Pooled Special Needs Trusts: Financial Planning for People with Special Needs

By Joanne Marcus, MSW, Commonwealth Community Trust

A Special Needs Trust (SNT) is a trust created specifically for individuals with disabilities. The person managing the trust is called the “trustee,” while the person who will benefit from the trust is called the “beneficiary.” The trust lasts as long as it is needed, which usually means the trust will exist until the beneficiary’s death or until the funds are exhausted. For many, knowing that the funds are well-managed and will enrich the quality of life of the beneficiary provides peace of mind and is the reason that SNTs are so popular. Having a SNT is important for an individual with special needs when he or she receives a sum of money or when a family member wants to provide financial support in the future.

If an individual has more than $2,000 in assets, Supplemental Security Income (SSI) and Medicaid benefits could be jeopardized. Establishing a SNT preserves funds that can be used for the individual’s benefit while protecting their eligibility for SSI and Medicaid, as a SNT is not counted as income or assets.

Nonprofit organizations, like Commonwealth Community Trust (CCT), specialize in the administration of Pooled Special Needs Trusts (PSNT). Beneficiaries’ funds are collectively pooled together for investment purposes while an accounting of each beneficiary’s sub-account is maintained. Pooling funds can provide for greater investment opportunities and lower trust administration fees. Earnings based on the beneficiary’s share of the principal are added to each sub-account, meaning that funds can be spent on beneficiaries in proportion to their share of the pooled investment.

Professional trust administration services include making financial decisions on behalf of the beneficiary by evaluating disbursement requests, tracking expenses, and ensuring funds are spent prudently without jeopardizing SSI and Medicaid benefits.

Types of Pooled Special Needs Trust

A Third-Party Pooled Special Needs Trust is established and funded by a grantor, typically a parent or grandparent, and can be coordinated with an estate plan or life insurance policy. The trust holds funds that the grantor leaves for the beneficiary and is available for a beneficiary of any age.

A First-Party Pooled Special Needs Trust is funded by the person with a disability with assets of his or her own, such as a personal injury settlement, an inheritance left directly to the beneficiary, excess Social Security back payment, or an award of marital property or spousal support. The grantor can be the beneficiary, parent(s), grandparent(s), court-appointed guardian, or the court. Upon the death of the beneficiary, the First-Party PSNT is subject toa Medicaid Payback provision for a beneficiary who received Medicaid.

Setting up a Pooled Special Needs Trust

A grantor, the person or persons establishing the PSNT for the benefit of a beneficiary, completes, signs, and notarizes a legal document called a Joinder Agreement to join with others under a Master Trust Agreement. The Master Trust Agreement allows the nonprofit PSNT organization to administer the trusts under the umbrella of the “master.” The Master Trust Agreements, Joinder Agreements, and other supporting documents are drafted by an attorney.

Role of the Advocate

Advocates named when establishing a PSNT are authorized to submit disbursement requests that are for the benefit of the beneficiary, receive financial statements, and provide information about the beneficiary’s needs and wants. An advocate is generally a relative, guardian, conservator, case worker, agent under a power of attorney, or the beneficiary.

Example of Paid Expenses Using a PSNT

Trust funds can be used to pay an array of goods and services for the benefit of a beneficiary. Examples include, but are not limited to:

• Internet services
• Assistive technology
• Clothing
• Vocational training
• Eye glasses
• Medication, services, and devices not paid for by Medicaid or other insurance
• Education expenses
• Transportation
• Household items
• Recreational expenses
• Furniture
• Home purchase/Renovation/Repair
• Cable Services
• Mobile phone plans
• Dental services
• Hearing aids
• Prosthetic devices
• Caregiver expenses

Advantages of a PSNT

• The PSNT organization has experienced staff members who are knowledgeable about the needs of people with special needs and the rules that protect Medicaid and SSI benefits and govern trusts.
• There is objectivity and oversight to ensure disbursements from a PSNT are prudent, for the sole benefit of the beneficiary, do not jeopardize benefits, and prevent misuse or fraud.
• Fees associated with a PSNT are typically lower than other professional trustee options. For example, the ongoing trust administration and investment fees for Commonwealth Community Trust are currently 0.84% annually.

PSNT organizations serve beneficiaries with accounts that vary in size, from those with modest funds to those with considerable wealth. It is not unusual for a bank or financial services firm to require a minimum of $350,000 to $750,000 to fund an individual special needs trust. However, as a nonprofit, the minimum funding requirement for a PSNT is significantly lower.

Though there are many advantages to creating a PSNT, knowing that the needs of your loved one are well-managed is perhaps the most important benefit. Long-term financial planning can be stressful, but it can be made easier with a PSNT. 

Joanne Marcus, MSW, is the executive director of Commonwealth Community Trust (CCT), a national nonprofit organization that provides administration of pooled special needs trusts since 1990. CCT trust services are available nationwide. Click here to learn more. 

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This article originally appeared in Volume 11, Issue 1 of THE Challenge! published in 2017.