Choosing a Trustee for a Special Needs Trust

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By Nate Schnackenberg

When searching for a Trustee to administer a Special Needs Trust (SNT), there are many options and nuances to consider. Some prefer a trusted friend or family member serve in this role. Others might feel a licensed Professional Fiduciary is more preferable. Another option is to name a Corporate trustee.  There are pros and cons to each selection, and in this article I’ll attempt to define both.

Before deciding on who to name as trustee, I highly recommend considering the following four points.

First, in naming a trustee, you’re asking someone to selflessly and honestly manage assets on behalf of a beneficiary. Oftentimes, you’ll be asking this person to perform this task under very little supervision and guidance. For this reason, this person or entity will need to have a proven, unquestioned track record of honesty and integrity. Even among the most highly virtuous, the temptation to make allowances – even small ones – is heightened when the business is being conducted in relative privacy.

Second, you’ll want to consider whether or not any conflicts of interest exist. If naming a friend or relative, be sure the interests of the trustee align with the stated purpose of the Special Needs Trust.

Third, you’ll want to assure that the trustee is generally likely to outlive the beneficiary. This isn’t something we can ever guarantee, but it’s good to consider nevertheless. If the trustee dies first, the trust may become encumbered by costly court proceedings in an effort to sort everything out.

Fourth, you’ll want to be reasonably assured that the trustee you name is knowledgeable about the ever-changing rules and regulations governing the administration of Special Needs Trusts. A slip-up in administering the SNT can have dramatic consequences on the beneficiary and trustee.

 

Naming a Private Individual:

To name a private individual to the role of Trustee is to place high value on that individual’s specific knowledge of your wishes, and the beneficiary’s unique circumstances. You believe the individual to be an honest and compassionate friend/family member who will administer this responsibility with all the care and dedication that you would. You’re encouraged by the belief that this individual will be more than just a bank teller to the beneficiary; that the individual will be a long and lasting friend and confidant as well.

Naming a private individual to the role of Trustee presses a certain romantic button in us all. Life’s experience has taught us that assets and money are cheap substitutes for relational depth and true happiness. Therefore, we elevate the virtues of the private individual because in some way, we feel that the beneficiary will be better served, and happier overall, if attended to by someone so intimately connected. Someone who actually cares.

The down-side to naming a private individual has to do with the risks involved in the Trustee making a willful or negligent mistake along the way.

 

Naming a Bank:

To name a bank to the role of Trustee is to place high value on banking absolutes, investment integrity, and a lengthy set of administrative procedures that are both tried and true. The beneficiary and other interested stakeholders will enjoy colorful and detailed monthly earnings reports. The bank option tends to be highly automated and systemized, and the beneficiary will expect quick access to his/her distributions. The bank option all but guarantees that the trustee’s fiduciary duty will be met, and the bank will always know how changes in legislation affect Special Needs Trusts.

A bank will carefully monitor and dutifully invest the assets of the trust. The virtues of a bank option are found in the administrative functions of being a Trustee. Banks are under accountability; so therefore you can rest assured knowing that the assets of the trust are being managed correctly.

The down-side of naming a bank is that the engagement between beneficiary and trustee tends to be plastic and cold. Banks tend to have huge minimum thresholds ($500,000 or more), and charge very high fees as well.

 

Naming a Non-Profit like Good Shepherd Fund:

To name an organization like Good Shepherd Fund is to value many of the virtues of both the private individual as well as the bank. A non-profit company will serve somewhere in the middle, between the two options already mentioned.

Good Shepherd Fund is under accountability just like a bank. Non-Profit companies that administer Special Needs Trusts are required to employ a Professional Fiduciary. Additionally, Good Shepherd Fund is immortal like a bank, and will certainly outlive the beneficiary. Good Shepherd Fund will report investment activities like a bank, but not as frequently or with as much pizzazz (we may not give pie charts and bar graphs, but we’ll report the figures). At Good Shepherd Fund we will entertain opening a Pooled SNT account with as little as $15,000, so the threshold is much lower and more accessible.

Non-Profit companies like Good Shepherd Fund are also similar to a private individual in the way we engage with the beneficiary and his/her family and friends. At Good Shepherd Fund we employ field staff in multiple States who can be dispatched to help and assist the beneficiary with whatever he/she may need. High value is placed on getting to know the beneficiary before we accept a trust, and we’re very interested in understanding the nuance, hopes, wishes and intentions of everyone involved.

A Non-Profit like Good Shepherd Fund will charge fees, but they tend to be miniscule compared to a bank. Non-Profits also have added features. At Good Shepherd Fund, the beneficiary may be enrolled in our PALS club (where he/she will engage other clients at mixers, events and get-togethers), and we also have the capacity to serve as the beneficiary’s Conservator or Guardian if the family so desires.

The ideal candidate must always adhere to the fiduciary standards that inform decision making, but should also be warm, empathetic, and caring in the administration of duties.

Please don’t hesitate to contact Good Shepherd Fund with any questions.

What is a Special Needs Trust?

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By Nate Schnackenberg

A Special Needs Trust (SNT) is a financial product. A specialized trust fund. Think of it as a magic basket for your valuables. This basket has special properties that allow the beneficiary – the person for whom this basket was created – to remain eligible for government benefits (like SSI and Medicaid) even though he/she may have loads and loads of valuables inside the basket. A Special Needs Trust is designed to help people living with disabilities keep their long-term public benefits even though they may have lots of money held in trust. The beauty of the magic basket is, assets held in it don’t count against the means testing conducted in order to ascertain benefits eligibility.

It’s called a Special Needs Trust because once the basket has money in it, that money is used for special needs, not regular needs. Regular needs are presumably paid for by the public benefits which the beneficiary enjoys. Special needs are the things that enhance life… things like specialized medical equipment or specialized furniture, or technological equipment. SNT money can be used for things like trips, vacations, outings, transportation and other recreational activities. It may be used for specialized therapies not covered by public benefits. We’ve even used SNT money to buy season tickets to the local stadium or auditorium. Most SNT’s can even buy, sell, and own property!

There are two types of Special Needs Trusts. In our industry, they are called “1st Party” and “3rd Party” SNT’s.

1st Party Special Needs Trusts are simply a magic basket designed to hold the beneficiary’s money. In a 1st Party scenario, once the beneficiary dies, the government will make a claim on whatever is left in the magic basket. In this way, the government has the right to pay itself back for the benefits enjoyed by the beneficiary in his/her life.

3rd Party Special Needs Trusts are a magic basket designed to hold money that never belonged to the beneficiary. In a 3rd Party scenario, once the beneficiary dies, the government has no claim on what remains in the basket. If assets remain, they are distributed according to the wishes of whoever funded the trust initially.  

Both 1st and 3rd party SNT’s are administered in largely the same way. The Trustee (the person responsible for administering the SNT) will know what types of distributions are allowed, not allowed, or discretionary. Discretionary distributions are just that – up to the discretion of the trustee. As an example, pretend John doe asks to buy a car. John Doe has $700,000 in trust and enjoys lots of investment and other income. The trustee decides to allow the purchase. Meanwhile, Missy Joe asks to buy a car. Missy only has $125,000 held in trust, and her medical needs are going through the roof. The trustee views the vehicle request as a ‘want’, and in light of more important ‘needs’ decides to disallow the purchase. In this way, two identical requests are made, but each approval must be based on the trustee’s discretion, and no two trusts are ever identical.

At Good Shepherd Fund we administer Special Needs Trusts, Charitable Remainder Trusts, Annuities, Foundation Disbursements, and all sorts of things. Please don’t hesitate to contact us. We’d be delighted to speak to you about your long-term planning, and explore the virtues of the Special Needs Trust relative to your individual circumstance.