Pooled Trusts

Pooled trust programs are a way to provide money to a person with disabilities without causing him to lose his government benefits. These trusts protect a person’s or family’s financial assets while providing extra money to improve the quality of life for a loved one.

A pooled trust must be set up and managed by a not-for-profit organization. It provides a convenient and economical way to have money available for a person with disabilities that supplements – not supplants – the benefits received from government entitlement programs.

How does a pooled trust work?

Families set up a sub-account with a trust manager. The manager then pools all these sub-accounts together into one large account. This pooled trust is then managed as one account.

The benefits of pooling are twofold: 1) pooling reduces administrative fees, and 2) pooling increases the principal available for investment purposes. Pooling smaller accounts into one large account gives access to better quality investments that pay a higher rate of return than a small, individual trust would get.

The beneficiary of a pooled trust – the individual with disabilities – usually receives earnings based on his part or share of the total principal in the pooled account. The pooled trust administrator keeps each person’s account separate.

The beneficiary of the trust must be a qualified individual with disabilities. During his lifetime, a beneficiary can receive so much or all of the net income or principal or both from his account. Any income not distributed to the beneficiary is added to the principal in the account maintained for him.

Parents often set up trusts with the goal of spending all the principal and earnings by the time the beneficiary dies. If the beneficiary dies before the funds are fully spent, however, all assets remaining in a beneficiary’s account will be transferred to the pooled trust. Whatever funds are left are to be used for the charitable purposes of providing support for other individuals with disabilities in the trust who have outlived their funds or who are under funded. In this way, others will be able to enjoy a better quality of life.

How can the funds be used?

The funds in a pooled trust cannot be used for a beneficiary’s primary care and support. These funds can be used only to supplement his care or lifestyle. Funds must be used to promote the comfort and happiness of the individual. The only services or purchases eligible are those that are above and over basic maintenance, support, medical, dental and therapeutic care, or any other appropriate care or services that are provided or paid for by other sources.

The assets in a pooled trust do not in any way reduce or replace payment for the basic services or financial support an individual receives from entitlement programs and government funding. A person’s basic maintenance and medical, dental and therapeutic care are paid for with his local, state, or federal government funding.

Who can enroll in a trust?

A parent, grandparent, or legal guardian of a person with disabilities – including the individual himself -- can create a trust. Also, a court or any other person permitted by successor statute can establish an account for a person with disabilities. A trust can be opened while the parents or guardians are still alive or as part of a will.

What can be put into a trust?

A nominal enrollment fee or initial contribution is needed to open a trust. This can be money or property, an inheritance through a will, from life insurance, from savings, or other ways. Parents can fully fund the trust when it is established, or they can enroll in the trust and not fund it until later, for example, at their death. Or they may decide to fund it incrementally over time.

A parent or grandparent in need of long-term care in a nursing home may be able to transfer his assets into a trust for his child and qualify for Medicaid, without having to wait through the look back period. An elder care or estate attorney should be consulted for more information about this option.

Fees are charged to manage the trust accounts. By pooling resources for investment and management, pooled trust programs minimize costs, so that fees are usually reduced considerably. Most banks trust departments require a minimum of $200,000-$400,000 for a single trust fund, while pooled trust programs have much lower minimums and are more flexible.

Who manages the pooled trust?

The trustee for The Arc of Mercer County’s pooled trust is The Shenango Valley Foundation. As trustee, The Shenango Valley Foundation is regulated by federal and state laws about what it can and cannot do. The Foundation handles the management of the account, including investing with financial institutions, keeping detailed records of each beneficiary’s account and property, and reporting account statements to each beneficiary. The trustee also makes all disbursements to or for the benefit of the beneficiary.

What are the benefits of using a pooled trust program?

  • Parents may not have or know someone who is willing to be a trustee. Trust programs usually have knowledgeable staff who serve as trustee or manager of the trust.
    An individual trustee could die, move away, or not fulfill the trustee role for some other reason. Trust programs offer continuity.
  • The trust document used by the program usually has been developed and reviewed by attorneys with expertise in this area of law.
  • Banks and trust companies will not accept or manage a trust that is not funded at a threshold amount. Parents who cannot afford to fund a large trust are often able to fund an adequate account in a pooled trust program.
  • Pooled trust programs are often established by organizations that have experience and expertise with people with disabilities. These organizations have boards of directors comprised of legal and financial experts, family members of people with disabilities, and advocates.
  • Trust programs usually work closely with banks and trust companies to maintain trust accounts and can tap the expertise of financial institutions. These relationships can help maintain good financial accountability without incurring high fees for the beneficiaries.
  • One of the biggest advantages to using a pooled trust program is the expertise brought to managing the trust and making the required reports after it begins to make disbursements.

What are the disadvantages to using a pooled trust program?

  • Parents or other family members have no direct control over trust disbursements. The trust program usually seeks advice and input from families and others, but may deny requests, especially if the request jeopardizes the person’s benefits.
  • Trust programs usually pool all the resources for investment purposes. Families cannot direct how their specific family member’s trust account is individually invested. Investment policies are usually conservative.
  • If you decide to withdraw from a trust program early and have already paid enrollment and/or other fees, you may forfeit some of all of these fees.
  • A pooled trust program may have a policy about retaining any remaining or portion of assets in the trust after the beneficiary dies. You may, however, want all remaining assets to go to other individuals and/or organizations.
  • A trust program’s policy about retaining remaining assets, plus its full discretion to disperse as much or as little of that trust as it decides, raises the concern about how the disbursement decisions were made. Federal and state statutes dictate some of what a pooled trust can do, but there are no enforceable standards for a trustees’ fiduciary responsibility.
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