Pooled trusts can be a good alternative to a special needs trust. However, pooled trusts are not appropriate for everyone. To understand why, let’s take a step back and review some basics.
A pooled trust is a type of special needs trust. Special needs trusts are designed to protect the assets of a physically or mentally disabled person, while still allowing that individual to receive government benefits. To qualify for certain government benefits, such as Medicaid and Supplemental Security Income, an individual generally cannot own more than $2,000 of assets.
A special needs trust enables a physically or mentally disabled person to have an unlimited amount of assets set aside for their needs without being disqualified from government benefits. This is because the assets held in a properly drafted special needs trust are not counted as that individual’s resources for purposes of qualifying for government benefits. Funds set aside in a special needs trust allow the disabled individual to pay for extra care beyond what the government provides.
Pooled trusts are a way to provide the benefits of a special needs trust without having to set up and administer a separate trust. As with special needs trusts, pooled trusts can be funded with assets from a third party or assets of the person with special needs. Pooled trusts are required to be run by non-profit companies. The non-profit develops a master trust agreement governing all participants. In most cases, the pooled trust is administrated by a professional administrator, and the funds transferred into the pooled trust are then pooled and invested by an investment manager. Because a pooled trust accepts contributions from many beneficiaries, in theory the pooled trust is able to make more stable investments and provide additional management services that another type of special needs trust might not be able to provide. Like a special needs trust, transfers into a pooled trust do not preclude a person with special needs from receiving government benefits.
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