Both the issues and the clients faced by trustees of special needs trusts can be significantly different from those faced by trustees of more traditional trusts created for asset management, tax, and asset protection purposes.
I am co-trustee of a trust holding funds derived from a medical malpractice award for a severely handicapped girl with cerebral palsy. She was born in the United States, but her parents came from the Dominican Republic.
Some years ago, the girl’s mother called me and asked whether the trust would pay for medications from Venezuela that had helped another girl with cerebral palsy. I was rather skeptical, but didn’t want simply to say “no.” So, I asked a number of questions about the name of the medication, its derivation, its dosage, and the amount of times the girl would have to take it. The mother said she would try to get answers to my questions.
A few minutes later, the mother called back to apologize for not being entirely straight with me. It turned out that she did not need the money for medicine, but for a voodoo cure. She was convinced that the reason her daughter had been born with her ailment was that while she was pregnant someone had put a curse on her, the mother. The voodoo doctor, for a fee, would remove the curse.
Being trained in a western tradition, I have no knowledge of these affairs. So I agreed to meet the mom halfway, to split the cost of the voodoo treatment. She paid for half out of her pocket; the trust paid for the other half. Unfortunately, the treatment didn’t work.
As this story indicates, trustees can be asked to pay for items or services that may run counter to their own values or best judgement. Should a trust pay for video games, plastic surgery, pornography, or an abortion? Guidance from the grantor of the trust can be helpful. But in the case of a special needs trust funded as the result of litigation, there really is no grantor. So, in that case, the trustee must make a judgement based on what she believes to be in the best interest of the beneficiary. That can include a consideration of the benefit the trustee believes the beneficiary will receive from the item or service. It should also consider the financial standing of the trust. Can the trust afford this payment, or would it deplete the resources available for services the beneficiary may need?
In the case of the voodoo treatment for my beneficiary, while I was almost 100% certain it would not work (always allowing for the possibility that my western view of how the world works could be wrong or limited), I felt there was value in strengthening my relationship with her mom. I do think that worked. My relationship with the family has grown as I've watched the mom continue to devote her life to caring for her largely bedridden and uncommunicative daughter. (It also helped when, years later, my co-trustee and I met the mom's sister and it turned out he and she knew people in common. Boston can be a small town in many ways.)
As a side note, if the voodoo treatment had worked, or if we truly believed that a voodoo curse was the cause of the initial injury, this would raise a serious doubt about the medical malpractice case which was the source of the trust funds. If the cause was voodoo, how can we find the doctor truly at fault?
Whether it's an honor or a burden (or both), if you've been appointed to serve as trustee of a trust, here are 10 dos and don'ts to follow to make sure you don't trip over any hurdles:
In general, trustees have a duty of loyalty and care that must be upheld in the management of trust assets and funds. The trustee must only disburse and transfer funds for the benefit of the beneficiaries and for the purposes set out in the terms of the established trust. But what happens when these duties are breached, and the trustee starts transferring funds for their own benefit? For instance, maybe they transfer funds to their own personal bank account and purchase a timeshare in Mexico. This is precisely the alleged situation that divided a family in Whittaker et. al. v. Whittaker (United States District Court, D. Massachusetts, 2019) which they turned into a federal case.Read More
Most people who create trusts for estate planning and asset protection purposes serve as their own trustees during life and then prefer family members to step in if they become incapacitated or to serve for trusts that continue after the grantor's death. Family member trustees keep things private and save money since professional trustees—whether a lawyer, a bank or a trust company—usually charge charge fees of 1.0% to 1.2% of the trust assets per year, often a higher percentage for smaller trusts—under $1 million—and a lower percentage for larger ones—over $2 million.Read More
So you've been appointed trustee. Now what do you do?
Of course, there are your administrative functions in terms of investments, bookkeeping, and paying taxes. But how do you decide how much to give each of the beneficiaries? When? For what purposes?
Some trusts are quite simple—you're directed to distribute the income, invest the principal and distribute what's left when the life beneficiaries pass away.Read More
Dad created an estate plan that distributed three quarters of his estate to three of his children and the fourth quarter in trust for one of his daughters, Elaine, and her two children, Paul and Alicia. He named another daughter, Madeline, and her daughter, Paula, as trustees.
Dad died in 2001. The trust for Elaine and her children originally held $542,042. For the next 15 years, Madeline and Paula distributed nothing to Elaine or her children, until 2016 when a court ordered them to make distributions to Elaine so that she "could pay her medical bills and obtain housing." Madeline and Paula did, however, spend more than $50,000 paying for storage of personal items left to Elaine and paid themselves and their attorney.Read More
So you've appointed your brother-in-law as the trustee for a trust for your children in case you die before they reach age 25. Or he and his wife have appointed you as trustee on a special needs trust for their daughter with Down's syndrome. Or, finally, your mother has her assets in a revocable trust. In any of these situations, what happens if the trustee becomes incapacitated?Read More
While it's an honor that your relative or friend has enough faith in you to appoint you as a trustee, it's a big responsibility. If you don't perform your duties properly, the trust will not perform as designed, the beneficiaries may end up worse off, and you could be personally liable. Fortunately, you can avoid these potential bad outcomes by understanding your role and taking a few important steps.