Choosing a successor caregiver and trustee for a dependent adult

Parents of an adult who cannot manage alone usually spend years worrying about one question: who steps in when we cannot? The question has two halves that families often blur. One is who looks after the person day to day, notices when something is wrong and speaks up for them. The other is who manages the money in a special needs trust. Sometimes one person does both. Often it is better to split the jobs, and almost always it is wise to name more than one successor.

This post sets out the criteria for choosing, compares a sibling, a professional fiduciary and a pooled trust, and ends with a decision list and a note on how life insurance pays for whichever arrangement you choose. It follows the mechanics in planning life insurance for a child with disabilities, step by step and the overview in life insurance for parents of a child with special needs. The legal tools for decision-making differ by state, so confirm the specifics with a special needs or elder law attorney.

Two jobs, not one

It helps to define the roles before picking people.

A special needs trust pays for things the person needs, and it does so through the trustee. The trustee does not have to be the person who provides care, and the caregiver does not have to control the money. Separating the roles gives each a check on the other: a caregiver who sees a need asks the trustee, and a trustee who sees a spending request asks whether it fits the plan.

What to weigh in every candidate

Go through these criteria for each person you are considering.

1. Willingness, in writing. Ask directly, and revisit the question every few years. Many successor plans fail because someone assumed they would be asked and was not.
2. Understanding of the person. Do they know your adult child's routines, communication, health, triggers and wishes? Trust follows familiarity.
3. Understanding of the money rules. A trustee who does not know that a payment for rent or a gift of cash can reduce a benefit can do real harm without meaning to. A professional or an advisor can fill the gap.
4. Location and health. A sibling three states away can be an excellent trustee and a difficult daily caregiver.
5. Age and durability. Your child may live for decades after you. Choose people whose own lives are likely to allow it, and name backups who are younger.
6. Conflicts of interest. If a sibling will receive what is left in the trust when your child dies, that sibling has a reason to spend less. If a person is paid by the trust, they have a reason to spend more. Neither is a disqualifier, but the document should address it.
7. Family dynamics. Siblings may disagree on spending, or a spouse of a sibling may influence decisions. Decide whether the family can work together.
8. Cost. Compensation comes from the trust and shrinks what is left for your child. Weigh it against what you get.
9. What your adult child wants. Where possible, ask, and write down their preferences.

Option 1: A sibling or other family member

For many families this is the first choice, and for good reason.

Strengths. A sibling knows the person, often loves them, and may cost little. Their motivation is personal. Siblings often serve as caregiver and trustee together.

Risks. The load is heavy and can last for decades. A sibling has their own spouse, children, job and health, and may relocate. They may feel guilty about asking for compensation, which makes the arrangement unsustainable. They may lack financial or benefits expertise. If they will inherit the remainder, a conflict arises.

Ways to make it work.

• Allow the trust to pay reasonable compensation and to reimburse expenses, and say so in the trust.
• Pair the sibling with a professional co-trustee, or give them the right to hire an accountant, an attorney and a care manager at the trust's expense.
• Name a successor trustee, and a "trust protector" or advisor with the power to replace a trustee who is not performing.
• Require an annual accounting to be shared with another family member or the court, if state law applies.

Option 2: A professional fiduciary

A professional trustee can be a bank or trust company, a trust company that focuses on special needs trusts, or an individual professional fiduciary such as an attorney or accountant who serves as trustee.

Strengths. Continuity: an institution does not retire, move away or die. Expertise: the staff handle taxes, investments, record keeping and benefits rules every day. Neutrality: a professional has no stake in what is left. Backup: the arrangement works even if every relative is unavailable.

Risks. Cost: fees are typically a percentage of assets, an hourly rate, or both, often with a minimum, which can make smaller trusts expensive. Distance: a professional may not know your child and can be slow to approve requests. Policies: institutions may limit the kinds of spending they approve. Turnover: the person you meet may leave.

Ways to make it work.

• Ask for a written fee schedule, and ask how requests are handled and how quickly.
• Name a family member or advocate to advise the trustee on the person's needs.
• Ask whether the professional works with special needs trusts regularly and has experience with the benefits rules.
• Consider a co-trustee arrangement: family member plus professional.

Option 3: A pooled trust

A pooled trust is run by a nonprofit organization. Each beneficiary has a separate account, but the money is pooled for investment and administration. Some pooled trusts accept third-party funds, such as life insurance proceeds from parents, and some accept only the disabled person's own assets. Availability and rules differ by state, so ask whether a pooled trust in your state accepts third-party funds and what happens to what remains when your child dies.

Strengths. Lower minimums than a stand-alone trust, so it can suit smaller amounts. The organization has experience with benefits and with the person's service providers. Many offer care management and advocacy in addition to money management.

Risks. Less control: the organization sets the rules, fees and spending policies. Remainder: in many pooled trusts, some or all of the leftover stays with the nonprofit rather than going to the family, though terms vary. Continuity depends on the organization staying financially sound. Fees can include enrollment, annual and per-transaction charges.

Ways to make it work. Visit, read the joinder agreement and ask for the fee schedule, the remainder rules and the organization's financial statements. Ask what happens if the organization closes. Ask who will actually serve as your child's advocate.

What the arrangements cost: a hypothetical

All figures below are illustrations, not market rates. Say a family expects a trust of $600,000 funded by life insurance and other assets, and a care manager who spends five hours a month at $90 an hour.

• Care manager: 5 hours times $90 is $450 a month. Times 12 months is $5,400 a year.
• Sibling as trustee, unpaid, with an outside accountant at $3,000 a year: 3,000 plus 5,400 is $8,400 a year.
• Professional trustee at an illustrative 1 percent of assets a year: 1 percent of $600,000 is $6,000. Adding the care manager gives 6,000 plus 5,400, or $11,400 a year.
• A sibling paid a modest stipend, say $4,000 a year, with the accountant and care manager: 4,000 plus 3,000 plus 5,400 is $12,400 a year.

The difference between the cheapest and the most expensive option here is $4,000 a year, which matters over decades, but it is small next to the cost of a mistake that loses a benefit or leaves the person without anyone paying attention. Fees also fall as a percentage if the trust grows and rise in dollar terms with inflation. Ask for real quotes before deciding.

How life insurance funds the arrangement

The trust is only as useful as the money in it, and life insurance is often the largest source. Several details tie the funding to the people.

• The trust is the beneficiary. The policy pays the trustee, who then pays the caregiver costs, the care manager and the other expenses. See naming a trust as your life insurance beneficiary for the mechanics of naming it.
• Coverage that lasts. If the need is lifelong, permanent or survivorship coverage matches it; survivorship (second-to-die) life insurance pays at the second parent's death. Term life suits the years when you are still working, and converting it later can extend the protection. Neither one is right for every family.
• Allow for the cost of the arrangement. The death benefit has to cover not only the direct spending but fees for the trustee and care manager. Build those into the amount.
• A fund for transition. The first year after a parent dies is the hardest. Consider setting aside part of the money for moves, home changes, legal fees and an interim caregiver.
• Siblings are not the plan's beneficiaries. Do not name a sibling as the beneficiary "to take care of" your child. The money becomes the sibling's and is exposed to the sibling's creditors, divorce or death. Use the trust.

A decision list

Use this list as a way to organize the conversation. It is not a rule.

1. If a capable sibling is willing, nearby and financially careful, and no strong conflict exists, consider the sibling as caregiver or advocate and as co-trustee with a professional or an accountant, with compensation allowed.
2. If the best caregiver is a sibling but the sibling lives far away or has limited money skills, split the roles: sibling as advocate, professional or bank as trustee, with the sibling holding a say over requests.
3. If no relative is willing or able, a professional fiduciary or a pooled trust that offers advocacy fits, with named backups.
4. If the trust will be small, ask whether a pooled trust or a bank with low minimums is realistic, and compare the remainder rules.
5. If the family has conflict, use a neutral professional trustee and a trust protector with the power to remove a trustee.
6. If the siblings will inherit what is left, add safeguards for the conflict: a professional co-trustee, annual reports, and clear limits on trustee discretion.
7. If your child can express preferences, ask, record them in the letter of intent and name the person your child trusts most as an advisor.
8. In every case, name at least one backup for each role and tell all of them.

Questions to ask each candidate

A conversation that feels awkward now is easier than a refusal later. Whether the candidate is a relative or a firm, ask the same questions.

• What would you do in the first week if I were suddenly unable to act?
• Have you read the trust, the letter of intent and the list of benefits? What is unclear?
• How would you decide whether to pay for something the benefits do not cover?
• Who would you call for help when you are unsure, and who pays them?
• Are there circumstances in which you would step down, and how much notice would you give?
• For a firm: who will be my child's contact person, how are requests handled, what are the fees, and what happens if that person leaves?
• For a relative: how do your spouse and children feel about this role?

Write down the answers and keep them with the plan. They also give your attorney a starting point for the powers, limits and compensation terms in the document.

Letters of intent and how to keep the plan alive

A letter of intent describes your child: routines, communication, medical needs, providers, benefits, friendships, preferences and hopes. It is not legally binding, but a successor who has read it makes better choices. Update it every year or so, and share it with the trustee, the caregiver and the family member who would step in on short notice. Add where the policy, the trust and other documents are kept.

Review the plan when a parent's health changes, when a sibling moves or has a child, when benefits change, and when any named person says they can no longer serve.

When to bring in professionals

An attorney who handles special needs and elder law drafts the trust, advises on guardianship or less restrictive alternatives in your state, and explains trustee duties. A fee-only planner or a trust officer can price the options. An insurance professional can compare coverage if one parent has health problems, and the state insurance department answers questions about beneficiary forms and claims. If the question is about naming who owns the policy and who pays, see also choosing a trustee for a life insurance trust, family, friend or firm for how trustees of insurance trusts are chosen.

Key takeaways

• Separate the caregiver or advocate role from the trustee role, and name backups for each.
• A sibling brings knowledge and love but can be overburdened or conflicted; a professional brings continuity at a cost; a pooled trust offers lower minimums with less control.
• Compare costs with real quotes. Illustrative fees of a few thousand dollars a year matter over decades, but they are small next to a costly mistake.
• Fund the arrangement with a trust as beneficiary, coverage that lasts as long as the need, and an amount that includes fees.
• Put preferences in a letter of intent and review the plan when anyone's circumstances change.