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Choosing Correct Trustee of Special Needs Trust in Will is Important
Jan L. Warner & Jan Collins

Question: My wife and I are the parents of two boys in their twenties, one of whom is a special needs child (Downs syndrome). We are in our mid-50’s and began the planning process some time ago, but have been unable to find a knowledgeable lawyer where we live. We want to make sure that when we die, both children are provided for, but that our special child will not lose the governmental benefits he has been receiving since he was very young. (SSI and Medicaid). We have no immediate family and would like your advice about how to get started, how to find a lawyer, choosing a trustee, and just how the process works.

Answer: The planning process for a disabled child by parents and other family members, not to mention the implementation of the plan at the appropriate time, is very complicated, and should not be undertaken by novices who do not engage in this work regularly.

That said, the plan generally involves the creation of a third-party irrevocable trust called a “special needs trust.” Created either by will or during lifetime for the benefit of the disabled child, a special needs trust is designed to provide quality of life benefits to the disabled individual without threatening his or her eligibility for Medicaid or other public means-tested programs.

If created during life, the trust can be funded during the life of the creator, at death by a pour-over from a will, or even from the proceeds of life insurance policies. If created by will, the trust is funded by a specific bequest.

The trustee is generally given the authority to “supplement”, but not “supplant,” the benefits the disabled individual may be receiving from various governmental assistance programs. In no event does the beneficiary have access to, or control over, either the trust income or principal, and the beneficiary has no authority to require that the trustee make distributions of income and/or principal to or for his -- the beneficiary’s -- benefit.

The trustee has the discretion, but not the obligation, to use trust funds to make available services such as dental care and recreation for the beneficiary that public benefit programs do not provide. The trustee has the sole discretion to receive assets into the trust -- called the ``trust estate'', but is prohibited from making any distribution that will affect the beneficiary’s receipt of needs-based benefits. Generally, the trust document requires that the trustee consult regularly with a qualified attorney in the area of public benefits to make sure that these benefits are not jeopardized by inappropriate actions or distributions.

Since the trust estate is not available to the disabled person, it cannot be assigned, encumbered, or subject to creditor's claims or to legal process regarding the beneficiary. No public assistance benefits for the beneficiary are added to the trust which terminates when the assets are depleted or when the beneficiary dies. At that time, whatever may be left in the trust estate is distributed to contingent beneficiaries such as other children or charities.

While some parents choose children or other relatives as trustee, in our view, this is a mistake. We believe that an independent corporate trustee with experience in this area should be appointed. However, family members are often named as “special trustees” to act as a liaison between the disabled individual and the trustee.

Taking the NextStep: Because of the importance and complexity of this issue, we will provide additional information in next week’s “NextSteps.”

Need more advice or help with this topic? Click here to get information about taking the "Next Step".

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