The Use of Pooled Trusts in Special Needs Planning

A special needs trust is a specific type of trust used to benefit individuals with disabilities.  Special needs trusts are beneficial when the caregiver either dies, or becomes unable to provide care for some reason.  Special Needs Trusts are typically used for either general support or supplemental care, when government benefits have been exhausted.  Special Needs Trusts are established in one of three ways: by family members, through the court or through a non-profit organization.  Pooled trusts in special needs planning are one option that you should consider.

What is a pooled trust?

Pooled trusts are created and administered by nonprofit organizations.  There are no limitations regarding who can contribute to the trust fund.  Even the beneficiary can contribute.  This type of trust is called a “pooled” trust because the trust funds come from several beneficiaries and are pooled together, to be managed and invested by the non-profit organization.  The investments are made on behalf of all of the beneficiaries.  Any funds that may be left when the beneficiary dies are used to help others with special needs, instead of being surrendered to the state.

What are the benefits of a pooled special needs trust?

Joining a trust that is already established is a great option for individuals with modest means.  No new trust document needs to be drafted.  Instead, all that is required is executing a Joinder Agreement, which sets out the membership terms for the trust.  As the individual’s assets are funded to the pooled trust, the organization will establish a separate account for that individual member.  The benefit comes in the fact that all of the assets are pooled together, which allows the trust to maximize the return on the investments, while reducing the costs of administration and management of the trust.

First-Party and Third-Party Pooled Trusts

Not all pooled trusts are the same.  A first-party pooled trust is used only to hold the benefits from public assistance. A third-party pooled trust is used to hold any funds other than public benefits.  This distinction is important because upon the death of the individual with special needs with a first-party pooled trust any remaining assets are typically retained by the non-profit organization.  Alternatively, third-party funds can sometimes go directly to the heirs.

Pooled trusts allow for flexible planning

Another benefit of a pooled trust is flexibility.  A pooled trust can be used when the family is not sure a special needs trust is actually necessary. Every family’s situation is unique.  Your estate planning attorney can incorporate certain language that will trigger the trustee to convert the inheritance for the child to a special needs trust.  To use the pooled trust, your attorney can attach an executed third-party Joinder Agreement to your revocable trust agreement, which will indicate that the child’s inheritance will be distributed into the pooled trust if certain conditions are met.

If you have questions regarding a pooled special needs trust, or any other special needs planning issues, please contact Wilcox Attorneys, PA online or by calling us at (479) 443-0062.