If you are planning for the benefit of a child with special needs, you may have heard the expression "pooled trust." What is a pooled trust, and when is it in your loved one's best interests to use it?
A pooled trust is a trust that has been set up and is administered by a non-profit organization. While each beneficiary of a pooled trust has a separate account for their benefit, all funds in the trust are pooled for purposes of management and investment.
In the event of the beneficiary's death, if funds remain in their individual subaccount, the trust is required to reimburse the state for any Medicaid support provided to the trust beneficiary. The amount of reimbursement may be any amount up to the total amount of Medicaid assistance provided, to the extent that the funds are not retained by the pooled trust.
Pooled trusts can be useful when an individual with disabilities or special needs receives government benefits, such as Medicaid or Supplemental Security Income (SSI), and then receives a large sum of money, such as from a personal injury settlement or an inheritance.
The individual's newly acquired assets may make him or her ineligible to continue receiving the needed government benefits. In order to qualify for benefits again, the individual may need to "spend down" assets that are held in his or her own name. Even when the person is once again eligible for benefits, some benefits, such as government housing, may have a waiting list. If, however, the funds are placed in a self-funded pooled trust, they need not be spent down in order for the person with disabilities to remain eligible for benefits.
There are also special needs trusts that are not pooled. One advantage of such trusts is that they are managed by a trustee, often a family member or friend, solely for the benefit of the disabled beneficiary. Because the trust is for the benefit of only one person, the trustee can customize the trust's management for that one person's specific needs. However, the administrative costs of pooled trusts are typically lower than those of an individual special needs trust. Also, in some circumstances when a willing family member or friend is unavailable to serve as trustee, a pooled trust means it is not necessary to find a trustworthy person or organization to serve in that capacity.
If you have a disability, or are concerned for the financial well-being of a loved one with disabilities or special needs, consult an estate planning attorney with experience in special needs planning, trusts, and Medicaid planning for guidance.