So you have been asked to serve as the trustee of a friend or family member's special needs trust. While your selection is a great honor, it is also a great responsibility. Here are seven questions to ask before saying "yes":
- May I read the trust? The trust document is your instruction manual. It tells you what you should do with the funds or other property you will be entrusted to manage. Make sure that you read the trust, understand it and ask the drafting attorney any questions you may have. If the grantor refuses to let you see the trust before you agree to serve, then you should automatically, but politely, decline the position.
- What are the grantor's goals? Unfortunately, most trusts say little or nothing about their purpose, although special needs trusts tend to provide a little more insight than other types of trusts. Most special needs trusts are discretionary trusts that give the trustee incredible latitude to make distributions for the benefit of the person with special needs, but each grantor has a different opinion about what types of distributions are appropriate. It is important that you ask the grantor about her goals while you can, and it may be useful for the grantor to put her intentions in writing in the form of a letter or memorandum addressed to you.
- How much help will I receive? As trustee of a special needs trust, will you be on your own or will you be working with a co-trustee? If you are working with one or more co-trustees, how will you divvy up the duties? If the co-trustee is a professional or institutional trustee, such as a bank or trust company, will it take charge of investments, accounting and tax issues, and simply consult with you on questions about distributions? If you do not have a professional co-trustee, can you hire attorneys, accountants and investment advisors as needed to make sure that the trust operates properly?
- How long will my responsibilities last? Almost all special needs trusts last until the death of the beneficiary or until the trust funds run out. Since your position could go on for quite a while, you need to know the terms of the trust that allow you to you resign and how successor trustees are named. In order to properly manage your expectations, you should also discuss the beneficiary's life expectancy and you should know how the trust will be funded.
- What is my liability? Generally trustees are relieved of liability in the trust document unless they are grossly negligent or intentionally violate their responsibilities. In addition, professional trustees are generally held to a higher standard than family members or friends. What this means is that you won't be held liable if you get professional help with the trust investments and they happen to drop in value. However, if you use your neighbor who is a financial planner as your adviser without checking to see if he has run afoul of the applicable licensing agencies, and he pockets the trust funds, you may be held liable. So, be careful and read what the trust says in terms of relieving you of personal liability.
- Will I be compensated? Often family members and friends serve as trustees without compensation. However, if the duties are especially demanding, compensation is appropriate. The question then is how much. Professionals generally charge an annual fee of one percent of assets in the trust, but they often charge a higher percentage for smaller trusts and a lower percentage for larger trusts. If you are doing all of the work for a special needs trust, including investment management, distributions and accounting, it would be appropriate to charge a similar fee. However, if you are paying others to perform these functions, or if you are acting as co-trustee with a professional trustee, charging a professional-caliber fee may be seen as inappropriate. A typical fee in such a case is a quarter of what the professional trustee charges, or .25 percent (often called 25 basis points by financial professionals). In any case, it's important for you to read what the trust says about trustee compensation and discuss the issue with the grantor and the grantor's attorney.
- What are the beneficiary's special needs? Hopefully, you've been selected as trustee of a special needs trust because you have an understanding of the beneficiary's condition and needs. But in many cases you may not be familiar with a beneficiary's daily routine, the exact services she receives and how those services are paid for. It is critically important for you to have a long discussion about the beneficiary's special needs prior to accepting your appointment as trustee so that you can properly manage her benefits from the moment you begin to serve.
If after asking these questions you feel comfortable serving as trustee of a special needs trust, then by all means accept the role. It is an honor to be asked and you will provide a great service to the grantor and beneficiary.
For help deciding whether or not to take on the job of trustee of a special needs trust, consult with your special needs planner.
Article Last Modified: 10/02/2014
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