Who Should Be the Trustee of a Third-Party Special Needs Trust?
Tara Cheever
Trusts & Estates ??Estate Planning ??Wills & Trusts ??Kids Protection Planning ?? Incapacity Planning ?? Probate ?? Estate Administration ?? Trust Administration ?? Special Needs Planning ?? Business & Corporate Law
Family members with special needs may require assistance throughout their lives. If you want to ensure that a loved one with a disability is taken care of after you are gone, you can help manage resources for them by using a third-party special needs trust (SNT).?
Also known as a supplemental needs trust, a third-party SNT is funded with assets (money and property) that do not belong to the special needs beneficiary but are meant to be used for their benefit. Third-party SNTs allow the beneficiary to receive some benefit from the trust while preserving the beneficiary’s eligibility for means-tested public assistance programs such as Medicaid and Supplemental Security Income (SSI). When the beneficiary passes away, whatever funds remain in the third-party SNT can pass to other family members.?
Choosing the right trustee to manage a third-party SNT is a crucial decision. The person selected for this role must understand their responsibilities and fulfill them in a way that does not jeopardize the beneficiary’s government benefits.?
SNTs and Third-Party SNTs Explained
There are two main types of SNTs: first-party SNTs and third-party SNTs. Both are intended to ensure that a person with a disability or functional needs can receive financial support from the trust while preserving their government benefits. What differentiates these two types of trusts is the source of trust funding and the government’s entitlement to a portion of the trust’s funds.?
SNTs and Government Benefit Reimbursement
Whichever type of SNT is created, whether first-party or third-party, standalone or testamentary, the assets in the trust are legally owned by the trust – not the beneficiary. As a result, the special needs beneficiary is not disqualified from SSI or Medicaid, which have income and resource limits for enrollees.
There is an important difference, however, between first-party and third-party SNTs in terms of government benefit reimbursement:
Responsibilities of a Third-Party SNT Trustee
Once the decision is made to create a third-party SNT, the next, and equally important, decision is to select someone to serve as trustee.?
The trustee is the person responsible for managing the SNT on behalf of the disabled beneficiary. They administer the trust and manage its assets according to the trust’s terms. More than one individual can serve as trustee. A trustee can also hire an attorney or other professional to help them meet their legal duties.?
A trustee has a fiduciary duty to act in the best interests of the trust beneficiary. Broadly, in the SNT context, they are required to ensure the beneficiary remains eligible for government benefits by providing additional financial support from the trust for specific and limited purposes. For example, the trustee may use the trust funds to supplement the beneficiary’s government benefits—but not replace or duplicate them—by distributing funds to pay for things like education, recreation, and vacations.
?A trustee’s duties can include the following:?
Third-party SNT trustees have a big responsibility. Among other things, they must understand the rules and regulations surrounding government benefits and allowable distributions. Using an SNT to provide cash or cash equivalents to the beneficiary, or to pay for the beneficiary’s food or shelter, could disqualify a beneficiary from public benefits.?
In all trust-related matters, the trustee must act to ensure the beneficiary maintains the highest quality of life possible. Failure to uphold their fiduciary duty could not only harm the beneficiary, but also lead to legal action against the trustee. A new trustee may have to be named. If estate planning documents do not name a successor trustee, the court may need to appoint somebody to serve as trustee.?
Choosing a SNT Trustee
Special needs trusts have highly technical terms and administrative requirements, and the rules governing them are very complicated. A simple mistake on the part of the trustee could unintentionally hurt the beneficiary.?
A layperson named as the trustee of an SNT can hire an attorney to provide guidance and assistance; they may need to do so to satisfy their fiduciary duty and make sure the disabled beneficiary receives appropriate support. Attorney fees can be paid out of the trust.
Alternatively, an SNT can designate a professional trustee to oversee the trust. Hiring a professional trustee can increase trust costs, but a trustee who has experience with SNTs may be better suited than a family member to fulfill the trustee’s many important responsibilities.?
At Cheever Law, APC, we don’t just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love, starting with a valuable and educational Life & Legacy Planning Session. This will allow you to get more financially organized and make the best choices for the people you love. If you have already completed your estate plan, we will review that plan at your Life & Legacy Planning Session to ensure that it will work the way you intend and address any holes or gaps that may be present if circumstances have changed since you executed your plan. ??
To learn more about our one-of-a-kind systems and services,?contact us?or?schedule a no-obligation 15-minute introductory phone call?today.
Trusts & Estates ??Estate Planning ??Wills & Trusts ??Kids Protection Planning ?? Incapacity Planning ?? Probate ?? Estate Administration ?? Trust Administration ?? Special Needs Planning ?? Business & Corporate Law
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