Its Not Easy To Be Trustee In A Special Needs Trust

A Trustee is trusted for holding a fiduciary responsibility in managing the affairs of the trust. So appointing trustees become a critical role in the formation of a trust. Parents who wish to create a trust for special needs child care generally look towards family members for the role of a trustee post their lifetime. Even within their lifetime they have to fulfill this role when they become a trustee on their trust.

But choosing to become a trustee cannot be a personal decision. There is risk in the conduct and the legal liability is huge. If the trustee is not well versed with the role then it may have a huge impact on the functioning of the trust beating its objective completely. Hence accepting a trustee role needs to be carefully decided.

Identifying the trustee skills

Here is what parent or family member need to consider while accepting the role of a trustee in a special needs trust:

Fiduciary Responsibilities

A trustee is a fiduciary responsibility. This means the trustee has to work above any personal interest in the trust affairs. In general, a trustee administers a trust – a property interest held by the trustee at another’s request (the settler) for a third party’s benefit (beneficiary) according to the trust terms. With special needs child care the need of a fiduciary trustee is much higher.

If we have to list down the duties of the trustee then it will be as follows:

  • Trustees will possess the property and so they are responsible for protection of these.
  • If anyone challenges the trust validity then the trustee has to defend it
  • Trustees need to ensure that the trust property is always segregated from their own property
  • They need to manage trust property with utmost attention and care. Decision regarding buying, selling or any other aspect need to be act upon prudently.

If you look at the above role then the trustee needs a strong commitment over time. The trustee needs to know tax matters, managing real estate, securities, and even businesses. Even if a trustee is not aware of these he/she should know how to manage. Overall finding an individual with such a commitment may be tough and family may have to ensure that he/she is ready for this.

Beneficiary Interest

The trustee has to work for the beneficiary interest. However, things can be really difficult when a family member is playing this role and there are more beneficiaries. Being a family member it’s natural that any kind of emotional attachment gets involved especially when one of the beneficiary is a special needs child. This should not result in any biases. Trustees have to ensure that any decision taken by them is fiduciary and should serve the interest of all beneficiaries. This can be only achieved if the trustee keeps an arm length distance between their and the beneficiary interest.

Below is some difficult position which the trustee may have to hold-

  •  The trustee should set own interest and look at beneficiary interest-only
  •  The trustee has to see that any dispute between beneficiaries is resolved without any bias
  •  The trustees should avoid any favoritism asked from any beneficiary

Even though a trustee will try to be free from all conflict best of trustees can make mistakes. Here we are talking about a situation when parents themselves or family members became a trustee. One should cover themselves from appropriate provisions like error and omission insurances. More  than this the record management has to be more efficient. Proper records like minutes of meetings, advice rendered, decision making, etc. should be maintained. Any disagreement by any family members may result in disputes and such record management will ensure trustee can prove to have rendered a fiduciary responsibility.

 Corporate Trustee for Special Needs Trust

They can be good for the trustee role. Well versed with responsibilities corporate trustees can act in a fiduciary manner since they are not emotionally attached to any beneficiary. Some of the corporate trustee are found to be good at managing special needs trust as they are aware of the unique requirement. The benefits with them will surpass the benefits of family members. A corporate trustee ensures the continuity of trust management as they will not get unnoticed or become incapacitated. They can also administer the trust efficiently ad is experienced in knowing what record keeping is important. A complex situation like disputes requires expertise and the corporate trustee will have those.

Thus corporate trustee can fill the gap of identifying a person free form any conflict of interest. In most viable option family members with the corporate trustees as co-trustee can work well for the special needs trust situation. The corporate trustee can work at administrative investment decisions while the family member will help in decision making where emotions get involved.

So Whats The Solution?

The trustee role is not an easy task for even an experiment professional. The qualities required by the trustee are intelligence, well trained, knowledgeable which can execute the trust provision without any fear. Just family relation may not be enough as he/she may lack technical skills to manage the trust. Parent appointing a trustee should check the quality required for a trustee and consider appointing corporate trustees as co-trustees. Contrary to these people who are invited to serve as trustees should think clearly where they would like to take this responsibility. If not keen then say clearly no to the offer and let someone with the right skills take up the role.

Now its an imaginary world to identify such  a trustee who has all the required skills spoken above.  Add to it the difficulty of a nuclear family  the issue is much larger for special needs children families. So they need to approach it differently. By bringing in the role of  a legal guardian along with the trustee the responsibility of the family member can be reduced.  In second part of this article I will be writing how this bifurcation helps families in identifying the right persons for managing their child lifelong affairs.

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About the Author

Jitendra P.S. Solanki

Jitendra is a SEBI Registered Investment Adviser (INA10000184) and has earned the much-respected professional designation of Certified Financial Planner (CFPCM ) and Chartered Trust & Estate Planner (CTEPTM). He is a post graduate from IIT - Roorkee and has spent 15 years in Financial Services Industry working with leading financial institutions & Banks, advising families on their Financial well-being. Jitendra specializes in advising families with special needs children on various financial & legal aspects.

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