Persons with special needs sometimes are better served by pooling their assets into a pooled special needs trust than by having separate trusts. This pooled approach can make many financial and quality-of-life benefits possible for at-risk persons and their families. Unfortunately, many attorneys familiar with guardianships and special needs trusts are not familiar with this pooled approach.
Persons with disabilities may be entitled to public benefits if they meet the requirements of the Social Security Act. When persons receiving SSI or Medicaid also receive an inheritance, or a financial award in a lawsuit (for instance, compensation for medical malpractice), these assets can count against them under the Social Security Act. As a result, their eligibility for SSI or Medicaid can be interrupted.
Placing these assets in a trust – whether a special needs trust or a pooled trust — can protect the assets and allow persons with disabilities to receive money to improve their quality of life, without disrupting eligibility for disability-related public assistance. The result can be both protection and improved financial freedom.
Why might a beneficiary be more secure financially with a pooled trust than his or her own special needs trust? The most common factors include the amount of the assets, the need to select a trustee, and the costs of operating a trust. If the amount of assets in a special needs trust is relatively small, the costs of operating the trust may be too high, and banks and other financial institutions may not wish to serve as trustees. In these cases, pooling assets from several persons with disabilities can help provide all of them with the advantages of independent special needs trusts, even if they don’t have sufficient assets to maintain their own trusts in a financially viable way.
Generally speaking, pooled trusts can be a wise choice for persons receiving assets under $500,000. In the District of Columbia, few financial institutions are eager to serve as trustees of any trust with assets under $1 million. Each person’s financial and personal needs are unique, so it is important to assess these particular circumstances and goals carefully to determine which approach best serves them.
Financial thresholds aside, pooled special needs trusts offer numerous practical advantages over ordinary special needs trusts. Trustees of pooled special needs trusts typically are nonprofit corporations staffed by social workers and guided by responsible money managers, investment advisors and administrative staff. Their expertise is critical for many reasons. For instance, a special needs trust that pays for food or shelter can jeopardize the beneficiary’s SSI payments, but some corporate trustees do not have staff who are intimately familiar with SSI and Medicaid rules governing special needs trusts. Pooled trusts apply these rules and make these kinds of decisions on a daily if not hourly basis, and thus are well-versed in ensuring that disbursements help beneficiaries improve their quality of life without risking their public benefits.
Another advantage of pooled special needs trust is that they are governed by nonprofit corporations with multiple board members and staff who are dedicated to the interests of their clients. A typical family may not know any individual whom they trust to serve as trustee with the necessary skill and experience in this complex area. Pooled special needs trusts offer reliability in these sensitive matters. As importantly, unlike many ordinary special needs trusts, a pooled trust does not depend on just one person as trustee: the staff and board of the nonprofit corporation can provide balance and a range of skills. Moreover, a sole-trustee trust inherently runs the risk that the trustee could die, move away or become disabled. A pooled special needs trust avoids these risks.
Pooled special needs trusts also are experienced in addressing developmental disabilities or physical disabilities. Beneficiaries of special needs trusts often have expansive needs and desires that must be communicated, addressed, negotiated and acted upon. In these circumstances, the dedicated and empathetic professional staff of pooled special needs trusts can be critically important to the disabled person’s quality of life and the family’s overall experience.
Pooled special needs trusts also can be secure and financially superior choices. The costs of establishing individual trusts often eclipse the minimal fees to participate in a pooled trust. This pooled approach also provides protection: a pooled trust’s documents have been drafted by attorneys with expertise in this field of law, and public agencies likely will be familiar with or have reviewed the trust document for compliance purposes.
At the same time, pooled special needs trusts offer flexibility. Pooled trusts can serve as third-party trusts to receive and administer funds for a beneficiary. For example, parents can fund a third-party trust account in a pooled trust program, much as they would fund an individual trust with a bank. They may continue to fund the trust share over time without limitation. The pooled trust usually accepts cash assets, as other assets may be too difficult to manage.
There is a crucial difference between third party trusts and other pooled special needs trusts. The difference between them is the treatment of the balance remaining in the sub share upon the death of the beneficiary. There are no requirements governing the payment of the balance of the third party trust remaining at the beneficiary’s death. However, in the pooled special needs trust, remaining funds will be applied toward the repayment of any outstanding Medicaid lien held by the government for services and goods provided to the beneficiary.
There is no statutory requirement that all of the remaining balance be used to repay the Medicaid lien. Accordingly, there is generally a split between the repayment of any Medicaid lien the government has and retention of the balance by the non-profit trustee of the pooled trust. Most pooled special needs trust has adopted a policy of paying the Medicaid lien to the government only up to the value of one-half of the remaining balance of the sub-account. The trust programs use the funds retained to continue providing services to other beneficiaries, either to operate the program or to assist other beneficiaries whose funds have been depleted.
The disadvantages of a pooled special needs trust are few. Family members may be concerned about the loss of direct control over trust disbursements and investments. However, the family should be reassured by the competence and diligence of the pooled trust staff. As noted above, funds remaining in the pooled trust at the beneficiary’s death will generally not revert or pass to the surviving family members: this is the price for protecting those assets so that the beneficiary stays eligible for valuable public benefits. Additionally, there are no enforceable operating standards imposed by the federal and state governments on pooled trusts. There is no certification process or accreditation process for pooled trusts. There are also no guarantees that the federal benefits laws won’t change.
Another disadvantage is that some beneficiaries may wish to purchase a home with amounts recovered in a tort action. A pooled special needs trustee may not be willing or capable of administering a trust share that owns real estate.
POOLED TRUSTS IN MARYLAND AND WASHINGTON, D.C.
In the District of Columbia and Maryland, we are served by the Wesley Vinner Memorial Trust, a pooled special needs trust operated by Shared Horizons, Inc., a not-for-profit corporation in the District of Columbia. The Vinner Trust enables families and persons with disabilities to establish relatively inexpensive and effective trust accounts that provide supplemental funds for persons with disabilities while protecting them from losing important government benefits. The board of directors is comprised of dedicated professionals and community representatives. Among the directors are public benefits advocates, lawyers, insurance agents, and marketing consultants.
To participate, the beneficiary or their family signs a joinder agreement setting up a sub-account. In some cases, a court order will be required to establish the sub-account. Examples are recoveries in a tort case by a person whose incapacity prohibits them from receiving and managing the recovery. If the plaintiff does not have a guardian, the pooled special needs trust offers a safe and efficient way to receive the recovery.
All funds are managed as a pool and invested as one account. However, the profits and losses, additions and disbursements from each account are tracked separately. Pooling reduces administrative fees and increases the principal for investment purposes. Pooling may also allow access to better quality investments that pay a higher rate of return than what is available for a small individual trust.
Distributions from the trust are discretionary. Because the trust is designed to protect SSI, Medicaid and public benefits, the trustee must have sole discretion about how disbursements are made. Otherwise, Social Security rules would deem these assets “available” to the beneficiary, which would disqualify him or her from receiving public benefits.
The staff of the pooled trust address requests made for disbursements, and maintain records of disbursements. A disbursement request may come from the beneficiary or from a designated representative, typically an immediate family member. The disbursement must be primarily for the benefit of the beneficiary. If a disbursement request will have an adverse impact upon the beneficiary, the trust administration staff will advise the beneficiary and may choose to deny the request.
These decisions are partly financial (to provide benefits over a longer period) but partly deeply human (to have a positive impact and enhance the beneficiary’s quality of life). In one recent case, the beneficiary had an opportunity to fulfill a lifelong dream of vacationing in Hawaii. The trip’s cost would nearly deplete the beneficiary’s account, but the decision was made that the beneficiary should have the chance to take this trip. The beneficiary’s joy was beyond measure, and the trust enabled one man to have the vacation of a lifetime.
Pooled trusts permit a wide variety of people with disabilities to benefit from the protection and management of their funds without disrupting vital public benefits. Pooled trust programs provide a convenient and economical way to have trust funds administered for people with disabilities to supplement the benefits of entitlement programs.
Persons interested in the Wesley Vinner Memorial Trust can contact Yolanda Mazyck, the executive director of Shared Horizons at (202) 448-1460 or firstname.lastname@example.org or visit the website atwww.shared-horizons.org. The author is also the current President of Shared Horizons.
Evan J. Krame
Krame and Biggin