19 Nov Special Needs Trust Trustee Roles
Special needs trusts are often established for the benefit of individuals who are disabled since the assets held in the trust are not countable (if properly drafted) for means-tested Medicaid and Supplemental Security Income programs (which often include drugs and care costs). The goal is to provide a higher quality of life for disabled individuals. Since maintaining public benefits is so valuable for the disabled beneficiary, it is important for the trustee to understand the duties of the trustee, which include the following:
- Fiduciary Obligation
It is not unusual for family members to try to influence the decisions of a trustee. However, the trustee has a fiduciary duty to do what is in the best interest of the beneficiary. Acting otherwise could expose the trustee to liability. Sometimes, a family member is chosen as a trustee. However, if the family member is a remainder beneficiary (which could not be the case if the beneficiary’s funds were used to fund the trust), then there could be a conflict of interest since the trustee may be inclined to spend less on the needs of the beneficiary with the hope of more personal gain after the beneficiary’s death. The trustee also has the duty to make sure that the trust distributions are made for items not covered by government benefits so that eligibility is not lost. The beneficiary’s circumstances should be considered.
- Distributions
Trust distributions usually should not go to expenses that Medicaid or Supplemental Security Income covers (shelter only as of 9/30/24) so that such valuable governmental benefits are not lost. The funds held in the trust should be used for the benefit of the beneficiary and not be paid to someone else. Typically, the trustee purchases something needed by the beneficiary but generally does not distribute income to the beneficiary since this could lead to a reduction or elimination of benefits. Funds could benefit another person if for the primary support of the beneficiary. For example, if someone else is required to care for the disabled person on a vacation, then the trust could cover that cost.
- Tax Returns
The trustee has a duty to file tax returns for the trust in connection with income earned by the trust. An understanding on taxation of distributions should also be considered. The trustee is likely to need the assistance of a tax professional, although the trustee should have some level of understanding of these taxation issues.
- Investing
The trustee also has a duty to invest the assets held in the trust. The immediate needs of the beneficiary should be considered as well as the beneficiary’s life expectancy. So, for example, if the beneficiary, who has a long life expectancy, wants a trip around the world and there are limited funds in the trust, then the trustee should deny the request and invest the funds so that the funds can be used for the benefit of the beneficiary throughout his or her life.
- Discuss actions with beneficiary
In the example outlined in 4 above, it would be advisable for the trustee to let the beneficiary (or the family) know why it was not advisable to use most of the trust funds for the worldwide trip. Failure to communicate often leads to mistrust and litigation. The trustee should know of any change in the health of the beneficiary. Discussions of why certain distributions should not be made (i.e., loss of potential government benefits) should be discussed since often the beneficiary thinks, “Why aren’t you giving me my money?”
- Maintenance of records
Transaction records should be kept not only for tax records (investments, income, distributions) but also for possible review by the government to confirm compliance with the Medicaid rules. Also, the beneficiary could demand an accounting.
The value of being a special needs trustee often requires assistance from professionals, as the quality of life of the disabled beneficiary is paramount.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.