Pooled Trusts and Special Needs Trusts - Understanding the Differences and How You Might Benefit

When someone you love has a disability, it can make providing for their needs a top priority in your estate planning. But receiving a lump-sum inheritance can threaten a disabled person’s access to state financial support including Medicaid and Social Security Income. Pooled Trusts and Special Needs Trusts are tools you can use to provide for your loved one without threatening their eligibility for means-tested government aid. However, choosing between the two will depend on your family’s situation, and your resources.

How Special Needs Trusts Work

Special needs trusts (sometimes called Supplemental Needs Trusts or SNTs) are a category of trust entities that are given special protection under state and federal law to allow disabled individuals to receive distributions that are not considered in awarding means-tested government aid, such as Medicaid or SSI. All SNTs are irrevocable, meaning that once assets are transferred into a special needs trust, they cannot be withdrawn and must be used to further the trust’s purpose – providing for the disabled individual. SNTs of all forms allow the trust’s income to be distributed for the benefit of the disabled person, including paying for housing, food, or uncovered medical care, without putting their eligibility for benefits at risk.

First Party vs Third Party Special Needs Trusts in CT

A first-party special needs trust must be funded using assets belonging to the beneficiary for their future use. The trust can be established by the beneficiary themselves, a parent or grandparent, or by filing a petition with the Connecticut probate court. In a third party trust, another person contributes his or her assets to the special needs trust for the benefit of the disabled individual. To qualify for the state and federal protections, an SNT must meet certain requirements:

• Beneficiary must be disabled
• Trust must be for the “sole benefit” of the disabled beneficiary (cannot be mixed with a trust for the benefit of others within the same class)
• Can only be established by the beneficiary, parents, guardians, or grandparents (not other relatives or friends)

In order to receive favorable treatment, First and Third-Party Special Needs Trusts cannot be mixed. This is because there are different rules for how the assets of the trust will be distributed once the beneficiary no longer needs them. Federal law requires that Medicaid be reimbursed for any services provided to the beneficiary out of any funds remaining at the time of their death. Only after Medicaid has been paid back with the remaining funds be distributed to any secondary or residual beneficiaries of the trust. A third-party special needs trust does not have the same reimbursement requirement.

What is a Pooled Trust?

A pooled trust is a type of special needs trust managed by a non-profit organization. The resources for several special needs beneficiaries are pooled (hence the name) into a single entity, offering administrative cost-effectiveness and investment opportunities not available to smaller accounts. Each individual has a sub-account within the pooled trust, and is entitled to receive a proportionate share of the entire fund’s earnings as distributions.

Just like with special needs trusts more broadly, a pooled trust can be self-funded, subject to Medicaid reimbursement, or a third party trust. However, in a pooled trust, in addition to Medicaid, the administering non-profit organization may be compensated for their work, and may retain additional funds for the benefit of other beneficiaries, if desired.

People over 65 years of age generally cannot establish a first-party SNT. However, there is an exception to this rule for pooled trusts. This provides a useful tool for individuals who receive a diagnosis later in life, or who may have put off estate planning earlier on.

Pooled Trust vs Special Needs Trust

Managing a special needs trust can be complicated, especially for friends or family members. The accounting and fiduciary duties of a trustee may be daunting, especially if the would-be trustee is also taking on a caretaking role. While private trusts can retain professional trustees, some financial institutions limit their services to larger trusts (often $500,000 or more), and professional trustees’ fees can be costly, so individual families may find it difficult to find someone up to the task. The benefit of a pooled trust for smaller accounts is that it opens the door to professional trust management by a non-profit organization well versed in the changing rules about beneficiary distributions and well-connected to local service providers. This ensures that the disabled person’s affairs are handled correctly, and their eligibility preserved.

Another benefit to a pooled trust is stability. Because they are managed by an organization, rather than an individual, there will always be someone there to step in if a trustee is unavailable or becomes unable to fulfill their duties. In addition, by pooling the assets of several SNTs, the trustee can manage a more diversified portfolio of investments that are less vulnerable to sudden shifts in the stock market.

However, not all pooled trusts are created equal. Some families, especially those with larger SNTs opt not to work with a non-profit organization if they believe the funds are inexpertly managed, or their distribution policies do not align with the family’s priorities and values. For example, pooled trusts generally take a low-risk approach to investing, which can limit the possible returns on the family’s assets.

Get Help Creating an SNT or Pooled Trust in Connecticut

Creating and funding a special needs trust or pooled trust in Connecticut can be complicated, and overwhelming, especially if you are busy acting as caretaker for your disabled loved one. The estate planning attorneys at Lawrence & Jurkiewicz, LLC represent clients in Hartford and Litchfield Counties. Attorney Edward Jurkiewicz has decades of experience helping individuals and families plan for their future. He can help you decide whether a pooled trust or SNT is right for you, and can prepare and fund the trust properly to make sure your assets and your disabled loved one’s benefits are both protected. Please call us at 860-626-1333 or contact us at your convenience to start planning your estate today.