What Is a Pooled Trust and How Does It Protect My Family Member?

by Chambliss, Bahner & Stophel, P.C.

Because beneficiaries of programs like Supplemental Security Income (SSI) and Medicaid must be quite poor to qualify, they can lose their benefits when they come into an inheritance, receive money in their own names from an accident settlement, or merely accumulate too much money in a bank account. Beneficiaries can prevent this from happening by transferring their excess assets into an individual or "first-party" special needs trust, also known as a (d)(4)(A) trust (referring to its authorizing statute). However, these trusts can be costly to set up, and they must be created by a beneficiary's parent, grandparent or a court. A "pooled trust" presents another option.

A pooled trust, also known as a "(d)(4)(C) trust," is a special needs trust with a twist. While an individual special needs trust is created by someone for the benefit of a specific beneficiary who is often a family member, a pooled trust is established by a non-profit organization, with individual beneficiaries creating accounts within the larger trust. In other words, the assets of many people with special needs are "pooled." Because a pooled trust accepts contributions from many beneficiaries, the trust is able to make more stable investments and provide additional management services that a plain vanilla special needs trust might not be able to afford. On top of these benefits, transfers into a pooled trust, like transfers into a first-party special needs trust, do not prevent a person with special needs from accessing government benefits.

Although the funds placed in a pooled trust are invested together, each beneficiary's account remains his own. Depending on the trust, a beneficiary might work with a social worker or other trust advisor to tailor a funds distribution plan that fits his lifestyle. As with an individual special needs trust, funds in a pooled trust are used to supplement a beneficiary's government benefits, and the funds can be used to pay for reoccurring bills, clothes, and other expenses. Importantly, beneficiaries looking to spend down their assets in order to qualify for, or remain on, government benefits can transfer funds directly into a pooled trust account without having to rely on a family member's help.

Like most trusts that allow people with special needs to qualify for benefits, pooled trusts come with a catch. As with an individual (d)(4)(A) trust, upon a beneficiary's death, most states require that the funds held in a pooled trust account must be used to reimburse the government for any medical services provided while the beneficiary was alive. However, the state often allows the non-profit organization that established the pooled trust to retain a percentage of a deceased beneficiary's account to support its mission.

When should a person with special needs consider a pooled trust? While each beneficiary's situation is different, a person with special needs often uses a pooled trust when she does not have someone to create an individual first-party special needs trust for her and she needs to transfer funds out of her name in order to qualify for, or maintain, government benefits. A beneficiary who has only a small amount of money in her name may like the low cost of a pooled trust. Others appreciate the fact that their funds will be used to help others with special needs.

Pooled trusts are helpful, if underutilized, tools for people with special needs. The Academy of Special Needs Planners maintains a list of pooled trusts, organized by state, which can point beneficiaries in the right direction if they are thinking of utilizing a pooled trust. Of course, the best way to learn more about pooled trusts is to speak with a qualified Special Needs Planner.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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