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PLANNING FOR INDIVIDUALS WITH SPECIAL NEEDS PART 4

by: Begley Law Group

by Thomas D. Begley, Jr., CELA

General

This is the fourth part of a five-part series dealing with planning for individuals with special needs.  Part 1 discussed the reasons to establish a trust.  Part 2 discussed Self-Settled Special Needs Trusts (SSSNTs).  Part 3 discussed Third Party Special Needs Trusts (TPSNT).  This article will focus on Pooled Trusts.

The Pooled Trust was created by OBRA’93.[1]Transfers to Pooled Trusts are exempt from the transfer of assets rules and are drafted in such a manner that the assets are unavailable and, therefore, non-countable. Transfer of asset rules are only an issue if the grantor, rather than the beneficiary, is likely to apply for Supplemental Security Income (SSI) or Medicaid (MA). In New Jersey, if a person over age 64 transfers assets to a Pooled Trust, it is subject to a Medicaid transfer of asset penalty.  Pooled trusts were originally designed to handle relatively small trusts.  Many law firms always use a Pooled Trust, if the assets in the trust will be less than $100,000, and always use an individual trust if the assets will be more than $200,000.  For trusts with assets between $100,000 and $200,000, an individual assessment should be made.

A Pooled Trust is established by a master trust agreement.  Individuals then join the Pooled Trust by signing a joinder agreement.  The joinder can be a third party joinder agreement. In this situation, the trust will be administered in accordance with the TPSNT rules.  Or, it could be a first party joinder agreement, in which case the trust would be administered in accordance with the SSSNT rules.  The money is invested in common.  Each member has an individual subaccount and, generally, receives a statement, either monthly or quarterly, advising of all subaccount activity.

Statutory Requirements

A self-settled Pooled Trust is defined as a trust containing the assets of an individual who is disabled that meets the six conditions discussed in the following sections.

  •  The trust must be for the benefit of a person with disabilities. Disability is defined by the Social Security Act § 1382c(a)(3). A person receiving Supplemental Security Income (SSI) or Social Security Disability (SSD) has already been determined to be disabled by the Social Security Administration and no further determination is necessary. If the individual is not receiving SSI or SSD, the state Medicaid agency must make a disability determination.
  • Non-Profit Association. The trust must be established and managed by a non-profitassociation as defined under state law.[2]
  • Separate Account.Separate accounts must be maintained for each beneficiary of the trust. For purposes of investment and management of funds, the trust may pool the funds in the individual accounts. The trust must be able to provide an individual accounting for the individual.[3]Each individual sub-account gets its own Employer Identification Number (EIN). Each self-settled sub-account is taxed to the beneficiary as a grantor trust.
  • Established for the Benefit of the Individual/Sole Benefit Of.The trust account must be maintained for the sole benefit of the individual with disabilities.

The trust may be established by a parent, grandparent, or legal guardian of such individual, or by such individual, or by a court.[4]

A Pooled Trust can also be established by a representative payee or by an agent under a Power of Attorney.  A representative payee or an agent under a Power of Attorney can also transfer funds that are within his/her control (i.e., SSI or Social Security benefits).

  • To qualify for the Pooled Trust exception, the trust must contain specific language that provides that, to the extent that amounts remaining in the individual’s account upon death of the individual are not retained by the trust, the trust pays to the state from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the individual under the state Medicaid plan.  It should be noted that many Pooled Trusts can retain up to 50% of the trust assets on the death of the beneficiary while the remainder goes first to the Medicaid payback and then to the beneficiaries named in the joinder agreement.

 

Advantages of Pooled Trusts

  • Non-Countable. The assets in a Pooled Trust will not be counted as available for an SSI or Medicaid recipient. This is true whether the Pooled Trust is a third-party trust or a self-settled Pooled Trust. Disabled beneficiaries are, therefore, in a position to retain their public benefits, including SSI and Medicaid. Funds in a Pooled Trust can be used to pay for any item subject to the general rules of the third party or first party trust, depending on whether the joinder is a first party or third party joinder.
  • In general, Pooled Trustees are familiar with public benefits laws and are unlikely to make distributions that would disqualify the person with a disability from public benefits.
  • Low Cost. Another benefit of a Pooled Trust is that it is inexpensive to establish. The trust document has been prepared by the non-profit, but there is usually a joinder fee to be paid by the beneficiary. The joinder fee is considerably less expensive than establishing a (d)(4)(A) trust. Where the amount to fund the trust is small, a Pooled Trust often makes sense. Most bank trust departments require a minimum of anywhere from $250,000 to $1,000,000, whereas Pooled Trusts are more flexible about the size of trusts they will accept.

Services Provided by Pooled Trusts

  • Money Management. The Pooled Trust program undertakes the daily management of the trust sub-accounts. This includes making distributions from each sub-account and reporting to the various agencies, as well as preparing necessary reports and tax-related reports. Many Pooled Trust representatives spend time meeting with families about the program and assisting families with future planning information.
  • Care Services. It is advisable for the family members and the Pooled Trust to prepare a care plan for the disabled beneficiary. Many Pooled Trusts offer services to implement the care plan and offer monitoring services to be sure that the person with a disability is receiving the services that are required. A care manager may visit the beneficiary, be present at meetings about the individual, and advocate on the individual’s behalf.

Who Administers Pooled Trusts

Pooled trusts are usually administered by disability-related organizations.  Pooled trusts in New Jersey include following:

  • PLAN/NJ. Planned Lifetime Assistance Network of NJ (PLAN/NJ), which is the largest and oldest Pooled Trust operating in New Jersey.  Contact: Nancy Dilliplane; telephone: (908) 575-8300.
  • Secured Futures. Contact: Sara Greene; telephone: (602) 635-6674, ext. 1004.

Fees

Pooled trusts do charge fees for their services, which can vary in frequency and amount. Some trusts charge a sliding scale fee based on the amount in the trust account. Most Pooled Trusts have an enrollment fee payable at the time the joinder agreement is signed and some have periodic maintenance fees. Other fees may be charged for separate services rendered by the trust.

Funding

Generally, Pooled Trusts will accept only cash assets. Pooled trusts are usually not in a position to manage real estate.

[1]42 U.S.C. § 1396p(d)(4)(C).

[2]POMS SI 01120.203 B 2.c.

[3]POMS SI 01120.203 B 2.d.

[4]POMS SI 01120.203 B 2.f.