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Special Needs & Pooled Trusts

SPECIAL NEEDS TRUSTS (or “Supplemental Needs Trusts”) are trust instruments designed to preserve SSI, Medicaid and other public benefits when one of four common events occur:

  • A disabled child (who is receiving public benefits) receives an inheritance
  • A disabled child (who is receiving public benefits) receives proceeds from a personal injury settlement or suit
  • A disabled adult in a skilled nursing facility (who is receiving public benefits) receives an inheritance
  • A disabled adult in a skilled nursing facility (who is receiving public benefits) receives proceeds from a personal injury settlement or suit

In all of the above situations, the receipt of these proceeds will mean the discontinuation of those benefits unless proper planning is implemented.

Inheritance example:

Mom is in a nursing home. Her nursing home expense is $5,000 per month. Her Social Security of $1,000 per month goes toward this cost of care. The balance of $4,000 per month is paid by Medicaid. Her sister leaves her an inheritance of $100,000 in her Last Will and Testament.

The direct inheritance will effectively stop public benefits until it is used. The $100,000 must pay for Mom’s $4,000 per month medical expenses that public benefits were once covering. In approximately 25 months, the inheritance will be gone.

Instead, Mom’s sister should have established a Testamentary Special Needs Trust. Mom’s benefits would have continued, and the inheritance would be there for expenses that Medicaid does not cover. Such a trust must be carefully drafted so as not to run afoul of Federal and State laws.

Inheritance example:

Joseph is an 8 year old permanently disabled child who is receiving SSI and Medicaid benefits. Joseph’s medication costs $1200 per month and his therapy $800 per month. Joseph’s mother’s income and assets cannot afford to pay for these expenses and the family relies upon public benefits for Joseph’s well-being.

Joseph’s Grandmother wishes to leave Joseph an inheritance in her Last Will and Testament, but fears that this will ruin the receipt of his benefits. Without any proper planning she is right. If she leaves an inheritance of a $100,000, Joseph’s benefits will be discontinued and the $100,000 must be spent on his medication and therapy expenses. In approximately 4 years when Joseph reaches 12 years of age, his inheritance will be gone.

Again, a Testamentary Special Needs Trust should have been established in order to preserve such benefits. Such a trust must be carefully drafted so as not to run afoul of Federal and State laws.

Personal Injury example:

Elizabeth is a 12 year old permanently disabled child. Her disability is the result of an automobile accident. Because of her disability, Elizabeth must take certain medication and undergo therapy for the rest of her life. These medical expenses cost approximately $2,000 per month, and will only rise in the future. The family relies on SSI and Medicaid public benefits to pay for Elizabeth’s medical expenses.

As a result of the accident, a personal injury suit was initiated. A settlement was reached for $200,000 (after legal fees and costs). Without the appropriate planning the settlement must now be used to cover her existing medical costs until the funds are fully depleted – approximately 8 years.

Instead, the Personal Injury Attorney should have contacted an attorney well versed in establishing a Court-Ordered Special Needs Trust. Such a trust would have continued the public benefits, and preserved the personal injury proceeds in order to pay for those expenses not covered by the public benefits. Such a trust must be carefully drafted so as not to run afoul of Federal and State laws.

Please note: The above examples are not exhaustive, are intended for information purposes only and are not a recommendation for an individual’s specific circumstances. Family members and caregivers should seek the appropriate legal advice regarding their particular situation.



What Are Pooled Trusts?

Special needs Pooled Trusts are run by nonprofit organizations set up to expertly and efficiently administer a master Special Needs Trust on behalf of individual beneficiaries with disabilities. Assets are combined and invested together; funds are spent on beneficiaries in proportion to their share of the total amount.

No two Pooled Trusts are exactly alike. Each has its own fees, menu of available services, and contracts under which it operates. Some offer many options, complicated contracts, and complex fee schedules. Others offer a single agreement and an easy-to-understand fee schedule. Some are organized to provide complete care of beneficiaries while others just manage the money in an appropriate manner.

But whatever their differences, all Pooled Trusts share some basic pros and cons worth considering…

Benefits of Pooled Trusts

The people managing the trust and its assets will be knowledgeable about agency rules regarding income and resources and will be able to deal with any questions from the SSI or Medicaid programs.

The trust directors usually are relatives of people with disabilities and are attuned to that community.

Even if you don’t have a lot of money to leave to your loved one, a Pooled Trust can give your loved one the benefits of a Special Needs Trust.

Limitations of Pooled Trusts

While Pooled Special Needs Trusts work for many people, they do have some important limitations that you should consider. For example:

Pooled trusts are only as good as the nonprofit that is managing it. Some may do a good job for a while, but in the face of financial problems or management changes, may end up mismanaging or even going out of business altogether.

Some Pooled Trusts distribute assets only at certain times of the month. This may be a problem for a beneficiary needing distributions more frequently.

Pooled Trusts can be very expensive. Find out exactly how much a Pooled Trust charges before you join. Generally, there is a one-time setup fee that can run from a few hundred dollars to several thousand dollars. Plus, there is an annual fee—based on a percentage of the assets that are put into the trust—this can be several thousand dollars a year.

If you’re only putting a modest amount of assets into the trust, the fees of the Pooled Trust can seriously deplete these assets. In contrast, a friend or family member may not charge anything to serve as the trustee of an individual trust.

Pooled Trusts are inflexible. Once the assets are in the Pooled Trust, it is difficult if not impossible to move the assets to another trust. Your beneficiary is then restricted to this Pooled Trust even if the trustee does not do a good job.

Many Pooled Trusts will not agree to own real estate or authorize other nontraditional investments. If your inheritance will include these types of investments, an individual Special Needs Trust may better serve you.

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