Choosing the right trustee for any trust is an important—and often difficult—decision. In the case of choosing the right trustee for the trust you have created to protect a family member with special needs, the importance and difficulty of the decision is magnified—particularly if that family member is a young child. Let’s take a look the candidates, identifying the good, the bad, and the ugly along the way.
Many of our clients creating Special Needs Trusts for their children consider their parents first. Almost universally, your parents know and love your children, and they understand your parenting style and what your intentions are for your children. Parents also tend to give the “family discount” for services, which can save your beneficiary expense.
Unfortunately, in many cases, this solution isn’t a permanent one, as your parents will likely be survived by your child, and the special needs trust will be (read: should be) in place to protect your child for his or her entire lifetime.
Like your parents, siblings may be a good temporary solution. They know your beneficiary, and they’re cheap! However, the same drawbacks that apply to your parents apply to siblings as well.
Your siblings may be unlikely to survive your child or outlast the trust itself, and you will need to identify a successor trustee. In addition, your siblings are likely your contemporaries, and they may have families of their own as well as other complicating life circumstances or events that could prevent them from being able to dedicate sufficient time to manage trust properly.
Your Other Children
The other children are also a logical choice to many clients because their children know each other well, are (typically) around the same age, and want what is best for their sibling. However, clients must consider a number of factors with this option. First, the role of trustee is a difficult one, fraught with potential liability if assets are not properly invested, taxes are mishandled, or accountings aren’t done correctly or at all. Additionally, do your other children even have the time and capacity to serve as trustee? This consideration carries more weight than even your own siblings, as your other children may have young families and career demands that often subsume their time.
Family dynamics also matter. Should all of your children be named as co-trustees, or should only one of them be named as sole trustee, with others named as successor? Will choosing one child over another as trustee affect the relationship between them? That is, will you be perceived as “playing favorites”? Will the relationship between your special needs child and his or her sibling become strained? Will your child as trustee ever resent his or her sibling?
These are difficult questions, perhaps with no real answer at present. But the questions are important to ask before naming another child as a trustee.
A Bank or Trust Company
Most banks, brokerage houses and trust companies only accept trusts with large sums of assets to invest, often requiring hundreds of thousands, if not a million or more, dollars to invest. Even if the assets meet the minimum threshold, many corporate trustees will not accept special needs trusts at all. Even if they do, is the institution well-positioned to take care of your special needs child? Will they work with his or her guardian? Will they answer the phone and respond to inquiries? Does naming an individual as co-trustee to serve with the bank make sense?
It is important to interview a corporate fiduciary prior to naming it as trustee, to learn know who will be the trust officer and/or primary point of contact for the rest of the family and what possible succession may look like if the point of contact leaves the institution. Many institutions also require certain language to be included in the trust itself, and it is important to know those requirements prior to the creation of the trust.
Corporate fiduciaries such as banks and brokerage houses can also be a good, neutral party that can protect the family dynamic as well. Plus, they are typically very good at investing the trust funds. If you have a special needs trust that meets the institution’s minimum requirements, the institution’s trust department has an outstanding reputation, and you and the family have a relationship with the institution, this choice may be a long-term option worth considering.
Often, your Estate Planning Attorney is a trusted advisor, knows the workings of your family and beneficiaries, and knows the ins and outs of the law and trust administration. The attorney may be a good candidate to be a trustee of the trust.
However, you should recognize the potential conflict of interest with having your attorney create the trust and also serve as trustee, where the attorney: 1) would get paid as fiduciary; and 2) may need to hire counsel, including the attorney’s own firm, for legal representation. This potential conflict can be waived, but only with your informed consent.
Additionally, you can require the attorney serving as Trustee to have insurance that covers errors and omissions in his or her fiduciary capacity. In lieu of, or in addition to, that type of insurance coverage, you could also require your attorney as trustee to furnish a bond to protect the beneficiary’s interest in the trust in the event of negligent or intentional misconduct as to the trust funds.
As you can see, there are myriad options when selecting a trustee of a special needs trust, each having its benefits and potential drawbacks. Sometimes, the best choice is a combination of one or more options, where tasks can be shared, costs can be mitigated, and checks and balances are built in. Regardless of who you name, be thoughtful in the process of deciding.
We are here to guide you through the special needs trust creation process, helping you consider the various options when selecting a trustee (or combination of trustees) and successors. The structure should be tailored to your particular situation and the needs of your family and beneficiary. If you need a little guidance on setting up a special needs trust for a loved one, contact us. Let’s Talk!