Pooled special needs trust
Key takeaway
A pooled special needs trust is established and managed by a nonprofit association, maintains separate beneficiary accounts pooled for investment and management, and must satisfy additional requirements to qualify for the first party statutory trust exception.
One master trust, separate beneficiary accounts
SSA guidance describes a usual structure consisting of a master trust established by the nonprofit association and individual accounts established through joinder agreements. The account establishment requirements apply to each individual account.
For the pooled trust exception, SSA defines a nonprofit association as an organization established and certified under a state nonprofit statute. The trust must be able to provide an individual accounting for each beneficiary.
Before discussing an account, gather the master trust, joinder agreement, benefit decisions and records showing whose assets would fund it.
The complete exception requires more than pooling
The first party pooled exception concerns trusts containing disabled individuals' assets. In addition to nonprofit establishment and management and separate accounts pooled for investment and management, each account must meet the beneficiary, establishment and death payment conditions.
Each account must be established solely for a beneficiary disabled under the federal SSI definition, by that beneficiary, a parent, grandparent, legal guardian or court. The death payment conditions appear below.
SSA evaluates disability as of the date the account's resource status could affect SSI eligibility. This includes individuals age 65 and older, whose age alone does not establish disability.
Satisfying the statutory exception does not automatically establish benefit eligibility. SSA also requires review under ordinary resource rules, including whether the beneficiary can revoke or terminate the trust or direct its assets for personal support and maintenance.
An enforceable payment right that can be sold also needs separate review under the trust terms and applicable state or Tribal law. Do not automatically apply the first party exception to accounts funded with someone else's assets.
Authority to establish and fund an account
When someone else establishes or funds a trust using a legally competent disabled individual's assets, SSA requires that person or entity to have legal authority over those assets. Representative payee status alone does not necessarily provide that authority.
SSA treats establishment under the disabled individual's power of attorney as establishment through that individual's actions because of the agency relationship.
For a legally competent disabled adult, a parent or grandparent may establish a seed trust with a nominal amount of their own money. An empty trust is an alternative only if state law permits it.
Afterward, the adult may transfer their own assets, or someone with legal authority may transfer the adult's assets. These establishment methods do not replace the remaining pooled exception requirements.
Account treatment and payment treatment are separate
SSA treats cash paid directly from a trust to the beneficiary, including additions to a personal debit card, as unearned income in the month received or added. Applicable statutory income exclusions still apply.
For third party payments providing noncash items other than food or shelter, SSI income treatment depends on the item's resource treatment. The payment is not income if the retained item would be a wholly or partially excluded nonliquid resource the following month.
If the item would not qualify for that resource exclusion, SSA treats it as income in kind. Examples of payments that may avoid income counting include education, therapy, transportation, professional fees and uncovered medical services.
Those examples do not guarantee that every proposed payment qualifies. Ask the administrator to explain a planned payment before requesting it.
Two related terms
First party special needs trust: A trust containing the disabled individual's own assets. Its statutory exception has specific conditions, so the name alone does not establish benefit eligibility.
Third party special needs trust: Under SSA guidance, a trust funded with assets belonging to someone other than the beneficiary or the beneficiary's spouse. That funding description alone does not establish SSI resource exclusion.
A perspective on finding outside expertise
As you prepare questions for an account administrator, consider this speaker's perspective on finding tools outside the family and bringing them back in a useful form.
"we could Outsource inhouse find those tools that uh that we were not exposed to that that you know I can go out there into the world chew on them and then bring them back into the families in a well polished manner"
Common questions
Is court approval of a signed joinder agreement enough for the court establishment route?
No. Under SSA guidance, the court must create the account or order its establishment before execution of the joinder agreement or creation of the account is complete.
Approval of an already executed joinder agreement is insufficient for this route. This does not mean every pooled account must be established by a court.
Can a person age 65 or older use the pooled trust exception without a transfer penalty?
Possibly, but the absence of an age restriction in the pooled resource exception does not resolve transfer penalties. SSA says a transfer into a pooled trust for someone age 65 or older may produce a penalty.
The separate SSI transfer exception requires a trust established solely for a disabled individual under age 65. Medicaid's corresponding statutory transfer exception also requires sole benefit, disability and an individual under age 65.
A possible penalty is not an automatic penalty. Review the proposed transfer separately from the account's resource treatment.
What happens to a first party pooled account when the beneficiary dies?
The trust may retain remaining funds. To the extent it does not retain them, the first party pooled exception requires payment from the remaining account funds to reimburse states for Medicaid assistance paid for the beneficiary.
For amounts remaining at death that the trust does not retain, SSA requires specific written reimbursement terms listing states as first payees, ahead of other debts and administrative expenses except the permitted expenses below.
For those unretained amounts, the terms must cover any state that provided Medicaid assistance and cannot limit reimbursement to assistance after trust establishment. If those amounts cannot fully reimburse all providing states, proportional reimbursement is permitted.
Before reimbursement, SSA permits taxes due from the trust because of the beneficiary's death and reasonable administration fees associated with terminating and wrapping up the trust.
SSA does not permit prior payment of funeral expenses, third party debts, remainder distributions, inheritance taxes owed by remainder beneficiaries or other beneficiary estate taxes outside the permitted trust related taxes.
Trust retention differs from payment to a remainder beneficiary. A third party pooled account's remainder disposition requires review of its actual trust and joinder terms.
Sources
- 42 U.S.C. §1396p. Pooled trust requirements, death payment terms and the separate Medicaid transfer exception.
- 42 U.S.C. §1382b. SSI trust and transfer provisions.
- SSA POMS SI 01120.203. Administrative guidance on pooled accounts, disability, establishment, authority, reimbursement and permitted expenses.
- SSA POMS SI 01120.200. Administrative guidance on funding sources, resource review and trust distributions.