Building a plan that will protect your loved one beyond your lifetime is not just about drafting documents, or even ensuring that there are sufficient funds to supplement benefits. A team needs to be assembled to fill various roles in your estate plan, any trusts created, and to ensure care needs will be met. Below are some common appointments that you may be asked to make during the planning process, and some tips on who you may want to consider.
BUILDING YOUR TEAM : TRUST ROLES
There are two trust structures that you may choose for your plan. A delegated trust, which is more common, appoints a trustee or trustees who are each responsible for all aspects of trust administration. Whether there is one trustee, or multiple co-trustees, each are responsible for each other's decisions. In a delegated trust, you may be asked to appoint:
TRUSTEE
The trustee is the person or entity who manages all aspects of a trust. They are responsible for all investment management and distribution decisions, filing tax returns, and ensuring that expenses are compliant with any government benefits regulations.
CO-TRUSTEE
An additional trustee, with all the same rights, responsibilities, and liabilities of the trustee.
The second trust structure, a directed trust, appoints multiple professionals or individuals to manage the trust. Commonly called bifurcation (2 roles) or trifurcation (3 roles), a directed trust allows for different persons or professionals to serve only in their area of expertise. Below are the roles you may consider in a trifurcated directed trust:
ADMINISTRATIVE TRUSTEE
Responsibilities include filing taxes, accountings, and record keeping.
INVESTMENT ADVISOR
Manages the money and investment management decisions.
DISTRIBUTION ADVISOR
Makes distributions to the beneficiary and is responsible to ensure that benefits eligibility is not compromised.
Unique to the directed trust, trustees are not liable for each other's decision making. This means, for example, that an error by the distribution advisor does not trigger risk or liability for the investment advisor, and vice versa. Often, using this structure can reduce fees for trust administration and allows you to work with advisors, who otherwise, may be wary of serving as trustee.
When drafting either a directed or delegated trust, two additional questions will arise: “Who can oversee the trustee?” and “Where do excess trust assets go after the beneficiary’s demise?”
TRUST PROTECTOR
Perhaps the most important and underutilized role in special needs trust planning is a trust protector. Three of the most common questions families raise when creating their plans can all be answered by building a trust protector into the plan:
- What happens if the trustee (individual or corporate) is doing a bad job?
- What is the right role for a sibling or family member who shouldn't bear all the responsibility of serving as trustee, but should be involved?
- How do we ensure that family-level thoughts and concerns are communicated to a corporate trustee?
Trust protectors can solve all these concerns. A trust protector is a customizable role, built into your trust document, that generally grants an individual the power to remove or replace trustees. They are not fiduciaries (in most cases), have no daily responsibility or liability, but simply have the power to fire anyone doing a bad job and hire their replacement. With this authority, they have a voice in how the trust is administered, as they can move it to another institution, or to another trustee, but don't need to do all of the work of actually administering the trust. This is often the best role for family members — oversight, without daily work or risk.
REMAINDERPERSONS
After the beneficiary passes, remainderpersons (remaindermen) will receive any assets remaining in the trust. This isn't a job, just the named recipient(s) of your gift. In a third-party trust, this will be any remaining assets. In a first-party trust, this will be the assets remaining after the repayment of any Medicaid liens. Note: with pooled trusts, special rules may apply where the trust retains excess assets. Check with your pooled trust company, as there is substantial variation in policies between pools.
Also, consider whether your plan puts your remainderpersons in a conflicted position — if they are also a trustee, will they still distribute money as freely to the beneficiary? Remember, everything that is spent, would otherwise be passed to the remainderpersons upon the beneficiary's demise.