A pooled trust is one that is established and administered by a non-profit organization. Similar to a fund that may hold retirement benefits, which is a large fund with segregated accounts for each individual, this similar entity is one within which all funds of all donors are contributed to this account. Each contributor or beneficiary has their own segregated account within the fund, but the entire fund is managed by the non-profit entity.
There are several types of pooled trust funds, but the most common is referred to as a d(4)C trust. In this case, often an elder law attorney will assist a person with a disability who wants to receive public benefits. In this case, the person was already on public assistance and receiving either Supplemental Security Income (SSI) or Medicaid. Once this individual receives any additional funds from a source such as an inheritance, settlement from a personal injury, or retroactive benefits from the Social Security Administration, the assets would deem the person to be ineligible for the continuation of public benefits.
However, by contributing these excess assets to a pooled trust, the individual will continue receiving public benefits. The funds in the pooled trust are then available for expenditures for the beneficiary at the discretion of a trustee. Upon the termination of the trust, which normally occurs when the beneficiary dies, the balance of the funds remaining in the beneficiary’s account are divided with a repayment of a portion to the State, and the balance of the funds remain in the trust for the benefit of other disabled individuals. The beneficiary may not designate any specific charity to receive those assets, but may provide guidance to the trustee as to the type of charity or class of disabled individuals the funds should be allocated to. It should be noted that the total amount that Medicaid could in fact claim from the pooled trust is limited to the amount that was provided to the beneficiary during their lifetime.
Of course, an alternative to a pooled trust is a transfer to any family or non-family member that one desires. However, making such a transfer, which is considered a gift, causes a period of public benefits ineligibility for the individual, based on the amount of money that was transferred and also on what types of programs the individual was receiving.
Another alternative is to establish a so-called self-settled or first party special needs trust. In this manner, a trust may be created with the individual’s money, and upon death, there will also be a payback provision. In addition, there is the cost of setting up this trust as well as a need to establish a trustee and file individual income tax returns for the trust on an annual basis. In the event that the amount of money going into this trust initially is relatively nominal, it usually does not become cost effective to establish a self-settled trust, and therefore, the pooled trust is a better alternative.
In most states, there is at least one non-profit organization that has established a pooled trust that is available for individuals to participate in, and there are also national pooled trusts that have agreements with states. Before establishing the pooled trust, one should check the distribution policy, fees, termination issues, and possibly the reclamation policy between the trust and the State.
Hyman G. Darling, Esq.