When forming a special needs trust for your child with special needs, you may wonder whether using an institutional trustee is a good idea. “Institutional trustee”, also called a corporate trustee, refers to a bank or trust company that oversees and acts as trustee for many trusts. The institutional trustee most often is paid a management fee for performing its duties. You also may hear people reference a “professional trustee” or a “private trustee”. Sometimes these terms include large banks and trust companies, but often they refer to individual attorneys, CPAs, financial advisors, or non-profit organizations that offer trustee services.
Pros of Using an Institutional Trustee
Trustees owe fiduciary duties to the beneficiaries of the trusts they oversee, and these duties require them to act in the beneficiaries’ best interests. Some duties that trustees face include keeping detailed records, investing trust assets prudently, preparing and filing income tax returns, managing tax consequences, and preparing annual accountings to the beneficiaries. Many of these duties are beyond the abilities of family members and friends who may be the first choices as trustees of a special needs trust. The family trustee could end up employing a number of professionals to perform these tasks at the trust’s expense.
Institutional trustees complete these trustee duties every day. They have systems in place to properly complete taxes, to invest and reinvest funds, and to report to beneficiaries. Indeed, many professional or private trustees do this very effectively too.
Cons of Using an Institutional Trustee
The biggest downside to using an institutional trustee is that only a handful of the larger trust companies have dedicated special needs trust divisions that understand the nuances of handling a special needs trust as opposed to other trusts. SNTs and other future planning devices for people with special needs must take into account government benefits eligibility and a host of other considerations specific to people with special needs. If the institutional trustee has no special knowledge of these considerations, your trust could run into problems.
There are a few other downsides: institutional trustees tend to (though not always) provide less personalized service, some institutional trustees will not handle trusts with assets less than $1 million, it can be difficult to get answers to specific questions about your trust quickly, and changes to a trust may take some time.
Professional or private trustees as well as non-profit organizations that act as trustees for special needs trusts often have the specialized knowledge and can offer the personalized service that large institutional trustees lack. These trustees usually work with many fewer trusts than institutional trustees do but many used to work at institutional trustees or have other background in trust management.
Rubin Law is the only law firm in Illinois exclusively limited to providing compassionate special needs legal and future planning to guide our fellow Illinois families of children and adults with intellectual disabilities, developmental disabilities, or mental illness down the road to peace of mind. For more information, email us at firstname.lastname@example.org or call 866-TO-RUBIN.