In a recent blog, we discussed why a Third-Party Special Needs Trust might be appropriate for your loved one in Virginia who has disabilities. But there is a sub-option that we did not delve into: pooled trusts.
Pooled Special Needs Trusts are an interesting take on an already interesting legal concept. Just as regular Special Needs Trusts enable a loved one with a disability to live a life whose creature comforts go beyond those allowable under Medicaid and Social Security by removing the assets within them from the direct control of the person they are there to support, Pooled Special Needs Trusts aid loved ones with special needs by providing for them without jeopardizing their access to public assistance programs.
Pooled Special Needs trusts differ from regular First-Party and Third-Party Trusts in that they contain the assets for more than one person. These assets are “pooled” together—combined—so that they can be effectively administered. But this does not mean that the funds are “comingled” like drops of food coloring stirred in water. Rather, the pooled trust contains sub-accounts, each of which is designated to a single disabled individual. Since this concept is sometimes alarming to people at first blush, it can help to realize that banks do much the same thing: everyone has their own account, but the bank itself holds all of the money that it services in a single pool[GP2] .
Pooled Trusts were created under federal law. Because of this, there are particular rules which any pooled trust must strictly follow:
· Every beneficiary must have their own account (also known as a sub-account, as described above), but all of the funds deposited into the trust should be used as a unit for both management and investment purposes, under the concept of a “master trust.”
· The sub-accounts can only be used to benefit their particular, individual beneficiaries with special-needs.
· Sub-accounts may be formed in a way that superficially mimics either First-Party Trusts (in that their funds are supplied by the individual with a disability herself) or Third-Party Trusts (funded by a parent, grandparent, other family member, guardian, a court, etc.). What’s more, unlike standard individual First-Party Special Needs Trusts, a person may initiate the creation of a sub-account in a Pooled Special Needs Trust on their own behalf, so long as they are judged to have the capacity to do so.
· When the beneficiary to whom a sub-account belongs dies, the First-Party Pooled Special Needs Trust is required by law to first “pay back” the state of Virginia whatever amount still remains in the trust that equals up to the amount paid for medical care by Virginia’s Medicaid program—but with a Third-Party Pooled Special Needs Trust, all of the remaining funds can be distributed to beneficiaries.
· The only type of legal entity that may either establish or maintain a Special Needs Pooled Trust is a nonprofit association. (The government didn’t want for-profit institutions exploiting people with disabilities for the sake of shareholder profit.)
So why would someone choose a Pooled Special Needs Trust instead of a standard First-Party or Third-Party Special Needs Trust? One reason might be that the individual with a disability has no family members who could properly act as a trustee. And where funds are too limited for purposes of an individual trust, a pooled trust may make a great deal of financial sense.
Contact Us to Learn More About a Pooled Special Needs Trust
If you think a Pooled Special Needs Trust might be right for you or a loved one, attend one of Promise Law’s free estate planning workshops. These workshops provide a great foundation of information that everyone needs to make sound planning decisions. Moreover, if you attend a workshop, you also get a complimentary one-on-one consultation with one of our attorneys..
