Pooled Trusts for People Over 65: What Are They and Why Are They Used?

There is a common misunderstanding that a family member who is reliant on government benefits must be disinherited in order to preserve these important benefits. Furthermore, it has been thought that in order to qualify for certain benefits, this family member must be forever in a state of impoverishment.

This is not true.

Special needs or supplemental needs trusts (SNTs) are not counted toward the income or asset limitations of certain government benefit programs.

One type of SNT is the self-funded or payback SNT. It is designed as a means of protecting the SNT beneficiary’s assets and income, as well as his or her eligibility for government benefits.

The money or other property in these SNTs is deemed non-countable or unavailable to the beneficiary of the SNT for Medicaid and Supplemental Security Income (SSI) purposes as well as for some other programs. In addition, the transfer of the money or other property to the SNT is deemed a non-penalty transfer for Medicaid.

A pooled trust , which is a payback special needs trust, is a trust containing the assets of an individual who is disabled and that meets the following conditions:

• The trust is established and managed by a non-profit association.
• A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.
• Accounts in the trust are established solely for the benefit of individuals who are disabled and one established by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.
  
• To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the state these amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the state plan under this title.

Pooled trusts are generally used when the disabled individual is over the age of 65 or is under 65 and does not have a living parent or grandparent to create the trust. (Even if there is no living parent or grandparent, the court or the individual's guardian may create a special needs trust for individuals of any age.)

Connecticut requires that individuals with disabilities age 65+, who transfer funds into pooled SNTs, prove that the transfers were not penalty transfers. Specifically, the beneficiaries must demonstrate they will receive or are expected to receive fair value for their transfers.

Penalties may be incurred depending on the monthly dollar amount transferred by the beneficiary into the pooled SNT. If the beneficiary transfers or assigns an amount in excess of the monthly limit into the pooled SNT, he or she must expend the excess, in its entirety, within six months to avoid a penalty. (Each year, the Centers for Medicare and Medicaid Services (CMS) provides a regional bulletin that provides guidelines for income and asset limits, so the figures will change annually.)

The beneficiary must:

• Indicate how the funds will be used; and
• Have a definite plan, which must be approved by the Department of Social Services (DSS); and
• Receive fair value for these transferred funds. This is not a pooled trust requirement - it is the requirement of DSS.

Additionally, if the beneficiary transfers an asset (generally a one-time transfer of a larger amount) into a pooled SNT with the intent of expending the asset during his or her lifetime, the DSS will not impose a penalty.

Again, the beneficiary must have a definite plan, approved by DSS, regarding how he or she will use the asset, and the beneficiary must receive fair value for it. Part of the plan must include a time frame, so that the DSS can determine, based on the beneficiary’s life expectancy, whether the plan is actuarially sound.

In an SNT, the trustee’s job is a very important one because the trustee will be responsible for ensuring that the beneficiary retains government benefits and that the funds in the trust are only used to supplement those benefits.

Under no circumstances can the beneficiary be a trustee as this would allow the assets to be considered available for purposes of government benefits.

However, the settlor (the person who establishes the SNT) can be the trustee. For example, a parent could both establish an SNT and be the trustee.

But be cautious - rarely is a parent or family member familiar with the complexities of SNTs.

Putting a family member in charge of a beneficiary’s money can cause considerable family strife, especially when utilizing a self-funded SNT. It is often better for the family member to stay in the position of being a family member and not be the one who refuses the distributions from the trust.

When choosing a trustee, it is usually better to opt for someone who is familiar with various income and asset rules for government benefits programs. Many bank trust departments are not versed in these programs and are not willing to handle administration of SNTs.

However, attorneys, or non-profit trustees focusing on SNT administration can be utilized. (We recommend that if a family member is chosen as a trustee, that a special needs attorney be retained for advice.)

An SNT trustee typically has sole, absolute and uncontrolled discretion regarding any distribution from the SNT to the primary beneficiary. (Although a trustee may also consult with the beneficiary and the family or friends of the beneficiary to help determine what distributions are needed.)

Keep in mind, the assets in the self-funded SNT must be used for the sole benefit of the beneficiary. They can be used for such things as supplemental therapy, field trips, vacations, or dental care not covered by Medicaid; but not for prescription drugs (as that is covered by Medicaid.)

So, while goods and services can be paid with SNT funds, under most circumstances money should not be given directly to the beneficiary . Usually, this would violate the terms of the SNT document and jeopardize the beneficiary’s benefits.

There are exceptions, but obtaining counsel familiar with these rules is critical.

SNTs are valuable tools to help persons with disabilities of any age significantly increase the quality of their lives, and often allows them to remain in the community living as independently as possible.

But, there many other factors to consider when using SNTs and careful drafting is essential so that government benefits are preserved while having funds for supplemental purposes.

A thorough knowledge of the distributions rules for each benefit program that the beneficiary is eligible for and receiving is mandatory to ensure that distributions from the SNT do not interfere with benefits.

As you can see, a lot is at stake.

If you have questions about how a special needs trust can help your loved one, contact our special needs planning attorneys today, we are here to help!

Related Information:

Special Needs Planning: Choosing a Trustee with a Network

10 Things You Must Ask When Choosing a Trustee for a Special Needs Trust

What You Should Know About Social Security Disability Insurance (SSDI)