The Voice is the e-mail newsletter of The Special Needs Alliance. This installment was written by Special Needs Alliance members Gregory Wilcox of Berkeley, California, and Dennis M. Sandoval, CELA of Riverside, California. Greg’s firm focuses on government benefits and estate planning for the elderly and for individuals with disabilities. He is a Certified Elder Law Attorney (CELA); co-author of Special Needs Trusts: Planning, Drafting, and Administration and of California Elder Law Resources, Benefits, and Planning; and a board member of California Advocates for Nursing Home Reform (CANHR) in San Francisco. Dennis M. Sandoval, PLC, in Riverside, California specializes in estate planning for families with special needs loved ones. He is a member of the Special Needs Alliance and the only attorney in California with certifications as a Certified Estate Planning, Trust and Probate Law Specialist, Certified Taxation Law Specialist and Certified Elder Law Attorney. He is also the Director of Education for the American Academy of Estate Planning Attorneys and a co-author of Special Needs Trusts: Planning, Drafting, and Administration.
A number of articles in The Voice have stressed the importance of being careful when choosing trustees to manage special needs trusts. Often the choices seem to come down to only two: a family member or a bank. However, family members are often problematic for reasons explained in a recent Voice article. On the other hand, banks and trust companies can be impersonal, often will not handle trusts with less than $1 million in assets, and may not have personnel who are knowledgeable about the multitude of unusual issues specific to serving a special needs beneficiary.
There is sometimes a third option: a private trustee who is not affiliated with a bank or trust company. In most states, individuals perform as trustees without any formal licensing. Typically they include attorneys, certified public accountants, enrolled agents or registered investment advisors who have experience in trust administration and offer trustee services on a formal or informal basis. In other states, there are nonprofit organizations that offer trustee services. In Arizona, the legislature and courts have set up a system for licensing “fiduciaries” (which might include trustees in some cases). A fiduciary is a term that encompasses all positions in which the care of the person or estate of another is given to someone else, such as a trustee, executor, guardian, conservator or agent. There is also a nonprofit organization, the Arizona Fiduciary Association, that provides training and education for professional fiduciaries.
California appears to be leading the way by screening and licensing private trustees. After many years of lobbying by private professionals, in 2007 California enacted the Professional Fiduciaries Act creating the Professional Fiduciaries Bureau as a unit of the California Department of Consumer Affairs. Under the Act the Bureau licenses and regulates non-family member fiduciaries who serve as trustees, conservators, guardians, executors, and as agents under a power of attorney or advance health care directive. Requirements for licensing include passing a written examination, having substantial experience and general education, and completing 30 hours of approved specialized education courses. Applicants must clear credit, bankruptcy, and criminal checks as well, and subscribe to a code of ethics. License renewal requires 15 hours of continuing education each year. Most licensed private professional fiduciaries in California are members of the Professional Fiduciary Association of California (PFAC), an affiliate of the National Guardianship Association. PFAC has been operating since 1999 and currently has 567 members (see www.pfac-pro.org).
Private professional trustees often provide a far better alternative to family members and corporate trustees in handling special needs trusts for people with disabilities. Many private trustees have previously served as trustees at large financial institutions. Others have special knowledge of trust administration as a result of their experience as attorneys, tax professionals, financial professionals or social workers. Because such trustees typically have a smaller case load than a bank or trust officer, they can be expected to provide more personalized service.
Some private trustees may have substantial experience administering special needs trusts and are knowledgeable about public benefits and other issues unique to beneficiaries with disabilities. They may even be familiar with coordinating with family trust advisory committees and care managers in managing the care of a disabled trust beneficiary. Private trustees are especially useful where the residence is being left in trust for the beneficiary. This is because many corporate trustees either refuse to handle such assets or charge an extra fee because of the additional work of maintaining a residence.
Private trustees can be less expensive alternatives to a corporate trustee. In California, private fiduciaries who handle special needs trusts will either charge an hourly rate, typically between $75 and $150, or they will charge a flat annual fee based on the amount of assets under management. The flat rate is often around one percent of the value of the trust, collected each year. Special skills, academic degrees, and extensive experience can be expected to result in higher rates. Finally, because private trustees are often individuals, the expense of bonding always needs to be considered. In some states, depending upon the type of trust, the trustee may be required to post a surety bond to protect the trust beneficiary in the event of trustee mismanagement of the trust assets. The cost or premium for the bond will be paid from the trust.
Private trustees almost always work with other professionals. If not an attorney, a professional trustee will often have one attorney with whom he or she works consistently, or he or she may retain different attorneys for different matters. Some trustees are accustomed to going to court because they handle conservatorship and guardianship matters that require court approval. Those trustees with a law, social service, investment, tax or bookkeeping background will often handle such matters themselves. Others will contract for these services. Some private trustees offer case management services and will arrange for caregivers. Others work with geriatric care managers for care coordination services. In other words, there is wide variety of interests and skill sets among private trustees. Accordingly, the choice of a particular private trustee for a particular trust needs to be made with care to ensure a good fit for the needs of the trust beneficiary.
There is, however, another side of this evaluation of a good fit. The private trustee must determine that the trust is one that he or she wants to take on. In evaluating whether there is a good fit, the potential trustee will consider several factors. One is the amount of money held by the trust. Private trustees typically have a lower minimum trust requirement than banks and trust companies, but there is a point where the costs of administering the trust do not justify any paid trustee. A second factor is whether or not a residence will be owned by the trust. A third factor is the nature of the beneficiary’s circumstances. Some beneficiaries require little attention while others have challenging needs and may require constant attention.
Further, private trustees will want to read the trust carefully to find out what duties they will be undertaking, and what authority they are entitled to exercise. Provisions in the trust that will take extra time or effort can be expected to either reduce a trustee’s interest in being hired or increase the fees. Private trustees will especially want to have a close look at any trust protector provisions that might expose them to additional supervision or sudden termination. They will also want to determine whether they can expect assistance or interference from a family trust advisory committee. Private trustees will factor in other sources of expected difficulty outside the trust document such as the potential for lack of cooperation from the special needs trust beneficiary and the likelihood of intrusive second-guessing by family members.
One approach to resolving such potential problems is to write the special needs trust with the participation of the proposed trustee and his or her attorney. Family members, their attorney, and the trustee and trustee’s legal counsel can work together to insure the trust can meet everyone’s needs and concerns.
In conclusion, finding an appropriate trustee to manage a special needs trust is not an easy job. Family members may lack essential expertise to manage the trust assets and the beneficiary’s government benefits, not to mention the complicated family dynamics when the trustee and beneficiary are related. Banks and trust companies may have a minimum asset threshold that is too high for a particular trust or there may not be a suitable bank in the area with the expertise to meet the unique needs of beneficiaries with disabilities. Between the family member trustee and the bank trustee is a third option that may be the best choice – a private trustee. In many communities private trustees can bring great expertise, skill, and economy to the administration of special needs trusts and provide the best service to the trust beneficiary.
About this Article: We hope you find this article informative, but it is not legal advice. You should consult your own attorney, who can review your specific situation and account for variations in state law and local practices. Laws and regulations are constantly changing, so the longer it has been since an article was written, the greater the likelihood that the article might be out of date. SNA members focus on this complex, evolving area of law. To locate a member in your state, visit Find an Attorney.
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