ANALYSIS OF A POOLED TRUST
by: Begley Law Group
by Thomas D. Begley, Jr., Esquire, CELA
Purpose
The purpose of a Pooled Trust is to ensure that the trust assets are used to enrich the life of the disabled person while maintaining vital public benefits.
Trust Design
A Pooled Trust must be established and managed by a non-profit organization. They are authorized under OBRA-93. These trusts are funded with the assets of a disabled person. The SSI definition of "disability" is used. There must be a separate account for each beneficiary. Funds are pooled for investment and management. The account is solely for the benefit of the disabled individual. A person can be over 65 at the time of the establishment of a trust. A disabled person can establish his own trust. On death, the funds remaining in the Pooled Trust must be retained by the trust or reimburse Medicaid.
There is no expressed limit on the amount or type of payment. It may be wise to limit payments to "in-kind" payments. In-kind payments do not reduce public assistance.
An advantage of a pooled is that corpus is not counted as an asset. Also, a Community Trust already exists and does not have to be created. The Community Trust requires only a joinder agreement.
Key Issues
Availability
Assets in a properly-drafted Pooled Trust are not available. The key is the discretion of the trustee.
Transfer Penalties
Transfers into a Self-Settled Pooled Trust by a person 65 or under are exempt from the lookback provisions and transfer penalties. Transfers into a Pooled Trust by persons over 65 are subject to a five-year lookback. Transfer to a Third-Party Pooled Trust are subject to a transfer penalty for the individual making the transfer.
Payback
A payback from a Pooled Trust is required to the extent that the remaining funds are not retained by the trust. Any funds not retained by the trust are to be paid to the State of New Jersey up to an amount equal to the total amount of medical assistance paid.
Risk Factors
Risk factors are avoided by utilizing a Pooled Trust.
Tax Considerations
Pooled Trusts are usually utilized where the amount of money is relatively small so tax considerations are seldom an issue, but generally each sub-account in a Pooled Trust is considered a grantor trust enabling the grantor to exceed federal gift tax limits, achieve a step up in basis on death, retain a I.R.C. § 121 Exclusion on Sale of a Principal Residence and be responsible for payment of income tax. In many situations where the Pooled Trust is used the beneficiary is disabled and has large medical expenses, which may offset the income tax.