July 2005
VOLUME 2, ISSUE 3
SELECTING THE TRUSTEE OF A SPECIAL NEEDS TRUST
So you've decided to establish a
special needs trust! The question now becomes who should be
trustee? The trustee is the fiduciary responsible for managing or
administering the special needs trust. To make an informed decision
as to who should be the trustee, one must understand the duties and
responsibilities of a trustee.
The trustee of a special needs trust
will have duties and responsibilities that a trustee of any type of
trust will have. They include investment of the trust estate,
providing an accounting of the trust estate, income tax reporting,
and making trust distributions. The trustee will have to be
familiar with general laws pertaining to serving as trustee, as
well as specific laws including the Prudent Investor Act and the
Principal and Income Act. In addition, the trustee of a special
needs trust will need to be sensitive to the beneficiary's
disability, be prepared to monitor services being provided to the
beneficiary, advocate for medical and financial entitlements, and
make disbursements in compliance with Social Security
Administration and Medicaid requirements.
Must the trustee go it alone? No, the
trustee typically can seek professional counsel to assist him in
performing the duties and responsibilities. Administration of the
trust will likely be a team effort, made up of various
professionals providing counsel to the trustee. For example, the
trustee may hire a financial advisor to assist him in making
investment decisions; an accountant to advise on tax planning
issues and assist in making reports to the relevant tax
authorities; an attorney to advise on what is required of the
trustee under the law in general and, specifically, how to
administer the trust in compliance with Social Security
Administration and Medicaid requirements; and a case manager to
assist in monitoring the services rendered to the beneficiary, and
advising as to the condition and needs of the beneficiary. If the
trustee is to have the ability to enlist the assistance of other
professionals in performing his duties, then it is important that
the trust agreement contemplate him doing so and allow for the
trust to compensate those professionals retained by the trustee for
services they render.
Whew! So the trustee need not go it
alone. That being said, let's go to the question at hand. Who
should be trustee of a special needs trust? Although no legal
restriction may exist to naming the beneficiary as trustee of a
special needs trust, this may be problematic in discretionary
trusts, which characterizes most special needs trusts, where the
public benefit programs may take issue with the exercise (or
failure to exercise) the discretion.
Whether a special needs trust or not,
many are inclined to have a family member serve as trustee due to
the family member being familiar with the beneficiary's
circumstances, and presumably having a personal interest in the
beneficiary's welfare.
At the same time, a family member may
be too close to the beneficiary's situation and not be sufficiently
objective in making decisions related to the trust, or the family
member may be overwhelmed by caretaking responsibilities and not
have the time nor energy to take on the additional responsibility
of administering a special needs trust. Remember, a trustee may
enlist the assistance of professionals to advise and counsel him in
this endeavor.
So what are the alternatives to a
family member serving as trustee? A professional trustee, such as a
bank, attorney, or private fiduciary with appropriate certification
or licensure may be suitable to act as trustee. In selecting a
professional trustee, make sure that it has knowledge and
experience in administering special needs trusts! All will charge a
fee for their services and, thus, an important factor to consider
in selecting a professional fiduciary is how it charges for its
services and the amount of its fee, i.e., whether it charges a
certain percentage or hourly rate based on time expended.
The advantage of a bank over other
professional trustees is that the bank will often handle
investments without incurring an additional fee. However, the bank
may choose to invest in its own funds which may not be the
preference. If the bank invests in other than its own funds, then
additional fees may be incurred. As part of its fee, the bank will
likely prepare a periodic accounting to be provided to the
beneficiary and other interested parties, including the court if
required.
The other professional trustees
typically will not have custody of the trust assets and, thus, will
have to determine how and where to invest them. All professional
trustees will likely hire an accountant to prepare tax returns and,
unless an attorney with knowledge and experience in trust law and,
specifically, special needs trusts, the professional trustee will
possibly
obtain legal representation
particularly if the special needs trust is monitored by the court,
which is often the case with respect to first party or self-settled
special needs trusts established pursuant to 42 U.S.C.
ยง1396p(d)(4)(A).
In selecting a professional trustee, it
will also be important to know how the trustee will respond to
requests for disbursements, what will be required of the
beneficiary or his representative when making such a request, and
when the beneficiary or his representative can expect the
disbursement to be made. It is important for the beneficiary and
those who care for him to establish a rapport with the trustee, and
have confidence in the trustee's abilities and responsiveness. In
the end, the deciding factor may very well be the foregoing.
If a professional trustee is selected,
family can still have an active role in administering the trust. A
family member can act as co-trustee along with a professional, and
the scope of the family member versus professional trustee's duties
and responsibilities can be defined within the trust agreement.
Oftentimes, a professional trustee may not be willing to serve in
conjunction with a family member due to liability concerns. In such
instances, a family member can serve as trust "protector" or
"advisor," requiring the trustee to provide the trust protector or
advisor with periodic accountings, to consult with such individual
regarding certain expenditures, to develop with the trust protector
or advisor an investment policy statement, and whatever else may be
of importance to the beneficiary or his family. The trust agreement
can be drafted in such a way to allow the trust protector or
advisor or, if none, the legal representative of the beneficiary,
to remove and appoint a successor trustee should the need
arise.
As is evident, the decision to
establish a special needs trust is not the end of the matter.
Equally important is the selection of an appropriate trustee to
administer the trust for the benefit of the beneficiary, and in
such a way that the trust will benefit the beneficiary as intended,
to supplement and not supplant the public benefits that he is
receiving for as long as is possible.
DUAL-ELIGIBLES TRANSITION TO MEDICARE
PART D
For those individuals eligible for both
Medicare and Medicaid, their Medicaid prescription drug coverage
will end on December 31, 2005, and they will thereafter be enrolled
in the new Medicare Part D benefit to be offered by a variety of
private plans. Dual-eligibles will have an opportunity to select
the private prescription drug plan in which they enroll, and can
anticipate receipt of a "Medicare & You" handbook with
information regarding the various plans in early October, 2005.
CMS will post formulary information of
all plans on www.Medicare.gov in mid-October, 2005, and, by late
October, 2005, CMS will notify dual-eligibles on the plan they will
be automatically enrolled in if they do not choose their own plan.
The enrollment period begins November 15, 2005. Dual-eligibles with
limited income and resources will be eligible to receive financial
assistance with their Medicare Part D premiums, co-payments, and
deductibles. Beginning July 1, 2005, beneficiaries are able to file
for such assistance online by visiting ww.socialsecurity.gov
For a list of private fiduciaries
certified by the Supreme Court of the State of Arizona, go
to
www.supreme.state.az.us/fiduc/
Remember, a first party or self-settled special needs trust is
one that, although established by a parent, grandparent, guardian,
conservator, or court of law, is funded with the assets of the
beneficiary and requires reimbursement to Medicaid upon termination
of the trust, which is typically at death.
For public benefit eligibility
purposes, namely, purposes of SSI eligibility, it is advisable to
expressly prohibit the beneficiary or his legal representative from
naming the beneficiary himself as trustee, or anyone related or
subordinate to the beneficiary, so as to ensure that the SSA does
not treat the trust as an available resource.
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