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Michael Phelan
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When Representing Clients with Special Needs, Consider using Pooled Special Needs Trust

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During the past twenty plus years representing children with disabilities in personal injury cases, I encountered a common problem. After a good settlement or verdict was obtained and a special needs trust was established for the child’s money, I would inevitably receive calls from parents who were frustrated by their efforts to interact with the trustee to obtain money for necessities for their child. After all, the SNT was set up to provide for the child’s necessities while preserving the child’s Medicaid or SSI benefits, so why should the parent feel belittled when he or she tried to work with the trustee on behalf of the child? In each of these cases, the trustee was a bank or other financial institution which was not well-suited to dealing with families.

This problem was alleviated when I discovered the Commonwealth Community Trust (CCT) and other non-profit organizations like it that adminster pooled special needs trusts. The big difference, in my experience, was the trustees were now trained social works who empathized with the family. That’s not to say that the money is managed by social workers. In the case of CCT, it is managed by the Trust Company of Virginia, a well-established financial institution. The families, however, deal directly with the social workers.

Below is an article from Joanne Marcus, Executive Director of CCT, which I am reproducing with Joanne’s permission:

Pooled Special Needs Trusts: Preserving the Assets of People with Special Needs

By Joanne Marcus, MSW, Executive Director, Commonwealth Community Trust

A pooled Special Needs Trust (SNT) is administered by a nonprofit organization that is governed by a volunteer board of directors. Pooled trusts are beneficial when the person with a disability comes into a sum of money or when a family member wants to provide financially for their loved one with a disability. The trust also preserves benefits for clients who receive Medicaid and Supplemental Security Income (SSI).

Advantages of a pooled SNT

  • A pooled SNT offers the advantage of lower administrative costs and greater opportunity for investment potential.

  • The funds are pooled for investment purposes; individual sub-accounts are maintained.

  • Staff is experienced and knowledgeable about the needs of people with disabilities and the rules that will protect SSI and Medicaid benefits.

  • There is usually no minimum amount required to establish the trust.

Why establish a pooled SNT?

A SNT allows the grantor, the person setting up the trust, the opportunity to provide funds that will enrich the quality of life of the beneficiary, the person for whose benefit the trust is established, who is living with a disability. The beneficiary may be applying for or receiving Medicaid and SSI and want to protect benefits that are crucial in providing medical care and income necessary for support. In order to qualify for public means tested benefits, the disabled individual can have no more than $2,000 in cash assets. A monetary gift, settlement, or inheritance will disqualify the beneficiary from receiving much-needed assistance. Having funds in a pooled SNT will not jeopardize these important government benefits.

A trust fund can be used to purchase a wheelchair, eye glasses, hearing aids, furniture, electronic equipment or clothing, and to pay for dental care, education, recreation, travel and transportation.

Two Types of Trusts

The third-party SNT is funded by a third party, usually a close family member, and can be coordinated with the family’s estate plan. The SNT holds funds that the grantor leaves for the sole benefit of the beneficiary.

The self-funded Pooled Disability Trust (PDT) is funded by the person with a disability, generally through a personal injury award. This trust is sometimes referred to as a Medicaid payback trust as people who receive Medicaid will have to pay back the state(s) for medical expenses incurred on their behalf with funds remaining in the trust upon the death of the beneficiary. This trust is codified in the Omnibus Reconciliation Act of 1993 (OBRA ’93) at 42 U.S.C. :1396 (d) (4) (c).

Role of the Trustee

The master trust agreements allow the trustee to administer the trusts under the umbrella of the “master.” Both the self-funded PDT and the third-party special needs master trust agreements are generally written by an estate planning attorney with expertise in this area of the law and signed by the board of directors.

The beneficiary of the trust is the person for whose benefit the trust was created; however, the beneficiary does not own the funds in the trust. The trustee has the legal ownership of the trust funds. Although the beneficiary, or someone acting on behalf of the beneficiary (e.g., designated advocate), has the right to request payment to vendors by the trustee, the trustee is not required to approve the request. At the same time, however, the trustee has a responsibility to ensure that the trust funds are available for supplemental needs that will improve, to the extent possible, the quality of life of the beneficiary.

The trustee has the duty to be prudent. It is the fiduciary’s responsibility to safeguard the trust property for the beneficiary. The beneficiary of the trust and their legal representative (such as an agent under a durable power of attorney, guardian or conservator) and the advocate are entitled to an accounting from the trustee.

The trust has been drafted in such a way that provided the trustee follows certain guidelines, the beneficiary will continue to be eligible for Medicaid and SSI. Although the recipient of the trust does not have legal title to the trust funds, the recipient is what the law calls the “beneficiary” of the trust. This means that the Department of Social Services for Medicaid recipients and the Social Security Administration for SSI recipients are notified of any deposits made to the trust and of distributions made from the trust. Generally, the following distributions would impact SSI benefits: food, mortgage (principal and interest), rent, real estate taxes, gas, electricity, water, sewer, and homeowner’s insurance and cash payments to the beneficiary. There are additional rules for both Medicaid and SSI that are complicated and rigorous.

Any distributions from the trust must be for the sole benefit of the beneficiary, the person for whom the trust is intended to benefit. Distributions from the trust must be limited to those that benefit only the beneficiary and not any other person. If a trust provides benefits to other persons, then it will not be considered a special needs trust, it will become a countable resource, and the beneficiary may lose government benefits.

The trustee manages and invests the funds for the trust and approves disbursements that are for the sole benefit of the beneficiary. The trustee is knowledgeable about government agencies providing benefits and staying abreast of changing regulations.

Role of the Advocate

An advocate is designated by the grantor (individual funding the trust) and is generally someone close to the beneficiary such as a family member, guardian, conservator, case worker, power of attorney or the beneficiary. The advocate works closely with the trustee in submitting requests for disbursements that will maintain the quality of life for the beneficiary. The grantor can provide a vision for the trust, and forms are available to assist in this.

Joanne Marcus, MSW, is executive director of the Commonwealth Community Trust (CCT), a national nonprofit organization providing an effective and affordable administration of third party Special Needs Trusts and self-funded Pooled Disability Trusts. For more information, visit www.commonwealthcommunitytrust.org, call 888-241-6039 or 804-740-6930, or email info@commonwealthcommunitytrust.org.

Disclosure: The InjuryBoard author, Michael Phelan, is a volunteer board member of CCT. He is also a volunteer board member and past board chair of Northstar Academy, a private school in Richmond for special needs children.