A special needs trust is established for the benefit of a disabled beneficiary, so that the beneficiary can enjoy the benefits of trust assets without losing eligibility for needs-based government benefits such as SSI and Medicaid. A pooled special needs trust is a special type of special needs trust, authorized by federal law, in which a non-profit organization pools together assets contributed by many beneficiaries and distributes benefits on a pro-rata basis.
The beneficiary can be of any age, but he must meet the legal definition of “disabled”, which means he cannot be able to work. Many non-profit organizations offer various types of pooled special needs trusts with different fees, services and qualification standards.
Legal Requirements for a Pooled Trust
To operate in accordance with federal law ( 42 U.S.C. §1396p(d)(4)(C), to be exact) so that eligibility for means-tested government benefits can be preserved, the following qualifications must be met:
- The trust must be established and administered by a non-profit organization;
- The assets of a pooled special needs trust must be the assets of the beneficiary, not a third party — an inheritance, for example, or a personal injury lawsuit settlement;
- Only the beneficiary himself or a parent, grandparent, legal guardian, power of attorney agent or a court may establish the beneficiary\s individual trust account on behalf of the beneficiary;
- Although a separate account must be established for each beneficiary for accounting purposes, actual funds can be pooled into a single account for investment purposes; and
- When the beneficiary dies, any amount not retained by the master trust must first be dedicated to repaying the state of Florida for any medical assistance provided to the beneficiary (the remainder can be distributed to the beneficiary’s heirs).
Pros and Cons of Pooled Trusts
It is possible, of course, to establish individual trusts — there is no absolute requirement that you rely on a non-profit organization to pool the assets of various beneficiaries. The pooled trust option is right for some people but wrong for others. Following are some of the pros and cons of pooled trusts:
Following are some of the advantages of pooled trusts:
- The administrators are likely to be professionals who understand the rules on how to preserve Medicaid and SSI eligibility, and they should understand the basic principles of prudent investment. Many of them have special needs relatives themselves.
- Pooled trusts do not require a large investment.
- The relatively large pool of trust assets allows the trust to diversify, which reduces overall investment risk.
Following are some of the main disadvantages of pooled special needs trusts:
- Pooled trust administrators vary in their competence. Do your homework!
- The rules of some pooled trusts are inflexible and bureaucratic — you might need to wait until a certain day to withdraw assets, for example, even in an emergency. The trust might also refuse to incorporate certain kinds of property such as real estate.
- Pooled trusts can be expensive, depending on which organization is offering it.
- It is difficult or impossible to change course and transfer already-invested assets to another trust.
Contact Us Before You Make Your Final Decision
If you are thinking about investing in a pooled trust, there are many factors you need to consider, and we can help you make an informed decision. Contact estate attorney Jose Lorenzo by calling (305) 999-5411, completing our online contact form or visiting one of our offices in Coral Gables and Ft. Lauderdale. We serve clients throughout the entire state of Florida.