Special needs trusts have been the subject of several reports on The Settlement Channel. There are several types of special needs trusts, including the pooled special needs trust. The pooled trust is not the right choice in every situation for a person with special needs, but it can be a valuable tool in the right situation. In this report, Jennifer Lile discusses the nature of the pooled special needs trust and how it may be beneficial.
Lile explains that a pooled special needs trust is a trust whose corpus is exempt from the means testing associated with public benefit programs like Medicaid and Supplemental Security Income (SSI). The exemption is provided by 42 U.S.C. § 1396p(d)(4)(C). Under the Social Security Program Operations Manual System (POMS), pooled SNTs are not counted as resources when making eligibility determinations. A pooled special needs trust is established and administered by a nonprofit entity to manage and protect the assets of individuals with disabilities who are dependent on government benefits to meet their basic needs.
Lile notes that there are two types of (d)(4)(C) trusts. First-party, or self-settled, pooled trusts may be established by the individual with a disability, a parent, a grandparent, or a guardian. They are funded with assets belonging to the individual with a disability (i.e. the proceeds of a personal injury settlement, an inheritance, or a lump sum Social Security payment). Third parties may fund a (d)(4)(C) trust, but would be better served by using a pooled or private third-party discretionary trust, because (d)(4)(C) trusts have a mandatory payback requirement. “Upon the death of the beneficiary, any funds remaining are subject to being retained by the nonprofit administrator” or being paid as reimbursement to a state or states in repayment of medical assistance provided to the beneficiary during the beneficiary’s life.
Lile says that (d)(4)(C) trusts can be established for anyone who has been determined by the Social Security Administration to have a qualifying disability and is under 65 years of age. In about twenty states, a person with a disability of any age may establish a pooled trust account.
When a beneficiary dies, any funds remaining in the trust must be administered in accordance with the provisions of 42 U.S.C. § 1396p(d)(4)(C) and the Social Security POMS. One option, Lile says, is for the remaining funds to be distributed to a specifically-authorized nonprofit entity, typically the nonprofit entity that administers the trust. Otherwise, to the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust must pay to the state(s) an amount equal to the total amount of medical assistance paid on behalf of the beneficiary by the state(s). Lile points out that the main purpose of this type of trust is to provide funds to improve or maintain the quality of life of the beneficiary, such as paying for items or services not otherwise covered by Medicaid. In general, the goal should not be to have a large amount remaining in the trust upon the death of the beneficiary. Some pooled trust companies will allow individual remainder beneficiaries to be named in the event that the Medicaid claim for reimbursement is small and a balance remains after the state has been fully paid back.
Lile says that there are several reasons why someone might consider using a pooled trust. First, in most states, there is a $2,000 limit on funds that can be retained by a person in order to be eligible for federal public benefit programs, so the pooled trust account is a way to avoid the immediate spend down of assets above this resource limit. Another advantage of a pooled trust is the long-term access to a professional trustee. Lile explains that pooled trusts must be administered by a qualified nonprofit partnering with a financial institution that serves as a professional trustee, and because funds are managed as a pool, the trustee and administrative fees are not as expensive as they would be with an individual trust. Also, a pooled trust makes sense where the amount of assets coming to the beneficiary is too small to justify the legal fees or professional trustee fees associated with other types of special needs trusts, such as a trust established under 42 U.S.C. § 1396p(d)(4)( A).
In the case of third-party funded pooled trusts, some states allow “dry” trusts, where the paperwork is done to have the trust in place in advance, but not funded until, the death of a parent or grandparent.
Another advantage of a pooled trust is the expertise of the nonprofit administrators. In order to properly administer pooled trusts, they must stay abreast of the law in ways that family members typically would not. Finally, a pooled trust is advantageous in that the assets are invested as a pool, allowing broader market exposure and the potential for generating greater growth.
People who are thinking about using a pooled trust should consider the following: What services does a particular pooled trust company provide? What are the set up costs and annual fees? What is the process for distributing funds? What are the trust’s investment policies? How often are reports issued and what details are included in their reports? What are the opinions of other families or special needs attorneys who have worked with a particular pooled trust company?
Jennifer L. Lile is a shareholder and director with Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A. Her practice focuses on the areas of estate and special needs planning, trust, probate and elder law. Jennifer is a Certified Specialist in Estate Planning, Trust and Probate Law, by the Ohio State Bar Association, and a Certified Elder Law Attorney (CELA) by the National Elder Law Foundation, as accredited by the American Bar Association and by the Ohio State Bar Association. She has served on many non-profit boards and is currently an officer on the board of directors for the Special Needs Alliance, as well as president of the Stark County, Ohio, Bar Association. The Settlement Channel is a featured network of Sequence Media Group.