Special Needs Trust Distributions and Trustee Fees

Posted by Patty Manko on Fri, Nov 15, 2013 @ 12:22 PM

Updated January 5, 2022

Trust Distributions

The key planning point to remember is that distributions from the trust should not be paid directly to the beneficiary because this will likely jeopardize their eligibility for government benefits. With that in mind, the following guidelines may help you effectively manage distributions from SNTs.

With a first-party SNT, once the child has reached the age of majority, consider paying a stipend for the caregiving parent. Make sure to provide a caregiver agreement for the trustee. The distribution for the stipend would be taxable income paid to the caregiver. Any taxable income paid to the caregiving parent can be offset by making contributions to their own retirement plan. Speak with your financial planner, who can work with your CPA to determine whether you as the caregiver can use the distribution to fund a deductible IRA, SEP-IRA, or Roth IRA.

Planning Story: The Brown Family

Sally and Frank Brown’s son Jeffrey received a significant settlement when he was 8 years old. Due to his injuries, Jeffrey required assistance with all activities of daily living. Fortunately, Jeffrey’s school district was very accommodating. As a result, Sally and Frank decided to keep Jeffrey at home rather than have him attend a residential school. Although Sally and Frank did receive funding for nursing support, it was very difficult to find consistent help. They adjusted their lives around meeting Jeffrey’s needs. Because this required one parent to stop working, it did have some impact on their ability to save for their own future. When Jeffrey turned 18, they met with their estate planning attorney, who specialized in special needs planning. As Sally and Frank described how they provided a significant portion of Jeffrey’s care, the attorney suggested that they document the time they spent providing direct care. In addition, he told them to add up the time they spent coordinating all the professional services that Jeffrey required. Although they knew that providing for Jeffrey’s needs did require time on their part, they were shocked to see the total number of hours they spent providing for Jeffrey.

            When Sally and Frank returned to meet with the lawyer, they updated their legal documents to accommodate some of the changes they wanted to make to their estate plans. In addition, they discussed their documentation of the time and supports that they provide to Jeffrey and created a plan for them to use the money in the trust to reimburse them for the time that was required of them to care for Jeffrey. They left that meeting feeling that they did not want to get paid to care for Jeffrey because their love for him was immeasurable, and it was in no way a job. In addition, they were concerned that if they took money from the trust, they could possibly jeopardize his security in the long run. They discussed the lawyer’s recommendation with their financial planner, who also very knowledgeable in special needs planning. Their advisor agreed with their lawyer on the plan, and they both emphasized that there were more than adequate resources in the trust. In addition, it was discussed that the purpose of the money in the trust is to provide for Jeffrey, regardless of who provided the services.

Upon meeting with the lawyer to sign the documents, Sally and Frank also had the attorney create a caregiver agreement in which they would receive a monthly stipend for the services they provide to Jeffrey. The payments that they received for their services would be taxable income to them. Because they were behind on funding a retirement plan for Sally, they funded a SEP-IRA with a portion of the money. In addition, they created a separate TOD account. After funding their SEP-IRA, they put their remaining money into their TOD account. The TOD beneficiary was a third-party SNT that they established for Jeffrey. That gave them the peace of mind that in the event that neither one of them needed this money, at their death it would go directly into Jeffrey’s SNT.

Sally and Frank’s story is an example of when legal, financial, and emotional factors all play a role in developing a plan for a special needs family.


Because distributions from the trust should not be paid directly to the beneficiary, make sure that all checks are paid to the service providers directly. Even money for haircuts and personal care should not be distributed to the beneficiary to use; instead, pay the bill from the trust directly. For everyday spending, consider providing a specialized credit card for the beneficiary. These prepaid cards can be used by the beneficiary or others to make purchases that the trustee allows and that are within the SSA guidelines. Make sure to use one that is approved.

Income distributions paid to the beneficiary of the SNT are likely to be taxed at a lower tax rate on their personal tax return. Have your advisors help you determine the best planning strategies to reduce the high tax rates paid by trusts..

Finally, you can make annual contributions to an ABLE account. The money in the ABLE account grows tax-free, and you can use the account funds to pay for housing expenses, utilities, rent, etc.

Charging a trustee fee

Even if the trust does not contain any specific language about fees, the trustee has a right to be paid.  The trustee fee is a tax deduction for the trust and is taxable income to the trustee.  The following are some factors to consider in determining an appropriate fee:

  •   the amount of assets in the trust
  •   the complexity of the investments
  •   the beneficiary’s needs
  •   the services being performed 

There are two considerations used in determining a fee; the first is the number of hours worked, the second is the type of service provided. Activities such as paying bills and balancing the checkbook will be charged at one rate. More complicated tasks such as working on legal, investment, and tax matters would probably command a higher figure. This is especially important if the trustee has a financial or legal background. 

Time and billing records

The trustee should keep a written record of all the time spent on trust activities. Some trustees maintain a log book in which they write down the date, time spent, and nature of each service. If any personal funds are used for the trust, the trustee should keep receipts for reimbursement from the trust assets. Reimbursements should be made promptly. Plan to keep these records at least until the beneficiaries have approved your account. Click below to view an example of a  trustee log and to download a blank log. 



Tags: Special Needs Trusts, Trustee Services

Guardianship Considerations for Individuals with Disabilities

Posted by Patricia Manko on Thu, Jul 11, 2013 @ 01:47 PM

describe the imageGuardianship is a legal means of protecting children and  "incompetent adults" (in legal terms, adults who cannot take care of themselves, make decisions that are in their own best interest, or handle their assets due to a physical or mental disability). When the court determines that a person is incapable of handling either their personal or financial affairs a guardian will be appointed.

The subject of guardianship for an adult child with disabilities is of concern to most parents. Parents of children with severe disabilities often assume that they can continue to be their adult child's legal guardian during the child's entire life.

Although it may be obvious to a parent that a child does not have the capacity to make informed decisions, legally an adult is presumed competent unless otherwise determined to be incompetent after a competency proceeding. Once an individual reaches the age of 18, the parent is no longer the individual's legal guardian. Parents need to explore legal options available to protect their child from unscrupulous individuals who may exploit their child's inability to make informed choices.

Download a template for your Letter of Intent

Some things to know when considering guardianship:

a. A guardian of the person is responsible for monitoring the care of the person with disabilities to ensure that the individual is receiving proper care and supervision. The guardian is responsible for decisions regarding most medical care, education, and vocational issues.

b. A guardian of the estate or conservatorship should be considered for a person with disabilities who is unable to manage their finances and have income from sources other than benefit checks, or have other assets and/or property.

c. A guardianship may be limited to certain areas of decision making, such as decisions about medical treatment or medications in order to allow the individual to continue making their own decisions in all other areas.

d. A temporary guardian or conservator may be appointed in an emergency situation when certain decisions must be made immediately.

If an individual with a disability is capable of making some but not all decisions, one or more of the alternatives to guardianship discussed here should be considered. These alternatives to guardianship are listed from least restrictive to most restrictive:

1. A joint bank account can be created to prevent rash expenditures. Arrangements can be made with most banks for benefits checks, such as Social Security or SSI payments, to be sent directly to the bank for deposit. (Remember to keep this account balance below $2,000.)

2. A representative payee can be named to manage the funds of a person with a disability who receives benefits checks from Social Security, Railroad Retirement, or the Veterans Benefits Administration. Benefits checks are sent to the representative payee.

3. A durable power of attorney (POA) for property is a legal document that grants one person the legal authority to handle the financial affairs of another. Generally, the use of a POA should be used when the individual with disabilities has the capacity to make basic meaningful decisions and does not require full guardianship but may not be able to make complex financial decisions without support.

4. A durable POA for health care, also known as a health care proxy, should be considered for individuals who are presently capable of making decisions about their health care and wish to anticipate possibly future incompetence.

5. An appointment of advocate and authorization allows a person with a disability to designate an agent to advocate on his or her behalf with administrative agencies such as the state department of cognitive disability, the department of mental health services, or the department of medical assistance.

6. Trusts may be an appropriate alternative to appointment of guardian in some circumstances. A trust is a legal plan for placing funds and other assets in the control of a trustee for the benefit of an individual with a disability - or even for those with no known disability.

7. As mentioned previously, guardianship is an option for persons who, because of mental illness, developmental disability, or physical disability, lack sufficient understanding or capacity to make or communicate responsible decisions concerning their care and financial affairs. Guardians are approved and appointed by the court. Guardianships are also supervised by the court. The guardian provides a report on the status of the individual to the court annually.

In general, the guardian or conservator is responsible for handling the individual's financial resources, but is not personally financially responsible for them from his or her own resources.

This list of alternatives to guardianship is not exhaustive, but worth speaking with an attorney about. As with all legal decisions, we suggest you seek legal advice from an attorney who is knowledgeable in disability law in the individual's state of residence.

Contact us for  further information

Tags: Special Needs Financial Planning, Special Needs Trusts, guardianship, special needs Letter of Intent

Special Needs Financial Planning featured in FPA paper

Posted by Patricia Manko on Fri, Apr 19, 2013 @ 12:59 AM

Key takeaway: While an SNT is necessary in almost all cases, there is much more to special-needs planning than creating a plan that includes an SNT. A letter of intent—the ideal starting point for the financial planner to inform the financial components within the planning process, and collaboration with mental health and legal professionals—will greatly enhance the effectiveness of the services the financial planner is able to provide special-needs clients.

describe the imageMost special-needs families are not properly planning for their children’s futures and the consequences are potentially catastrophic (Lauderdale et al. 2010). While planning for the future of special-needs loved ones has always been a necessity, it’s paramount today because of the higher incidence of diagnosed disabilities, longer life spans resulting from medical advancements, increasing long-term care costs, and the reduction of government support (Erickson and Lee 2008; Hoyt and Pollock 2003; Lauderdale and Huston 2012b; Nadworny and Haddad 2007; Saposnek, et al. 2005). 

Emotional and legal issues complicate creating an adequate comprehensive plan. Financial advisers can begin to address the concerns particular to each family by forming a team of legal and mental health professionals to work closely with families while preparing a suitable plan. Special needs trusts, or SNTs, remain vital to planning for disabled individuals to protect government benefits eligibility, manage assets, and provide care continuity when guardianship is deemed necessary (Stone 2006). For keeping the social and emotional consequences to a minimum, letters of intent are also valuable tools to help transition care providers with as little stress on the special-needs child as possible. 

Financial planners can increase their accessibility to special-needs families by preparing themselves to address the technical and emotional challenges through a holistic team approach.
While an SNT is necessary in almost all cases, there is much more to special-needs planning than creating a plan that includes an SNT. A letter of intent—the ideal starting point for the financial planner to inform the financial components within the planning process, and collaboration with mental health and legal professionals—will greatly enhance the effectiveness of the services the financial planner is able to provide special-needs clients. 

Though the financial plan for a special-needs family is an amplified form of a traditional plan, the team of professionals is necessary for addressing the social and emotional issues particular to each family. Addressing such concerns directly affects the ultimate form and adoption of the plan designed specifically for families with special-needs dependents.

Tags: Special Needs Trusts, special needs Letter of Intent

The Five Factors of Special Needs Financial Planning

Posted by Patty Manko on Thu, Jan 24, 2013 @ 02:53 PM

five actors of special needs planningOne of the major obstacles that can prevent  families from planning is that they are frequently consumed by daily crises. The thought of planning ahead can simply be overwhelming. Realizing that each family situation is unique, we have identified the Five Factors that must be considered in conjunction with special needs planning.

These core planning points are by no means an exhaustive list of planning points. They will provide a baseline of what should be considered in special needs planning for every stage. Think of them as the basics you need to consider regardless of the age of your family member. They should, of course, be reexamined from time to time to be certain the recommendations stay current with your own family's needs.


  • Ask the people whom you want involved with your family member's life whether or not they want to be involved before you just name them in your plan. 
  • Help prepare future guardians, caretakers, trustees and successors for their roles.
  • Complete a Letter of Intent -click here to download a sample letter of intent.
  • When grandparents or other friends or relatives offer to help by including your child in their gift or estate plans, say THANK YOU. 
  • Encourage them to have their advisors speak with your advisors who specialize in disability planning. 
  • Be connected with family support agencies in your area.


  • Help your other children to meet and talk with children similar in age who also have a sibling with disabilities.
  • Seek professional help when you need it.
  • Be patient with yourself, your spouse and your family.
  • Learn as much as you can about your child's diagnosis and abilities.


  • Review your current financial plan -as often as possible.
  • Work with a professional who is knowledgeable in disability planning. Click here to view our checklist for interviewing a financial planner. 
  • Protect your family with adequate life insurance, long-term disability insurance, and long-term care insurance coverage for primary caregivers.
  • Identify all employee benefits for which you are eligible.
  • Do not establish a savings or investment account in your child's name.


  • Review your current estate plan -at least every five years. 
  • Create a Special Needs Trust
  • Name a guardian for your child or children in the event of your premature death or disability.
  • Check beneficiary designations on all life insurance, retirement plan accounts and annuities. These include employer benefit plans too.


  • Advocate for your child. Join forces with your state & local advocacy agencies.
  • Know and pursue your child's legal rights and entitlements.
  • Maintain eligibility for your child's government benefits at all times, even if they are not currently receiving them.
  • Apply for Social Security Survivor's benefits promptly when a parent of a child with a disability dies.
special_ needs_financial_ planningFor further information about the Five Factors of Special Needs Financial Planning, click here to contact us.

Tags: Special Needs Financial Planning, Special Needs Trusts, five factors of financial planning, Letter of Intent, guardianship, special needs Letter of Intent

How Trustees Can Protect Themselves

Posted by Patricia Manko on Tue, Sep 11, 2012 @ 04:18 PM

hardhat resized 600To protect themselves' from any given potential liability, trustees' best defense is to always act in the best interest of the beneficiary.

  • They should read the trust thoroughly and understand their responsibilities.
  • Trustees need to make sure that all of the trust property that is supposed to be part of the trust is actually registered to the trust.
  • All assets—real estate, automobiles, and investment accounts—should be properly insured.
  • Income taxes must be paid in a timely manner.
  • Trustees should send periodic accounts—annually if not quarterly—to the beneficiary or his or her legal representative. Keeping the beneficiary informed is important.
  • If a trustee has any questions about procedures or requirements, it is recommended that a qualified professional be hired to assist with the specific aspects of the trust and the needs of the beneficiary.

The Surety bond
A surety bond is insurance that protects the beneficiary if the trustee mismanages or misappropriates the trust property. Whether the trustee must post a bond, and if so, what type, is usually stated in the trust instrument. Some Special Needs Trusts excuse a trustee who is a relative of the beneficiary from giving bond, but require a professional or corporate trustee to post a bond.

Trustee's Personal Liability
When an individual agrees to be a trustee, they accept some degree of personal risk. If, as a result of their actions, the trust suffers a financial loss, the trustee may have to repay that loss out of their personal assets. Whether this will occur depends on the kind of action that caused the loss, the laws in each particular state, and any provisions in the trust that govern the trustee’s liability.

Legal Standards
In general, a trustee is liable for any intentional act on his/her part that caused the trust to lose money. 
Some trusts contain a so-called exculpatory clause. A common exculpatory clause will exempt a trustee from personal liability if he or she acts in good faith. A trustee would only be personally responsible for a loss if he or she acted in bad faith or was grossly negligent.

Investment losses
It is not uncommon for one or more of the trust’s investments to decline in value in any particular year. Sometimes the trust’s entire portfolio will lose money. If that occurs, the trustee in most cases does not have to make up the loss personally. Most states have a prudent investor rule that will insulate the trustee from losses as long as he or she adheres to that state’s requirements. 

Most states' prudent investor rules require the trustee to invest and manage the trust property as a prudent investor would. This means that the trustee should not exercise extreme risk or extreme caution. Instead, they should consider the size, terms, and purpose of the trust, and use reasonable care, skill, and caution. Also, a typical prudent investor law requires the trustee to reasonably diversify the assets in the portfolio to meet the long term goals as well as current cash flow needs of the beneficiary. 

 Read about our services for trustees.

Tags: Special Needs Trusts, Trustee Services

Special Needs Trusts: Questions and Answers

Posted by Patricia Manko on Tue, Jun 26, 2012 @ 01:07 PM

Q & A resized 600Q: We have one question about what we can provide our sister who is incompetent and living in a home from our special needs trust. We understand that we cannot give her money from the trust for food or shelter. The question that we cannot seem to get answered is whether the trust can purchase additional clothing for her or whether her relatives can provide clothing for her and get reimbursed from the trust?

A: I am not sure in which state your sister resides, but there is a good resource called "The Trust Administration Manual, A Guide for Trustees" by Barbara Jackins, et al. Also, another helpful resource would be the Special Needs Answers website orSpecial Needs Alliance.

Q: I have a son with special needs. He is 8 years old and I do not have a will yet or a special needs trust. Where should I start?

A: You could start with an attorney to get a will and special needs trust done. We have a list of good people, but it depends on where you live and a few other things in order to find the right attorney for your situation.

First is the size of your estate and/or net worth. Your net worth is a total of all that you own (such as your savings, investments and insurances) minus what you owe (which is your mortgage, debts, loans, etc.). Generally speaking if this is over $1,000,000 then you may want to consider working with an attorney who is also familiar with special needs trusts and estate tax planning.

Then it depends if there is money coming to your son now, or during your lifetime, or upon your death. This would determine the type of trust that would be required. You should also consider who the trustees will be and how much help they will need. Some law firms can serve as trustees with a family member involved for a nominal fee, others serve as the sole trustee for which the trust is charged a higher fee, and others do not serve as trustee at all.

You would also want to have your own Power of Attorney, Health Care Proxy created in addition to your Will and Special Needs Trust.

Q:If a family sets up a special needs trust and funds it, what happens if the individual it was set up to help dies before the funds in the trust are used up? 

A: If the beneficiary of a special needs trust (or just about any type of trust) dies before the funds are depleted, the remaining funds are distributed based upon the directions detailed in the trust document. They can be any other family members (siblings, aunts, uncles, nieces, nephews, cousins, etc.), any individuals, or any charities/organizations of the grantor's choice. This is why it is most important to name successor beneficiaries.

Q: My mother has a trust and we need to put in a special needs addendum. Do you have any forms that we can use to fill out and place in her trust?

A: This is not as simple as inserting a form. Legal documents need to be reviewed by attorneys and appropriate revisions need to be drafted by them. Unfortunately, we are not attorneys and cannot provide such information that you requested.

I suggest that you contact the attorney who drafted your mother's documents initially. If that is not an option, you should contact a lawyer in her state of residence who is knowledgeable in disability law and special needs trusts.

Tags: Special Needs Financial Planning, Special Needs Trusts

Funding a Special Needs Trust : Part II

Posted by Patricia Manko on Thu, Jun 14, 2012 @ 11:35 AM

The establishment of a special needs trust can provide a false sense of security that you are all set.  The money that funds the trust will secure the resources for your loved one to be cared for.

describe the imageIf you and your advisors determine that it would be most beneficial to fund your special needs trust during your lifetime, the following lists the more common ways to fund the trust: 

  • Establish an account in the name of the special needs trust.
  • Make gifts of liquid assets out of savings, or regularly fund the special needs trust on a periodic basis.  It is, however, important to ,make sure you stay with the IRS prescribed limits for annual gifts allowed within the provisons of the annual gift tax exclusion ($13,000 in 2012)
  • Gift assets that are likely to appreciate to the special needs trust.  Generally speaking, this would reduce the estate tax implications at the death of the donor.
  • If you do gift  investments other than cash, it is important to provide the cost basis of the original purchase price. This will be helpful when or if the assets are sold.
  • Own or purchase real estate property in the name of the trust.  You need to be mindful of the income tax consequences for both the trust and donor, as well as the potential increase in trustee fees. When real estate is owned in the name of a trust, it is often more difficult to obtain a mortgage on the property.
  • Own or purchase life insurance in the name of the trust.  You need to be mindul of the impact on the beneficiary's eligibility for government benefits.
  • Be mindful of the fiduciary responsibilities of the trustee of the speical needs trust.  Remember, it is important not to make distributions directly to the beneficiary.  All checks should be paid to either the service providers or vendors.

Tags: Special Needs Financial Planning, Special Needs Trusts

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