It is very common for a family member to be named to serve as a trustee of a special needs trust of a loved one with special needs (usually to save money), but the recent felony charges for financial exploitation against a Minnesota mother who was serving as a trustee of a special needs trust created by the father for the benefit of their adult special needs child demonstrates the need for additional protection.

After the death of the father, the mother (acting in her capacity as trustee) used the funds in the trust for her own benefit (instead of being used for the benefit of her disabled daughter). Individuals who serve as trustees of a special needs trust have multiple responsibilities including investing, distributions permitted within applicable public benefits laws, taxation issues, etc. which often lead to mismanagement. Here are four ways to protect a special needs trust beneficiary from a rogue family member trustee or a family member trustee who may inadvertently mismanage the trust:

  1. Professional Trustee and family member act as Co-Trustees. The professional trustee (usually a bank or trust company) can make sure that public benefits and tax laws are being followed while the family member trustee is making sure the needs of the beneficiary are being met. Professional trustees should probably not be used unless there are substantial funds in the trust.
  2. Professional Trustee acting alone. Professional trustees of special needs trusts should be familiar with investing, taxation issues as well as public benefits laws. However, banks and trust companies often will not act as a trustee unless the trust is funded with hundreds of thousands of dollars.
  3. Pooled trusts. A pooled trust can be one large special needs trust run by a non-profit organization (i.e., the ARC of Texas) which has subaccounts with funds of the disabled beneficiary after the beneficiary enters into a joinder agreement. Although the pooled trust has administrative fees, usually the trustee fees are reduced as a result of the pooling of funds of numerous of special needs beneficiaries.
  4. Trust Protector. For those who are concerned about any fees, a trust protector is often named in the trust to make sure the Trustee is not mismanaging funds and properly acting as a trustee. The trust protector can often demand an accounting and replace a trustee or name a new trustee (other than the trust protector acting as Trustee). Any trusted individual can serve as a trust protector.

Estate planning (not just special needs trust planning) is often about layers of protection. The father of the disabled child in the Minnesota case described probably should have either used a pooled trust or named a trust protector in the trust due to limited funds.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102.  We make it simple to attend and it is without obligation.