STEP 3 : IDENTIFY THE RIGHT TRUSTEES

Trustees, Co-Trustees & Successor Trustees

For both 1st and 3rd party SNTs, the first role to consider is who will serve as trustee. Trustees are responsible for all decisions made relating to the trust. They can manage the trust assets (the money) themselves or hire an investment manager. They also make all distribution decisions, such as what type of housing, food, services, support, and equipment will be paid for by the trust, since special needs trusts are required to place all discretion with the trustee. The Trustee files taxes for the trust, does annual accountings, reports to the court where needed, and may need to interact with the Medicaid office to ensure compliance.

Co-trustees are additional trustees serving at the same time and have all the above responsibilities. Mom and Dad can be cotrustees, or two siblings, and occasionally a professional trustee and a family member. Critically, cotrustees are liable for each other's actions, since they have both taken on a fiduciary role, which includes reviewing each other's actions. Assume two siblings are co-trustees: If sibling 1 makes a mistake or acts improperly, sibling 2 can also be found liable, as it was their duty to monitor and prevent such activity. For this reason, most professional trustees will not serve as cotrustee with a family member.

Successor Trustees are future trustees. They are on deck, waiting to serve, until such time as the currently serving trustee is no longer able or willing to serve, generally due to death or incapacity. Frequently you will see Mom and Dad as trustee, and upon their death, incapacity or resignation, a bank, trust company, or child appointed as successor. Also note, you can have multiple levels of successor trustees. This is particularly helpful when there are age disparities between the beneficiary and the trustee. For a younger beneficiary, for example, they may not have a peer who is currently able to serve, so you could select an uncle or aunt as first level successor, then the child's sibling as second level successor trustee.

Key Takeaway

Practically speaking, unless there are tax planning considerations, or a unique family dynamic, the most common scenario with a 3rd party trust is to see Mom and Dad as initial cotrustees, then, upon their resignation or demise, a successor trustee. The successor trustee can be a professional, like a trust company, or an individual, like a sibling.

INDIVIDUAL V. PROFESSIONAL TRUSTEES

When selecting trustees, the first question families face is whether they want a family member or a professional in the role. Most of the time, a family's first instinct is to appoint a sibling, but after further consideration, many select a professional trustee. If you are considering appointing a friend or family member as trustee (or successor trustee), consider if the person you have in mind meets ALL the below requirements:

• Is a contemporary of your child (age wise) and will be available to serve throughout your child's lifetime;
• Understands government benefits;
• Understands investment management;
• Can make appropriate distributions proportionate to the trust's assets, beneficiary's expected changes in cost of care, and the beneficiary's life expectancy;
• Will be responsive to your child's needs;
• Is willing and able to interact with Medicaid and government offices;
• Will file accountings, tax returns, and perform other administrative tasks;
• Knows how to protect government benefits and what distributions are permissible;
• Can maximize the impact of the money you've set aside to improve your child's life;
• Is willing to serve and is open to a lifelong commitment;
• Will assume the risk of being a fiduciary;
• Do you trust this person now and in the future to put your child's interests ahead of their own (be a fiduciary)?

If you have someone who meets all the above criteria, congratulations, you've found good candidate to serve as trustee! If not, consider a professional trustee.

Even if all the above criteria are fulfilled there are a few additional considerations:

• Families often find that a professional trustee, as a neutral party, makes planning easier. Rather than trying to decide if mom's sister or dad's brother should be trustee, a professional causes no conflict. Similarly for divorced families, selecting a corporate trustee can make collaboration on trust planning possible.
• One of the most important reasons families opt for a professional trustee is to protect their family dynamic. Placing one sibling, or family member, in charge of another can cause a lot of conflict. Sibling 1 telling Sibling 2 that they cannot buy something they want, or spend money as they choose, even if they are correct and being prudent, can be very disruptive to family relations. Since most trustees assume the job after mom and dad have passed, these conflicts arise during a grieving and adjustment period, when tensions are high, and when the beneficiary is most in need of support. Now, their sibling or family member, who they need emotional support from, also feels like a case manager or accountant. This rarely works out well.
• What happens when a mistake is made by that family member that triggers a loss in benefits? Professionals rarely make such mistakes, but when they do, they get sued, funds are often recovered, and the beneficiary (the trust) is made whole. What happens when Sibling or Uncle are trustee? Do we want to put the beneficiary in the position of suing family members to recover trust funds? Non-professional trustees (individuals) frequently run afoul of government benefits regulations, so this is a topic that should be thoroughly considered when thinking about the right type of trustee.