When creating a special needs trust, one of the most important decisions is choosing who will manage the trust after you’re gone. This person is called the successor trustee. Selecting the right successor trustee is crucial to ensure your child with special needs is properly cared for in the long term. 

Many families struggle to choose a successor trustee for their child’s special needs trust. This decision can feel overwhelming since the trustee will essentially act as your child’s surrogate financial parent after you’re gone. However, taking the time to carefully consider this crucial role is worth the effort.

The Role of the Successor Trustee

The successor trustee will be responsible for managing the assets in the trust and overseeing distributions to benefit your child per the trust guidelines. Their decisions directly impact your child’s quality of life, so thoughtfully weighing the options is key.

In this article, I’ll explore the role of a successor trustee, how to choose one, and key factors to consider.

Should You Really Make a Family Member the Trustee?

Some families simply name a successor trustee out of convenience, without fully considering the responsibilities involved. Others become paralyzed by indecision, which stalls the trust creation process entirely. 

When choosing a successor trustee, it’s normal to default to a trusted family member or friend who loves their child. Perhaps you’re considering a sibling, aunt/uncle, or close family friend.

While their intentions are good, I usually advise against naming family members. 

Here’s why:

  • What if that person is your age and won’t be around as your child ages? You need longevity in a trustee.
  • Also, tensions can brew if a family member controls the money flow. I’ve seen painful rifts where the beneficiary resents a sibling trustee’s financial decisions. This can deeply damage cherished family bonds.

Instead, look outside the family circle for neutrality. Consider professionals with experience managing special needs trusts.

I know it seems like your options are limited if family is off the table. But don’t worry—there are qualified candidates out there. The key is finding someone committed to your child’s best interests for decades to come. 

With that being said, let’s study the main categories of professional successor trustees: banks/trust companies, private professional fiduciaries, and nonprofits. All offer pros and cons to weigh.

When Banks Work Well as Trustees

Banks and trust companies are commonly named as successor trustees for special needs trusts. Their institutional structure offers some clear benefits, but also potential drawbacks to weigh carefully.

Let’s start by exploring the advantages banks provide when managing special needs trusts. There are several good reasons families choose to entrust their child’s future to a bank trustee.

The Advantages of Naming Banks as Trustees 

Banks Work Well for Larger, More Complex Trusts

First, banks work well for larger trusts or those with more complex assets. Their standard fees make sense for higher wealth trusts that require greater oversight or specialty services like property management. 

Banks have the resources and dedicated staff to handle more demanding trust administration. For simpler, smaller trusts, a bank’s flat fees may exceed what is needed. But for trusts above a certain size, banks offer economies of scale.

Banks Offer Statewide or National Reach

Another major advantage of banks is their statewide or national reach. This provides consistency if your child ever moves out of state. An individual trustee could really struggle to check on and advocate for a beneficiary who relocates across the country. But banks often have branches nationwide, so they can easily maintain contact and support.

Banks Have Dedicated Teams, Including Care Managers

Bank trust departments often have dedicated teams, including care managers, to connect with beneficiaries. I recommend specifying in the trust that the trustee can hire an advocate or case manager to provide hands-on support.

The successor trustee acts as a point person while delegating day-to-day roles like advocacy to staff specialists. For investing, banks typically manage assets in-house, which is included in their fees. 

However, if you want your existing financial advisor to continue managing trust investments, discuss this upfront when selecting a bank trustee. It’s important to keep in mind that some may not collaborate with outside advisors. 

Banks Offer In-House Investment Management

Last but certainly not least, banks provide professional investment management of trust assets as part of their fees. This avoids the need to hire a separate financial advisor, simplifying oversight. So, for families who don’t already have an advisor they wish to maintain, banks offer an all-in-one solution.

Pros of Choosing a Bank as a Trustee

To sum up, here are the key pros of choosing a bank as a trustee:

  • Banks work well for larger trusts or those with complex assets like rental properties or farms. Their flat fees make sense for higher wealth trusts needing more oversight.
  • Banks have statewide or national reach. This provides continuity if your child moves out of state. An individual trustee would struggle to check on a distant beneficiary.
  • Bank trust departments often have dedicated teams, including care managers, to connect with beneficiaries. You can also bring your own onboard. 
  • Banks provide in-house investment management as part of fees. This avoids the need for a separate financial advisor to manage assets.
  • Larger banks have strong longevity. Your child will have consistent support managing the trust for decades to come.

The Disadvantages of Naming Banks as Trustees 

Now, let’s explore the potential disadvantages of naming a bank as your child’s trustee. The below are a few concerns families commonly voice.

Banks May Seem Impersonal

Some parents worry that banks seem overly impersonal. They fear the institution won’t prioritize their child’s needs or provide the compassionate support the child deserves. However, reputable banks that specialize in administering special needs trusts often have very caring, capable staff. 

Still, it’s important to thoroughly vet any bank trustee’s credentials and track record with special needs beneficiaries. An informed choice is always key.

Banks Tend to Control Investments

Another drawback is that banks usually want full control over investment management and may not collaborate with your existing financial advisor. If you have an FA you wish to maintain, discuss this upfront before naming a bank trustee. 

Communication Can Be Challenging

Communication with a bank trustee can also seem overly formal or inflexible at times. Establishing a personal rapport and maintaining approachable contact requires some savvy navigation. 

Cons of Naming a Bank a Trustee

  • Some families worry banks seem impersonal and prioritize profits over beneficiaries’ needs. However, reputable banks specializing in special needs trusts can provide compassionate, skilled support.
  • Banks may not collaborate with your existing financial advisor. Discuss this before naming a bank, since they tend to want full control over investments.
  • Communication may seem overly formal or inflexible. Approachable contact with a bank trustee can require some navigation.
  • Banks usually have higher minimum fees than other options, so it may not make sense for smaller trusts. The fixed fees should justify the level of service.

In summary, banks have unique strengths but also drawbacks to weigh carefully. They can serve as excellent trustees when thoughtfully selected for the right situation. Thorough vetting is key, as with any successor trustee option, to find the best fit for your child’s needs.

So far, we’ve explored the advantages and drawbacks of naming a bank or trust company as your child’s successor trustee. Now, let’s look at another option—private professional fiduciaries.

When Private Professional Fiduciaries Work Well

Besides banks, you can also name an individual private professional fiduciary as a trustee. These are professionals licensed in your state (such as California) specifically to manage trusts. 

Tip: Look for a fiduciary with plenty of special needs trust experience when considering this option.

I’ve previously interviewed a wonderful professional fiduciary – an insightful woman named Shannon Downs. I invite you to watch that video to learn more about what these professionals do, Shannon’s perspectives on the trustee role, and other great details about working with private fiduciaries. You can find the video by clicking here.

Key Benefits of Private Fiduciaries

So, what are some of the major upsides to naming a private fiduciary instead of a bank?

Develop Close Personal Relationships

Well, for one, private fiduciaries can develop close personal relationships with your child. It’s ideal to select one located near your child to enable regular in-person interactions. This allows the fiduciary to monitor housing, assistance, and other needs up close.

Lower Fees Than Banks

Additionally, independent fiduciaries often charge lower fees compared to banks. While banks typically charge around 1.25-1.5% of assets under management, private fiduciaries may charge a lower percentage or work on an hourly basis instead of a percentage. Their fees can vary, so be sure to discuss costs upfront when interviewing potential candidates.

Key Questions to Ask During Interviews With Private Fiduciary Candidates

Speaking of interviews, I highly recommend interviewing several private fiduciary candidates before making a decision. Ask lots of questions upfront to assess their experience, services, costs, and care philosophies.

Here are some key questions to consider asking potential private professional fiduciaries:

  • What types of services can you provide my child? What extra credentials or specialized training do you have around special needs beneficiaries?
  • What are your fees, and how are they charged – hourly, monthly, percentage of assets? Give me an estimate for what you’d likely charge if you were named trustee.
  • Do you have backup liability insurance in case any mistakes happen down the road?
  • Will you personally handle my child’s case, or do you have care management staff for hands-on coordination? How do duties delegation work day-to-day?
  • Can my child and I reach you in the evenings or weekends if an urgent issue pops up?
  • How quickly do you usually respond to calls or messages from special needs clients?
  • If you ever retire or have to transfer companies, how will you ensure a secure transition of my child’s confidential data?
  • Could you provide a couple of references from past special needs clients with whom I can further vet your quality?
  • I also love getting to know their work philosophy: How do you balance financial prudence with compassion for my child’s quality of life needs?
  • Do you have adequate staffing levels to handle caseloads without spreading yourselves too thin?
  • What access does your office offer? Is it ADA-compliant if my child has mobility challenges?

Drawbacks to Consider with Private Fiduciaries

While private fiduciaries offer plenty of great benefits, there are also a few potential downsides to weigh:

May Retire Before Beneficiary

For one, individual fiduciaries will eventually retire or pass away – likely earlier than your special needs child’s lifespan. So, it’s critical to understand their succession plan for transitioning trusteeship smoothly when they exit. Some designate successor fiduciaries from their firm or other local professionals.

Limited Geographic Range

Additionally, private fiduciaries tend to serve local communities rather than having statewide reach. This could pose challenges if your child ever relocates out of state. The fiduciary may not be able to maintain consistent in-person coordination from afar.

While private fiduciaries can make excellent trustees, go into interviews and keep your eyes wide open about any limitations, too. Finding the right personality and operational fit will always lead to the best experience.

When Nonprofit Trustees Can Work Well

So far, we’ve covered banks, private professional fiduciaries, and their various pros and cons as successor trustee options. Now, let’s explore another potential choice—nonprofit organizations.

There are several nonprofit organizations, at least in some states like California, that offer successor trustee services specifically for special needs trusts. However, not all nonprofits have experience with these specialized trusts, so make sure to clarify whether this service is provided if you are considering one. You want to find an organization well-versed in public benefits rules.

Ideally, the nonprofit should share a similar mindset and approach to serving the special needs community. After all, seeing their values and services in action helps evaluate if their funding priorities align with your focus on quality of life. 

Keep in mind: Nonprofits with hands-on care experience often best understand how to maximize benefits within the limitations of the support system.

Can Also Act as a Conservator

Some nonprofits will act as both successor trustees of a special needs trust and conservators if needed. This consolidation makes sense for those requiring both oversight roles to be filled. 

As you may already know, a conservator legally makes decisions on behalf of an individual deemed unable to decide for themselves.

Potential Downsides to Weigh

Here are a few potential downsides with nonprofit trustees to consider:

  • They tend to be very busy, often serving many clients. Would your child get ample personal attention? Ask about caseload levels.
  • Fees might be as high as banks, around 1-1.5% of assets. Compare costs across options.
  • Goals for fund usage and care priorities may not fully align with your family’s. Discuss this.

Pooled Special Needs Trusts

The last option to note is pooled special needs trusts run by nonprofits. 

A pooled special needs trust is an option offered by some nonprofits. Here, multiple families’ funds are pooled together into one shared trust the nonprofit manages.

Rather than creating your own customizable stand-alone special needs trust, you sign an agreement to join the nonprofit’s existing pooled trust. You don’t choose the specific trustee or tailor trust terms.

The nonprofit organization then handles investment and distribution decisions for everyone in the pool. This makes setup easier upfront but limits control in the long term.

Additionally, you can’t control continuity if anything happens with the nonprofit down the road. Many families dislike ceding this much control and customization, even for a simpler startup.

In summary, pooled SNTs provide convenience but less personalization and control over your child’s funds. It’s important to assess this tradeoff carefully when exploring nonprofit trustee options.

How to Choose a Successor Trustee Wisely for Peace of Mind

Selecting the right successor trustee for your child’s special needs trust is one of the most important decisions you’ll make. After all, this trustee is who will control funds crucial to your child’s care after you’re no longer able to do so. 

As you have probably noticed in this guide, there are several excellent choices, each with its own set of benefits and drawbacks. It’s important to carefully consider the different aspects of banks, private fiduciaries, nonprofit organizations, and pooled trusts before making a decision.

The key? To match professional skills with a personal touch and to focus on what values are most important for your family. Define what matters most – investment returns, low fees, relationships, or care advocacy? Preferably, you’ll want someone who can balance all of these elements.

For tailored guidance on special needs trust best practices and choosing trustees, I highly recommend scheduling a consultation with our experienced special needs planners at Cookman Law. Our team of dedicated attorneys can guide your family in securing the ideal trustee to protect your child and craft a customized plan that provides lifelong support. 

To get expert assistance tailored to your unique needs, you can book a consultation by calling (650) 690-2571 or visiting our website at cookmanlaw.com.