2890 N. Main Street, Suite 206 • Walnut Creek, CA 94597

Special Needs Planning – Making the Trust Work Over Many Years – Part 1

Special Needs Trusts (SNTs) are different from other trusts that we use in estate planning in many ways.  One of those ways has to do with the number and variety of the participants, both family members and professionals, whose assistance is needed.  The roles of some of these participants must be clearly defined in the Special Needs Trust document.  Other roles will be filled as needed (and permitted by the Special Needs Trust document) by the trustee.  In this article we will discuss some of the roles that are not commonly found in other estate planning trusts but that are often critical to the success of a Special Needs Trust.

Special Needs Trust, Special Needs Planning – Making the Trust Work Over Many Years  –  Part 1In the planning of the Special Needs Trust lots of decisions must be made.  Among the most basic is who will be contributing to the Special Needs Trust?  With conventional estate planning only the grantors, or creators of the trust contribute assets to the trust.  For some families, the Special Needs Trust is really meant only to be a part of the parents’ estate plan and comes into play on the death of the parents.  In this respect it is identical to the conventional estate planning.  Other families want to create a vehicle for other family members to contribute to, either during their lives or upon their deaths.  The people who contribute assets to this type of Special Needs Trust are not necessarily only the grantors of the Special Needs Trust.

A very important role that must be filled in the planning phase of the Special Needs Trust is the trustee.  As with conventional estate planning, the selection of a competent trustee is very important to the likelihood of the trust carrying out the grantor’s goals.  With a Special Needs Trust trustee selection is just that much more difficult and important.  The path that the trustee must walk during the administration of the Special Needs Trust can contain many traps for the unwary.  Making a distribution to or for the benefit of the SNT beneficiary can result in the beneficiary losing eligibility for an important government benefit.  The rules governing eligibility are complicated and always changing.  It is crucial to select a Special Needs Trust trustee who has the discipline to follow a checklist or decision tree when evaluating a potential distribution and who has sufficient awareness to recognize when professional advice is necessary.

Another distinction between conventional estate planning trusts and SNTs is their potentially long duration.  The majority of estate planning trusts we write will terminate upon the distribution of the beneficiaries’ inheritances within a year or so of the grantor’s deaths.  A Special Needs Trust is intended to last well beyond the deaths of the grantors and ideally until after the death of the beneficiary.  The trustee provisions of the SNT must be written with this fact in mind.  In order to cover the potentially long life of the Special Needs Trust, provisions for filling the position of trustee must be carefully considered.  Unless the selected trustee is a bank or other corporate trustee, which is not practical for some families, the trustee will be a human and human’s die, retire or lose the ability to perform the job.  We will discuss in another article some of the ways to solve this problem.  However, the important conclusion we often see families drawing from these two facts, the job is complicated and it can last a long time, is that the role of trustee should not be assigned to a sibling or other family member.  The Special Needs Trust beneficiary’s siblings will have careers and family responsibilities of their own and for these reasons really might not be the best choice for trustee.

This leads to another common distinction between conventional estate planning trusts and Special Needs Trusts in the roles that need to be filled.  It is much more common for families creating Special Needs Trusts to designate a private professional fiduciary to serve as trustee.  Private professional fiduciaries are in the business of serving as trustees, executors, guardians, conservators-fiduciaries-for others.  They are licensed by the State of California through the Professional Fiduciary Bureau.  The use of private professional fiduciaries as trustees is becoming more common.  They are particularly helpful in conventional estate planning where family members do not get along.  In planning Special Needs Trusts we always encourage clients to consider whether a private professional fiduciary can be the best choice for a trustee.

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Walnut Creek, CA 94597

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