Daunting Problems That Arise When Parents Serve as a Supplemental Needs Trustee
It is common for a parent to want to be named as trustee of a supplemental needs trust benefitting her child, especially when the parent is the one creating or funding the trust. There are many reasons why this makes sense. It positions the parent to have complete control over trust distributions. It is also very unlikely that anyone else can match the loyalty and dedication that comes from the bond between a parent and child. The parent is almost always the individual most familiar with the child’s specific, unique needs that the trust must seek to fulfill in its administration. Another advantage is that the parent will usually work without compensation.
A PARENT SERVING AS TRUSTEE CAN ALSO CONFRONT MANY DAUNTING PROBLEMS.
The problems are involving trust laws and public benefits regulations that affect the administration of a supplemental needs trust. The laws governing trusts vary from state to state, and public benefits rules can also vary in different parts of the country. The federal regulations and tax laws are complex, highly technical, and subject to change. Some parents also do not want to be trustees because it makes them the gatekeeper of the trust’s funds and may create friction when the child beneficiary requests a distribution the parents do not agree with.
The alternative for most families is a corporate trustee, which brings with it objectivity and knowledge in areas such as investments, accounting, tax and trust laws, and public benefits, that a parent often lacks. Corporate trustees are trained to review on a regular basis the trust documents under their administration and take a business approach to trust disbursements. They also usually have systems in place to keep current with changes in trust and tax law, as well as public benefit programs rules.
But, it is not unusual for a parent to feel uncomfortable giving so much responsibility for their child’s welfare to an impersonal professional trustee. One solution is for the parent and professional trustee to serve together as co-trustees. The parent has a clear understanding of the family’s objectives and the needs of their child with a disability, while the professional trustee usually has expertise in financial matters and public benefits law. This is often a good combination for a trust of substantial size. In trusts involving smaller sums of money, the combination of a parent and a nonprofit organization as co-trustees might make more sense.
Perhaps an even better alternative is to consider the use of a trust protector to oversee the corporate trustee. A trust protector is an independent third party, either an individual or an institution, whose role is to “look over the shoulder” of the trustee to ensure that the trust is properly serving the purpose for which it was intended. The trust agreement typically details the trust protector’s responsibilities and areas of authority. One power often given a trust protector is the ability to remove and replace a corporate trustee. Naming a parent as trust protector allows the parent to have formal authority in the oversight of the trust. The corporate trustee, who is more knowledgeable on the technical and legal trust issues, can then serve with the benefit of a parent’s insight into the particular needs of the child with disabilities.
A parent who wants to be involved in the operation of a supplemental needs trust benefitting his child is commendable and encouraged. But deciding whom to name as trustee, co-trustee or trust protector should involve a careful review of the talents the parent has, and perhaps more importantly, the talents the parent lacks. It is often the combination of a parent and a professional trustee in these roles that forms the best team to provide the most versatile support to the child with special needs.
If you or a loved one are considering establishing a supplemental needs trust, or if you are working with a trust that has these difficulties and you want to improve them, please contact our office for a free consultation to learn how we can help.
Article posted by:
Kevin T. Horner, Esq.
Pierro, Connor & Associates, LLC
For more information on how we can help, or to get in touch with Kevin T. Horner, Esq. please contact Beth Wurtmann, Director of Marketing at Pierro, Connor & Associates, LLC:
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