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Market Fluctuations and Special Needs Trusts

March 4, 2020

Market Fluctuations and Special Needs Trusts

The recent US stock market swings have been front and center in the news recently, as we witnessed The Dow Jones Industrial Average plunge more than 12% in a week. 

Special Needs Trust investments are subjected to these market swings, but ideally they are invested in a relatively conservative portfolio. When it comes to investing, special needs trusts are all about the “spend down” and how long the funds will last during the beneficiary’s life time. 

If you are the trustee of a special needs trust, it is easy to become panicked at these fluctuations, especially the more dramatic ones we’ve seen recently. It’s important to keep in mind the objective for the trust’s investments is long-term in scope, and knee-jerk reactions based on specific volatile fluctuations, may not be in the beneficiary’s best interest. This is when it is imperative to have a strong investment strategy for the long-run that is  consistent with diversification. Without diversification, the beneficiary could either be left without sufficient resources, or alternatively, be too conservative in terms of making distribution requests to the trustee. Furthermore, special needs trusts typically have a significant cash or bond position for purposes of making distributions, both planned and unplanned.  

No trustee would be  expected to understand how  to properly structure a special needs trust portfolio without the proper guidance.. Therefore, the selection of the financial advisor is of utmost importance. Consider a professional who has expertise in this area such as Merrill Lynch, who has a team that  specializes in the management of special needs trust portfolios. (  However, keep in mind  though, this is only the beginning of proper trustee delegation of the investment strategy. As a trustee, you must still be regularly and actively engaged with the advisor. This means setting policies and goals together, developing an investment policy statement, establishing limits on cash vs investment allocations, and perhaps most importantly, reviewing the performance on a regular basis (either quarterly or semiannually). 

Should a trustee ignore the market swings of late? Of course not, but by selecting a knowledgeable financial advisor, establishing investment parameters, and reviewing performance and diversification (as it relates to the investment policy statement), the trustee can continue to move forward even in these turbulent times.

Author: Lee Ann Hitchman, CLPF/MBA and Licensed Professional Fiduciary