How does a pooled trust work?

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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, compared to the returns of a small, individual trust. The beneficiary of a pooled trust – the individual with disabilities – usually receives earnings based on his or her 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 or her lifetime, a beneficiary can receive a portion or all of the net income or principal from the account. Any income not distributed to the beneficiary is added to the principal in the maintained account. 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 underfunded. In this way, others will be able to enjoy a better quality of life.

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How can the funds be used?

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The funds in a pooled trust can only be used to supplement the beneficiary's care or lifestyle, they cannot be used for primary care or support. 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 beyond 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.

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Who can enroll in a trust?

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A parent, grandparent or legal guardian of a person with disabilities 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.

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What can be put into a trust?

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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.

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Who manages the pooled trust?

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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 with 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.

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What are the benefits of using a pooled trust program?

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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 to 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.

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What are the disadvantages to using a pooled trust program?

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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 or 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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Don’ts:

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Don’t disinherit your grandchild(ren) with special needs. Money can be left to a properly drawn special needs trust. Don’t give money to your grandchild(ren) with special needs under UGMA or UTMA (Uniform Gift or Transfer To Minors Act). Money automatically belongs to the child(ren) upon reaching legal age. Government benefits can be lost. Don’t leave money to grandchild(ren) with special needs through a will. Money left will be a countable asset of the child and may cause the loss of government benefits. Don’t leave money to a poorly set-up trust. Money left in an improperly drafted trust can result in the loss of government benefits. Don’t leave money to relatives to keep or hold for the child with special needs. The money can be attached to a lawsuit, divorce, liability claim or other judgment against the relative.

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Do’s:

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Make provisions for your grandchild(ren) with special needs. Leave money to the child’s special needs trust. The special needs trust is the only way to leave money without losing government benefits. Coordinate all planning with the child’s parents or other relatives. Notify the parents when you plan for grandchild(ren). Plan with others. Leave life insurance, survivorship whole life policies and annuities to the child’s special needs trust. The special needs trust can be named as the policy beneficiary. When the insured or annuitant dies, the death benefit is paid to the special needs trust. The trust then has a lump sum of money to be used in caring for the grandchild(ren) with special needs. Consult with trained financial and legal professionals with specialities in special needs estate planning.

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What is a Guardianship?

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A Guardianship is a court-approved legal relationship between a competent adult (known as a guardian) and a minor child or an adult who has been declared legally incompetent. It gives the guardian a defined degree of authority and a duty to act on behalf of the person in making decisions affecting that person’s life. The role of the Guardian is established by state law. Guardianship is a legal, not medical determination. Parents are legal guardians only until their children reach the age of 18, regardless of disability. When a child becomes an adult at 18, he or she receives all the legal rights and responsibilities of any adult. Only the courts have the authority to remove these rights. Parents who want to retain decision-making power must go to the courts to seek guardianship. A court makes this decision based on the person’s abilities to handle personal decisions, money, property and similar matters. The incapacity (or legal inability) to handle these matters, not the disability, is grounds for a guardianship.

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How do I decide if my child needs guardianship?

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Appointing a guardian for someone is a serious matter. This legal status deprives the person of some rights and independence, and could potentially lead to the abuse of power. However, there may be reasons why a son or daughter with a disability may need a guardian. Some of the common reasons are: Medical care or other services will not be provided unless there is a clear understanding about the person’s legal capacity to consent to treatment or services. Parents or siblings cannot get access to important health records or other documents. The person has assets he or she cannot adequately manage.

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What are the different types of guardianship?

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Guardian of the Person or Property – the individual needs a guardian to decide personal issues, such as where to live, consent for medical treatment and signing for services. The court will usually identify specific decision-making areas and require periodic reports from the guardian about actions taken over the course of the year or other period.

Full Guardianship – this includes guardianship over all the person’s personal and property decision-making. It is usually a collection of all the powers and responsibilities and involves controlling every aspect of the person’s life. It is the most restrictive, although the person under a full guardianship still retains his or her basic civil rights. This type of guardianship is useful for individuals with a disability so severe that they are not capable of making informed decisions and should be used only after exploring the alternatives, including limited guardianship. Courts are most familiar with full guardianship as it is the most common.

Limited Guardianship – offering a middle ground, this guardianship is for persons with developmental disabilities who are competent, but need some supportive assistance to make certain choices, such as where to live. Limited Guardianship provides only specific powers to the Guardian, rather than relinquishing complete control over life decisions for the person with special needs. These powers or rights often include the right to enter into a financial contract, choose an educational program, receive medical care, enter into marriage and so forth. Each power is delivered to the Guardian in an “all or nothing” fashion, that is, with complete authority to make decisions in a selected area. For this reason, courts in many states authorize a mix of guardianships. For example, a person may need full guardianship of the estate but only limited guardianship over personal matters.

Temporary Guardianship – some states allow guardianship for a limited time. The court may issue a “protective order” or temporary guardianship when a legal problem arises from a specific situation, giving another person, a public guardian or corporate guardianship program* the authority to handle that specific situation. When the problem is resolved, the order usually ends with no permanent guardianship. For example, medical or other treatment may be necessary because of questionable ability to consent, but once the treatment is provided, the guardianship is reviewed to determine if it should be removed.

* These guardianships should be explored with a knowledgeable attorney as they generally involve state resources or incorporated agencies.

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