Choosing an Investment Advisor for a Special Needs Trust

Takeaways

• Trustees of special needs trusts have a duty to properly manage the funds in their care. However, most trustees, especially nonprofessional ones, are not sophisticated investors and should not directly manage the investment of large sums of money.
• In many cases, this means that the trustee should hire a professional investment advisor.

Managing a special needs trust comes with significant responsibilities, particularly when investing the trust’s assets. A trustee must ensure that the trust’s resources are used to enhance the beneficiary’s quality of life while preserving funds for the future. Selecting the right investment advisor to invest the trust’s assets properly is one of the most critical decisions a trustee will make when managing a special needs trust.

Understanding the Role of an Investment Advisor

An investment advisor provides professional guidance on how to manage and grow the assets of a special needs trust (SNT). They help ensure that the trust’s investments align with its goals, risk tolerance, and timeline. (Learn about the different types of special needs trusts in a related article.)

For SNTs, the primary objectives typically include preserving the principal, generating income, and achieving growth. Principal can be preserved by ensuring sufficient funds remain available to meet the beneficiary’s long-term needs. An SNT should supply a steady income stream to cover ongoing expenses without providing so much income that the beneficiary is disqualified from whatever government benefits they may be receiving. Growth is achieved by growing the trust’s assets to keep pace with inflation and future needs.

Unlike standard investment portfolios, SNTs come with unique legal and financial considerations, such as maintaining the beneficiary’s eligibility for needs-based government benefits, such as Medicaid or Supplemental Security Income (SSI). An investment advisor who is experienced in handling SNTs can navigate these complexities effectively.

Qualities to Look for in an Investment Advisor

When selecting an investment advisor for an SNT, trustees should consider several key qualities:

• Experience with Special Needs Trusts. The advisor should have a proven track record of managing assets within the framework and guidelines of SNTs. They should understand how to structure investments to comply with rules that protect the beneficiary’s eligibility for public benefits.
• Fiduciary Responsibility. Choose an advisor who acts as a fiduciary, meaning they are legally obligated to prioritize the trust’s best interests over their own financial gain.
• Customizable Investment Strategies. No two trusts are alike. The advisor should tailor their investment strategy to meet the unique needs of the beneficiary, including their life expectancy, expected expenses, and overall goals.
• Investment Philosophy. Find an advisor whose investment philosophy aligns with the trust’s goals, such as conservative or moderate growth strategies.
• Transparent Fee Structure. Seek an advisor with a clear and straightforward fee structure. Avoid those with hidden fees or conflicts of interest, such as earning commissions from selling specific investment products.
• Strong Communication Skills. The advisor should communicate regularly and clearly with the trustee, providing updates on the trust’s performance and explaining any recommended changes to the investment strategy.
• Reputation and References. Check the advisor’s professional reputation by reviewing client testimonials, seeking referrals, and verifying their credentials through organizations such as the Financial Industry Regulatory Authority (FINRA) or the Certified Financial Planner (CFP) Board.

Collaborating With the Investment Advisor

Once an advisor is selected, the trustee should work closely with them to ensure the trust’s investment strategy aligns with its objectives. Key steps include:

• Establishing Goals and Priorities. Define clear financial goals for the trust, including income needs, growth expectations, and risk tolerance.
• Developing an Investment Policy Statement (IPS). Create a written document outlining the trust’s investment objectives, guidelines, and monitoring process. The IPS serves as a roadmap for managing the trust’s assets.
• Monitoring Performance. Regularly review the trust’s performance with the advisor to ensure it remains on track. Adjust the strategy as needed to respond to changes in the beneficiary’s circumstances or market conditions.
• Documenting Decisions. Maintain thorough records of all investment decisions and communications with the advisor to demonstrate compliance with fiduciary duties.

Finding an Investment Advisor

By finding an experienced investment advisor who prioritizes fiduciary responsibility and clear communication, trustees can ensure that the trust’s assets are managed effectively and will benefit the individual with special needs. The right advisor not only safeguards the financial health of the trust but also provides peace of mind to trustees and families, knowing the beneficiary’s future is secure. Contact an experienced special needs planning attorney near you to help you find a qualified investment advisor in your area.

For additional reading about special needs planning and special needs trusts, check out the following articles:

• What To Know Before Beginning Special Needs Planning
• Key Decisions in Setting Up a Special Needs Trust
• Should a Special Needs Trust Buy a Home for a Beneficiary?
• Why You Should Choose a Third-Party Special Needs Trust
• Can Others Contribute to My Child's Special Needs Trust?
• Supplemental Needs Trust vs. Special Needs Trust
• Charities May Be Named as Remainder Beneficiaries