Greg Finn, MBA
The trustee of a special needs trust (SNT) has all of the duties of any trustee, plus specific added responsibilities due to the special needs of the beneficiary. All trustees are responsible for:
• Investing the trust’s assets
• Record keeping
• Communication with beneficiaries
• Tax reporting for the trust
• Making sure distributions do not jeopardize
On top of these responsibilities, the trustee of an SNT must also:
• Inquire into the needs and welfare of the trust beneficiary
• Report to the agency or agencies administering such programs
• Work with the family members, teachers, social workers or
others providing support for the beneficiary
Due to these demands, many families find that a professional trustee is better prepared to act as trustee or as co-trustee with a family member. Professional trustees, such as banks, or trust companies, are equipped to handle details like trust recordkeeping, hiring and overseeing the activities of service providers, making distribution decisions and investing trust assets.
With regard to taxes, the trustee is also responsible for obtaining an employee identification number (EIN) from the IRS in order to prepare and file the annual federal and state fiduciary income tax returns.
The trustee also has sole responsibility for distribution decisions. To avoid compromising public benefits eligibility, distributions generally should be made directly to providers of goods or services, rather than to the beneficiary. When the beneficiary receives an amount above the allowable monthly limit, it is considered unearned income and SSI benefits are reduced on a dollar-for-dollar basis. Similarly, distributions made for items covered by SSI (i.e., food and shelter) are considered “in-kind” income and reduce monthly SSI benefits. The trustee must fully understand and follow SSI’s distribution guidelines. He or she also must adhere to any distribution guidelines the Grantor outlined in the trust.
One of the most significant abilities of a trustee is often the necessity of saying “no” to a request for trust funds. While trusts may look like they hold a lot of money, often when distributed over the lifetime of the beneficiary it’s not as much as is needed. Even with as much as $1 million invested, it may well be necessary to scrimp and to use the trust funds quite sparingly. It can often be easier for an independent, professional trustee to say “no” than for a family member to do so.
Finally, the trustee has fiduciary responsibility for the management of trust assets. While the appropriate investment strategy depends, in part, on the beneficiary’s age and needs and the amount of assets that can be invested, the trustee generally must comply with the “Prudent Investor Act,” which requires that investment decisions be made responsibly and impartially. When the trust outlines specific investment guidelines, however, those take precedence over Prudent Investor Rules.
It’s often not advisable to have a family member such as a sibling as sole trustee. Denying a request for funds can be hard for a sibling or other family member, and may strain his/her relationship toward the beneficiary. Also, it is hard for family members without financial expertise to manage these specialized trusts in a manner that doesn’t jeopardize public benefits. Thus, the combination of a family member and a corporate trustee is often the best arrangement when choosing a trustee.
Greg Finn is a Relationship Manager at the Fremont Bank Trust and Wealth Management Services Division.
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