When forming a special needs trust for your child, you may wonder whether using a bank as a trustee or other professional individual or entity is a good idea. An “institutional trustee”, which is called a corporate trustee, refers to a bank or trust company that oversees and acts as trustee for many trusts. The bank or trust company typically receives a management fee for performing its duties as trustee.
You also may hear people reference a “professional trustee” or a “private trustee”. Sometimes these terms include large banks and trust companies, but in Illinois they can also refer to non-profit organizations that offer trustee services. If you aren’t sure if you should use corporate trustee as the trustee for your special needs trust or another option, a special needs planning attorney at Rubin Law can help you make an informed decision. Call us at 866-TO-RUBIN to get advice about setting up a special needs trust for your child with disabilities.
Pros of Using a Bank as a Trustee
Trustees owe fiduciary duties to the beneficiaries of the trusts they oversee. Fiduciary duties require them to act in the beneficiaries’ best interests. Some of the many duties that trustees have include:
- Keeping detailed records;
- Investing trust assets prudently;
- Preparing and filing income tax returns;
- Managing tax consequences; and
- Preparing annual accountings to the beneficiaries.
Many of these duties are beyond the abilities of family members and friends who may be your first choices as trustees of a special needs trust. The family trustee could end up employing various professionals to perform these tasks at the trust’s expense.
Using a bank as a trustee can avoid these unnecessary costs. Institutional trustees handle these trustee duties every day. They have systems in place to properly complete taxes, to invest and reinvest funds, and to report to beneficiaries.
Cons of Using a Corporate Trustee as a Trustee
The biggest downside to using an institutional trustee is that only a handful of the larger banks and trust companies have dedicated special needs trust divisions that understand the nuances of handling a special needs trust as opposed to other trusts. SNTs and other future planning devices for people with special needs must consider eligibility for government benefits such as SSI and Medicaid. Trustees of these trusts also must factor in a host of other considerations specific to people with special needs. If the bank as a trustee has no special knowledge of these considerations, your trust could run into problems to the detriment of your child.
Appointing a bank as a trustee also has few other downsides. An institutional trustee tends to (though not always) provide less personalized service, which can be difficult to get answers to specific questions or make changes to your trust quickly. Some institutional trustees also will not handle trusts with assets less than $1 million to $1.5 million in assets.
Professional or private trustees as well as non-profit organizations that act as trustees for special needs trusts often have the specialized knowledge and can offer the personalized service that large institutional trustees lack. These trustees usually work with many fewer trusts than institutional trustees do, but often have experience as institutional trustees or other background in trust management.
Rubin Law is the only law firm in Illinois exclusively limited to providing compassionate special needs legal and future planning to guide our fellow Illinois families of children and adults with intellectual disabilities, developmental disabilities, or mental illness down the road to peace of mind. For more information about appointing a bank as a trustee for your special needs trust, email us at email@rubinlaw.com or call 866-TO-RUBIN.
