Duties of the Trustee of a Special Needs Trust

Duties of the Trustee of a Special Needs Trust

Many parents who have a child with special needs establish a special needs trust to plan for their future. The proceeds of a special needs trust can help pay for things for that child that government assistance doesn’t cover, such as transportation and education, as well as subsidize and enhance living expenses and other support they may need. Special needs trusts are particularly beneficial because they generally will not affect the child’s eligibility for need-based public benefits programs.

Special Needs Trusts Require a Trustee

As with a general trust, every special needs trust must have a trustee or an individual whom the parents choose to administer the terms of the trust. The trustee may be a family member or close friend but also a professional person or entity, such as someone who works for a bank, trust company, or in some cases, a non-profit organization. While parents typically serve as the trustees of the special needs trust during their lifetime, they name a successor trustee who will take charge of the trust assets following their deaths.

The Duties of Trustees Concerning Special Needs Trusts

Trustees of special needs trusts have multiple duties under the law that they must take very seriously. In most cases, getting professional advice, such as legal, tax, accounting, and investment advice, will be necessary. Trustees have multiple duties when administering a trust, including the following:

  • Providing complete annual accountings to beneficiaries of the trust and the probate court in some cases;
  • Reporting distributions from the trust to the Social Security Administration if the beneficiary is an SSI recipient;
  • Reporting distributions to Medicaid in states where it is required;
  • Reporting to the court and obtaining permission for disbursements from the court when required;
  • Allowing and disallowing the disbursement of funds according to the terms of the trust;
  • Preparing tax returns and paying taxes;
  • Modifying the trust terms as needed to maintain the beneficiary’s eligibility for government assistance, if necessary; and
  • Wrapping up the trust upon the beneficiary’s death or the trust’s termination.

Trustees also have general legal duties when administering special needs trusts. For example, trustees must refrain from any self-dealing. In other words, trustees may not invest trust assets in their business or assets, commingle trust assets with personal assets, borrow funds from the trust, use trust funds to purchase goods or services from the trustee or sell trust assets to the trustee.

A trustee can delegate specific duties or functions but is still liable for those functions, although this liability is limited in some states. For instance, the trustee can hire an accountant to prepare and file tax returns for the trust, but the trustee is still liable for any mistakes made or failure to do so by the accountant.

Finally, trustees must be familiar with basic prudent investment principles regarding risk tolerance and asset diversification. Trustees with special investment training or knowledge will be held to a higher standard than others. In the case of a court-supervised trust, some courts will require a specific allocation of assets in fixed-income investments and securities.

Contact Us Today to Learn More About Our Legal Services

Rubin Law is the only Illinois law firm to dedicate itself exclusively to providing compassionate legal services for children and adults with special needs. We offer unique legal and future planning techniques to meet your family’s individual needs.

Call us today at 866-TO-RUBIN or email us at email@rubinlaw.com to learn more about the services we can offer you and your family.