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Apr 20, 2024

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Selecting Guardians And Trustees
For Special Needs Children

Selecting the right people to implement a long-range plan for your special needs dependent is as critical to its success as trust design and funding. Here we consider the qualities, experience and skills needed in those you select as guardians or trustees for special needs children.

Your will and trust documents may represent your best-laid plans for your special needs dependent. But such documents are only as good as the people you trust to administer them. By selecting suitable stewards for that financial blueprint, you can help ensure that those plans do not go astray.

Here are some guidelines that may help you when you designate your trustees and guardians.

•            Select your stand-ins with care. Your trustees will fulfill the roles of guide and protector when you can no longer do so. You should assure yourself that the people you select are willing, prepared and able to seek the kind of outcomes you would have sought had you been there.

•            Appoint fiduciaries for your dependent’s valuable assets. A financial guardian should not only act to protect your dependent’s financial assets, but should be prepared to do so according to the highest standards of prudence and forethought.

            Prepare to confront the unpredictable future. No one can really foretell what twists and turns may sway a person’s life years or decades into the future. Many parents improvise virtually every day to balance the demands on their families and themselves and to meet the needs of all their dependents. You will be selecting agents who will continue to do so in your stead.

The Jack or Jill of All Trades
     As the architect of your plan, you have broad discretion in selecting the individuals who will act in your stead. You may choose people you know well: a business associate you’ve worked with closely or a relative in whom you have strong faith, such as a sibling or spouse. You can also select a professional practitioner whose skills might be especially useful to your purposes, such as a lawyer or accountant. Or you can designate a bank or trust company to act as a corporate trustee. Each option presents a unique balance of benefits and concerns.

Whoever you do choose, keep in mind that the person acting as trustee or guardian for a special needs dependent may be called upon to wear many hats in different circumstances. As your surrogate, a trustee or guardian can be expected to weigh in on the medical, educational and psychosocial issues affecting your special needs child. He or she may also confront the legal, tax, investment and administrative questions inherent in managing both trust resources and the day-to-day affairs of someone who may not be able to do so for him or herself. The ideal surrogate will able to bring specialized expertise to these circumstances and should also be able to deliver that expertise loyally, decisively and impartially.

Insourcing or Outsourcing: Weighing the Differences
     The closest source of potential trustees and guardians is your family and friends. A personal confidant or relative may already have a well-established relationship with your intended beneficiaries and a detailed knowledge of the unique circumstances in your bequest. That familiarity can provide the context needed to interpret your wishes in your absence most effectively. It can also lay the groundwork for a strong long-term relationship between the trustee and the beneficiaries. However, someone chosen solely on the strength of personal relationships and intimate knowledge may lack the training or skills needed to act impartially and efficiently in the face of duress or emotional entanglement. What’s more, a friend or relative acting as a trustee might have a conflict of interest or be unable to devote sufficient time to the duties of trusteeship, and these potential deficiencies may not become readily apparent for some time.

You should also consider tapping into existing relationships with licensed advisory professionals such as lawyers and accountants. A professional practitioner who has had significant involvement in your family’s affairs may offer many of the same advantages as a personal associate, such as direct acquaintance with beneficiaries and historical knowledge of unusual situations and special needs. Such advisors may also have the professional distance needed to remain dispassionate under difficult circumstances. However, like a lay trustee, an individual professional’s tenure may be subject to the vicissitudes of his or her life and may ultimately be unavailable at some critical future juncture.

Outsourcing to a Corporate Trustee
     A bank or trust institution can act as a corporate trustee. As such, it can provide a high level of impartiality and detachment as well as ready access to specialized technical, tax and legal expertise. An institutional trustee can also offer a high level of continuity and stability, since its ability to serve is generally not dependent upon any single individual. However, an institution cannot maintain the same level of intimate knowledge as a family insider about your intentions or your beneficiaries’ needs.

You should keep in mind that different types of trustees may be subject to different rules, insurance and licensing requirements. Lawyers, for example, must meet the terms of their state bar association licenses when they act as trustees. Banks may be subject to regulatory audits and documentation procedures. Also, professional trustees are often held to the highest fiduciary standards under the “prudent investor” principle. Simply put, that means that trust assets would have to be managed according to the best practices of the asset management profession, with special attention to appropriate risk management and diversification.

Other Considerations for Trustees and Guardians

Here are some additional thoughts that might apply to your circumstances:
•            Family members may not always be eligible to serve as a trustee. Although federal law creates a specific framework for special needs trusts, appointment of trust and guardianship officials generally is regulated by state law. Each of the 50 states has its own rules. For example, some states allow anyone to function as a trustee. Some require that the trustee be bondable. Some states allow family members to act as trustees for any assets, others only for assets that are not already owned by the beneficiary. (Assets owned by a beneficiary may include proceeds from lawsuits, insurance policies and inheritances already received; trusts that contain these assets are commonly called self-settled or first-party trusts.)

•            Guardianship and trusteeship should be seen as separate roles. Guardians and trustees have very different perspectives on the life and needs of the beneficiary and also have different responsibilities for elements of the beneficiary’s well-being. The person in the role of guardian may derive some benefit from potential trust expenditures. The person in the trustee role is responsible for vetting trust expenditures. Putting one person in both roles creates a heightened potential for conflict of interest and self-dealing.

•            You can create checks and balances using co-trustees and trust protectors. When you design a trust you can split the duties of the trustee so that different people have to monitor each other be take important actions jointly. For example, you can put spending policies in the hands of a family member closely attuned to the needs of your beneficiary, but actual fiscal control in the hands of a professional more sensitive to issues of financial management and the intricacies of benefit law. You can also assign someone the role of “trust protector,” whose function would be to monitor and audit the activities of the trustee. A designated trust protector generally has authority to hire or fire a trustee for cause, if needed.

Ultimately, your choice of trust officials will have great influence on whether your trust arrangements achieve your long-term goals for your special needs dependent. Let me help you sort through all of the competing considerations and find the path best suited for your needs.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates, Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice.  This material was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.
If you’d like to learn more, please contact Irene F. Stolarz.
Article by McGraw Hill and provided courtesy of Morgan Stanley Financial Advisor.
The author(s) are not employees of Morgan Stanley Smith Barney LLC (“MSSB”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of MSSB.  The information and data in the article or publication has been obtained from sources outside of MSSB and MSSB makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of MSSB. Neither the information provided nor any opinion expressed constitutes a solicitation by MSSB with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.
Morgan Stanley Financial Advisor(s) engaged the Post Eagle to feature this article.
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Courtesy of: Irene F. Stolarz, Family Wealth Director, Financial Advisor
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