When you have a loved one with a disability or other special needs, establishing a Special Needs Trust is an essential component of your estate plan. Simply understood, a Special Needs Trust is a trust that is purely discretionary, wherein the person or entity you appoint as trustee makes distributions for the benefit of your loved one purely in the trustee’s discretion, usually to service providers or vendors for services and goods not covered by Social Security, Medicaid, or other public benefits. Because the Trust is discretionary, and the loved one cannot compel distributions, the assets of the trust are not considered “available” for public benefit eligibility purposes.
This high degree of discretion imposes a considerable amount of trust that the trustee will manage the trust assets in the best interest of the special needs beneficiary. Usually, a special needs trust (SNT), particularly a third-party SNT, is designed to support the beneficiary for life, and is therefore one of the longest-lasting trusts commonly used. You will rely on it to give support to your loved one that you cannot provide once you are gone. Even if the Trust has ample resources to support the beneficiary for most of their needs, your loved one may need resources that can only be accessed if they qualify for public benefits like Medicaid. For example, most services through Community Mental Health, and rehabilitative employment services, can only be provided to Medicaid beneficiaries. It is therefore crucial that the trustee of your SNT understands how to operate the trust, and actually administers the trust for the benefit of your loved one.
Using a trust director can help insure that your wishes are carried out and that the beneficiary’s benefits are protected in the long term. In trying to plan for a special needs beneficiary, their caretaker (usually a parent) wears multiple hats during their lifetime: a zealous advocate, service provider, and financial manager. It is difficult to approximate what a parent provides to a loved one with special needs once that parent passes. Planning for that caretaker requires forming a “team” that can assume these roles after the caretaker’s death. The trustee of the SNT and a financial advisor, either serving the Trustee as an advisor or separate trustee, fills the financial management part of the puzzle, while a care manager (usually a nurse or social worker) fulfills the advocacy need. A successor guardian may be necessary to advocate for the beneficiary in a legal context. But what happens if the people or entities you’ve selected to fill these roles for any reason do not perform? What happens if circumstances or the law change, and it would be in your loved one’s best interest to revise the plan you’ve laid out? An answer to these questions may lie in appointing a trust director.
To understand the meaning of “trust director” under Michigan law, it is necessary to understand the definition of “power of direction.” The law defines a power of direction as:
a power over a trust granted by the terms of the trust to the extent the power is exercisable while the person to whom it is granted is not serving as a trustee. Power of direction includes a power over the investment, management, or distribution of trust property or other matters of trust administration.
MCL 700.7703a(24)(e)
Read together and slightly oversimplified, this means that a trust director is a bank or individual with a power over a trust.
Common powers to direct include the powers to change trustees, appoint another trustee or add a care manager or other advisor, manage investments, amend a trust, change a trust’s jurisdiction, add or remove a beneficiary, make certain tax elections, approve accountings, terminate a trust, or arbitrate trust disputes. But those are just a start. If you can envision a power, duty, or special event, someone has carved out that power, duty, or event and brought it within the purview of a power to direct.
Importantly for SNT’s, a trust director can amend trust provisions to comply with ever-changing Medicaid and Social Security regulations. Moreover, the trust director can do so without seeking a court order, having any ownership of trust assets, or any further duties or liability to the trust beneficiaries or their creditors. This is appealing to many families where a surviving child without disabilities would be willing to help care for their sibling or family member with special needs but is not willing and/or able to devote the considerable time and effort, or incur any potential liability, to act as a full trustee. Such individuals may make an ideal candidate to appoint as a trust director.
As a practical matter, it may take some time for a professional trustee to assume their role, marshal the trust’s assets, and begin administration of the trust. In worst-case scenarios, getting some (particularly large and low fee) trust companies to accept trusteeship can take a year or more. It’s largely for this very practical reason that I never recommend such companies to clients as trustees of such a specialized trust, and try to steer clients to trustees with a local presence, experience in administrating SNT’s, and those who I know will administer the trust in an expeditious manner. However, if there is an undue delay in administration or other issue with trustee performance, a trust director provides a second line of security as a person with the power to remove and appoint a successor trustee without court intervention.
The goal of an SNT is to provide streamlined continuous support for a disabled beneficiary, to cause the least amount of disruption to their life, and to approximate the support of a caretaker insofar as possible. This requires a team that usually consists of your trustee, a financial advisor, a care manager, a legal advocate, and the trust director. Thanks to Michigan’s trust director legislation, adding a trust director is a powerful estate planning tool.