Case Study: A Thoughtful, Clear Approach to Accepting Unique Assets in a Pooled Special Needs Trust
This case study originally appeared in the True Link Financial whitepaper: Trends and Innovations in the PSNT World.
Unique assets can be complex to manage within a PSNT, but many beneficiaries and their families are looking for a trustee that offers this service. The most common unique assets that True Link sees placed in trusts are:
- Beneficiary-occupied real estate
- Auto liens
- Structured settlement annuities
- Commercial real estate
Establishing a clear policy
When Wispact established its PSNT in 2003, accepting unique assets was a key objective. But before Wispact partnered with Capital First Trust Company ("Capital First”) as their corporate trustee, getting everyone to the table was challenging – and even once the process began, it took time to go from a rough outline to a working draft to a final policy.
“It is a lot to ask a trustee to accept unique assets. While a corporate trustee like Capital First has final veto, it is ultimately Wispact’s responsibility to develop the guidelines for accepting these assets. Establishing these requirements wasn’t a quick or easy process, but we knew there was a need out there we wanted to fulfill,” shared Eric DeGroot, Wispact’s Foundation Director.
When ironing out its Unique Asset Policy, Wispact first needed to agree on what types of assets would be accepted and what the requirements were for each type of assets. For example, for IRAs and life insurance there is a minimum value, and for residential properties there are conditions that vary depending on whether the property is being lived in by the beneficiary or held as an investment property.
As Eric DeGroot, Foundation Director, explained, “A rental property that costs more to maintain than it earns from rental income would not be accepted by the trust. This type of asset would be flagged as a potential money pit that doesn’t benefit the primary beneficiary and may violate our trustee’s fiduciary duties.”
Even with a clear policy in place, flexibility is key. Wispact was intentional about creating a policy that could meet the needs of a wide range of assets and beneficiaries.
“We designed our Unique Asset Policy to meet people where they are. We make sure Wisconsin practitioners understand that a case can be made for assets even if it doesn’t perfectly meet what’s outlined in our policy,” shared Kevin Hayde, Wispact’s Executive Director.
When Wispact and Capital First are deciding whether to accept a unique asset into a trust, one requirement must always be met, regardless of the asset type: the applicant must make the case that holding this asset benefits the beneficiary first and foremost.
As Hayde shared, “These pooled trust accounts are not intended for legacy planning or wealth transfers, so it’s very important you only take on an asset if it will benefit the primary beneficiary. If accepting an asset conflicts with your trust obligations, you simply shouldn’t accept it.”
Tracking and managing unique assets
Wispact has found that managing unique assets for their beneficiaries is simpler when they can view all of the information in one place.
“True Link’s platform helps us keep track of all the information. You can see every asset listed alongside investment holdings and other information. When we need to present information to our clients, True Link makes it easy for us,” said Eric DeGroot, Foundation Director.
Once an asset has been accepted by the trust, Wispact also has a system for assessing whether retaining that asset continues to be in the beneficiary’s best interest. The policy establishes a schedule for regular review of life insurance policies, residential property conditions, other property value appraisals, and more.
The benefits of a Unique Asset Policy
Establishing a Unique Asset Policy has helped Wispact, its beneficiaries, their families, and referring attorneys in several ways.
“For starters, it helps us better communicate to families, beneficiaries, or attorneys which assets they can put into the trust,” Eric DeGroot, Foundation Director, shared. “They know what to expect when they come to us with a unique asset and how we will evaluate it. Our policy also makes reviewing these assets a more straightforward and organized process. It is easier to triage inquiries from new clients and avoid reviewing every asset on a case-by-case basis.”
Accepting unique assets also positions Wispact as a compelling option when a family or attorney is choosing where to place a beneficiary’s assets. Many of Wispact’s current clients chose to work with Wispact because it has a system in place to accept and effectively manage these assets.
Accepting and administering IRAs (the primary form of wealth for many Americans) is a particularly attractive offer for prospective clients. Many PSNTs avoid taking on the management of IRAs because the trustee is required to calculate Required Minimum Distributions (“RMDs”) and ensure that they are taken. This has become more difficult, especially when it comes to PSNTs and the SECURE Act.
“PSNTs are becoming more educated on how to accept and manage IRAs, but it still requires clear policies,” said Eric DeGroot, Foundation Director. In addition to requiring a minimum balance to accept an IRA (in most cases), if a beneficiary requests that Wispact withdraw more than the RMD, they must first consult with a tax professional to meet Wispact’s due diligence requirements.
Offering these unique (and often complex) services has enabled Wispact to reach more beneficiaries and help address more of their needs.
“Having these systems in place helps us stay aligned with our ultimate goal – are the decisions we are making demonstrably beneficial for the primary beneficiary? That is what matters,” shared Hayde.
1- Wispact does not accept commercial real estate, but it does work with other PSNTs that will.