Choose Your Trustees Wisely

Kristen Booth Glen, judge in The Matter of Mark C.H.

Mark is an autistic adult who resides in a Medicaid-funded residential program in upstate New York. Before his parents passed away, his mother established a Special Needs Trust for him, which held in excess of $2 million, with the two co-trustees being an attorney and a well-known trust company. As a result of the trust, Mark had plenty of money, but what he lacked was a friend or family member to advocate for his needs.

At the facility where Mark resides, the primary focus of administrators is to provide a safe environment for residents. The program administrators did make suggestions about possible expenditures to supplement Mark’s care, but they were not responsible for determining how private dollars should be spent. That was the responsibility of the trustees. Or so thought Mark’s mother when she established the trust.

In Mark’s case, referred to as The Matter of Mark C.H., a court reviewed the accounts of the trustees to see how funds in Mark’s trust were being spent, only to discover that the co-trustees regularly took commissions for themselves, but spent practically nothing on Mark, and made no effort to determine if they should be doing so. And because Mark did not have a family member, guardian, or advocate looking out for him, no one knew this was happening.

Unfortunately, like Mark, many beneficiaries of Special Needs Trusts lack the ability to advocate on their own behalf. As a result, many trustees, unsure of the beneficiary’s needs, and lacking a family member, trust advisor, guardian, or advocate to provide this information, will simply do nothing without receiving a request. Funds that could be used to make the beneficiary’s life better, such as expenditures for additional therapy and services, better medical equipment, recreational opportunities, and/or private case management and advocacy, often go unused.

In the past, as long as a trustee did no harm and invested prudently, filed tax returns, and kept good records, there would be no liability. However, The Matter of Mark C.H. may help change things. The decision the judge in the case made was that the trustees were not entitled to the compensation, because they failed to be proactive in trying to identify the beneficiary’s needs. In the words of the judge:

“It was not sufficient for the trustees merely to prudently invest the trust corpus and to safeguard its assets. The trustees here were affirmatively charged with applying trust assets to Mark’s benefit and [were] given the discretionary power to apply additional income to Mark’s service providers. Both case law and basic principles of trust administration and fiduciary obligation require the trustees to take appropriate steps to keep abreast of Mark’s condition, needs, and quality of life, and to utilize trust assets for his actual benefit. While the accounting in this trust is not yet complete, their failure to fulfill their fiduciary obligations should result in denial or reduction of their commissions for the period of their inaction.”

Ultimately, Mark’s trustees retained a private care manager to help ascertain how Mark’s life could be enhanced through the proactive use of trust funds, and Mark responded well.

As you can see from Mark’s situation, millions of dollars sitting dormant in a trust account didn’t help him. But a small fraction of those dollars, spent under the guidance of a dedicated advocate, made a big difference for him.

Choosing a Trustee for a Special Needs Trust

Mark’s story reinforces the need to choose trustees carefully. Choosing someone who is reliable is crucial, because although the law imposes a duty on trustees to honestly and faithfully carry out the trust’s terms, in most cases, there is no court supervision to ensure this is actually happening.

Qualities of a Special Needs Trustee should include:

Willingness to serve: Clearly explain to potential individual trustees what their duties would include, and under what conditions they would serve. Be sure they accept the role, and responsibilities that go with it, before you assign it to them. Otherwise, when it comes time for them to serve, they might decline or mismanage the trust. You may consider providing them with a written letter, or “job description,” outlining their duties in the role.
Honest person: An honest and honorable trustee will make decisions based solely on the beneficiary’s needs, not their own.
No Conflicts of Interest:  A special needs trust must be managed for the benefit of the beneficiary. This means that the person serving as trustee must not act in his or her own best interests—or the interests of others—when making investment or spending decisions.
Familiarity and Empathy with the Beneficiary: The ideal trustee must continue advocacy upon the parents’ incapacity or death. For a special needs trust to function smoothly, the person serving as trustee should have a good working knowledge of the beneficiary’s needs. Also, the more familiar a trustee is with a beneficiary, the less likely it is that the trustee’s decisions will be based on bias or misconceptions about people with disabilities that are, unfortunately, all too common.
Closeness in Age to the Beneficiary: When you’re choosing a trustee, you should do your best to find someone who will be around as long as the beneficiary needs the trust. This means you need to think about both the trustee’s life expectancy, and the life expectancy of the person with special needs. If your ideal trustee is a bit older, or becomes ill or unable to carry out the responsibilities set forth in the trust document, you should have an alternate trustee named in the trust document. If you do not have an alternate trustee named, then the trustee should at least have the ability to appoint a successor.
Familiarity with SSI and Medicaid: Each trustee you name will need to become familiar with the rules that determine eligibility for SSI and Medicaid—and how the special needs trust can be used to supplement the beneficiary’s needs without violating these rules. It is essential to get help from an experienced special needs planning attorney, such as myself, when it comes to these matters.
Financial Knowledge and Competence: All trusts have certain duties concerning tax planning and maintaining books. The trustee must also oversee the investments in the trust and diversify them so that they are neither too conservative nor too aggressive. The discretionary nature of a Special Needs Trust intensifies those needs, especially when the beneficiary needs assistance advocating for himself or herself.

Naming Co-trustees

Few family members will possess all the necessary characteristics to be a successful trustee. Similarly, many large bank trust companies are not skilled in handling Special Needs Trusts and are not structured to provide the level of care and contact most families desire. Often, the optimal solution will be to pair a family member who possesses a strong relationship with the beneficiary and a professional as Co-Trustees.

Using a Trust Advisor

In situations in which there is no family member who is willing and able to serve as co-trustee, or you do not have a trustee who is familiar with the needs of the beneficiary and empathetic with those needs, then a Trust Advisor should be appointed in the trust document to advise the trustee as to the needs of the beneficiary. The Trust Advisor can be an individual, or a group of individuals acting as a committee

Using a Trust Protector

In addition, a person can be named in the trust document as a Trust Protector. This person can remove a professional trustee and replace them with a new professional trustee, should the need arise.

Pooled Special Needs Trusts

Pooled third-party trusts are an alternative to setting up your own special needs trust if you can’t come up with a good choice for trustee or if you are only putting a modest amount of assets into the trust. They can be advantageous because the people managing the trust and its assets are typically attuned to the special needs community and knowledgeable about agency rules regarding SSI and Medicaid programs. In addition, even if you don’t have a lot of money to leave to your loved one, a third-party pooled trust provides a way to benefit from a special needs trust without having to create one yourself. Read more here.

Special Needs Planning

If you haven’t done so already and you have a special needs child or grandchild that will likely need assistance for life, it is vitally important to take the right steps to ensure the child will be financially secure and cared for in the event of death or disability of the parent, including:

•Hiring an attorney who is experienced in creating special needs trusts, such as myself;
•Clearly spelling out your wishes for the disbursement of trust funds within the trust document;
•Finding someone you can trust that has your child’s best interests at heart to serve as trustee and/or
•Hiring an institutional trustee that has a reputation for utilizing social workers and case managers to monitor the welfare of beneficiaries and determine how trust funds should be spent.
When it comes to special needs planning, The Law Firm of Evan H. Farr, P.C. can guide you through this complex process. If you have a loved one with special needs, call one of our offices to make an appointment for a no-cost consultation:

Fairfax Special Needs Trusts: 703-691-1888
Fredericksburg Special Needs Trusts: 540-479-1435
Rockville Special Needs Trusts: 301-519-8041
DC Special Needs Trusts: 202-587-2797

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