In this third and final article, I will discuss the funding decisions needed to set up such a fund and the considerations involved in choosing a trustee.
When you establish a special needs trust (SNT) you will need to decide how much money will be needed to fund the trust. Many parents' instinct is to have their assets divided equally among their children upon the parents' death.
When there is a disabled child, this may not be a good formula. Your healthy children probably are able to work and support themselves, while your disabled child may not be able to work at all, or his or her work may be limited.
Thus, it would be imperative to focus on the needs of the disabled child so as to determine the amount of money that would be needed to fund the trust with the objective of providing lifetime financial support for the child.
An SNT can be funded with many types of assets via gifts or bequests from relatives and friends made directly to the trust instead of to the disabled child.
Setting up an SNT during the parents' lifetime may enable them and other family members to contribute to the trust when and how they wish both throughout their lifetime and on their death by means of a written will.
Choosing an SNT trustee
The selection of a trustee is one of the main factors that determines whether an SNT succeeds or fails. In selecting a trustee it is important to understand the trustee's duties.
The trustee is a fiduciary, which means that he/she must act in the best interests of the beneficiary (the disabled person) of the trust. The trustee is held to a high standard of performance and accountability, and should thus invest the trust's assets in a prudent manner, maintaining proper accounting and tax reporting records of its dealings.
In this respect, the trustee must oversee the investments in the trust and diversify them so that they are neither too conservative nor too aggressive. The trustee must carry out the terms of the trust agreement, and must, at all times, be loyal to the beneficiary.
Most importantly, the trustee must ensure that the trust's assets are managed in such a way as to last the lifetime of the person with the disability.
Besides the financial aspect, the trustee must also provide for the disabled beneficiary's personal needs, care and safety. Furthermore, accountability and keeping the SNT on track is also another key factor for the success of this type of trust.
In this respect, a system of checks and balances should be incorporated in the trust agreement, whereby someone, such as a trust protector, could review the trust's performance independently and have specific powers to amend or revise the trust to meet the disabled beneficiary's changes in circumstances.
Other than a trust protector, parents may elect to appoint a Trust Advisory Committee, composed of a family member/s, family friend/s and a trust advisor (such as, a professional care manager and/or social worker) to assist the trustee on the beneficiary's care and needs.
The most popular model of the Lifetime Special Needs Trust is to have a licensed corporate fiduciary, such as a bank or financial institution, to serve as trustee under the direction of the Trust Advisory Committee.
By adopting this structure, you would be ensuring that the trust meets its overall objectives since:
• the trustee would manage and administer the trust assets; and
• the Trust Advisory Committee would assist the trustee in providing the social service needs of the disabled beneficiary and would direct the trustee on when and how distributions should be made to the disabled beneficiary.
Preparing a Letter of Intent
The parents of a special needs child know better than anyone else what kind of care the child needs, and when they are gone their knowledge will go with them unless they pass it on.
It is therefore vital for the parents to create a written statement of their wishes for their child's care.
One way to be clear about what the parents intend for their disabled child's future is to draw up a 'Letter of Intent' to be given to the trustee either throughout their lifetime or at the time of their death.
This letter gives the trustee, other family members and advisors to the trust, the benefit of the parents' knowledge about their child's capabilities, needs and fears, and can be updated periodically.
A Letter of Intent would typically include biographical information, financial details, medical history and needs, social contacts, any negative influences you would like to guard against, personality traits, skills, hobbies and physical abilities and goals your child is working towards.
The establishment, management and administration of an SNT (be it family or pooled) is rather complex. However, it is critical for your disabled child's welfare.
With a little advance planning for your special needs child you can make a significant difference in his/her life. You just have to take the first step to make this child's future potentially much brighter.
Dr Chetcuti Ganado is legal advisor at Bank of Valletta plc's Trustee Services Unit. BoV is licensed to provide trustee services by the Malta Financial Services Authority.