The Academy of Special Needs Planners held its 2024 National Conference this past April in Austin, Texas. Delivering one of the pre-sessions, which centered on best practices in special needs trust administration, were four team members from Cadence Bank, based in Austin.
As Nancy Sosa, who opened Cadence Bank’s Austin trusts office in 2003, explained, she and her colleagues Anna M. Méndez, Kelli Vecera, and Melissa Piña never have a “typical, cookie-cutter day.”
“Every day you come in, you do something completely different that you weren’t expecting,” she said. “We come in ready to do what needs to be done. We think of it as an adventure.”
Designed for legal and financial professionals navigating the complex landscape of special needs trust administration, their presentation focused on four key areas, outlining for attendees the skills, tools, and talents that they themselves need and use on a daily basis.
SNT Investment Strategies
Kelli Vecera, senior vice president and trusts and estates officer at Cadence Bank, kicked things off by explaining their role as corporate fiduciaries.
“A corporate fiduciary is a financial professional who helps ensure responsible and secure management of assets, trust funds, states, or other investments,” she said. Yet she and her colleagues are serving in any number of other roles at the same time.
As “Jills of all trades,” she noted, they also consider themselves “mentors, financial advisors, encouragers, referees, parental figures in a lot of cases, and advocates.”
Vecera’s talk highlighted several factors that make investment strategies for their clients with special needs trusts (SNTs) unique:
- Special needs trusts have higher cash flow needs. For example, Vecera pointed out, an SNT will likely need to purchase an accessible home or vehicle – items that come at a significant cost.
- Clients’ needs tend to change as they age. This may include shifts in their health condition, housing needs, or caregiving needs, all of which may at some point affect their investment strategy.
- SNT beneficiaries often have little or no outside investments to contribute to household income and, in many cases, they will require assistance for the rest of their lives.
Administering SNTs for clients, Vecera said, can mean having to work within limitations. The “skill of the plaintiff’s attorney and the depth of the defendant’s pocket” she says, can have a major impact on their ability to meet the beneficiary’s day-to-day needs.
In some cases, a beneficiary needing 24/7 care may have received only a few million dollars, which is supposed to last them the rest of their lives. “We have to do the best with what we’ve been given,” Vecera said.
Liquidity of assets can be as important as a client’s settlement amount. To ensure the long-term viability of the account, they recommend that illiquid assets generally make up no more than 20 percent of the market value of the SNT.
Determining the goal for investment is key at the outset. Aiming to balance long-term growth with current and future income needs, Vecera said the team considers the beneficiary’s age, life expectancy, as well as other sources of income.
Ultimately, the hope is to take all the relevant information and shape an objective for investment that reflects the client’s individual needs – now and into the future. Unique to SNTs, Vecera pointed out, is planning for a time when the beneficiary’s family will no longer be providing free care and costs for care will inevitably increase.
Vecera also offered up some thoughts on best practices, including recommending that trustees meet regularly with the SNT beneficiary and their family. Having them understand firsthand what is going on in the home and how care is provided can prove immensely helpful to all parties. Likewise, they encourage trustees to connect with the resources they need to manage their beneficiary’s assets effectively; this may include working with a real estate asset manager, investment team, or loan asset manager.
Special Needs Trust Fiduciary Responsibilities
Anna M. Méndez, senior vice president and trust and estates manager, next highlighted some of the duties that she and her team undertake in their day-to-day work as SNT trustees.
First is a duty to act in the best interest of the beneficiary. For instance, SNT trustees must follow the sole benefit rule – which, as Méndez explained – is not always black and white. Having a memorandum of intent in place can help the trustee in certain situations. A trustee who is proactive and responsive can also better assess and meet the beneficiary’s needs.
When it comes to the duty to exercise reasonable discretion, Méndez said they prefer to have the SNT discretionary standard that gives the trustee discretion to make distributions. Having that flexibility – “even if those distributions are going to reduce or cut off benefits if the trustee determines that doing so is in the best interest of the beneficiary” – is important.
Another consideration here is reasonableness, Méndez cautioned. The trustee may have discretion regarding distribution decisions, but their decision could vary widely depending on the situation.
Imagine one beneficiary, whose trust is depleting, who wants a sports car. They’ve been getting tickets for driving without a license, and they don’t have a close friend or family member who can drive them places. A different beneficiary with the same request has a much larger account. In addition, they have a guardian who spends every day with them. In the latter case, the sports car purchase may be reasonable.
With discretionary decisions, the trustee must take a “universe of considerations” into account, Méndez said. Can the trust afford it? Is it in the beneficiary’s best interest? Is it reasonable?
The answer will vary depending on the scenario. Either way, Méndez said, keeping liability concerns in mind when exercising discretion as a trustee is still crucial. “Document your decisions and making sure that you can back it up,” she said. “Imagine that you’re on the witness stand and the court is asking you why you made a decision.”
Lastly, Méndez touched on the duty to account and the duty of full disclosure. This is more than maintaining records or providing statements. At Cadence, Méndez pointed out, they must answer to bank auditors, trust auditors, as well as Medicaid and Social Security Administration auditors who ask extremely specific questions. Keeping meticulous records for the distributions you are making, she said, “is imperative.” Equally as important is reviewing statements with clients and helping them understand how to read them.
Coordination and Compliance With Government Regulations and Public Benefits
Much of the Cadence team’s discussions are about how SNT distributions can impact public benefits, said Melissa Piña, vice president and trust and estates officer, who spoke about coordinating and complying with regulations.
Many times, clients are not quite sure what program benefits they are receiving. Yet complying with the appropriate regulations requires that you know which programs they are enrolled in, Piña said. The trustee does not, after all, want to jeopardize a beneficiary’s eligibility by making incorrect disbursements.
Coordinating with the SSA and Medicaid; adhering to tax filing requirements and educating the family on how to do the same; and planning for future needs are also part of the day-to-day for Piña and her colleagues. They recommend, for example, that families identify a successor guardian, have a prepaid funeral plan in place, and keep their estate plans current.
“It’s important to continue having tough conversations while keeping the big picture in mind,” she said. “Death is a difficult conversation, especially when it’s your child or family member.”
The Ultimate Intention
According to Sosa, the Cadence team’s goal is to use their knowledge and the tools they have to enhance the beneficiary’s life. The bottom line, she says, is simple: “We’ll do whatever it takes.”
Subscribe to the Knowledge Bank.
