The Pooled Trust and Qualifying for SSI and Medicaid

Today’s blog post continues the series about Special Needs Law.  The blog post on February 19, 2015 gave an overview of the legal issues facing people with special needs.  The blog post on February 5, 2015 discussed the new ABLE accounts.  The blog post on February 26, 2015 discussed sources of income for people with special needs.  The blog post on March 5, 2015 discussed medical insurance for people with special needs.  The blog post on March 12, 2015 discussed how the Social Security Administration requires people with special needs to prove a disability to qualify for Supplemental Security Income (SSI.)  The blog post on March 19, 2015 discussed how the Social Security Administration requires people with special needs to prove financial eligibility to qualify for Supplemental Security Income.  The blog post on March 26, 2015 gave an overview how someone with special needs can get rid of excess resources to become “poor enough” to qualify for SSI and Medicaid.  The blog post on April 2, 2015 discussed how a Special Needs Trust can help shelter excess resources from SSI and Medicaid scrutiny.

Today’s post discusses how a Pooled Trust can help a person with special needs go from having too many assets to having few enough assets to qualify for (and maintain eligibility) for Supplemental Security Income (SSI) and, if necessary, for Medicaid.

A Pooled Trust is very similar in operation to a Special Needs Trust discussed in the blog post of April 2, 2015 (last week.)

A person with special needs who has excess resources can can place assets into a Pooled Trust without being penalized by the Social Security Administration or Medicaid for giving away assets.  Chapter 42, Section 1396p(d)(4)(c) of the United States Code authorizes Pooled Trusts.  (Special Needs Trusts are covered by subsection (d)(4)(a) of the same section of the U.S. Code.)  (As I mentioned last week, the U.S. Code is the set of laws created by Congress, the set of laws that “Bill” from School House Rock joins after he’s passed by Congress and signed by the President.)  Because of the subsection of the law that allows these trusts, they often are called d4c trusts.

As a technical matter, these d4c trusts are self-settled because the assets that are going into the trust belong to the person with special needs.  The are not often called “self-settled,” however, because the person with special needs is not setting up the trust (and no one is setting it up on behalf of the special needs person, like a parent, spouse, or a court.)  These pooled trusts are already set up.

These Pooled Trusts are not third-party trusts because the money that is going into a pooled trust is from the special needs person.  (A third party can contribute to a Pooled Trust, but that is simply a gift.  A third person’s contributions to a Pooled Trust, even for the benefit of a person with special needs, has no impact on Supplemental Security Income or Medicaid eligibility for the person with special needs.)  A future installment will discuss third-party trusts in more detail.

To understand the importance of the Pooled Trusts, just like the importance of individual Special Needs Trusts, one must remember how Social Security and Medicaid treat someone who has given away money to become financially eligible.

As we’ve discussed in prior installments, both the Supplemental Security Income program (the Social Security program for people who are disabled but don’t have sufficient work history to qualify for Social Security Disability Income) and the Medicaid program (health insurance for poor people) are “means tested.”  Accordingly, people who have the financial means to pay for themselves are not eligible for SSI or Medicaid.  Because, for many people. there is a very high emotional cost (and sometimes a care cost) in allowing all of their life savings to be spent away, people look for a way to protect some of their assets while still qualifying for SSI and Medicaid.  Giving money (or other assets) to a relative, a trusted friend, or a trust helps protect the assets given away, but the gifts can make the applicant ineligible for SSI and Medicaid or trigger limited Medicaid coverage for a time.

That ineligibility for, or restrictions on, SSI and/or Medicaid would create a problem for many people with special needs.  They often need the SSI income and the Medicaid health insurance right away.  At the same time, they want the ability to get some personal items or entertainment that they wouldn’t be able to afford if all they had were SSI income and Medicaid coverage, so they would like to find a way to “keep” some of their savings.

A Pooled Trust (i.e., d4c trust,) like a d4a Special Needs Trust can help fix the collision of the need for SSI and Medicaid and the desire to preserve some assets.  Someone who needs SSI and Medicaid but who has too much money to qualify can put the excess money into a Pooled Trust trust without getting a penalty of ineligibility or restricted coverage.  Then, the money is available, under certain restrictions, for the benefit of the person.

The difference between a Pooled Trust and an individual Special Needs Trust is a difference in the costs and in the administrative hassles of running the trust.

A Pooled Trust is kind of like a mutual fund.  A mutual fund is a pool of money from many people lumped together to make investments that benefit all of the investors.  The individual investors don’t have to pick the stocks in which to invest or the time to buy and sell.  The individual investors don’t have to track the times of sales and purchases and dividend payouts for the stocks in the fund.  The fund managers have those duties.

A Pooled Trust accepts cash from someone with special needs and puts it together with all of the other money put into the trust by other people with special needs and invests that money to benefit all of the participants.  Each participant’s share of the trust assets are proportional to their cash invested in the trust.  (The trust manager tracks the participants’ value in the trust.)

The trust contents that belong to a particular participant can be withdrawn from the trust (usually in small amounts) to pay for something for the person with special needs (i.e., the participant in the Pooled Trust.)  Usually, the person with special needs has an intermediary or a spokesperson who communicates with the Pooled Trust managers to arrange specific purchases.  (Direct contact between the person with special needs and the trust managers would look too much like the person with special needs had direct control over the trust contents.  Such direct control would probably cause SSI and Medicaid to count the participant’s share of the Pooled Trust as assets available to the person with special needs, resulting in that person having too many assets to qualify for SSI and/or Medicaid.)

Like with an individual Special Needs Trust, a Pooled Trust cannot give the beneficiary cash (except for $20 per month spending money as discussed in an earlier installment ) without causing a reduction of the beneficiary’s SSI income.  Similarly, the Pooled Trust can’t spend money on food or shelter for the person with special needs without causing a reduction in SSI.

Also like with the individual Special Needs Trust, a Pooled Trust has a payback provision.  When the Pooled Trust participant (the person with special needs who put the assets into the trust in the first place) dies, the trust must repay Medicaid for the costs of care that Medicaid had previously paid for the beneficiary up to the amount of that beneficiaries remaining assets in the Pooled Trust.  (If the contents of the trust are worth more, then the excess assets can be given out to remainder beneficiaries, like how a will operates.  If the Medicaid “debt” is equal to or greater than the participant’s balance in the Pooled Trust, then the Medicaid gets it all.)

There is a twist on the repayment requirement common in Pooled Trusts.  Pooled Trust contents may be given to charity rather than paid to Medicaid.  Because Pooled Trusts are usually operated by charities, the Pooled Trust might encourage that its operating charity be designated as the remainder beneficiary.

Even though the family of the special needs person won’t receive the contents of the Pooled Trust, an investment in a Pooled Trust still benefits the person with special needs.  By placing excess assets into a Pooled Trust, the person with special needs can get SSI and/or Medicaid.  The person with special needs can also get “extra” stuff while on SSI and Medicaid.  SSI and Medicaid are necessary for some people with special needs, but they provide a bare minimum of income and health insurance.  They don’t provide entertainment or clothing or anything else above the bare minimum.  SSI and Medicaid don’t provide any “spice” to life.  They are safety net programs.  They aren’t supposed to provide “spice.”

A d4c Pooled Trust can provide some spice.  It can buy baseball tickets, a TV, a vacation, a magazine subscription, a computer and internet access to name just a few examples.  A Pooled Trust, like a special needs trust, can provide just about anything (anything that is legal, anyway) for the beneficiary to allow the beneficiary to have something more than the bare minimum to survive.

If the beneficiary uses the entire contents of his or her share of the Pooled Trust, then Medicaid gets nothing and the charity gets nothing.  That’s okay.  They were able to make maximum use of their SSI benefits, their Medicaid benefits, and their own assets.

Unfortunately, in many states, the person with special needs can place assets in the trust only if he or she is younger than age 65.  So, this kind of trust isn’t available for most seniors.  In Ohio, where I practice, people over 65 can place assets into a Pooled Trust.  (It’s one of several Ohio quirks in the public benefits programs.  Those quirks might go away if a proposal by the governor is adopted.)

So, what are the differences between a Pooled Trust and an individual Special Needs Trust?

  • As mentioned above, in some states, a person over 65 can use a Pooled Trust.
  • A Pooled Trust cannot accept non-cash assets.  The Pooled Trust chooses its own investments and must maintain a certain amount of ready cash to pay requests for payouts.  Any incoming non-cash assets probably won’t fit with the trust’s investment strategy and also might screw up the cash on hand.
  • Because a Pooled Trust is investing in the stock and bond market, it can’t take real estate.  An individual Special Needs Trust can own a house in which the person with special needs can live.  A Pooled Trust can’t own that house because it can’t be commingled in with the trust contributions of the other participants.
  • A Pooled Trust has lower costs to each participant (by spreading those costs over all participants and/or getting support for administrative costs from the money left over from deceased participants who designated the operating charity as the remainder beneficiary.)  An individual Special Needs Trust pays all of its own administrative costs.  My rule of thumb (when the age 65 restriction isn’t a factor and a house isn’t involved) is that I recommend an individual Special Needs Trust for a pile of assets over $50,000.  I recommend a Pooled Trust for lower amounts.

A d4c Pooled Trust allows someone with special needs (who has some assets) to continue to enjoy those assets during his or her lifetime and still get SSI and/or Medicaid.  It allows the beneficiary to avoid the empty feeling that can come from watching his or her life savings escape while trying to qualify for SSI and Medicaid.

Wow, that was long for a blog post.  Sorry.

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