Who Should Serve as Trustee of an SNT?

Ronald A. Fatoullah, Esq. and Eva Schwechter, J.D.

{4:45 minutes to read} A Special Needs Trust ("SNT") is an important tool that can be used for preserving the financial security and lifestyle of a person with special needs. A properly drafted SNT allows the individual with special needs to benefit from supplemental resources while still qualifying for public benefits, such as Supplemental Security Income (SSI) and Medicaid. In many instances, an SNT is funded by a parent or guardian for the benefit of a child with special needs.

Parents need to decide who to name as trustee of an SNT. A trustee is tasked with administering the trust and making all necessary decisions regarding the SNT, including distributions. It is common for a parent to want to be named as trustee of a special needs trust benefitting her child, especially when the parent is the one creating and funding the trust. Naming herself as trustee positions the parent to have complete control over the trust distributions. Additionally, the parent is typically the individual most familiar with the child's specific needs, and the most dedicated and involved in making sure those needs are met in the administration of the trust. Another advantage is that the parent will usually work without compensation.

While a parent serving as trustee of an SNT can be beneficial, a parent serving as the sole trustee can also confront many daunting problems involving trust laws and public benefits regulations that affect the administration of an SNT. 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 are complex, highly technical, and subject to change. The tax laws involved in trusts and public benefits are also complex and require a great deal of research, which a parent might not have the time or resources to undertake.

The alternative for most families is a corporate trustee, the appointment of which brings with it objectivity and knowledge in areas such as investments, accounting, tax and trust laws, and public benefits. Corporate trustees are trained to review the trust documents under their administration on a regular basis. They also generally have systems in place to keep current with changes in trust and tax law, as well as public benefit programs rules.

However, it is not unusual for a parent to feel uncomfortable ceding so much responsibility for their child's welfare to a seemingly 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 the 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 be a better match.

Another option is to use 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 final option may be the use of a special needs pooled trust. With a pooled trust, a non-profit organization serves as the trustee. There are fees associated with a pooled trust, and the trustee is still an organization. However, a pooled trust company works almost exclusively with beneficiaries who have special needs and can perhaps provide a more personable, yet equally professional, trustee.

It is commendable for a parent to want to be involved in the operation of a special needs trust benefitting her child. But in deciding whom to name as trustee, co-trustee or trust protector, it is important to note the many complexities involved in the proper administration of an SNT. It is often the combination of a parent and a professional trustee in these roles that form the best team to provide the most comprehensive support to the child with special needs.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Eva Schwechter is an associate with the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also a partner with Advice Period, a wealth management firm, and he can be reached at 424-256-7273.