Call Us Now
Email Us Now
9 Considerations for Trustees of Special Needs Trusts
Proactive estate and trust planning can help you reduce issues related to challenges like trust litigation or elder abuse. However, trust management can come with its own challenges. If you are planning or overseeing a special needs trust, you may need to consider challenges such as potential DHCS recovery for first-party trusts, for example. Ensuring that you follow best practices in managing this type of trust can help you and the beneficiary avoid some issues in the future.
1. Understand the Purpose of the Trust
Begin by understanding the specific purpose and goals of a trust. Every trust is different, and each beneficiary’s situation is also unique. Trustees who have a comprehensive understanding of the situation can make better decisions within the confines of the trust. When you understand the goals of the person who set up the trust and how disbursements and other trust activities directly impact the beneficiary, you can manage the trust in a way that best supports the beneficiary long term.
2. Ensure Beneficiary Eligibility for Benefits
One of the primary purposes of a special needs trust is to allow assets to benefit someone without negatively impacting that person’s eligibility for government benefits like Medicaid. To ensure a beneficiary remains eligible for these programs, you must know which programs are relevant and how you might impact them with trust-related activities. Consider consulting with benefits experts as well as lawyers and accountants to help you balance program eligibility with trust benefits.
3. Follow Trust Terms Closely
Pay attention to trust terms, reviewing them regularly to ensure you are operating within the terms of the trust. Special needs trusts are usually set up with purposeful provisions that help avoid any activity that would make someone ineligible for benefits programs. By following trust terms closely, you substantially reduce the chance of disbursing assets in a way that could put the beneficiary’s benefits, including Medicaid or disability payments, at risk.
4. Maintain Detailed Records
You will likely need to file periodic reports about your trust management, and you might also need to present data about asset management and disbursements if there is a question about the beneficiary’s eligibility for other programs. Detailed and accurate records are critical to successfully managing any type of trust, including a special needs trust.
5. Pay Attention to Tax Implications
While many people do use trusts as a type of tax shelter—and there are many tax benefits related to trusts—you cannot assume that taxes don’t matter because assets are held in a trust. It’s essential to consider the tax implications of any trust activity, including asset disbursement and income-generation activities such as investing. Working with a tax accountant to gather appropriate records and file any tax documents each year can help reduce this burden if you’re managing a special needs trust on behalf of a beneficiary.
6. Work to Ensure Appropriate Investments
Speaking of investments, this may be a task you must handle within your trustee role. As a trustee, you are in a fiduciary position, which means you must manage the trust and the assets within it in the beneficiary’s best interests. That might include investing assets to increase in the safest manner possible. You don’t have to carry this weight on your own, though. You can hire and work with experienced professionals such as financial advisors or money managers. Just ensure that you get regular reports and oversee the process; ultimately, you’re responsible for the fiduciary duty.
7. Avoid Payouts Direct to Beneficiaries
When managing a special needs trust, you may need to avoid disbursing assets directly to a beneficiary. This can put their other benefits at risk, as it could cause them to cross income or asset thresholds. Instead, you may need to disburse assets directly to others—for example, you might be able to use trust assets to directly pay bills like rent or utilities on behalf of the beneficiary or cover some of their medical expenses. Make sure to read trust provisions carefully and seek advice from a trust attorney experienced with special needs trusts if you’re not sure how to best manage asset disbursements without negatively impacting other benefits.
8. Proactively Support Continuity of Care
Special needs trusts are often set up to ensure life-long support for the beneficiary. However, you may not be able to manage the trust for the entire lifespan of that person. Having a succession plan in place is critical. If you are setting up a special needs trust and plan to manage it yourself, make sure you establish a successor trustee to step in when you are no longer able to do so. If you are the current trustee of a special needs trust, take time to ensure there is an appropriate successor in line to take over after you. You might also want to consider the benefits of sharing trust management burdens; you can set up co-trustees in these situations.
9. Stay Up to Date with California Trust Law
Commit to staying updated regarding trust law in the state. This can mean reading up on law changes or paying attention to trust-related news. You can also work with an estate lawyer to ensure you have regular explanations about how new trust laws might impact your duties as a trustee.
To talk to a legal team experienced in trust law in California, contact Yonano Law Offices, PC, at 916-894-8790.
