Who Should Manage Your Child’s Special Needs Trust?
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by Steve Morris
A good synonym for trustee would be agent or, better yet, super agent. Our law refers to super agents as “Fiduciary.” The trustee is responsible for managing the special needs trusts on behalf of the person with the disability. When a trustee is named, that trustee is given, both by the maker and by operation of law, massive rights, and powers to be exercised on behalf of the trust’s beneficiaries.
Becoming or naming a trustee is serious business for the beneficiary (person with a disability) and the trustee. The quality of the person with the disability’s future is dependent on the integrity and ability of your choice. Conversely, trustees bear significant responsibility for their actions and inactions if they don’t benefit the beneficiary. Traditionally, courts measure trustee actions using the ‘Prudent Man Theory.’ This rule questions whether a similarly prudent person in the same situation would make the same decision. If the answer is no, the trustee faces liability for their actions’ consequences.
It is very wise to appoint a trustee who is not the guardian/advocate of the person with the disability. The trustee should manage the trust and the finances while the guardian/advocate should look after the person’s welfare. In this way, there is a “checks and balances” system whereby these two individuals will work together to look after the person’s best interests.
Some families prefer to choose siblings or relatives to manage the trust, while others prefer a bank or trust company. In either situation, the trustees receive a fee. Many financial institutions may not accept trusts of less than $150,000. There are non-profit Master Trusts run by charities that may allow smaller amounts.
Personal Trustee Options: Pros and Cons
You may wish to consider the following when selecting trustees.
Family Members
| Pros | Cons |
|---|
| Family knowledge (personal, investment, business) | Indecisive and insecure |
| Empathetic, loving | No track record or experience |
| Bright | Too emotionally involved |
| Good common sense | Unskilled at business |
| Personally involved | Conflicts of interest |
| | Lack of accountability |
Friend or Business Associate
| Pros | Cons |
|---|
| Family knowledge (personal, investment, business) | Human (may embezzle, speculate poorly, die) |
| Empathy | Not enough time, burden |
| Good business person | May play favorites |
| Good common sense | |
| Tough, honest, hardworking | |
Professional Advisers (Attorney, CPA, Investment Adviser)
| Pros | Cons |
|---|
| Family knowledge (personal, investment, business) | Human (may embezzle, speculate, be too conservative, die) |
| Tough, honest, hardworking | Not enough time |
| Trained professional | Lack of accountability |
| | Conflicts of interest |
The Institutional Trustee
| Pros | Cons |
|---|
| Professional | Dispassionate |
| Experienced | Ignorant of family affairs |
| Established track record | Poor investment performance |
| Accountable | High turnover among staff |
| Will always be there | Hard to reach |
| Not emotionally involved | Too conservative |
| Objective | Slow to act |
Please list in priority order your proposed Successor Trustees. We realize most of your successors will be human beings subject to death, so unless the first Successor Trustee is a financial institution, please list one as your last choice.
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- ___________________(Financial Institution)
Caveats and Disclaimers
The information provided here is not intended to be exhaustive on the subject of special needs planning. Entire books have been written on this subject, so the objective here is more limited in scope. Our goal is to offer enough information for parents to grasp key issues. This knowledge guides them in forming a Comprehensive Life Plan for their child. When discussing legal aspects like special needs trusts, wills, and guardianship, remember this isn’t specific legal advice. Thus, we strongly recommend each family seek proper legal advice. This step is vital when implementing a Comprehensive Life Plan for their child with special needs.