A pooled trust is a type of special needs trust that is established and managed by a nonprofit organization. Instead of creating an individual trust with its own trustee a person with a disability joins an existing trust managed by the nonprofit and has their own separate account within that pooled trust. The nonprofit pools the assets of all participants together for investment purposes while maintaining individual sub-accounts for each beneficiary.
Pooled trusts provide many of the same benefits as individual special needs trusts — particularly the ability to hold assets for a person with a disability without disqualifying them from government benefits such as Medicaid and Supplemental Security Income — while offering some unique advantages especially for people who do not have a trusted family member to serve as trustee or who have modest amounts of assets to protect.
How a pooled trust works
When a person joins a pooled trust they sign a joinder agreement with the nonprofit organization that manages the trust. This agreement establishes their individual sub-account within the pooled trust and describes how their funds will be managed and distributed.
The nonprofit trustee then:
- Manages the pooled investment portfolio on behalf of all participants
- Maintains a separate accounting for each individual sub-account
- Makes distributions from individual accounts to pay for goods and services that supplement the beneficiary’s government benefits
- Files tax returns for the trust
- Ensures that distributions do not jeopardize the beneficiary’s eligibility for Medicaid and SSI
The beneficiary or their representative can typically request distributions from their account for approved expenses by contacting the nonprofit trustee.
Who can benefit from a pooled trust
Pooled trusts can be beneficial for several groups:
- People of any age with disabilities — unlike first party individual special needs trusts which are only available to people under age 65 pooled trusts are available to people of all ages including those over 65. This makes pooled trusts an important option for older adults who need to protect assets while qualifying for Medicaid.
- People with modest assets — setting up an individual special needs trust can be expensive due to attorney fees and ongoing administration costs. A pooled trust may be more cost effective for people with smaller amounts of assets to protect.
- People without a trusted family trustee — finding a qualified and willing individual trustee for a special needs trust can be challenging. A pooled trust provides professional nonprofit management without the need for a family member or friend to serve as trustee.
- People who need immediate trust establishment — pooled trusts can often be established more quickly than individual special needs trusts because the trust document already exists — the beneficiary simply joins by signing a joinder agreement.
Types of pooled trusts
There are two main types of pooled trust sub-accounts:
- First party pooled trust — also called a self-settled pooled trust or d4C trust, this type of sub-account holds assets that belong to the person with a disability such as a personal injury settlement, an inheritance already received, or other personal funds. Federal law allows people of any age with disabilities to place their own assets into a pooled trust without losing Medicaid eligibility. However upon the beneficiary’s death Medicaid is entitled to reimbursement from the sub-account for the cost of benefits paid — called the Medicaid payback provision. Any remaining assets after Medicaid is repaid may be retained by the nonprofit or distributed to other beneficiaries depending on the joinder agreement.
- Third party pooled trust — this type of sub-account is funded by a parent, grandparent, or other third party using their own assets — not assets belonging to the person with a disability. Unlike first party accounts third party pooled trust accounts are not subject to Medicaid payback. Remaining assets after the beneficiary’s death can pass to other beneficiaries named in the joinder agreement.
What pooled trust funds can be used for
Distributions from a pooled trust sub-account must be used for goods and services that supplement — not replace — the beneficiary’s government benefits. Approved uses typically include:
- Education and vocational training
- Recreation and entertainment
- Technology and electronic devices
- Personal care items beyond basic necessities
- Transportation
- Home furnishings and personal belongings
- Dental and medical expenses not covered by Medicaid
- Travel and vacations
- Clothing beyond what SSI provides for
The trustee must be careful not to use trust funds to pay for food or shelter in most cases as these are covered by SSI and payments for them can reduce the beneficiary’s SSI benefit.
Pooled trust fees
Nonprofit organizations that manage pooled trusts charge fees for their services. Fee structures vary by organization but typically include:
- An enrollment fee to join the trust
- An annual administration fee based on a percentage of the sub-account balance
- A fee for each distribution request
These fees are generally lower than the costs of establishing and administering an individual special needs trust especially for accounts with modest balances.
How to find a pooled trust
Pooled trusts are available in most states. Resources for finding a pooled trust include:
- The Special Needs Alliance — specialneedsalliance.org maintains a directory of pooled trust programs organized by state
- Your state’s disability services agency — can provide information about pooled trust programs available in your state
- An attorney who specializes in special needs planning — can recommend pooled trust programs and help you evaluate whether a pooled trust or an individual special needs trust is more appropriate for your situation
Pooled trust vs individual special needs trust
Choosing between a pooled trust and an individual special needs trust depends on several factors:
- Amount of assets — for smaller amounts a pooled trust is often more cost effective. For larger amounts the ongoing fees of a pooled trust may exceed the costs of an individual trust.
- Age of the beneficiary — pooled trusts are available to people of all ages including those over 65. Individual first party special needs trusts are only available to people under 65.
- Availability of a trustee — if a qualified and willing individual trustee is available an individual trust may provide more personalized management. If no suitable trustee is available a pooled trust offers professional management.
- Speed of establishment — pooled trusts can typically be established more quickly than individual trusts.
- State law — some states have specific rules that affect the choice between a pooled trust and an individual trust. An attorney familiar with your state’s laws can advise on the best option.
Key terms to know
- Pooled trust — a special needs trust established and managed by a nonprofit organization with individual sub-accounts for each beneficiary
- Joinder agreement — the document a beneficiary signs to join a pooled trust and establish their individual sub-account
- First party pooled trust — a pooled trust sub-account funded with assets belonging to the person with a disability subject to Medicaid payback
- Third party pooled trust — a pooled trust sub-account funded by a family member or other third party not subject to Medicaid payback
- Medicaid payback provision — the requirement that a first party trust reimburse Medicaid upon the beneficiary’s death
- Sub-account — an individual account within a pooled trust that holds assets for a specific beneficiary
- Special needs trust — a trust designed to hold assets for a person with a disability without disqualifying them from government benefits
- Supplemental Security Income — SSI — a needs-based federal benefit program for low income aged blind or disabled individuals
Sources
- Special Needs Alliance — specialneedsalliance.org
- Social Security Administration — ssa.gov
- Medicaid.gov
- American Bar Association — Public Resources
This article is for general informational purposes only and does not constitute legal or financial advice. Pooled trust rules and availability vary by state and are subject to change. Consult a licensed attorney who specializes in special needs planning for guidance specific to your situation.