Q: What is the most important factor in determining whether a special needs trust is successful over the long term?
A: The quality of trust document originally drafted and just as important the selection of the trustee.
Q: Who is available to act as trustee?
A: If the trust is funded during the parent’s lifetime they are frequently the best option to act as trustee.
If the parents are trustees during their lifetime the trust should provide direction on who will be the successor trustee when the parents are no longer able or interested to act. Perhaps either a corporate Trustee or another family member like a sibling will be able to step into this role.
Most Estate or Elder Law Attorneys suggest a corporate Trustee that will be impartial/objective to avoid family conflicts and if there is no family member available or willing to act as successor the family has limited options. Corporate trusts are frequently unwilling to act as successor trustee for trusts under $500,000. Life’s Plan, Inc. is a not-for-profit corporate Trustee that is willing to serve as Trustee of trusts starting with as little as $10,000.
Some families create a private trust and name siblings or other family members as successor trustees. Aunts, uncles and siblings of the individual with a disability should all be considered as possible successor trustees. Families must also consider potential conflicts of interest between siblings and family. Maybe one sibling to the special needs brother/sister is the guardian while the other sibling is assigned the trustee, good idea. Even this set up can be fraught with problems and conflict. Siblings may not always like each other or there is a past of mistrust. What happens if the sibling trustee is also a remainder beneficiary from the special needs trust in which they manage for their brother. Maybe they are less likely to disburse monies out for the benefit of the special needs sibling because of their own future stake in the trust assets as remainder beneficiary or perhaps they may self deal from the trust with no one holding them accountable with checks and balances unless the special needs child has a guardianship case established with a judge overseeing annual distributions.
Selecting family members or siblings is often the first choice in selecting successor trustees to a special needs trust. But not always the best choice with conflicts of interest, lack of ability to manage or unwillingness to take on this fiduciary obligation. These are complicated trusts with laws constantly changing around them. Trustees must not only be sound and honest fiduciaries, but must continue to stay on top of the legal limits to use of Special Needs trust as laws can change over time. Even those family members with the best intentions to manage a Special Needs trusts can make big mistakes.
Q: What is a pooled trust?
A: A pooled trust is a trust that is operated by a not-for-profit organization, that anyone with a family member with a disability can apply to join. The money for each person is accounted for separately. The trust is already established using a “Master” trust document and pre-approved as “non-countable” for government benefits such as SSI and Medicaid.
Q: How do I decide whether an individualized trust or a pooled trust is better?
A: Deciding which type of trust will depend on the specific family dynamics for the individual with disabilities. There are several factors that are essential in a successful long term plan for families to decide on between using an individual stand alone trust versus a pooled trust option. First the amount of money available for the individual with disabilities which will correlate to trustee and future trustee selection choices, amount of control over the trust by the family will also depend on the amount of assets available, the age of the beneficiary and finding an appropriate trustee and successor trustee.
The more money that is going to be in the trust the easier it is to get a bank or trust company to step in as trustee. Most banks will not act as trustee for a trust with less than $500,000. For families with less than $500,000 the corporate trustee option will not work, in many guardianship case involving self settled monies a judge may also not allow a parent or family member to act as guardian of the person and act as trustee for the disabled ward for a variety of reasons good or bad. The family member may be too close to the money to handled it with impartiality with possible concerns of self-dealing or they may just not be good with handling money. Also, there may be too much on responsible weighing on the guardian of the person for the judge to ask them to become a trustee with little knowledge of Special Needs trusts. A pooled trust may be the best option.
Families may simply not have a family member who has the time or ability to act as the trustee. For these families the pooled trust would make a lot of sense with expertise in managing special needs trust the family can have confidence knowing a quality trust is in place to insure an improved quality of life for a loved one with a disability.
Q: What if I have created a supplemental needs trust and then my child inherits money and creates a “payback” trust?
A: All supplemental needs should be spent first using the funds in the “Pay Back” trust. Since any of these funds remaining after the beneficiary’s death will revert to pay back to the state for Medicaid costs before any distribution can be made to the family. Pooled trusts also retain a percentage prior to pay back to the state. So you should spend down from Payback trust first and wait to use the third party funds in the supplemental needs trust last , only after all of the funds in the payback trust have been exhausted