One of the most important roles in a special needs plan is that of trustee, the person who administers a special needs trust (SNT). Of a trustee’s many responsibilities, record-keeping is perhaps the most crucial. Because the trustee is managing accounts on behalf of someone else, every decision must be recorded with a paper or digital record. Here’s a detailed look at the types of records the trustee must maintain.
From the creation of the SNT, the trustee is responsible for notifying the IRS about the formation of the trust and arranging to have a tax ID number assigned to it. Going forward, it is the trustee (not the parents or guardians) who files and prepares annual tax returns, and makes sure that any taxes due are paid.
The trustee must keep a thorough accounting of any funds entering or leaving the trust. These include payments to service providers such as therapists and teachers, fees for special education, living expenses, as well as reimbursements to third parties who incurred expenses on the care and support of the beneficiary. Receipts, paid invoices, and canceled checks for all trust-related expenses must be retained.
All communications with trust beneficiaries, donors, family members, and professionals such as accountants, attorneys, and investment advisors must be documented, including emails and telephone conversations.
These include financial documents such as bank statements, quarterly reports, confirmations, tax returns, and audits, as well as annual statements from insurance providers, health plans, and any legal notices. Especially important is correspondence relating to the trust from government agencies and benefits programs such as the Social Security Administration (SSA), Medicare, and Medicaid, which must be properly documented and filed.
Maintaining thorough records is important for several reasons. First of all, it helps the trustee do a thorough job, especially at tax time or when the family wants a detailed accounting of the SNT’s activities. Good record-keeping is also a safeguard if the beneficiary wants more information or challenges the management of the trust in the future, and it protects the trustee from liability in a legal dispute. Other government entities such as the IRS or the SSA may require detailed records from previous years to evaluate benefits or conduct an audit.
Because SNT trustees typically have complete discretionary authority with respect to trust distributions, it is imperative that trustees keep a record of their due diligence in approving a distribution. They should also help prepare a spending plan for the beneficiary, which will show that the trustee has carefully considered the beneficiary’s needs with regard to discretionary distributions. Each decision to make a distribution should include a written record of what steps the trustee performed to ensure his or her discretion was properly exercised. These documents may include such things as beneficiary’s bank statements, credit card statements, pay stubs, or other employment information, invoices, proposals, and any other information given to you to justify a request for a distribution.
If these duties seem too onerous or time-consuming for you, consider hiring a professional to serve as trustee or co-trustee to take on this part of the work. And as with any aspect of planning for a dependent with disabilities, be sure to first consult with a special needs professional, who can outline all the trustee’s record-keeping responsibilities and answer any questions that may arise.