It is quite common for a parent to want to serve as the trustee of a special needs trust for their child, especially when the parent is the one creating or funding the trust. There are many reasons why this makes sense:
• It enables the parent to have complete control over trust distributions.
• It is highly unlikely that anyone else is as loyal and dedicated to the best interests of the child.
• Parents are most familiar with the unique and specific needs of their child.
• Parents will usually work without being compensated.
However, there is one big drawback that parents need to be aware of if they want to serve as trustee for their child’s special needs trust – the trustee is also responsible for the daunting task of keeping up with trust laws and public benefits regulations. These laws and regulations affect the administration of a special needs trust, so it’s important that a trustee understand these complex rules and regulations which vary from state to state. The laws and regulations can be highly complex and technical, and they are subject to change on a fairly regular basis.
The Benefits and Drawbacks of a Corporate Trustee
The alternative for most families is a corporate trustee, which brings objectivity and knowledge in areas such as investments; accounting; tax and trust laws; and public benefits. Most parents lack knowledge in these areas, but corporate trustees are trained to review trust documents under their administration on a regular basis. They should also have systems in place to keep current with changes in trust and tax law, as well as changes in public benefit program rules. While it can be good to work with a professional who has so much specialized knowledge, many parents feel uncomfortable ceding so much responsibility connected to their child’s welfare to an impersonal professional trustee.
So, What’s a Better Alternative? Two Possibilities
One solution is for the parent and professional trustee to serve together as co-trustees. The parent has a clear understanding of the family’s objectives and the needs of their child with a disability, while the professional trustee usually has expertise in financial matters and public benefits law. This is often a good combination for a trust of substantial size. In trusts involving smaller sums of money, the combination of a parent and a nonprofit organization as co-trustees might make more sense.
An even better alternative is to consider the use of a trust protector to oversee the corporate trustee. A trust protector is an independent third party, either an individual or an institution, whose role is to “look over the shoulder” of the trustee to ensure that the trust is properly serving the purpose for which it was intended. The special needs trust will need to include provisions to have a trust protector appointed for the trust.
The trust agreement typically details the trust protector’s responsibilities and areas of authority. One power often given to a trust protector allows the parent to have formal authority in the oversight of the trust. The corporate trustee, who is more knowledgeable on the technical and legal trust issues, can then serve with the benefit of a parent’s insight into the particular needs of the child with disabilities.
A parent who wants to be involved in the operation of a special needs trust benefitting his or her child is commendable and should be encouraged. But deciding who to name as trustee, co-trustee, or trust protector should involve careful review of the skills and knowledge the parent has, and perhaps more importantly, the skills and knowledge the parent lacks. It is often the combination of a parent and a professional trustee in these roles that form the best team to provide the most versatile and effective support for a child with special needs.
As with any big decision that involves specialized knowledge, it is best to consult with your attorney or special needs planner to talk through the best option for your family’s unique situation. These are common issues for us at The Bell Law Firm, and we are more than happy to speak with you about this or any of your special needs planning issues at 913-345-2323.