What Is a Pooled Trust And When Is It Right For Me?

We frequently hear from people who have been told that a special needs trust would benefit them. Beyond having been told that, they often have no further details on what special needs trusts are, or what they do.

Sometimes, they have a modest sum of money, but not nearly enough to live on. The problem becomes, in that scenario, that the modest sum of money is large enough that it prevents the person from being eligible for programs like food stamps, Medicaid or public housing. Other times, they are already qualified for and receive such benefits, but stand to inherit an amount of money which would kick them off of these programs. Enter the special needs trust. As we have discussed in previous editions of our Elder Law Newsletter, special needs trusts are designed to hold such “disqualifying” funds for the benefit of the person, while still allowing them to qualify for or remain eligible for such vital programs.

We have discussed some of the differences between self-settled (D4A) trusts and third-party special needs trusts in past newsletters, but sometimes a third kind of special needs trust is more appropriate than either of these options—the pooled special needs trust.

Pooled special needs trusts are, as the name indicates, trusts that combine or “pool” funds from many different disabled persons into one managed account. There are several benefits to this arrangement. First, by pooling assets from many different beneficiaries, the cost of trust administration is driven down greatly. These trusts are managed by non-profit organizations who employ professional trustees, social workers and investment managers who are all well-versed in the guidelines and regulations surrounding persons with special needs. Sometimes, the task of administering a special needs trust properly can seem like a daunting task for a family member or loved one of a disabled person. For a small fee, pooled trusts take on these administrative tasks on behalf of the family or loved ones. Additionally, D4A trusts, which hold funds already belonging to a disabled person who desires not to be kicked off his or her public benefits programs, must be created specifically by a parent, grandparent, legal guardian or court. No other persons are authorized to create D4A trusts. The pooled trust, however, does not have such a strict requirement. For disabled persons without one of these select family members living, the pooled trust becomes an attractive, and sometimes, the only option.

Pooled trusts aren’t for everyone, though. Sometimes, disabled persons have a sizeable amount of money they wish to protect, and cost isn’t as much of a concern. They are willing to sacrifice a few extra dollars for personalized service from a trusted adviser, family member, or attorney familiar with the ins and outs of special needs trusts, and desire the privacy that comes with such an arrangement.

While there is no specific set of circumstances that mandate a “private” special needs trust or a “pooled” trust, cost, administrative burden, and ability to comply with the special needs trust statutes are all important factors that must be weighed, and which we always discuss with clients before offering a recommendation on the right path forward.