the beneficiary’s care. These decisions are typically made by the beneficiary, a close family member, or a guardian who is acting as the care manager.  The trustee should work together with the beneficiary and/or caregivers to make sure the beneficiary’s financial needs are met.

Serving Dual Roles

Often, parents or close family members will be named as trustees of a special needs trust. In that circumstance, the family member will be acting as care manager when making decisions regarding the beneficiary’s care. When a family member is serving this dual role, it is even more crucial to plan ahead.  Eventually that person may no longer be able to manage the trust or the beneficiary’s day-t0-day care. Advanced planning can prevent a gap in care.

If you have questions about the trustee’s role, or how to ensure that your loved one will be cared for even when his or her current caregivers are no longer able, send us a message.

 

Revised and published with permission from the American Society of Special Needs Planners.

Trustees of Special Needs Trusts

Making Distributions from a Special Needs Trust Without Disrupting SSI

When serving as the trustee of a special needs trust, it is crucial to be careful when making distributions for the benefit of the trust beneficiary. This is particularly true if the beneficiary receives Supplemental Security Income (SSI). Distributions from a special needs trust could potentially violate Social Security’s rules regarding unearned income for SSI recipients.

If a distribution runs afoul of these rules, the Social Security Administration will treat the distribution as unearned income on behalf of the beneficiary and reduce the beneficiary’s income dollar-for-dollar after the first $20 of the distribution.

When are distributions from a special needs trust deemed income?

SSI rules consider distributions from a special needs trust to be unearned income when a trustee reimburses the beneficiary for a purchase the beneficiary made. If the beneficiary has unearned income, their SSI for that month will be reduced by the amount of the reimbursement.

What distributions can a trustee make without affecting SSI?

However, there are ways to make purchases for beneficiaries that will not negatively affect the beneficiary’s SSI benefits. Here are five examples of appropriate disbursements.

1) The trustee can distribute the requested goods or services directly to the beneficiary in person.

For example: the beneficiary finds a computer that they like at a store and gives the trustee the information. The trustee could then go to the store, buy the computer using trust funds and deliver it directly to the beneficiary. This allows for the beneficiary to receive the goods quickly. It may, however, only be practical if the beneficiary and the trustee are close to one other. Plus if the trust has a professional trustee, his time spent buying and delivering goods costs money.

2) The trustee can also purchase services or goods with trust funds and have the goods or services delivered directly to the beneficiary.

One common example is purchasing furniture or appliances online and have the items shipped to the beneficiary’s residence. This can be a very efficient way to handle a beneficiary’s request for an item. It may not be practical, however, if the product is something that the beneficiary needs to try on, such as clothing.

3) The trustee can also reimburse a third party who pays for a service.

For example, a relative might pay for a beneficiary to attend a sporting event and the trustee could reimburse the relative for the cost of the beneficiary’s ticket. It is important to remember that the trustee cannot reimburse the beneficiary, only the third party who purchased the item. In such cases involving reimbursing a third party, it is important to have documentation of the cost of the service and the date on which it was provided.

4) The trustee can purchase gift cards or gift certificates for the beneficiary.

However, trustees should exercise care because gift cards and gift certificates must meet certain legal requirements. For a more in-depth analysis of the problems with purchasing gift cards for a beneficiary, click here.

5) The trustee can pay a beneficiary’s credit card bills.

For an article on this option, click here. For more on being the trustee of the special needs trust, click here.

Revised and published with permission from the American Society of Special Needs Planners.

Distributions from a special needs trust

Louisiana Case: SNT Beneficiary Bound by Trustee’s Arbitration Agreement

La!  How exciting to see a Louisiana case make the Special Needs Planning news.  No new ground is broken here, however, as this case was over whether the beneficiary must abide by the arbitration agreement signed by his trustee when a bank account was opened up for the trust. 

The full background is not available in the court’s decision, but it would appear that the trustee mismanaged the funds and the beneficiary is attempting to hold the bank responsible in court.  That is probably the beneficiary’s best hope of actually getting any of the bungled trust’s money back.  Nonetheless, even though the trustee failed in his duties to protect the beneficiary’s interest in the trust, he was legally authorized to enter into agreements like the one in dispute here, where he agreed on behalf of the trust to use private arbitration to settle any disputes with the bank over the trust, rather than suing them in court.  The take-away for observers of special needs planning is this: be careful who you choose for your trustee!

So here’s the story:

A Louisiana appeals court rules that a beneficiary of a special needs trust who is suing the trust’s bank and financial advisor for breach of contract is bound by arbitration clauses signed by the trustee when he opened the trust accounts.  Green v. Regions Bank (La. Ct. App., No. 2013 CA 0771, March 19, 2014)(unpublished).

Erica Green was seriously injured in a car crash in 1998, when she was still a minor.  Ms. Green’s $443,240.38 personal injury settlement was deposited into a special needs trust that named her father, Eric Green, as trustee.  In 2006, Mr. Green opened a bank account in his name at AmSouth (later Regions) Bank and deposited an unknown amount of trust funds into the account.  Mr. Green also deposited $300,000 of trust funds into an investment account in the name of the trust with Morgan Keegan, a financial advisor.  Mr. Green signed customer relationship agreements with both entities containing binding arbitration provisions at the time that he set up the original accounts. When Mr. Green passed away in 2008, the trust funds had been almost completely exhausted.  (The opinion does not say what the funds were used for.)  In 2009, the new trustee of the trust filed suit against Regions Bank and Morgan Keegan, claiming that they were liable for breach of contract, negligence, breach of a duty of reasonable care and negligent misrepresentation.  The trial court dismissed the case, claiming that the new trustee was bound by the arbitration agreements signed by Mr. Green.  In 2012, Ms. Green, now an adult and acting as a beneficiary of the trust, filed a similar lawsuit against both entities.  Regions Bank and Morgan Keegan both filed motions to dismiss based on the arbitration clauses, but Ms. Green argued that the clauses did not apply to her because she was a trust beneficiary and not the trustee.  The trial court granted the motions to dismiss and Ms. Green appealed. The Louisiana Court of Appeal, First Circuit, upholds the trial court’s decision.  The court finds that “[t]o the extent Ms. Green’s claims are based on breach of the agreements Mr. Green had with Regions Bank and Morgan Keegan, she cannot hold these parties to certain terms of the agreements but not to others.  If a non-signatory seeks to enforce the terms of a written agreement containing an arbitration provision, he must accept all of the terms of the agreement, including the arbitration provision. . . The non-signatory cannot have it both ways; he cannot rely on the agreement when it works to his advantage and then repudiate the agreement when it works to his disadvantage.”   To read the full text of this decision, go to: http://www.la-fcca.org/opiniongrid/opinionpdf/2013%20CA%200771%20Decision%20Appeal.pdf

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New York Decision Lays Out, in Plain Terms, What It Takes to Be a Successful SNT Trustee

One of the big decisions families face when establishing a special needs trust is who will act as trustee.  The trustee not only decides how money in the trust can be used, he or she is also responsible for the administration of the trust –  planning investments, preparing tax returns, and complying with Medicaid regulations among other complex tasks.  A professional or corporate trustee is often the best prepared to deal with these responsibilities, but will they also know what expenditures are in the trustee’s best interests?

In this case, a New York Surrogate’s Court decision reviewing guardian and trustee accounts for a young man with disabilities is remarkable not for its legal implications, but for the detailed analysis of how an engaged trustee and caregiver can have a huge impact on the life of the trust beneficiary. In the Matter of the Accounting by JP Morgan Chase Bank, N.A. v. Marie H. (N.Y. Surr.Ct.,No. 2005-1307, Dec. 31, 2012). 

The beneficiary in this case is Mark C.H., a young man with autism.  Mark was placed in a center for people with autism shortly before his mother passed away, leaving a significant trust fund for his benefit. In a guardianship action undertaken after the mothers death, the proposed guardian (the lawyer who drafted, and served as co-trustee of, Mark’s special needs trust) testified that for two years none of the trust’s income or principal had been spent on Mark’s care and that no one had met with the staff at the center regarding Mark’s care. After facilitating several meetings between the trustees and the center’s staff, and making sure that appropriate caregivers were hired, the court approved the guardianship.

Several years later, Mark’s guardian and the trustees of his trust filed accountings with the New York Surrogate’s Court. Although there are still ongoing accounting problems, the court has found that the hiring of a care manager and greater trustee involvement in Mark’s life “has improved the beneficiary’s quality of life and his functional capacity to enjoy what is now a near ‘normal’ existence in the community.”

In a must-read opinion for anyone serving as the trustee of a special needs trust, the court outlines, in great detail, the steps that have been taken to make Mark’s life better, including the purchase of special equipment to help him communicate, coordination with Mark’s brother so that the two could meet for the first time since Mark moved out of his mother’s home, and facilitation of Mark’s move into a community setting.

The court explains that “once the Trustees were required to make themselves knowledgeable about Mark’s condition and his needs, and the availability of services that would enable them to provide for those needs, they began, and continue to use funds from his trust for the purposes his deceased mother anticipated and so deeply desired. The history brings into sharp focus the obligations of trustees, both individual and institutional, to the beneficiaries of trusts they administer when they know, or should know, that those beneficiaries have disabilities, and have medical, educational or quality of life needs that can and should be met from trust income.”

For the full text of this decision, click here.

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