The Voice is the e-mail newsletter of The Special Needs Alliance. This installment was written by Special Needs Alliance member Cora A. Alsante, Esq. and Syracuse University law student Camille Castro. Ms. Castro was a 2009 summer intern at the law firm of Hancock & Estabrook in Syracuse, where Ms. Alsante is a partner. In addition to her work at Hancock & Estabrook, Ms. Alsante was an adjunct professor at Syracuse University College of Law, where she taught elder law. Ms. Alsante has also been named as a New York Super Lawyer in elder law, estate planning and probate. Ms. Alsante is a Fellow of the American College of Trust and Estate Counsel, and a long-time member of the National Academy of Elder Law Attorneys.
When an individual with a disability will be receiving proceeds of a personal injury lawsuit or settlement or other unexpected funds, the individual’s much-needed Medicaid and Supplemental Security Income (SSI) benefits are at risk of being lost. How can the individual plan to protect those newly acquired assets without jeopardizing his or her eligibility for public benefits?
Government benefit programs such as Medicaid and SSI are “means-tested” – that is, their eligibility guidelines severely limit the income and resources available to an applicant to access for expenses. Thus, when someone with a disability who is eligible for means-tested benefits receives a sum of money, whether from a settlement, inheritance, or other source, that money will typically disqualify the individual for Medicaid and SSI until the money has been spent down.
Fortunately, the federal government passed the Omnibus Budget Reconciliation Act of 1993, also known as OBRA ’93, to allow people with disabilities to set up trusts with their own funds and still qualify for Medicaid. A law passed in 1999 extended this “safe-harbor” concept to the SSI program.
The Social Security Act now authorizes particular trusts that can benefit an individual with a disability by protecting his or her assets while allowing SSI eligibility to be maintained. One of these permitted trusts is the “pooled trust.”
What is a Pooled Trust?
Just as its name suggests, a pooled trust involves pooling together resources of multiple individuals with disabilities and then using the combined resources to reap benefits. Pooled trusts gather and merge resources from the individual trust accounts of all the trust beneficiaries into a single, larger amount of available capital to invest.
Non-profit organizations establish and manage pooled trusts and also may serve as a trustee or co-trustee. They are in charge of combining and investing individual pooled trust funds. The organization maintains a separate trust “sub-account” for each participant. Each individual trust sub-account receives income distributions from the pooled trust that are based on the account’s pro rata share of the entire pooled trust.
In other words, a pooled trust is like a pot of stew that is served in proportion to the ingredients that were contributed to the pot. Both the person who contributed three carrots and the one who contributed a pound of stew beef will get servings of the stew, just in different sized bowls.
Creating a pooled trust that will meet the requirements of OBRA ’93 as a Medicaid-exempt trust requires a non-profit organization to set up the trust and manage the pooled funds or arrange for a trustee to handle them. Many pooled trusts also have a financial institution serve as a trustee or co-trustee. One unique aspect of pooled trusts is that the disabled individual can join the trust by signing a joinder agreement on his or her own behalf. Curiously, this is not the case with other OBRA ’93 “safe-harbor” trusts that are permitted in the Medicaid or SSI context, which only allow certain third parties (parents, grandparents, legal guardians or a court — but not the individual with the disability) to set up the trust.
For example, if Camille, a 23-year old with a disability who relies on Medicaid to pay her medical expenses, were to receive a large sum of money from a personal injury settlement, her parents, grandparents, legal guardian (if any) or a court on her behalf, or Camille herself, would be able to join the pooled trust, contribute the settlement money to it, and continue to protect Camille’s Medicaid eligibility.
To join a pooled trust, the individual with a disability, or his or her legal representative, should meet with the non-profit organization that established the trust to discuss the preferences and needs of the beneficiary, the terms of the trust and the timing of distributions. While different non-profit organizations may vary with respect to their enrollment rates, maximum and minimum amounts of initial deposits and fund disbursement policies, pooled trusts all have the same overall goal: giving an individual with a disability the maximum benefits from the trust.
The non-profit organization will tailor the use of each pooled trust account to fit the beneficiary’s needs and individual preferences. Some organizations have care coordination programs, which directly deposit investment proceeds from the pooled trust to pay for services for the beneficiary. Examples of services that can be funded by pooled trusts include health and dental procedures not covered by Medicaid, rehabilitative and occupational therapy, private case management, home care, nursing care and transportation.
If Camille joins the pooled trust, the non-profit administering the trust will combine her sub-account with the other individual sub-accounts. The trustee will manage all of the sub-accounts as a single trust, investing the entire balance in lower risk investments.
One advantage of pooling is that the larger pool can result in better investment diversification, a method that reduces overall risk. The trustee will distribute investment income proportionately among the individual trust sub-accounts. Together, the trustee and non-profit organization manage the daily functions related to investments and accounting, such as maintaining records, preparing necessary reports and forms, and monitoring the investments.
A pooled trust will continue to provide distributions for the beneficiary’s needs until the account is depleted or the beneficiary dies. Upon the beneficiary’s death, any money remaining in his or her sub-account either will remain in the trust for distribution to other sub-accounts for the benefit of other trust participants or will be paid back to the state as reimbursement for Medicaid payments made during the beneficiary’s lifetime.
State rules vary on whether a percentage of the beneficiary’s at-death pooled trust sub-account balance must be reimbursed to the state. In some states, after the non-profit organization administering the pooled trust receives its authorized share of the funds remaining in the beneficiary’s account and after Medicaid is reimbursed, then any remaining funds can go to the beneficiary’s family members or another person designated by the pooled trust beneficiary.
Advantages
Pooled trusts have several advantages. First, they allow a beneficiary to protect money coming from a settlement or other source for extra expenses while remaining eligible for government benefits. In addition, they have a greater investment potential, since the organization combines individual pooled trust accounts into a large pot.
Pooled trusts are also beneficial because they allow an individual or the family members to help shape the uses of the trust funds for the benefit of the individual with a disability, while relieving the family members of the day-to-day administration related to the trust. The organization, which must deal with reporting and other federal regulations on a daily basis, remains current with respect to the requirements related to pooled trusts so that the family doesn’t have this responsibility. The beneficiary has the advantages of account growth from investments and appropriate account spending without having to be involved in the management of the funds.
Non-profit organizations provide a higher degree of financial accountability than an individual trustee because they work with financial institutions on a daily basis. They can also act as trustees, relieving the parent or guardian from that responsibility and alleviating any concerns about having to find a replacement trustee in the event a trustee quits or becomes disqualified to serve.
Another benefit of pooled trusts is their accessibility to people with a variety of income and asset levels. Individuals with smaller amounts of money, who would likely be restricted from individual trust management at financial institutions which require substantial minimum balances, can participate in pooled trusts. This accessibility allows more pooled trust accounts to be created and permits greater benefits to be received by those who need them.
Disadvantages
Before deciding to join a pooled trust, consider several issues. While the organization will ask for the beneficiary’s input and wishes, it has the ultimate power to control distributions and investments. If you want higher risk investments, which could potentially result in greater return, a pooled trust may not be the best option because organizations tend to invest more conservatively.
The final disadvantage to consider is that the pooled trust and/or the state will typically receive any money remaining in the trust upon the beneficiary’s death. In many states it is not possible to give the remaining money to a family member, as is an option in some trusts.
Considerations Before Joining a Pooled Trust
Pooled trusts are a good vehicle for managing and protecting assets for individuals with a disability. Before committing to a pooled trust program, however, investigate the non-profit organization to make sure it has expertise in this area. Also, inquire about its investment relationships to make sure that it invests with reputable financial institutions or has selected an experienced institution as trustee.
Finally, the organization should be able to provide clear information about the details of its program, including distribution terms, the services it offers, the related costs, and member reports. Consider obtaining feedback from other members before you add to the pot.
Is a Pooled Trust Right for Your Situation?
Investing in a pooled trust can provide a means of protecting funds for individuals with disabilities, while still maintaining the individual’s eligibility for public benefit programs. With careful planning, persons with disabilities can benefit greatly from a pooled trust managed by a non-profit organization that has experience with public benefit laws, a clear sense of the objectives of the disabled individual and the ability to achieve those objectives.
About this Newsletter:
We hope you find this newsletter useful and informative, but it is not the same as legal counsel. A free newsletter is ultimately worth everything it costs you; you rely on it at your own risk. Good legal advice includes a review of all of the facts of your situation, including many that may at first blush seem to you not to matter. The plan it generates is sensitive to your goals and wishes while taking into account a whole panoply of laws, rules and practices, many not published. That is what The Special Needs Alliance is all about. Contact information for a member in your state may be obtained by calling toll-free (877) 572-8472, or by visiting the Special Needs Alliance online.