The SNT TrapThe SNT Trap

Keith Bradoc Gallant, partner, Day, Berry & Howard LLP, New Haven, Conn.

Special needs trusts (SNTs) — trusts created for the benefit of a disabled beneficiary — present exciting opportunities for corporate fiduciaries. They also risk sapping fiduciaries' time and emotional energy. Sometimes, the wisest choice is for a corporate trustee to limit its responsibilities so that it serves only as an investment advisor or custodian.

The number of SNTs and interest in them has ballooned in the last decade. There are two types of these trusts that supplement, rather than reduce or replace, public assistance benefits available to disabled beneficiaries. The first is third-party funded trusts, which are usually created as part of a family's estate p...