Published NAELA News Online April 2015
According to the U.S. Census Bureau, nearly one in five people has a disability. As you are aware, people with disabilities and their families have a variety of challenges, including how to provide for current and future needs. While Elder Law and Special Needs Planning attorneys are undoubtedly familiar with the use of inter vivos or testamentary special needs trusts (SNTs) in estate and settlement planning, another important option that you may not be as familiar with is the pooled SNT.
A pooled SNT (pooled SNT) is administered by a nonprofit organization. Most pooled trusts organizations are state centric, but there are a number of larger pooled trusts that operate on a national level. The nonprofit organization may act as Trustee themselves or they may provide trust administration and contract with another entity to be the fiduciary. The pooled trust organization makes decisions on how funds from the trust are disbursed and who manages and invests the trust funds, as well as fulfills reporting requirements to government agencies. They also stay abreast of changing regulations such as the Social Security Administration’s Program Operations Manual Systems (POMS) and state Medicaid policies so that means-tested government benefits are not jeopardized (for clients who receive Supplemental Security Income, or SSI, and Medicaid benefits).
Trust funds are “pooled” together for investment purposes and an accounting is maintained in each beneficiary’s sub-account. Pooling funds can provide for greater investment opportunities and lower administrative fees. All earnings based on a beneficiary’s share of the principal are allocated to each beneficiary’s sub-account. Quarterly financial statements or online access to the beneficiary’s sub-account should be made available to authorized individuals.
For pooled SNTs, the enrollment and administration fees are often lower than other professional trustee options. Management fees can be as low as one percent or slightly lower on an annual basis. Funding requirements are low given the nonprofit status of the pooled trust organization. For example, it is not unusual for a bank or financial services firm to require a minimum of $350,000 to $750,000 to fund a stand-alone SNT. Pooled SNT funding requirements can be as low as $5,000 or less. While the minimum amount required to fund the trust is small, pooled trust organizations can serve beneficiaries with accounts that vary in size, from those with modest funds to those with considerable wealth.
Types of Pooled SNTs
Most pooled SNT organizations administer two types of trusts:
- Self-Funded SNT
A self-funded or self-settled SNT is funded with the disabled
individual’s own money. The source of funding varies greatly among
beneficiaries: accumulated assets of their own, a litigation settlement
or award, an inheritance left directly to the beneficiary, worker’s
compensation award, excess Social Security, or an award of marital
property or spousal support. In addition to the many benefits offered by
a pooled trust, the beneficiary can be the grantor of a self-funded
pooled SNT thus eliminating the need to get a court order to establish
the trust when the person with the disability has the capacity to
establish his or her own trust. A parent(s), grandparent(s),
court-appointed guardian, or the court may also establish a pooled trust
account for the benefit of a person with a disability. A self-funded
pooled SNT is irrevocable upon its establishment.
In some states, there is a penalty for transfer of assets into a pooled
SNT for individuals who are 65 years or older and are receiving
Long-Term Care Medicaid Assistance. Pooled trust administrators are
knowledgeable about the Medicaid rules for a particular state. For state
or regional pooled trusts, the administrators are often knowledgeable
of state and community resources, or the nonprofit Trustee may provide
other resources and services to beneficiaries. The self-funded pooled
SNT is codified in the Omnibus Reconciliation Act of 1993 (OBRA ’93) at
42 U.S.C. §1396 (d)(4)(c).
- Third-Party Funded SNT
A third-party funded SNT trust is funded by someone other than the
beneficiary, typically a parent or grandparent, and can be coordinated
with a grantor’s estate plan, including being named beneficiary on a
life insurance policy. The third-party trust holds funds that the
grantor leaves for the beneficiary and is available for beneficiaries
who have a disability of any age. It can be revocable until funded and
once funded, the trust becomes irrevocable.
A third-party pooled SNT provides a great alternative for families who
don’t want to use other family members as the Trustee, for any number of
reasons. As Harry Gewanter, MD, noted regarding his family’s decision
to utilize a pooled trust for his son, “By joining a pooled SNT for our
son with Down syndrome, not only have we helped to ensure more
opportunities for him after we are gone, but we also have not made him a
significant burden for his siblings and relatives.”
What happens to the remainder — the funds that remain in a third-party pooled SNT upon the death of the beneficiary — varies greatly among pooled trust organizations. Some do not retain any of the remainder funds while others retain all or a portion of the funds. Given this disparity, it is important to ask what the remainder policy is when researching pooled trust organizations.
For beneficiaries of the self-funded pooled SNT who receive Medicaid, some states have a provision to pay back Medicaid for medical claims paid on behalf of the beneficiary. Each state’s rules vary, so it is important to keep abreast of the rules governing Medicaid payback by state. In addition, the nonprofit organization may have its own policy on how the remainder funds are handled.
Setting up a Pooled SNT
Regardless of the type of pooled SNT, each Grantor joins the Master Trust Agreement by completing a Joinder Agreement. The Master Trust Agreement allows the nonprofit organization to administer the trusts under the umbrella of the “master.” Master pooled trust agreements, the joinder agreements, and other documents in support are drafted by attorneys with expertise in this area of the law.
It is critical that the trust administrator acts prudently when making disbursement decisions and is knowledgeable about the complicated and changing rules governing SSI and Medicaid to ensure that the disbursements from the trust do not jeopardize these benefits. As such, disbursements made from the trust can pay for important and often vital expenditures such as eye glasses, dental care, hearing aids, assistive devices and technology, caretaker costs, furniture, clothing, dental care, education, recreation, travel, and transportation.
NAELA board member Letha McDowell, CELA, with Walker, Lambe, Rhudy, Costley & Gill, PLLC, observes that “pooled trusts are a viable option in two scenarios. First, for families who wish to include a SNT in an estate plan for their loved one with a disability, but the amount of the bequest does not justify creating a stand-alone trust, and secondly for persons with a disability who have received a lump sum of money — whether it be from a settlement or when they have been named directly to receive funds from a will or insurance policy — and need to establish an SNT in order to protect their SSI and Medicaid benefits.”
Other Benefits to Consider
When presenting trust administration options to your clients, it may be helpful to explain the benefits of a pooled SNT:
- Staff are knowledgeable about the rules protecting SSI and Medicaid;
- Staff have experience working with people with disabilities and their family members;
- Greater investment opportunities as the funds are pooled for investment purposes;
- No minimum or maximum funding requirement;
- Disbursements are for the sole benefit of the beneficiary;
- Affordable services with low administrative fees;
- Long-term stability as a nonprofit organization; and
- Objectivity and professionalism when evaluating the financial needs of the beneficiary.
Planning for the future of a loved one with a disability requires special attention and considerations. Decisions should reflect concerns and hopes for the future as well as thoughtful planning for the resources that will be available to address a loved one’s needs. With its many benefits, your clients will appreciate learning about the pooled SNT option.
Joanne Marcus, MSW, is the Executive Director of Commonwealth Community Trust (CCT), a national nonprofit organization that provides administration of pooled SNTs since 1990. CCT trust services are available nationwide to more than 1,100 clients. For more information, call 804-740-6930, toll-free 888-241-6039 or visit the CCT website.
Statements of fact and opinion are the responsibility of the author and do not imply an opinion or endorsement on the part of NAELA or the officers or directors of NAELA unless otherwise specifically stated as such.