One of the most important decisions a special needs trust’s settlor (the person who creates the trust and supplies the funds for the trust) makes is the choice of a trustee for the trust. A trustee typically manages the day-to-day operations of the trust, often making distributions to the trust’s beneficiary, investing the trust’s assets, and paying the trust’s bills. But how can the settlor make sure that the trustee will properly manage the trust when the settlor is no longer around to keep an eye on the trustee, especially if the trust’s beneficiary is not capable of supervising his own trustee? In many cases, a trust protector can ensure that a beneficiary is protected from trustee mismanagement.
Once she assumes office, a trustee serves in a “fiduciary capacity,” meaning that she is in a position of trust and confidence and has a legal duty to properly manage the trust’s assets while keeping in mind the best interests of the trust’s beneficiary. A fiduciary is held to a high standard of conduct, and she owes the trust’s beneficiary a strict duty of loyalty. However, in many cases involving special needs trusts, the beneficiary of the trust is unable to properly enforce this fiduciary duty because of his special needs. This is where a trust protector comes in.
A trust protector is a person chosen by the settlor who is responsible for monitoring the trustee’s actions. The trust protector’s duty is to the trust’s beneficiary as an additional pair of eyes, making sure that the trustee is properly performing her job. The trust protector typically has access to the trust’s accounts, and can compel a trustee to produce a summary of what she has done for the beneficiary. If a trust protector believes that the trustee is not properly performing her duties, he can usually fire the trustee. Depending on how the trust is drafted, the settlor can even give the trust protector the power to name a new trustee if the settlor has not done so himself in the trust document. (Most of the time, however, the trust protector must name an independent trustee as the new trustee, avoiding the scenario where the trust protector fires a trustee only to name himself as the new trustee).
Trust protectors may be useful in a variety of situations. Take the case of Jennifer and her son, Adam. Jennifer is elderly and would like to make sure that her son, who has special needs, is cared for at home for as long a possible when she is gone. So Jennifer decides to establish a special needs trust that will hold her home for Adam’s benefit, and she funds this trust with enough money to make sure that the property is well kept and that the bills are paid. However, Jennifer’s closest relative, her niece Margaret, does not want to serve as trustee of Adam’s trust because she does not want the added responsibility of managing a home. Jennifer decides to name John, a friend of hers who knows Adam and who runs a property management company, as the trustee instead. Although Jennifer trusts John, she decides to name Margaret as a trust protector to review his yearly accounts and make sure that he charges the proper amount for his services and is keeping the property in good shape.
Every special needs trust is different, and in many cases, especially when a settlor is serving as trustee, a trust may not initially need a trust protector. The best way to decide if your special needs trust should include one is to speak with your qualified special needs planner.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

Inexperienced or incompetent estate planning attorneys have a bad habit of telling parents of children with special needs to simply write their child out of their estate plan altogether in order to ensure that the child will qualify for government benefits if the parents pass away. While this approach might accomplish the goal of preserving government benefits, it is almost always the wrong way to help a child with special needs.

There are three main government benefits available to people with special needs – Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI) and Medi-Cal. A fourth benefit, Section 8 housing, is often available for people with disabilities who can’t work. One of these programs, SSDI, does not set any limits on a beneficiary’s unearned income or assets, so a family of a child with special needs could theoretically leave a full inheritance outright to a child who receives only SSDI with no impact on that benefit, although there are other reasons why this is a bad idea. The other three programs — SSI, Medi-Cal and Section 8 — are all means-tested programs with very strict income and asset limits, so the parents of a child who receives these benefits are rightly concerned about leaving money directly to the child because an inheritance could end access to any one of these vital programs. But simply writing a child out of an estate plan is not the right solution to this problem.

For one thing, SSI and SSDI provide small cash benefits that might not be nearly enough to support a person with special needs. In these cases, not leaving an inheritance to that child could severely limit his opportunities after the death of his parents. Secondly, government benefits are subject to the whims of Congress and the President, so benefits that fully provide for a child with special needs today could be eliminated or severely cut back in the future, at which point a child with no inheritance could be left destitute. Lastly, although SSI, Medi-Cal and Section 8 all have some form of asset limits, these can be avoided through appropriate special needs planning.

So instead of disinheriting a child with special needs, parents should almost always establish a special needs trust for that child’s benefit. When properly drafted by a qualified special needs planner, these trusts will hold a child’s inheritance so that it can be used to supplement her government assistance without causing the child to lose her benefits. Special needs trusts can also receive life insurance benefits and, in some cases, retirement funds, so that families without a lot of fully liquid resources can still provide for their children with special needs. These trusts also work well for SSDI beneficiaries or other people with special needs who may not receive any benefits at all, because they provide oversight of spending and protect the beneficiary from financial abuse.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.