Being Trustee of a Third Party Supplemental Needs trust

BEING THE TRUSTEE

OF A THIRD-PARTY SUPPLEMENTAL NEEDS TRUST

Lisa Nachmias Davis

Davis O'Sullivan & Priest LLC

59 Elm Street, Suite 540

New Haven, CT 06510

203-776-4400

davis@sharinglaw.net

www.sharinglaw.net / wwww.estate-elder.com

DISCLAIMER: This is NOT legal advice, and is a very general statement of things you may have to do as trustee of a THIRD PARTY trust. If it is another kind, the kind that pays back the state when the beneficiary dies, different rules may apply. The devil is always in the details so I always recommend that you get individualized legal advice from an attorney licensed in the state whose laws apply to the trust (the document should say what that is) AND from someone knowledgeable about benefits in the state where the beneficiary lives. The trust can pay for this.

1. IN GENERAL

If you are named as trustee of ANY trust, you should first LOOK TO THE ACTUAL TRUST DOCUMENT to determine your duties and overall obligations. If you don't understand what it says, get legal advice! (When getting advice from a lawyer, be sure to understand the way the attorney will charge to give you advice.) It is appropriate for the TRUST FUNDS to pay for the professional advice from lawyers, accountants, and financial advisors. You do not have to pay out of your own pocket. Unless the trust's funds are very tiny, you can expect you will need an accountant, an attorney, and a financial advisor. If the trust is a "supplemental needs trust" for someone on government benefits, you will need someone who is knowledgeable about benefits -- which ones are, or are not, going to be affected by how the money is used for the beneficiary. You were chosen because you cared about the beneficiary and are responsible, trustworthy, and organized -- so live up to it!

2. IN PRACTICE

If someone created a trust document, named themselves as trustees, didn’t put anything into the trust, and then died, and the trust was named as beneficiary with you named as successor trustee, in practice, you will of course read the trust document, but normally have to do the following:

1) Get and Read the Trust Document. I'm repeating this because some people just assume they can look at the name of the trust. You actually need to READ ALL THE PAGES and if you don't understand, go to someone else who does and can explain it to you.

2) Tax ID. If the trust doesn't have one, apply for a Tax I.D. number for the trust. You can do it online or an accountant or lawyer can do it. This will require the social security number of the person who created the trust (the "grantor") and your social security number, since you are the "responsible party" who is in charge of filing the tax returns for the trust.

3) Open Accounts in the Name of the Trust. Take this Tax I.D. number and the trust document (or a "certificate of trust" if the lawyer gives you that) to any financial institution to set up one or more accounts in the name of the trust with you, the trustee, as the person who signs the trust document. A trust is like a person and can own all kinds of things, from personal assets to a house to a bank account to a brokerage account to an IRA. The institution will create an "account profile" for you since you are the person they will be dealing with.

4) IRAs: BE CAREFUL. IF the trust was named the beneficiary on a beneficiary designation for an IRA, brokerage account, etc. you may also have to fill out other forms. If an IRA is involved be sure to get advice from a lawyer or CPA. It may be necessary to get documentation that the beneficiary qualifies as "disabled" and to provide the beneficiary's birthdate to the institution so that the IRA can be paid out over time.

5) Financial Advice and Investments. You will need to get advice about how much money is appropriate to spend every year so that the trust doesn't run out of money. You will need to get advice about how to invest the money. You will need to keep in mind that some must be liquid (to meet the beneficiary's needs going forward) and some may be more appropriately invested for growth (so that the trust funds last the beneficiary's lifetime by making money). Remind the advisor that the PRIORITY is what is best for the beneficiary, not being sure that money is left over at the end when the beneficiary dies. It should be obvious, but DO NOT mix the trust funds with your own or invest in your own business, or makes loans to yourself or anyone else (other than the beneficiary). While the trust CAN own a home or car, this could put the trust's other assets at risk. You would need to be sure there was insurance and that it made sense.

6) Contact the Beneficiary. Make sure the beneficiary or guardian knows how to reach you and has a copy of the trust. That person may have to report to the State about the creation of the trust and may ask you what the trust owns. Decide if you will take requests directly from the beneficiary or from someone else who knows what is best for the beneficiary, like a guardian or family friend or group home manager. You will probably need to get the beneficiary's social security number for tax reasons. You should also know who gets the money when the beneficiary dies and have contact information.

7) Find Out About the Beneficiary's Type of Benefits. You should find out EXACTLY what type of government benefits the person is getting, and check that every year. You do want to know if the person continues to get "SSI" (Supplemental Security Income) or has subsidized housing, because these programs have the most tricky rules to follow. The best thing is to get COPIES OF ALL DOCUMENTS the beneficiary gets from government agencies and show these to your attorney or social work advisor.

8) Spend Money on the Beneficiary (also called "making trust distributions"). Don't ignore the beneficiary. The Trust is supposed to make the beneficiary's life better. In most cases, do NOT send money to the beneficiary or put it in the beneficiary's account, at least not without legal advice. Figure out a way to pay for things directly. Sometimes you can get a special prepaid debit card with the beneficiary's name on it, a "TrueLink" card, that the beneficiary or guardian can use to buy things, but can't get cash out of it. If someone else buys things for the person, you could reimburse that person. You can pay the person's bills. You can buy things yourself on a credit or debit card the trust owns. In general, the trust can probably pay for almost anything that will benefit the beneficiary unless the trust document says otherwise. Imagine what the person's parent would have done. If the person has SSI or subsidized housing, consult an attorney or social worker who knows about these programs. (You don't want to buy the person something super expensive in most cases without the trust owning it or having a lien on it. That could be considered "wasting" the trust's assets.) If YOU are a beneficiary after the beneficiary dies, remember that you cannot take that into account. Your job as trustee is to act in "GOOD FAITH" for the BENEFIT of the current beneficiary, not to consider what is best for you personally or how you may personally feel about the beneficiary. If you get mad at the beneficiary or dislike the beneficiary, you can't let this affect you and may have to resign if it gets in the way.

9) TRY to Make Sure SOMEONE is In Charge of the Beneficiary's Benefits. It is NOT your job personally to take charge of the beneficiary's benefits. That said, obviously the parent did not want the person to lose benefits. So it would be a good idea to make sure someone is on top of this and if not, to hire a social worker or attorney to handle this for the beneficiary. The trust will say this is an appropriate trust distribution. However, if the beneficiary won't cooperate, it's not your fault. Also -- sometimes the beneficiary has benefits that don't require any special maintenance, like Social Security benefits for a disabled adult child, or Medicare.

10) Keep Records. It is very important is to keep detailed RECORDS of the trust's income and ALL the expenses and distributions. If someone else is being reimbursed, demand receipts. If you buy things with a card, keep receipts. At any time somebody could demand an audit to make sure you were not stealing from the trust or using the money for someone other than the beneficiary. The program "Quicken" can be useful, or there may be other kinds of computer programs that make this simple. You could hire a bookkeeper or bill payer if this is hard.

11) Trust Tax Returns. Get an accountant. The trust will have to file an INCOME TAX RETURN every year. This is an IRS Form 1041. Go to an accountant and don't try it yourself. The accountant will need to know not only what income came in (1099s etc.) but what was spent on the beneficiary or on anything else.

12) Beneficiary Tax Returns. If there was a lot of income, and a lot was spent on the beneficiary, the accountant may tell you to give the beneficiary a FORM K-1. What the beneficiary received may be TAXABLE INCOME for the beneficiary even though it is NOT considered income for purposes of government benefits. Explain that to the beneficiary or guardian. This may also mean that the beneficiary has to file a tax return depending on how much income the person receives. This is not the trust's job to do necessarily but you should offer to pay for the accountant to do this. Normally the person will be low-income and pay little to no tax, but if tax is due, the trust can pay the tax.

13) If Required, Send Annual Reports. If the document does not "waive" this duty you are supposed to give a report every year to the beneficiary or the beneficiary's guardian/conservator or whoever the document specifies, and maybe even the remainder beneficiary, listing what the income was, what the distributions were, how much fee you took for your job, and what assets are on hand. Even if not required, this can protect you from any complaints. Consult your attorney.

14) Pay Yourself Reasonably. ALL Trustees are entitled to get paid for their time unless the document says otherwise. There is no set amount, only what is "reasonable." This takes into account the amount of time you have to spend, what your own skills are, and also, how big or small is the trust. A bank or institution would charge One Percent or less of the trust assets, but this assumes the funds are being invested and earning income. If the trust was so small it was just in a checking account, this might be too high. Or, if you had to spend a lot of time, it might be too low. But you probably should not pay yourself a high rate when doing something that could have been done more cheaply by someone you could have hired out of the trust funds. It does go without saying that you should be reimbursed for necessary expenses. Get advice.

15) When In Doubt. Something could come up that is important and nobody can tell you for sure what to do. If so, talk to an attorney about whether you need to get advice from the Probate Court. You CAN do this without being stuck filing probate forms forever.

16) Succession Planning. You won't live forever. Check to see who is Trustee after you. The document may suggest that you find a successor. You need someone responsible, practical and organized to do this. If you can't find anyone, consider contacting PLAN of Connecticut, Inc. PLAN might require its own forms to be used in order to take over as Trustee after you, but it is what it is. That is always the last option.