Appointing a trustee to administer any trust is a big deal, but extra diligence is important when it comes to special needs trusts (SNTs). A trustee must be extraordinarily thoughtful when making decisions for an individual with a disability or capacity decline. Read on to understand the responsibilities involved in serving as the trustee of an SNT.
Distributions Over Time
Because trusts allow for the distribution of resources over time, they are an excellent vehicle for ensuring a loved one with special needs will have care and attention throughout their lives. Importantly, an SNT trust, as attorneys explain, can also “preserve the beneficiary’s eligibility for Supplemental Security Income.” Pointing out that special needs trusts are sometimes also referred to as supplemental needs trusts, Chambliss, Bahner & Stophel note that in addition to ensuring eligibility for critical public benefits, SNTs can be used to pay for “needs not covered by public benefits (such as education or recreation) and protect assets “from an inheritance, a lawsuit settlement, or gifts.”
When considering who to appoint as the trustee of an SNT, or accepting the role of trustee, it’s a good idea to understand that service in this role is not to be taken lightly. Attorneys remind us:
Trustees have a fiduciary duty to act in the best interests of the beneficiary. They must avoid any actions that would harm the financial or personal interests of the disabled individual. Making decisions inconsistent with the welfare of the individual with a disability breaches the fiduciary duty, making the trustee liable. The trustee must ensure that the trust supports the needs of the beneficiary while also following the trust’s terms. This encompasses using trust funds to pay for expenses not covered by government benefits, so that the beneficiary remains eligible for these programs. To act in the best interests of the beneficiary, the trustee must remain informed of the person’s unique needs and circumstances. Trustees may opt to work with such professionals as financial advisors, attorneys, and care providers. These kinds of experts can help ensure that the individual with the disability is receiving appropriate support.
As fiduciaries, trustees are held, by law, to very high standards. Accordingly, the trust agreement for an SNT, or any type of trust, may require a trustee bond, A trustee bond is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable laws. As a leading, national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient for trustees in every state to obtain a trustee bond. Just get a quote online, fill out the information, and enter a payment method. Print or e-file the bond from anywhere.
Examples of SNT Trustee Duties
Specific responsibilities of SNT trustees include making distributions from the trust, based on the terms of the trust, and aligned to the protocols of public benefits. Errors can result in a beneficiary losing eligibility status for support that is likely critical to health and well being across their lifetime. Chambliss, Bahner & Stophel underscore that when “transferring assets or income from the trust to the beneficiary,” the trustee is responsible for ensuring:
- The distribution is allowable under the trust’s terms.
- The payment will not compromise the ability of the beneficiary to receive benefits. (In certain rare instances, a trustee might decide to make a distribution that disqualifies the beneficiary from benefits. This may be the case when it is in fact in the best interest of the beneficiary.)
- The trustee must understand the trust’s terms as well as the benefits regulations.
- Trust distributions cannot go to expenses that Supplemental Security Income or Medicaid covers. For example, a beneficiary receiving SSI cannot put trust distributions toward food and basic shelter expenses. This is because SSI is intended to pay for these types of expenses. A Medicaid recipient cannot use trust funds to pay for covered medical expenses.
A trustee may of course rely on professional expertise from accountants, lawyers and others to manage the investments, taxes and other aspects of the trust. However, experts emphasize that the trustee remains ultimately responsible for the administration of the trust, as well as “ensuring accurate and detailed records are kept,” and that regular communication is provided to all concerned:
The trustee must provide regular accountings of the trust to the beneficiary. These reports must also go to the representative of the beneficiary and any co-trustees or other interested parties … .Records should also include all correspondence and communications related to the trust….It is essential that the trustee maintain proper records for audit by the beneficiary or a court. This documentation shows that the trustee acted in the beneficiary’s best interests and followed the trust’s terms.
….By keeping lines of communication open with caregivers, trustees can stay informed about the needs of the person with the disability. They also can gain a thorough understanding of how to use trust funds to enhance quality of life for the individual. Coordinating payment for essential services like housing and medical care is often an essential part of the trustee’s role. Communication with caregivers and others involved in the beneficiary’s life is important….
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