If you are thinking about serving as the
trustee of a special needs trust, you will probably have questions about the
trustee’s role and responsibilities. Trustees of special needs trusts have
many important responsibilities, but the following five appear at the top of
any trustee’s list.
An ability to communicate with the trust beneficiary, caregivers and others is probably the trustee’s top responsibility. Trustees often have to coordinate payment for essential services like housing and medical care, and miscommunication can result in the loss of these sometimes life-saving benefits. Trustees risk being sued by beneficiaries or family members who feel that the trustee is not meeting the beneficiary’s needs. But the trustee still should be able to say “no” to a beneficiary. While a large trust may seem like it will last a lifetime, money can easily be spent injudiciously if a trustee is more concerned with keeping a beneficiary happy than with making appropriate expenditures from the trust. A trustee can avoid this problem by setting clear expectations and communicating with everyone about the use of trust funds.
2. Making Proper Distributions from the Trust
Before a trustee makes a distribution from a special needs trust, the trustee must check that the distribution is sanctioned under the terms of the trust and must also understand how the distribution will affect the beneficiary’s government benefits.
Every special needs trust will contain at least minimal language giving direction to the trustee. But no matter the wording, it is clear that the trustee is legally required to follow the terms of the trust when making dispersals from the trust. A trustee must not only understand the terms of the trust itself but also must recognize how a distribution affects the beneficiary’s government benefits. It might not be prudent to spend available money, especially since certain purchases can reduce or even terminate the recipient’s government benefits. On the other hand, some distributions that affect government benefits may still be in the beneficiary’s best interest, and thus the trustee should still make those distributions.
3. Investing the Trust Property Appropriately
A trustee is probably not going to be picking individual stocks to invest on behalf of the trust. But the trustee is required to invest trust funds appropriately, under advisement by qualified financial professionals. Such investing involves oversight of the investment activity, monitoring and regular consultations with financial advisors and accountants to ensure that the investment strategy is sound. The trustee should also ensure a suitable investment risk level for a trust to provide steady growth while still generating income for the trust.
4. Bookkeeping and Accountings
The trustee is responsible for keeping the trust records and for providing accountings to the beneficiary and sometimes to others. Not all trustees will prepare accountings on their own; sometimes trustees hire accountants or bookkeepers. But the trustee must ensure that the proper information is recorded and distributed to the parties and that the trust’s records are in order and available for audit by the beneficiary or a court.
5. Tax Reporting
Trustees must file the trust’s state and federal income tax returns as applicable, typically by April 15th of each year Since trust tax returns are complicated, it’s best to leave this job to a professional accountant, but the trustee must still understand the basics of trust accounting and how beneficiaries may be taxed on distributions from trusts. Without proper care, the trust beneficiary could experience an unexpected tax bill. Being a Trustee is a worthy and important job, but also presents many unique challenges. Consult an experienced Estate Planning or Elder Law attorney before deciding whether you are the right person to take on this responsibility. The attorney can guide you to make sure you make the right decision for yourself and the beneficiary.