There are many ways a trustee of a special needs trust could cause harm to a beneficiary, however unintentionally. This is why many people choose to have a disability planning attorney take on this critical role.
Here are 10 things to consider when deciding who should administer a special needs trust:
1. SSI, SSDI, Medicare, Medicaid… sound confusing? It can feel like alphabet soup to the uninitiated. Does the prospective trustee understand the differences between these public benefit programs and the rules that govern them? A trustee with limited understanding could unwittingly jeopardize a beneficiary’s eligibility.
- Is the trustee knowledgeable about the current laws governing special needs trusts and related entitlement programs? Is the trustee aware that rules change, and some expenses may be allowed one year but not the next? For example, the Uniform Trust Code enacted in 2020 changed and expanded trustee responsibilities and beneficiary rights.
- Does the trustee know the difference between a 1st party and 3rd party special needs trust and understand the implications?
- Does the trustee understand what “sole benefit” means?
- Will the trustee be able to set clear expectations regarding when disbursements can be made to the beneficiary to avoid conflicts?
- Will the trustee be so concerned about making a mistake that he or she will withhold disbursements unnecessarily to stay out of trouble? This level of caution defeats the purpose of the special needs trust.
- Does the trustee understand when it’s ok to make distributions for food and shelter?
- Does the trustee understand that in most cases (there are some exceptions) payments can only be made for goods and services, and that cash payments directly to the beneficiary are considered “unearned income” and will reduce the beneficiary’s SSI (Supplemental Security Income) benefits?
- Is the trustee good at record keeping? Can the trustee provide accurate and up-to-date documentation to the beneficiary, the IRS, Social Security or probate court on a regular basis, or upon request?
- Does the trustee understand the correct process to follow when the beneficiary passes? If a trustee makes an inappropriate disbursement to remainder beneficiaries before paying back state Medicaid, for example, he or she may be personally liable.
For this reason, many individuals and families choose to appoint a special needs trust attorney to administer the trust. A trusted family member may seem like the right choice, but unless this person is an expert on the right and wrong ways to administer a trust, he or she could inadvertently cause serious problems for a beneficiary who already has enough to contend with.