The Benefits of a Pooled Special Needs Trust

Most parents with special needs children have at least heard of the concept of a special needs trust, and many have used these trusts for the purpose of creating a pool of money that won't be included as a resource under the SSI/Medicaid rules. These trusts are allowed under federal statute 42 USC 1396 p (d)(4)(a). But less people are aware that further down this statute is paragraph (d)(4)(c) which describes something called a "pooled" trust. Pooled trusts are becoming increasingly popular option for parents with special needs kids.

There are downsides to a special needs trust. The first is the legal costs of establishing the trust, which often run well over $2,000. Second, once the trust is established, there are yearly tax returns to complete. Third, the responsibilities of the trustee of the special needs trust are great, and burdening a friend or family member with the responsibility is asking quite a lot. Many times, parents wish to choose a corporate trustee for this task, and with a few exceptions, corporate trustees are only interested in larger trusts, or have minimum annual fees that are cost-prohibitive, unless several hundred thousand dollars goes into the trust.

For those people, a pooled trust may be a great option. A pooled trust is, in many ways, the same as a standard special needs trust. The creation of both types of trusts remove assets from being considered as a resource for SSI/Medicaid. Both trusts are created with the beneficiary's own funds, or a third party's funds. Both trusts require that the distributions to the beneficiary be for products or services that are not covered by the government programs.

The pooled trust, however, is created by a nonprofit organization, and only one master trust document is created. A disabled person or a third party give money to the trust, and a separate account is created for the beneficiary. Distributions are just like a special needs trust, but the assets are managed by the nonprofit, trustee'd by the nonprofit, and consequently, administrative fees are lower because they are spread out among the pool. It can be cost effective for much smaller amounts to be put into the trust, and you aren't saddling anyone with the burden of being trustee. Additionally, when the beneficiary passes away, the assets do not have to be repaid to the state, but can either stay in the pool for other disabled people, or in some trusts, can go to charities designated by the disabled person or the person establishing the account.

If you would like to know more, please email me. If there is a program in your home state that I'm aware of, I can put you in touch with them. My email is mark@snplanning.com