Who should be trustee of a special needs trust?
Clients and other attorneys regularly ask me who can be the trustee of a Special Needs Trust. The quick answer is that it cannot be the person with a disability (i.e., the beneficiary) or their spouse. The law effectively prohibits it. If we were to make the beneficiary or their spouse trustee, the funds held in trust would be considered a "resource" of the beneficiary under the Medi-Cal and Supplemental Security Income (SSI) rules. That means the beneficiary would lose those critical benefits, defeating one of the primary purposes of the Special Needs Trust.
Fortunately, there are always other options for trustee, including a licensed professional fiduciary, a bank, or a qualified family member.
Regardless of who is selected, the trustee must have some essential characteristics. My colleague in the Academy of Special Needs Planners, Linda S. Durston, Ph.D., J.D., recently summed up these qualifications nicely:
Every trustee should have common sense and good business sense; be honest; be organized; know when to ask for the assistance of a certified financial planner (CFP), a certified public accountant (CPA) or an attorney; be physically and mentally capable of dealing with the legal, tax, investment, accounting and interpersonal issues that arise in the course of administration, and have time to handle those tasks. A special needs trustee will also need to understand the beneficiary's special needs, government benefit programs and the effects of distributions on public benefits eligibility.
There are some circumstances where a trustee must have additional qualifications. For example, here in Sacramento County (as well as in many other counties in California), we often must establish a Special Needs Trust by petitioning the Probate Court. This typically happens after a litigation recovery by an incapacitated or a minor plaintiff, or after an inheritance by someone whose parents failed to incorporate special needs planning with their will or living trust. In those instances, whoever serves as trustee must be bonded (i.e., for the amount held in trust, plus interest, plus the costs of recovering on the bond). The trustee must also be prepared to account and report regularly to the court for all activities and expenditures on behalf of the trust. These bonding/reporting requirements can be onerous, and not everyone has the personal credit rating or the experience to do what's necessary to satisfy the court.
So who is the best trustee of a Special Needs Trust? If the trust is "court-established," we'll almost always have a professional trustee regardless of the dollar amount involved. But when the trust can be established by someone other than a court, we sometimes consider a qualified family member. This is especially true in smaller cases (i.e., those cases where the amount in trust is less than $100,000) or when it's a parent trustee.
Persons with disabilities should know that they will still fully benefit from their trust funds even though they cannot serve as trustee and may not have a qualified family member to help. Professional trustees are used to hearing from beneficiaries. Plus, by investing carefully, a professional trustee may more than pay for themselves.
This article is courtesy of Special Needs Attorney Brian D. Wyatt in Sacramento, CA