Professional Perspectives: Special Needs Trusts and the Role of a Trustee

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This is the fourth post in our Professional Perspectives series. At Liu Shair Law, we assist clients with Estate Planning and also Special Needs Planning. Special Needs Trusts are ongoing trusts administered through a beneficiary’s lifetime. Here is a post that goes over some basics about Special Needs Trusts, as well as the role of a trustee in administering trusts.

By: Ria N.

Speaking with Greg Finn at Fremont Bank, we learn more about bank trust departments (also known as corporate trustees) and how special needs trusts can protect loved ones.

Fremont Bank is a local example of a financial institution that offer services to act as the trustee for family trusts. Mr. Finn explains that families may use a corporate trustee for a variety of reasons. One may be that they simply do not have any relatives in the United States that they trust to handle their finances. Another reason is that family members may not want to be a gatekeeper to the beneficiary: “They are willing to pay a fee so that we can take that responsibility away from them while also removing any risks with our expertise,” Mr. Finn adds.

If someone has a family member who is receiving government benefits due to special needs, Mr. Finn also includes that special needs planning is extremely important in order to maintain eligibility for those benefits. Creating a special needs trust allows your loved one to keep receiving government benefits while also gaining an inheritance. In addition, a special needs trust prevents recipients from acting irresponsibly with the money. Mr. Finn believes that, “Planning essentially helps protect the beneficiary from themselves.” Essentially, a special needs trust means that the inheritance is not going directly to the person with special needs, such that they are not in control of the money, but a trustee is managing the funds. This means that the assets wouldn’t be counted towards a person’s income for calculating government benefit eligibility, which can be extremely important.

A trustee must be able to carry out the terms of a trust and each trust can be quite different, depending on the terms and nature of the trust. When utilizing a corporate trustee, the staff working on administration may be called trust officers. The trust officers at Fremont Bank, for example, are required to complete training offered by Cannon, a company that provides training for those in the trust business. Trust officers take courses on a variety of topics ranging from proper investing to the legal limitations of government benefits in order to perform the best services.

As a trustee, the bank’s trust department must implement the grantor’s wishes by investing money, completing tax forms, and interacting with the beneficiary to evaluate his or her requests. When it comes to special needs trusts, trustees need the discretion to make distribution decisions for the beneficiary’s best interests while keeping in mind the benefits they are receiving. This can require understanding current tax regulations, for instance, understanding what counts as a “resource,” making sure that the trust is paying for “special needs” and supplementing the government benefits. (Here is a post on this.) A trustee would likely not want to use Special Needs Trust funds to pay for basic support expenses that government benefits are meant to cover, like food or shelter, since this could reduce or disqualify government benefits.

Mr. Finn also includes that the challenges in administering a trust can be amplified depending on the personality of the beneficiary. “We are often the ones throwing a bucket of water on them,” Mr. Finn explains that the beneficiary can sometimes have trouble understanding why they aren’t able to use the money in any way they want to. The trust department’s ultimate goal is to make the money in the trust last for as long as possible, and this can be hard for beneficiaries to understand when they want to fund large expenses, such as a new house or car. In addition, especially for a special needs trust, challenges can arise when parents have not communicated to their children that they have set up a trust. This can cause them to be frustrated by the fact that they cannot spend the money as freely as they might want to, and the trustee must find a way to motivate the beneficiary to cooperate. To help manage the beneficiary’s expenses, Fremont Bank has them fill out an annual budget form, including income and previous or expected expenses. This gives them an idea of the monthly income that the trust needs to generate. In the event of an unforeseen expense, the beneficiary would contact the trust department, and they would work around it.

In circumstances that haven’t been explicitly stated in the trust, Mr. Finn reveals that the trust officers use their experience to guide decisions. “Our experience dealing with trusts and the fact that we have probably already gone through similar circumstances in the past is likely one of the things that make Fremont Bank reliable as a trustee,” he suggests. At Liu Shair Law, we give our Special Needs Trust clients a Letter of Intent to complete for the trustee’s benefit. Although this is not a legal document, Mr. Finn recommends that families keep this letter current since it helps the trust officers understand the beneficiary, who may not be able to express some of the details. He emphasizes that, “Having access to these letters takes away the cold corporate view many people have of us.” 

For clients who wish to make administration of their trust a smoother process, Mr. Finn advises that they allow the bank’s trust officers to review the trust and be involved in the drafting process. In addition, the bank should be notified that they’ve been appointed as trustee. “We’ve had cases where we don’t even know that we are the trustees until the grantor passes away,” Mr. Finn reveals. This can cause problems if your trust does not meet their requirements, and your family members may have to appoint a new trustee. Planning and communication go hand in hand, so it is always beneficial to ensure that your trustee is aware of and willing to accept the responsibility.