Who Should Manage Your Child’s Special Needs Trust?
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 both the beneficiary (person with the disability) and the trustee. The quality of the person with the disability’s future is dependent on the integrity and ability of your choice. On the other hand, the trustee is super-liable for their actions and failures to take action when they are not beneficial to the beneficiary. For a long time, trustees’ actions have been measured by what the courts have referred to as the “Prudent Man Theory.” This rule asks the question, “Would a similar, reasonably prudent person acting in the same capacity, in the same or similar circumstances, have made the same judgment?” If the answer is no, the trustee will be held liable for the consequences of their actions.
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 welfare of the person. In this way, there is a “checks and balances” system whereby these two individuals will work together to look after the best interests of the person.
Some families prefer to choose siblings or relatives to manage the trust while others prefer a bank or trust company to do so. In either situation, the trustees receive a fee. Many financial institutions may not accept trusts 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. It is our intention to provide sufficient information so that parents have a general understanding of the main issues involved and then know what steps need to be taken to achieve their goals for their child by creating a Comprehensive Life Plan. Where legal terms and devices are discussed such as special needs trusts, wills, guardianship, etc., it should be understood that this is not intended as specific legal advice, and accordingly, each family is always advised to obtain appropriate legal counsel when implementing these elements of a Comprehensive Life Plan for their child with special needs.