The Importance of Selecting a Trustee for Special Needs Clients
Disclaimer: Since Medicaid rules and insurance regulations are updated regularly, past blog posts may not present the most accurate or relevant data. Please contact our office for up-to-date information, strategies, and guidance.
Individuals with disabilities often require a special needs trust for various reasons, including protecting public benefits, securing asset protection, and facilitating generational wealth transfer. There are several types of special needs trusts—such as first-party, third-party, or pooled trusts—designed to meet specific needs. However, a common factor in all special needs planning is the critical importance of selecting a qualified trustee.
Read More: 5 Things to Know About Special Needs Trusts
The Role of the Trustee in Special Needs Trusts
While all trusts require a capable trustee, special needs trusts demand an even higher standard of competency and integrity. These trusts have unique requirements for beneficiary distributions, and improper management can compromise the effectiveness of the trust.
For example, if distributions are too large or made for disallowed purposes, the beneficiary may lose essential benefits like Medicaid. Since Medicaid often provides critical services, a trustee’s lack of understanding can cause significant harm to the beneficiary, thus violating their fiduciary duty.
Attorneys play a vital role in this process by helping clients select and educate private trustees—typically family members—ensuring that the trust is administered as intended.
Read More: Special Needs Trusts & The Importance of Vetting Third-Party Providers
Consequences of Trustee Malfeasance
The consequences of poor trustee selection can be catastrophic. A striking example is the ongoing civil cases linked to the bankruptcy of the Center for Special Needs Trust Administration. Allegedly, Leo Govoni used a web of business entities to misappropriate over $100 million from special needs beneficiaries. As the trustee of a pooled trust in Florida, Govoni’s actions highlight the potential for devastating harm when trustees fail to uphold their responsibilities.
Although this case represents an extreme example, it underscores the necessity for attorneys to help clients carefully evaluate potential trustees. Basic vetting and due diligence can prevent such disastrous outcomes.
