Kiplinger’s recent article, “Selecting the Right Trustee and Protector for a Substance Abuse Trust,” explains that selecting the trustee for a substance abuse trust should start with a good idea of the duties they will perform. Next, find a person or institutional trustee that’s most qualified to fulfill those obligations. Parents should then think about naming a trust protector, who serves in a supervisory role to ensure that the trust is being properly administered.
The basic duties of a trustee include a fiduciary duty to administer the trust in good faith and in accordance with its terms and purposes; loyalty to the beneficiaries, by acting solely in their interests; invest the trust property prudently by considering the purposes, terms, distributional requirements, and other circumstances of the trust; and to act impartially, when there are multiple beneficiaries.
There may also be special duties of the trustee. For a child with a substance use disorder, the trustee’s duties for distributions could be linked specifically to paying for the costs of rehab, job training, professional service fees and other items that are part of the treatment plan developed by the beneficiary’s treatment team. Tying distributions into the treatment plan would mean the trustee, and maybe someone familiar with treatment management would have to work closely with the treatment team to carry out the plan.
If the Substance Abuse Trust has incentive clauses, the trustee will also have to determine if the beneficiary has attained the goal (like sobriety for a certain period of time) and if so, the benefit to which he or she’s entitled. These can be hard to administer since it can be hard to verify if the beneficiary has actually met the goals.
If the beneficiary is eligible for government program benefits, like SSI or Medicaid or from private health insurance, another set of duties will be placed upon the trustee to make certain that distributions won’t be classified as “maintenance” or “support.” If so, it could result in the child being declared ineligible. Since distributions from the trust are meant only to supplement the benefits that SSI or Medicaid is providing (and not duplicate or supplant them), the trustee will have to closely watch the uses of the distributions, so they aren’t considered support and maintenance.
You must next look at potential candidates to see who’s best suited for the role of trustee. There are two categories of trustees: individual and institutional. Individual trustees can include family members. The advantage here is that they’ll know the beneficiary and can give more personalized service than an institutional trustee. However, appointing a family member or friend as a trustee may strain or ruin the relationship, as the trustee may need to deny the beneficiary’s demands. It also means that the beneficiary may need to admit to embarrassing behavior to a sibling. The cost of paying a third party as the trustee may be worth preserving the relationship.
You can appoint a trust company, bank trust department, or a corporate trustee connected to a brokerage firm to serve as the trustee to avoid possible family conflicts. However, some institutional trustees may be more focused on their investment performance, than on tending to the mental and physical needs of their beneficiaries. In the case of a substance abuse trust, “hands-on” involvement with the beneficiary is vital.
One alternative may be to appoint an individual and an institutional company to serve as co-trustees. The individual could be personally involved with the beneficiary and their treatment plan, and the institutional trustee could deal with and handle the investments. However, both trustees should make distribution decisions. The best type of institutional trustee for a substance abuse trust, would be one that works primarily in administering special needs trusts. These are created for the benefit of children with disabilities. These trustees will be knowledgeable about SSI and Medicaid eligibility rules.
A trust protector, depending on applicable state law, acts as the settlor’s surrogate. This continues even after the settlor dies. This allows the trust to adapt to changing circumstances. The trust protector could also direct the trustee’s actions concerning how the trust assets would be invested and could approve or deny proposed disbursements from the trust. The trustee would be obligated to comply with such directions unless they would be manifestly contrary to the trust’s terms or a breach of the protector’s duties.
As far as a substance abuse trust, a trust protector can provide supervision, if the trustee doesn’t possess experience in coordinating trust distributions with a substance abuse treatment plan, or with monitoring the beneficiary’s eligibility for government aid programs. Instead of the trustee appointing agents to assist in these matters, the protector would actively monitor the progress of the beneficiary’s recovery and, if necessary, direct the trustee to engage a treatment manager for the beneficiary or an advocate to secure SSI and Medicaid benefits.
Support from all parties will help the beneficiary continue on the road to recovery, which is the ultimate goal of the Substance Abuse Trust.
Reference: Kiplinger (March 8, 2019) “Selecting the Right Trustee and Protector for a Substance Abuse Trust”