When parents create a trust for a child with special needs, one of the first questions is often:
Who should serve as trustee?
For many families, the answer seems obvious. Choose a sibling, aunt, uncle, cousin, or another relative who knows and loves the beneficiary.
That choice may work very well. But love, loyalty, and good intentions do not automatically make someone a good trustee.
Serving as trustee is not an honorary family title. It is a legal and financial responsibility that may last for decades. The trustee may need to manage investments, approve distributions, maintain records, file tax documents, communicate with benefit agencies, work with caregivers, and make difficult decisions about money—all while following the terms of the trust.
When the beneficiary receives Supplemental Security Income (SSI), Medicaid, housing assistance, or other means-tested benefits, the job becomes even more complicated. A distribution made with the best intentions can still affect benefits if it is handled incorrectly.
Before naming a family member as trustee, families need to understand the risks as well as the advantages.
Why Families Naturally Choose a Relative
There are good reasons parents often prefer a family member.
A relative may already understand the beneficiary's personality, routines, medical needs, preferences, and family history. The person may have a genuine emotional commitment to the beneficiary and may be willing to serve without charging the same fee as a professional trustee.
Parents may also feel more comfortable putting a loved one in charge than handing responsibility to an institution.
Those are meaningful advantages. But the real question is not simply,“Who loves my child?”
The better question is:
“Who can consistently make careful, impartial, well-documented decisions for my child—possibly for the next 20, 30, or 40 years?”
Those are not always the same person.
Risk No. 1: The Trustee May Not Understand Government-Benefit Rules
A Special Needs Trust is generally designed to supplement, rather than replace, government benefits. That means the trustee must understand how different distributions may be treated.
For example, the Social Security Administration explains that cash paid directly from a trust to an SSI recipient is generally treated as unearned income. Trust payments for food or shelter may also affect the recipient's SSI payment. By contrast, payments made directly to third parties for items such as education, therapy, transportation, certain medical services, recreation, and professional fees generally are not treated as income under the same rules.
This is not intuitive.
A well-meaning brother might give the beneficiary spending money. An aunt might pay the rent without realizing it could affect SSI. A trustee might reimburse an expense without keeping the documentation needed to explain the transaction later.
The trustee does not have to become a government-benefits attorney. But the trustee must know when a decision requires professional guidance.
Risk No. 2: Family Relationships Can Create Conflicts
Trustees have a fiduciary responsibility to act in the beneficiary's interest and follow the trust's terms. New Jersey law also imposes duties involving loyalty, prudent administration, recordkeeping, and, when a trust has multiple beneficiaries, impartiality.
That can become uncomfortable within a family.
Imagine that a sister serves as trustee for her brother with a disability and will receive whatever remains in the trust after his death. Every dollar spent for her brother may reduce her future inheritance. She may be entirely honest, but the arrangement still creates a potential conflict—or at least the appearance of one.
Other conflicts can arise when:
One sibling provides most of the caregiving and wants to be paid.
Family members disagree about housing, transportation, travel, therapies, or quality-of-life expenses.
The trustee believes the beneficiary is asking for too much.
The beneficiary believes the trustee is being controlling or unnecessarily restrictive.
Other relatives pressure the trustee to preserve the money for future heirs.
Parents often assume their children will work things out because they love one another. Sometimes they do. Sometimes money, caregiving, grief, and old family dynamics bring out problems that no one expected.
Risk No. 3: The Administrative Work May Be More Than the Person Can Handle
Trust administration involves more than paying an occasional bill.
Depending on the trust, a trustee may be responsible for:
Opening and maintaining trust accounts.
Keeping trust property separate from personal assets.
Tracking income, expenses, and distributions.
Retaining receipts and creating accountings.
Coordinating tax preparation and filing requirements.
Managing investments prudently.
Reviewing requests from the beneficiary or caregivers.
Confirming that expenses are permitted under the trust.
Communicating with attorneys, accountants, financial professionals, care managers, and benefit specialists.
Monitoring changes in the beneficiary's needs and public benefits.
A relative can be intelligent, caring, and financially responsible in personal life and still be a poor fit for this job.
The person may not have enough time. They may live far away. They may struggle with paperwork, deadlines, confrontation, or investment decisions. They may also be managing children, a career, aging parents, or their own health concerns.
Naming someone because they are “good with money” is not enough. The trustee must also be dependable, organized, available, willing to ask for help, and capable of saying no when necessary.
Risk No. 4: The Trustee May Be Too Emotionally Involved—or Not Involved Enough
The trustee's emotional connection to the beneficiary can be an advantage. It can also make objective decision-making harder.
Some relatives may approve every request because they feel guilty saying no. Others may become overly protective and restrict spending far beyond what the trust requires. A sibling may carry resentment about caregiving responsibilities. Another may be uncomfortable discussing the beneficiary's needs and gradually disengage.
There is also the reality of grief. A family member may be asked to take over as trustee immediately after the death of a parent. At the same time, that person may be mourning, helping settle an estate, supporting other relatives, and adjusting to a new caregiving role.
That is a heavy load to place on one person.
Risk No. 5: The Trustee May Not Be Able to Serve for the Long Term
Special-needs planning requires a longer view.
The person who seems like the right choice today may develop health problems, move away, experience financial difficulties, go through a divorce, or simply become unable or unwilling to serve.
Age matters too. Naming a sibling close to the beneficiary's age may not provide the continuity parents expect. Naming an older aunt or uncle may create the need for a replacement trustee sooner than anticipated.
Every trust should name successor trustees and explain how a replacement can be appointed. Families should also review those choices periodically. A trustee selection made ten years ago may no longer make sense today.
Does This Mean You Should Never Choose a Family Member?
No.
A qualified and committed family member can be an excellent trustee. The problem is choosing someone based only on closeness, tradition, or fear of hurting another relative's feelings.
Before naming a family member, consider whether the person:
Understands that the beneficiary—not the rest of the family—is the priority.
Can follow detailed legal and financial instructions.
Is organized and comfortable keeping records.
Can make impartial decisions and manage family pressure.
Has the time and willingness to serve.
Will seek help from attorneys, accountants, investment professionals, and benefit specialists.
Can communicate respectfully with the beneficiary and caregivers.
Is likely to remain capable and available over time.
Has been asked—and has freely agreed—to take on the role.
That last point matters. No one should discover that they have been named trustee only after a parent dies.
Alternatives to Naming One Family Member Alone
Families generally have more than two choices. It is not simply “use a relative” or “turn everything over to a stranger.” Depending on the trust, the family, the assets, and the available providers, options may include:
A professional or corporate trustee
A professional trustee can provide experience, continuity, recordkeeping, investment oversight, and a more neutral decision-making process. The tradeoff is cost, and not every institution accepts every trust. Minimum asset requirements and service models should be reviewed in advance.
A family member and professional co-trustee
This arrangement may combine personal knowledge with professional administration. However, the trust should clearly explain each trustee's authority, and the family should understand how disagreements will be resolved.
A family member serving with professional support
A relative may serve as trustee while working closely with a special-needs attorney, accountant, financial professional, care manager, or public-benefits specialist. The trustee still carries the responsibility, but does not have to perform every technical task alone.
A trust protector, adviser, or distribution committee
In some plans, an additional person or committee may have defined powers, such as replacing a trustee or advising on distributions. These arrangements require careful legal drafting and should be discussed with an experienced attorney.
A pooled trust
For some beneficiaries, particularly when the trust balance is too small for certain corporate trustees, a pooled trust administered by a nonprofit organization may be worth considering.
No single structure is right for every family. The best arrangement is the one that fits the beneficiary's needs, the size and purpose of the trust, the family's dynamics, and the complexity of the benefits involved.
The Trustee Should Not Be the Entire Plan
Even the best trustee cannot make good decisions without good information.
Parents should provide a current Letter of Intent describing the beneficiary's routines, medical history, providers, therapies, benefits, relationships, preferences, communication style, housing needs, and long-term wishes. Beneficiary designations should be coordinated with the trust, and the estate plan should clearly identify successor decision-makers.
The legal documents create the authority. The Letter of Intent and coordinated financial plan provide the roadmap.
Final Thought
Choosing a family member as trustee can feel like the most loving and personal decision. In the right circumstances, it may be.
But the trustee's job is too important to assign based on affection alone.
The right trustee must be able to protect benefits, manage money prudently, keep accurate records, navigate family dynamics, and make decisions centered on the beneficiary's quality of life. Sometimes that person is a relative. Sometimes it is a professional. And sometimes the strongest solution is a carefully designed combination of both.
The goal is not to remove family from the plan. It is to give the beneficiary a structure that can still work when the parents are no longer there to hold everything together.
Call to Action
If you have created, or are considering a Special Needs Trust, do not wait until the documents are signed to think about who will actually administer it.
I help families review how their trustee choice fits with their financial plan, beneficiary designations, public benefits, Letter of Intent, and long-term care strategy. When appropriate, I also coordinate with special-needs attorneys and discuss professional trust-service options available through our firm.
A trust is only as effective as the plan for carrying it out.
Contact Gwen Canonico, CFP® to schedule a conversation about creating a more coordinated plan for your loved one.
Check out our website for extensive information on trust services and special needs planning in New Jersey.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial. Canonico Wealth Management and LPL Financial do not offer legal advice or services.