Is a Pooled Trust Right for My Family?
Special Needs Trusts (SNTs) can be an important tool for people with disabilities. These trusts can provide security for the disabled person while helping them preserve their eligibility for means-tested government benefits (Medicaid and SSI). For an overview of SNTs and ABLE accounts, see the Red Treehouse guide Special Needs Trusts and ABLE Accounts. This guide will provide more detailed information about one particular type of SNT – the “Pooled Trust” – in order to help families decide if this is the right kind of trust for them.
What is a pooled trust?
A pooled trust is a special needs trust that is set up and administered by a nonprofit organization. The nonprofit organization creates one large trust and individual disabled beneficiaries have accounts (sometimes referred to as sub-accounts) within that trust. This means that the assets of many people with disabilities are “pooled” together. Although the assets of many beneficiaries are invested together, each beneficiary’s account remains his or her own.
Pooled trusts can be either first-party or third-party. The difference between the two is where the invested money comes from. In a first-party trust the invested money belongs to the beneficiary. In a third-party trust the invested money belongs to someone other than the beneficiary. First-party pooled trusts are far more common than third-party - some nonprofit agencies only manage first-party pooled trusts. First-party pooled trusts are sometimes called (d)(4)(C) trusts, which is simply a reference to the federal statute that authorizes them.
What can money in a pooled trust be used for?
Funds in a pooled trust account can be used for goods and services that are for the sole benefit of the disabled beneficiary, as long as these goods and services are not things that can be paid for by public benefits (SSI, Medicaid, SNAP, HUD/Section 8 housing).
Although there is not a single list of things that pooled trusts can be used for, Community Fund Management Foundation provides a list of commonly approved and denied distributions.
What are the pros and cons of pooled trusts?
They are usually more affordable to set up than stand-alone trusts.
You don’t need to find your own trustee.
The trust is managed by experts and often more efficient than stand-alone SNTs.
The nonprofit organization managing the Pooled Trust has expertise in SSI and Medicaid requirements.
Management and investment decisions cannot be tailored to the needs of individual beneficiaries.
Most Pooled Trusts can only accept cash assets.
Who Can Establish an Account in a Pooled Trust?
An account in a third-party pooled trust can be set up by anyone other than the beneficiary and must be funded with money that does not legally belong to the beneficiary. An account in a first-party or self-settled pooled trust can be set up by the disabled person or the disabled person’s parents, grandparents, guardian, or conservator of the court. The funds that are invested in a first-party pooled trust legally belong to the beneficiary. Note that in most states pooled trusts can only be set up for persons under the age of 65, but Ohio allows pooled trusts for individuals with disabilities of any age.
In general, it is easier to create an account within a pooled trust than to set up a stand-alone trust. Each nonprofit organization that manages a pooled trust has a joinder agreement that must be completed to create an account. This joinder agreement is a legal contract between the nonprofit organization and the grantor. The joinder agreement outlines the terms of the trust’s membership and should be well understood before it is signed. It is a good idea to review the joinder agreement with an attorney and in fact some pooled trusts require this.
What are my options for pooled trusts in Ohio?
In Ohio, there are two nonprofit organizations that administer Ohio-specific Pooled Trusts. These are the Community Fund Management Foundation (CFMF) and the Disability Foundation (an affiliate of the Dayton Foundation). CFMF serves people throughout Ohio and the Disability Foundation serves people who reside in the Dayton metropolitan area. Additionally, Ohio residents can establish accounts in the following national pooled trusts: Commonwealth Community Trust, Charities Pooled Trust, and New Leaf National Foundation.
Do pooled trusts vary from state to state?
Yes, they do. This is because state laws, rules and regulations regarding SNTs vary from state to state. As mentioned above, Ohio allows disabled people of any age to create an account in a pooled trust, but most states only allow these to be created for people under 65.
What happens to my pooled trust if I move to another state?
If you move from one state to another, you will need to have your account in the original pooled trust transferred to an account in a pooled trust in your new state. Most nonprofit Agencies that manage pooled trusts will do this for you at little to no cost, but you should be aware that the fees to manage your account in the new pooled trust may be different from the original pooled trust.
The Special Needs Alliance maintains a directory of pooled trusts by state. This directory includes both state-specific pooled trusts and national pooled trusts.
Are there national pooled trusts?
There are national pooled trusts. This may be an attractive option for families that move often from state to state. The downside is that the nonprofit agencies that manage state-specific pooled trusts are very familiar with the specific state laws of the state in which they operate. Agencies that manage national pooled trusts may not have the same level of expertise regarding state laws in all 50 states. For a list of national pooled trusts, click here.
What happens to the money in the pooled trust when the beneficiary dies?
Money that remains in a third-party pooled trust after the death of the beneficiary can be distributed according to the wishes of the grantor. Third-party pooled trusts are not subject to Medicaid payback. Some nonprofit organizations may require that a certain percentage of the remaining money be allocated to the nonprofit organization to benefit other people with disabilities.
Money that remains in a first-party pooled trust after the death of the beneficiary is subject to Medicaid payback. The remaining money must either be paid back to Medicaid or can be left to the nonprofit organization or any of its partner organizations to benefit other people with disabilities.
The specifics of what will happen to any remaining money in a pooled trust account is documented in the joinder agreement.
Do I need a lawyer to set up and maintain a pooled trust?
Although joining a pooled trust is simpler than creating your own individual SNT, some pooled trusts require that the joinder agreement be prepared or reviewed and signed by an attorney prior to establishing an account for a new beneficiary. Contact the nonprofit directly to learn about their requirements.
This guide was developed as part of a project made possible by a grant from the Ohio State Bar Foundation. The views expressed herein do not necessarily represent those of the Ohio State Bar Foundation.
Lead researcher/author: Helen Livingston Rapp, Esq., RedTreehouse.org Legal Intern and Volunteer