Let’s say you set up a special needs trust for Joey, your disabled grandson. You’ll need a trustee to make distributions, file tax returns, and carry out all the other duties that go along with administering a trust.
Who will you name to do all that?
Some people name a reliable family member to serve as trustee. In a later blog post I’ll explore why you might want to do that in some circumstances.
But usually, the best solution is to use a professional administrator – an organization that administers special needs trusts on a regular basis. Good choices include a trust company, the trust department of a bank, or a non-profit agency dedicated to handling special needs trust administration.
Here are the main advantages:
1. Professionalism. The best reason for using a professional organization is that it is, well, professional. The people working there know the guidelines well and they have experience making decisions about how to apply them.
If you appoint Joey’s father as his trustee, would Dad know the in-kind support and maintenance rules well enough to know how paying the rent affects Supplemental Security Income (SSI) payments? Probably not, but a well-versed trust officer could weigh the options and decide on the best course of action in any given situation.
Given the complexity of trust administration and the consequences of doing something wrong (loss of health benefits, for example), it’s often best to leave it to the pros.
2. Family relations. Leaving it to someone who knows when and how to make proper distributions, file a Form 1041 tax return, and prepare an accounting takes a heavy load of responsibility off the family.
Family relations may be better if a family member isn’t making the decisions about what the trust will pay for. Joey may resent his father, or worse, his sister making those judgments for him, and Sis may not be too thrilled about it either. If the bank handles those issues, Sis can have a simpler relationship with Joey.
3. Objectivity. An independent trustee tends to make decisions based on an objective view of the beneficiary’s needs and the purpose of the trust, unclouded by personal issues.
It’s also more likely for a family member to have a conflict of interest. For example, if Joey’s trust leaves the remainder of the trust to his brother and sister when he dies, his brother or sister would not make good choices to serve as trustee. They may be honest, but a conflict always exists between funds paid for Joey’s benefit and funds left over for his siblings.
4. Continuity. Family members have a way of dying, moving away, or becoming incapacitated over time. A professional entity tends to last longer. If one trust officer leaves, the organization simply appoints another one to handle the file. The trust can go on for years and you don’t have to worry about naming a long line of family members as successor trustees.