Choosing a Trustee for a Special Needs Trust

In order to ensure a secure future for the lifetime of a loved one with special needs, Trustees must make a variety of well-educated decisions. A professional may be the best person to handle some of these issues, such as Trust management or questions about legal matters. However, a professional may not know a lot about the beneficiary's wants and needs. Additionally, some people may be uncomfortable with the idea of an outsider managing a loved one's affairs.

In the end, the settlor of the SNT should choose a trustworthy Trustee. This may be a parent, close relative or even a corporation. Some financial institutions may be the best trustees due to their familiarity with managing the trust assets.

The Responsibilities of a Trustee
A Trustee has the fiduciary responsibility of dispensing with assets in accordance with the provisions of the Trust. A Trustee also has the responsibility of defending the Trust, investing the Trust's assets wisely and acting without bias in the best interest of the beneficiary.

More specifically, a Trustee must adhere to acts that govern the administration of a Special Needs Trust, including the Prudent Investor Act, the Prudent Man Rule and the Principal and Income Act. State law does not speak to the specific types of investments that may be made by the Trustee. The Prudent Man Rule states that the Trust must invest assets as a "prudent man" would with attention to the needs of beneficiary, the preservation of the estate and the amount of income available to the beneficiary.

According to the Prudent Man Rule, each of the investments in a portfolio is looked at individually. Because of the increased diversification of the modern investment portfolio, the Prudent Man Rule is increasingly being interpreted to look beyond each individual investment. This new interpretation is known as the Prudent Investor Act, in which the risk taken by the entirety of the portfolio is used to judge whether the beneficiary's assets are being invested wisely.

Choose Trustees with Varying Expertise
Because Trustees assume such a high level of responsibility, it is important to name a knowledgeable, thoughtful and caring individual who is familiar with the needs of the beneficiary of a SNT. This person may be a family member with specific financial or legal expertise or it may be a professional Trust Manager.

It may be difficult to find one individual who has all the knowledge and qualifications necessary to administer the Trust effectively. If this is the case, family members may want to appoint co-trustees, management trustees or even a trust advisory committee. A trust protector may also be hired. The trust protector can review the trust and can hire and fire trustees.

For example, when appointing co-trustees, one Trustee may be a family member familiar with the wants, needs and habits of the beneficiary, and the other may be a professional manager or corporate trustee familiar with investments and legal issues. If an advisory committee is chosen, individuals from varying backgrounds may be selected, such as a family member, nurse, financial advisor or manager.

A Trustee needs to have as many tools as possible at his or her disposal in order to make decisions that provide the best possible outcome for the beneficiary. It is important to understand that there are many options available when appointing a trustee, or trustees, to ensure that the assets in a Special Needs Trust are managed wisely.

Bernard Krooks is a New York Elder Law and New York Estate Planning lawyer with offices in White Plains, Fishkill, and New York, New York. To learn more, visit Littmankrooks.com