A special needs trust can be an excellent tool to provide your disabled loved one with the quality of life they deserve and take care of them long after you are gone. But special needs trusts are complex legal documents and entities that require considerable knowledge, training, and experience to oversee. Administering and managing a special needs trust is also time-consuming and labor-intensive, and the margin for error is slim. Even the smallest mistake during the administration process can have catastrophic consequences. Here’s what you need to know about administering a special needs trust and why hiring a professional is crucial.
A Guide to Administering & Managing a Special Needs Trust
The day-to-day responsibilities that managing a special needs trust can require are often a source of confusion. Firstly, it is important to understand that per the law, a special needs trust is intended to be used for the special and supplemental needs of a disabled person.
In other words, this trust is not supposed to pay for day-to-day living expenses, such as food and shelter. One of the biggest challenges when administering a special needs trust is distinguishing between what the trust can and can’t pay for.
Failure to understand these rules can have devastating consequences and result in your disabled loved one losing eligibility for benefits, such as SSI and Medicaid. Just as importantly, re-enrolling in these programs is not only exceedingly complicated but depending on the violation, you may have to wait a substantial amount of time before your disabled loved one can even requalify.
It’s also important to understand that if your loved one does receive a lump sum of cash that disqualifies them from continuing to receive their benefits, they will need to wait until they recoup their benefits to apply.
For example, while paying for shelter isn’t allowed, you can use the funds in a special needs trust to cover emergency household expenses, like roof repairs. Understanding these nuances is key to protecting your loved one’s government benefits and, as a result, providing your loved one with the enjoyment they deserve. Let’s get into some common SNT situations and what you need to know about them as the trustee:
- Purchasing a home for the beneficiary with the trust will not impact government benefits, but paying expenses related to the real property, such as taxes, rent, heat, gas, water, electricity, mortgage payments, and garbage removal would impact those benefits.
- Purchasing cable TV, satellite TV, telephone service, internet service, newspaper and magazine subscriptions, computers, software, and computer upgrades will not impact government benefits.
- Purchasing an automobile and paying for car insurance and maintenance is permitted, but purchasing fuel could be problematic depending on how those payments are made. We advise giving the beneficiary a gas company card that cannot be used for other purchases and that directly bills the trust.
- A trustee can make unlimited distributions for the travel and entertainment expenses of the beneficiary and even hire a travel companion if they cannot travel alone. On the other hand, paying for hotel expenses can be problematic because those could technically be considered “shelter expenses.” If the beneficiary maintains a household, then it is possible to counter this argument.
- Purchasing household furnishings and furniture will not impact government benefits.
- Paying for legal and accounting fees from the trust as a trustee will not impact the beneficiary’s eligibility for benefits.
- Purchasing clothing for the beneficiary will not impact the beneficiary’s eligibility for benefits.
- Paying for durable medical equipment, alternative treatments, tuition, books, tutoring, care management, and taxes will not impact government benefits.
Administering and managing a special needs trust requires considerable specialized financial expertise and experience. In addition to the unique duties of an SNT, the trustee must also meet all of the other standard trustee obligations:
- Uphold their fiduciary duty
- Make distributions from the trust
- Manage investments and trust properties
- Maintain meticulous trust records
- Prepare an annual trust accounting
- File taxes for the trust
- Maintain communication with beneficiaries
“There are, essentially, two sides to an SNT trustee’s responsibility. You must first have a strong grasp of the unique laws that govern these types of trusts because, if you don’t, you could end up severely hurting the beneficiary and undermining their quality of life. And you also must fulfill the regular trustee responsibilities, which are more complicated when you factor in the unique SNT laws. Ultimately, working with a trustee is the best solution in these situations.”
– Marcia L. Campbell, CPA & Professional Trustee
Related Article: What is a California Special Needs Trust?
Why Hire a Professional Trustee for Managing a Special Needs Trust?
As discussed, managing a special needs trust requires specialized expertise and extensive experience. When selecting someone to serve as the trustee of the special needs trust, you have a few options. You can choose between a family member, bank, or fiduciary.
With family members, conflicts of interest easily surface and most laypersons lack the expertise to perform this role. Further, with a bank, your interactions will likely be impersonal, and corporate trustees may even lack the necessary expertise. And it just takes one mistake to erode your loved one’s quality of life.
The best option is, typically, working with a private fiduciary who will serve as a professional trustee. These licensed professionals have the specialized knowledge and experience to maximize your disabled loved one’s quality of life.
A private trustee will have specialized knowledge about government benefit programs and how to navigate SNT laws to ensure your disabled loved one never loses eligibility for these benefits, and they can even help coordinate care. Plus, they provide more personalized service.
Private trustees are also typically less expensive alternatives to working with a corporate trustee at a bank. With a fiduciary who serves as a professional trustee, you can expect to pay either a flat annual fee based on the amount of assets under management or an hourly rate depending on your needs.
Plus, when you work with a professional trustee, you receive access to a network that an inexperienced family member won’t have, which is invaluable. They will have an attorney and accountant they work with to make the best decisions for your loved one.
Hiring a professional trustee in these situations is essential to your disabled loved one’s current and future security, stability, and quality of life.
Related Articles: Special Needs Trusts: Consider These Things
Need Help Managing a Special Needs Trust to Give Your Loved One the Quality of Life They Deserve? Hire a Professional Trustee!
You must have a full understanding of trust law and the unique laws that govern these types of trusts to ensure you can take care of your disabled loved one now and long after you’re gone. Whether you have already set one up or are planning to, enlisting the help of a professional trustee is essential to administering and managing a special needs trust.
Do you want to give your disabled loved one the quality of life they deserve? Then make sure you work with a private fiduciary.
