How a pooled trust protects your family

People with disabilities apply for programs such as Supplemental Security Income (SSI) from the Social Security Administration, and for Medicaid. In order to qualify for these benefits, the person must have a disability as well as a limited income. The disability extends to children as well as adults.

If, however, either a disabled child or adult has too much money in assets or income, they may not qualify for either SSI or for Medicaid. That's where pooled trusts and special needs trusts come in to protect your family member.

Pooled trusts

Pooled trusts, also sometimes known as community trusts, are one way for the disabled person to maintain their limited income while still qualifying for the government programs of SSI and Medicaid. These federal and state government programs are only available to people with a low income and with a designated disability. If their income exceeds the requirements of Medicaid and SSI, the disabled person cannot receive these benefits.

A pooled trust is a type of trust that allows the disabled person to continue getting government benefits because the assets in the trust are not counted as income for the purposes of qualifying for Medicaid or SSI. Pooled trusts are trusts set up for the disabled person by anyone, including by the disabled person themselves. These trusts are run by nonprofit companies or organizations by trustees who are fully acquainted with these types of trusts and know how to administer them.

Each pooled trust is different, so it's important to know what you're getting into before you sign up for one. Some pooled trusts have steep fees and limited distribution times, while others have minimal fees but could have other drawbacks. If you're not sure which type of pooled trust is right for you or your loved one, check with a wills and trusts attorney for advice. Often, though, a pooled trust will be less expensive than a special needs trust.

Pooled trust vs. special needs trust

In a pooled trust, a nonprofit organization manages the trust and creates a separate account for the disabled person. Other people join the trust, so in that sense everyone pools their contributions to the trust, but each person in a pooled trust has a separate account. If the disabled person passes on, the money left in the pooled trust is for reimbursing the state's Medicaid program for money that the person used during their lifetime. The amount remaining in the trust after reimbursing the state is often split between the nonprofit organization and whoever the person designated as their beneficiary.

A special needs trust cannot be created by the person with the disability like a pooled trust can. A parent, guardian, grandparent, or a court creates the trust. In a special needs trust, anyone—usually a family member—can be the trustee, so it's usually not administered by a professional trustee. Many times, it's difficult to find someone trustworthy or willing to manage the trust. Additionally, in a special needs trust, the disabled person cannot be more than 65 years old, while people of any age qualify for a pooled trust.

Distribution of assets under pooled and special needs trusts

Pooled and special needs trusts exist to protect your family member—the person who is disabled—so they can still receive government benefits. The rules of SSI and Medicaid require that distribution of funds is not made directly to the disabled person but that the trustee uses the funds for specific allowable purchases.

Some allowable purchases from a pooled trust are:

• Necessary living expenses, including food and clothing
• Housing expenses
• Burial expenses
• Other medical expenses that Medicaid doesn't cover
• Legal and administrative fees
• Vocational expenses
• Entertainment expenses

Similar allowable purchases from a special needs trust include:

• A home and car
• Home decorations
• Vocational expenses
• Limited burial expenses
• Life insurance policies
• Employment expenses

These purchases by the trustee are not included as income, so they don't cause the disabled beneficiary's removal from Medicaid or SSI.

Finding a pooled trust

Check with a wills and trusts attorney to see which type of trust is best for the disabled person in your family. The attorney may know of some reputable pooled trusts to use.

Other ways to find pooled trusts are to contact groups such as The Arc or the Academy of Special Needs Planners. No matter which type of trust you use, both trusts protect your family member by allowing them to still be eligible for government programs despite having assets in the trust.