Special Needs Trust Trustee Duties and Responsibilities

A special needs trust trustee plays one of the most vital roles in protecting the financial future of a person with disabilities. This isn’t just about managing money–it’s about making careful, compliant decisions that ensure the beneficiary remains eligible for important public benefits such as Medicaid or Supplemental Security Income (SSI), while still enjoying a better quality of life through trust-disbursed support.

This role carries legal, financial, and ethical responsibilities. If you’re thinking about choosing someone to serve as a trustee or are considering taking on this role yourself, it’s important to understand what it involves, how trustees are selected, what powers they hold, and how Texas-specific rules might apply.

Let’s walk through everything you need to know about being or selecting a special needs trust trustee.

What Is a Special Needs Trust Trustee?
Who Can Serve as a Special Needs Trust Trustee?
Core Duties of a Special Needs Trust Trustee
Limits on a Trustee’s Powers
Selecting the Right Special Needs Trust Trustee
Trustee Compensation: What’s Reasonable?
Can a Trustee Be Removed or Replaced?
Special Considerations for Trustees in Texas

What Is a Special Needs Trust Trustee?

A special needs trust trustee is the person or entity responsible for managing a special needs trust on behalf of the beneficiary–typically someone with a qualifying disability. The trustee must act in the best interests of the beneficiary, ensuring funds are properly spent and the trust is administered in compliance with applicable laws.

This role is not informal or honorary. It involves ongoing legal and financial responsibilities that require a clear understanding of both the trust document and public benefit systems.

Core Purpose of the Trustee Role

At its core, the trustee exists to manage and protect trust assets while ensuring the beneficiary receives supplemental support without disrupting their eligibility for needs-based government programs. This includes not just protecting funds, but also improving the beneficiary’s overall quality of life.

Legal and Fiduciary Standards

A trustee must follow fiduciary duties under state and federal law. That means acting:

Loyally: Always in the interest of the beneficiary
Prudently: With care, skill, and caution
Impartially: Without self-dealing or favouritism

Texas law imposes these same fiduciary duties and may hold a trustee liable for any breach that causes harm to the trust or the beneficiary.

Distributions and Government Benefits

One of the most important tasks is understanding how distributions affect SSI and Medicaid eligibility. Missteps, such as direct cash to the beneficiary or paying for prohibited items, can cause disqualification from essential programs.

Permissible expenses typically include:

Therapy or caregiving support
Assistive technology
Travel and recreation that enrich the beneficiary’s life
Home modifications or transportation support

Recordkeeping and Compliance Obligations

Trustees must maintain accurate records of every financial activity, including deposits, distributions, tax filings, and investment changes. These records must be ready for review by:

The beneficiary or their guardian
The Social Security Administration
State Medicaid offices
Courts, in some cases

Poor recordkeeping may raise red flags during audits or jeopardise ongoing benefit eligibility.

Coordinating with Other Professionals

Many trustees, especially those managing larger trusts, collaborate with financial advisors, attorneys, tax professionals, and care managers. These specialists help ensure compliance, preserve tax efficiency, and align disbursements with the beneficiary’s actual needs.

A trustee does not need to know everything, but they are responsible for choosing and supervising capable professionals.

Who Can Serve as a Special Needs Trust Trustee?

Several types of individuals or institutions can serve as trustees. Each option has its pros and cons, and the best fit often depends on the size of the trust and the needs of the beneficiary.

Individual Trustees

These are typically family members or close friends. They’re often chosen for their personal connection to the beneficiary.

Pros:

Understands the beneficiary’s lifestyle, needs, and personality
May not charge a fee
Trusted by the family

Cons:

May lack experience managing investments or complying with benefit rules
Can become emotionally overwhelmed
Might not remain available long-term

Professional Trustees

Attorneys, CPAs, and licensed fiduciaries may serve in this role for a fee.

Pros:

Legally and financially skilled
Neutral and objective
Familiar with government benefit compliance

Cons:

Costs can add up over time
May not have a personal connection with the beneficiary

Corporate or Institutional Trustees

Banks or trust companies may offer trust management services.

Pros:

Long-term stability
Structured systems in place for compliance and recordkeeping

Cons:

High fees, especially for small trusts
Less flexible in how they work with families
May require minimum trust amounts

In Texas, there’s no statutory requirement that a trustee be a resident, but they must comply with Texas fiduciary standards and may be subject to state court supervision depending on the trust type.

Core Duties of a Special Needs Trust Trustee

The core responsibility is to manage and distribute trust assets in a way that enhances the beneficiary’s life without disrupting their eligibility for needs-based programs.

Key Duties Include:

Administering the trust according to its terms: The trust document outlines specific directions about how the funds should be managed. The trustee must follow these directions closely.
Making discretionary distributions: Trustees must use sound judgment when approving expenses. Distributions should never be given directly to the beneficiary in cash, as this could affect SSI or Medicaid benefits.
Keeping detailed records: Every expense must be documented. Annual reports may need to be filed with the Social Security Administration, Medicaid, or the courts.
Communicating with the beneficiary and their support team: Trustees often coordinate with caregivers, doctors, and caseworkers to ensure the trust supports the individual’s needs.
Filing tax returns: Depending on how the trust is structured, it may need to file its own return. Trustees are responsible for ensuring this is done correctly.
Monitoring benefit eligibility rules: The trustee must understand how trust disbursements can impact Medicaid, SSI, Section 8 housing, or other needs-based assistance.

Limits on a Trustee’s Powers

Even though trustees have discretion, they must follow specific legal and fiduciary boundaries. They cannot:

Use the trust for their personal benefit
Make gifts to others from the trust
Pay for items the government already covers unless it’s in the beneficiary’s best interest
Give the beneficiary unrestricted access to trust funds

In Texas, trustees must comply with the “Prudent Investor Rule,” which means they must invest and manage trust assets with reasonable care, skill, and caution, considering the trust’s purposes and circumstances.

Selecting the Right Special Needs Trust Trustee

This decision should never be rushed. You’ll want someone reliable, informed, and unbiased. If choosing more than one trustee (co-trustees), think about how they’ll work together. Some families also appoint a trust protector or advisory committee to oversee or guide the trustee.

Here are some helpful questions to ask when choosing:

Does this person understand or show willingness to learn about disability-related support?
Can they commit for the long term?
Do they understand the limits of government assistance programs?
Will they keep personal feelings from interfering with decision-making?
Are they organised and financially literate?

For trusts set up in Texas, ensure the person or company is willing to comply with state-specific filing and reporting requirements, especially for court-supervised trusts or those that include real estate or complex assets.

Trustee Compensation: What’s Reasonable?

Trustees can be compensated for their services, and in many cases, they should be. Compensation must be reasonable and should reflect the amount of time, skill, and effort involved.

In Texas, if the trust document doesn’t specify a fee, the trustee is entitled to “reasonable compensation” under state law. What’s considered reasonable depends on factors such as:

The complexity of the trust
The time required to administer it
The trustee’s level of expertise

It’s common for professional and corporate trustees to charge a percentage of trust assets annually, while individual trustees may be paid hourly or accept a flat annual fee.

Can a Trustee Be Removed or Replaced?

Yes, and it’s important to include removal clauses in the trust document to make this process easier. Reasons for removal might include:

Mismanagement of funds
Loss of capacity
Conflict with the beneficiary
Relocation or death

Trust documents often include provisions for successor trustees. If none are listed and removal becomes necessary, Texas courts can step in to appoint a new trustee if the current one is unable or unfit to serve.

Special Considerations for Trustees in Texas

While most rules governing special needs trusts are federal, several procedural and practical matters in Texas should be kept in mind:

Medicaid Estate Recovery Program (MERP): Trustees must understand how distributions and final trust administration may interact with MERP claims.
Bonding and Court Supervision: Some trustees may need to post a bond, especially if the trust is created through a court.
Payback Trust Rules: First-party special needs trusts often require that remaining funds go to repay Medicaid upon the beneficiary’s death. Texas follows this rule under federal requirements.

Trustees working with Texas-based beneficiaries may benefit from consulting with legal professionals or certified public fiduciaries who regularly handle disability trusts.

Make Thoughtful Choices Around Trusteeship

Choosing or becoming a special needs trust trustee is a decision that affects a lifetime. It’s not only about distributing money, but also protecting benefits, improving the beneficiary’s quality of life, and ensuring every decision made is legal, ethical, and sustainable. Take time to evaluate options, set clear expectations, and establish a support system that helps the trustee perform their duties successfully.

FAQs About Special Needs Trust Trustees

1. Can a parent be a special needs trust trustee?

Yes, a parent can serve as a trustee. However, they should be familiar with benefit rules and avoid conflicts of interest.

2. Does the trustee have full control over the trust?

Trustees have discretion, but their actions must follow the trust document and legal standards.

3. Can the trustee give money directly to the beneficiary?

No. Direct cash disbursements can affect eligibility for needs-based government benefits like SSI.

4. Is a trustee personally liable for mistakes?

Potentially. If a trustee mismanages trust assets or fails to comply with legal duties, they may be held personally responsible.

5. How often should a trustee provide an accounting?

Most trustees provide an annual accounting, but the trust terms or court orders may require more frequent reporting.

What Does a Special Needs Trust Trustee Do? Key Duties and Considerations