Who Should Serve as Professional Trustee of Special Needs Trust?
We have a Supplemental Needs Trust for our older son (25 years old). We have named a younger son (23 years old) as the trustee and a friend (60 years old) as a co-trustee that our younger son can change if he wants. Our financial person has been encouraging us to use an institutional trustee from his company to be a contingent trustee. Our older son is not on government benefits – long story – but it just isn’t going to work for his situation – as of now.
I am currently the trustee for my sister’s special needs trust. I understand all the work involved and am good at it. My sister is well taken care of.
My question is this – do you think it wise to have an institutional trustee versus an independent professional trustee as a contingent trustee? I do not feel comfortable having a distant family member besides my son as trustee. Should the trustee be associated with where the accounts (as our finance person suggests – he also mentioned private professional ones too) are located or where our son is?
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First, I do think, in most cases, it is useful to have a professional co-trustee of special needs trusts, whether that’s an institution, such as a bank or trust company, or an individual professional, such as an attorney or accountant. There’s a lot a trustee must do competently, including bookkeeping, making disbursements, evaluating requests for funding, investing, and filing annual tax returns. In the case of a special (or “supplemental”) needs trust, in addition to these standard trustee responsibilities, trustees of special needs trusts have to be aware of public benefit rules and probably have a greater responsibility than other trustees to look into the general welfare of the beneficiary.
This is a lot of responsibility to place on anyone, especially in your case on a younger sibling of the beneficiary, perhaps just when he’s getting started on a career and family. A professional co-trustee can take some of the burden off his shoulders at the same time providing continuity in case the family member trustee becomes less active during periods in his life. At the same time, I also like having a family member co-trustee to make sure that someone who knows the beneficiary intimately is staying involved and keeping the professional trustee on its toes.
But that’s not really answering your question. As for the question of choosing between an institution and an individual professional, both have their benefits and risks. Institutional trustees are more likely to provide continuity and to have infrastructure and systems in place to make sure the basic trust functions are managed with no slip-ups. But they can be a bit impersonal and offer less continuity in a fashion, because the personnel of the bank or trust company may change over time. A professional individual is likely to be more personally connected and offer more continuity as long as she can serve in this role. But she may be less responsive when she gets busy due to work or family demands and, inevitably, will have to be replaced when she retires sometime in the future.
So, unfortunately, there’s no one-size-fits-all solution. You will have to pick the one that feels best right now and then review it every few years to make sure it still makes sense. Whatever choice you make, it’s very important that your younger son be able to change the trustee, as you say he can. But if possible, it would be good to give someone else this oversight role as a backup to your younger son if and when he can no longer fill it.