Choosing a trustee to oversee a trust for your child with special needs can be difficult. Just as the name implies, you should look for someone you can trust. That’s why many parents opt to ask another adult child to be the trustee for a special needs’ trust that has been set up for the child with special needs.
Your son or daughter, the potential trustee, should understand that it’s not a role to be taken lightly. There are pros and cons to asking a relative to be a trustee. There are legal provisions a trustee must follow to protect the integrity of the trust.
For starters, a trustee of a special needs trust is prohibited from self-dealing, a legal term that means that a person is acting in his or her personal best interests instead of the interests of the trust and beneficiary. An investment of trust assets in the trustee’s business or assets is not allowed, as is the mingling of trust and personal assets. A trustee cannot borrow from the trust, purchase goods or services for their own benefit or buy trust assets. The rules also apply to the trustee’s immediate family members.
Special needs trusts are often set up so that there are two beneficiaries: the child with special needs and what’s called a “remainder” beneficiary (who will get the assets in the trust on the passing of the child with special needs. In the case of a self-settled special needs trust, the remainder beneficiary is the state, as a self-settled “payback trust” requires Medicaid reimbursements. In the case of a third party special needs trust the remainder beneficiary is often other family members. That being said, the trust may be drafted to ensure that the only interest considered is the child with special needs and no regard need be made for the interests of the remainder beneficiaries.
A trustee may be allowed to hire investment advisers, tax preparers and other experts. However it’s very important to remember that he or she will remain liable for any mistakes or failures on the part of those people.
A special needs trustee should be familiar with investment principles, including risk tolerance and asset diversification. A trustee who has experience and knowledge in investing and asset management is ideal. If not, the trustee should learn such financial matters before taking on the role so he or she understands what’s at stake. In some cases, an investment portfolio will hold a percentage of assets in fixed income investments and the remainder in securities. It’s important to understand why this is done and how it benefits the child with special needs in the long run.
Choosing a trustee is a complex process, no matter who you decide upon. Often times families will choose a professional trustee such as a non-profit organization used to act as trustee of special needs trusts if there is no family capable of acting. Talk to a special needs attorney about what goes into this challenging, yet rewarding role before you decide who amongst your family and friends may be the best fit.
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.