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September 18, 2009

Who to Put in Charge of Your Child's Special Needs Trust

If you haven't decided yet who to put in charge of your child's special needs trust, here's some guidance to help you decide.

During your life, you can be in charge of your child's trust. The job is pretty easy because there's usually not much to do. Most special needs trusts don't hold any money until after someone dies - most likely the parents. If there is no money owned by the trust, the trustee doesn't have to do anything. As a parent, you are a trustee in name only.

In some cases, parents will make gifts to their child's special needs trust during the parents' lifetime, but such gifts usually make sense only if the parents' estate is likely to be subject to estate tax. If you need to reduce the size of your estate because of estate tax, there are often better ways of reducing the size of your estate than making so-called annual exclusion gifts to a special needs trust. Annual exclusion gifts to a life insurance trust that pays out to a special needs trust lets your child end up with more money after you die.

If you use a special needs trust to transfer assets out of your estate during life, you won't be able to serve as trustee because the money gifted to the trust is likely to be pulled back into your estate for estate tax purposes when you die.

Here are some options for you to consider when selecting your trustee:

Model 1: A Trustee directed by a Trust Advisory Committee.
The trustee manages funds, makes distributions, does taxes, and keeps records. The Trust Advisory Committee can provide advocacy for your child, keep family members involved, meet as needed with the trustee, and in some cases amend the trust or replace the trustee. This model works well when family members (often siblings) can serve on the Trust Advisory Committee but a professional serves as trustee. Family members are involved but don't have day to day responsibility for managing the trust.

Model 2: A Trustee directed by a Care Manager.
In this scenario, the trustee manages the funds, but a care manager interacts with the beneficiary and advocates on their behalf. A Trust Protector can oversee the Trustee and care manager from a distance and replace either for any reason. If your child has a long time relationship with a caseworker or social worker, it might make sense to have them continue in that role. Meanwhile, a professional can serve as the Trustee to handle financial responsibilities.

Model 3: Co-Trustees.
This model allows family members to serve as co-Trustee. Although their responsibilities are the same, typically one person serves more in the advocacy role and one person serves in the financial role. Co-trustees who are not professionals will need to seek assistance from benefit, tax, and financial advisors.

Model 4: Single Trustee.
Naming a sole Trustee is not preferable, but it can work. If a single non professional serves as trustee, there is a significant lack of accountability; however, success is totally dependent on having the right person in the role. If an adult sibling has taken on the role of advocate before the parents die and has demonstrated a willingness to take on that measure of responsibility, they can serve successfully. Regardless, the sole trustee will need to seek guidance and advice from professionals.

Regardless of which model you choose, the following needs must be met: advocacy, accountability, and financial management. Choosing the right fit for your child depends on your family situation, the nature of your child's disability, and the amount of money in the trust.

In any event, you can hash over these issues with your lawyer so that you make a good decision that works for your family.


© 2009 The Estate Planning Law Group.

Posted at 03:18 PM |

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