There are times that an individual with disabilities who is under 65 receives a lump sum of money at a time when s/he is receiving benefits through Supplemental Security Income (SSI), Medicaid or the Division of Developmental Disabilities (DDD). The problem of course is that those are all means-tested benefits and the participant is at risk of losing eligibility if they retain the assets. Suppose there is no trustworthy or reliable family member who has the capability to handle all the record-keeping and reporting needed to properly manage a first-party “d(4)(A)” Special Needs Trust. And suppose that along with that problem, the amount received through an inheritance or a lawsuit settlement just isn’t enough to place it under the control of a corporate trustee such as a bank or trust company. They typically require at least $250,000 in trust assets.
A nice solution for this person would be the pooled trust, also called a “d(4)(C) trust.” The transfer to the Trust is exempt. The organization has a large trust account but maintains a designated subaccount for each beneficiary’s funds. As with (d)(4)(A)’s, they must be established by a parent, grandparent, guardian or court. The pooled trust is managed by a local nonprofit agency such as PLAN-NJ. They serve as trustees and can provide other benefits such as care planning and case management. While the State of New Jersey is the first remainder beneficiary of any funds left over in a d(4)(A) trust (to the extent of benefits actually provided) (this is called the “Medicaid lien” or “special needs trust payback requirement”), the funds left over in the pooled trust go to the charitable organization and can be used to take care of other people with disabilities. The federal statute that allows pooled trusts is at 42 U.S.C. 1396p(d)(4)(A) and the rules for them are in the Social Security POMS at 01120.203
The SSI POMS say that these are the requirements:
- The pooled trust is established and maintained by a nonprofit association;
- Separate accounts are maintained for each beneficiary, but assets are pooled for investing and management purposes;
- Accounts are established solely for the benefit of the disabled individuals;
- The account in the trust is established through the actions of the individual, a parent, grandparent, legal guardian, or a court; and
- The trust provides that to the extent any amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust will pay to the State(s) the amount remaining up to an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under State Medicaid plan(s).
As with a (d)(4)(A) trust, it must be funded before age 65. Although the federal statute doesn’t explicitly provide such a restriction, the POMS says there “may be” a penalty for deposits made after 65, and NJ has chosen to penalize such transfers.
Procedure is also critical. Ideally, the funds should be transferred into the Pooled Trust from the payor (estate, insurance co., etc) so that the individual doesn’t lose benefits by receiving the asset.
For legal advice on pooled trusts and special needs trusts, call us at 732-382-6070.