Accounting for special needs trusts is not much different than accounting for other types of trusts. A trustee has a legal obligation to account for certain trust activities to beneficiaries and other interested parties. The trustee must adhere to federal tax law and file tax returns when necessary. Trustees of special needs trusts do have additional inquiries when administering a special needs trust.
Effective January 1, 2020, the Illinois Trust Code replaced the Illinois Trusts and Trustees Act. One of the most significant areas of revision involved the duty of a trustee to provide an accounting. A trust that became irrevocable before January 1, 2020, is generally not governed by the new law, but trusts that were created after January 1, 2020, or became irrevocable after January 1, 2020, are governed by the new law, and the new accounting rules apply. Prior to these changes, Illinois law imposed no statutory duties of notice or duty to inform on trustees.
Illinois law states that “a trustee has a duty to invest and manage trust assets as a prudent investor would considering the purposes, terms, distribution requirements, and other circumstances of the trust. This standard requires the exercise of reasonable care, skill, and caution and is to be applied to investments not in isolation, but in the context of the trust portfolio as a whole and as a part of an overall investment strategy that should incorporate risk and return objectives reasonably suitable to the trust.”
A trustee is required to keep adequate records of the administration of the trust. Under Illinois’s new law, a trustee has duties to inform trust beneficiaries and account to them for trust activities. The Illinois Trust Code defines a trust accounting as “. . . one or more written communications from the trustee with respect to the accounting year that describe: (A) the trust property, liabilities, receipts, and disbursements, including the amount of the trustee’s compensation; (B) the value of the trust assets on hand at the close of the accounting period, to the extent feasible; and (C) all other material facts related to the trustee’s administration of the trust.”
A trustee has a duty to notify each qualified beneficiary under the trust whether the beneficiary has the right to receive or request trust accountings. At least once annually, a trustee must furnish a current accounting showing the receipts, disbursements, and inventory of the trust estate. Those beneficiaries then entitled to receive or currently receiving the income from the trust estate, or, if none, those beneficiaries eligible to have the benefit of the income from the trust estate must receive this accounting from the trustee. Trusts with significant assets and diverse investments require a complete and thorough accounting.
When a trust terminates, Illinois law imposes a duty on a trustee to furnish beneficiaries then entitled to distribution of the trust estate a final accounting for the period from the date of the last current account to the date of distribution. This accounting must show the inventory of the trust estate, the receipts, disbursements, and distributions. The trustee must also make available to beneficiaries, copies of any prior accountings not previously furnished.
The trustee of a special needs trust (SNT) has all the duties of any trustee, as well as specific additional responsibilities because of the special needs of the beneficiary. The trustee of an SNT must consider the needs of the trust beneficiary while working jointly with family members, teachers, social workers, and other individuals and entities to help the trust beneficiary meet these needs. The trustee of a special needs trust must also ensure that the beneficiary maintains his or her eligibility for public benefits programs like Social Security (Supplemental Security Income). Further, the trustee must report to the agencies administering these programs.
It is crucial for trustees to safeguard their exposure to liability by providing complete, accurate, and regular accountings. Beneficiaries are generally prevented from raising objections to investments or expenditures later in time if they received adequate disclosure in the trustee’s annual accounting.
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