Pooled Trusts Advantages and Disadvantages

Pooled Trusts: Advantages, Disadvantages, and Alternatives

Few people outside of the estate planning profession have a full understanding of the many types of trusts that are available or which trusts best fit their individual needs. At Ely J. Rosenzveig & Associates, we know how important making the right decision is when you are considering plans to secure your financial future or to fund the needs of a disabled family member.

This blog post explains a type of trust called a “pooled trust.” This is one of the trusts that can serve the needs of an individual with disabilities who wants to preserve their eligibility for publicly funded assistance programs and still have the benefit of supplemental funds to pay uncovered expenses for needed materials, services, or life enriching experiences.

What Is a Pooled Trust?

A pooled trust is a type of “special needs trust” (SNT) or “supplemental needs trust” that allows disabled individuals to continue to benefit from sums of money in a trust that would otherwise exceed the eligibility caps of government funded programs like Medicaid and Supplemental Security Income (SSI). A pooled trust is irrevocable, like all SNTs.

It may be funded by a third person or by the beneficiary themselves. If a pooled trust is a first-person trust (self-funded), the law requires that the remaining trust assets be used to reimburse Medicaid for the costs paid by the government for the person’s healthcare during their life. However, if the trust is established by a third person, any assets remaining at the death of the beneficiary are distributed as directed in the grantor’s original grant of trust document.

The funds deposited into an SNT, including a pooled trust, preserve the disabled person’s continued eligibility to receive Medicaid and SSI benefits while also being able to fund other uncovered but beneficial expenses. A pooled trust is distinct from other SNTs because it combines the trust funds from many beneficiaries into one larger professionally managed investment pool.

Like all trusts, a pooled trust offers advantages that are ideal for some people, but also carries some disadvantages that may make a different trust more appropriate for others.

Advantages of a Pooled Trust:

Preserves Eligibility for Government Programs – The primary advantage of a pooled trust is the beneficiary’s ability to remain eligible for Medicaid, SSI, or other government funded assistance. Because the beneficiary neither possesses nor controls the trust fund assets, they are not counted by the government as resources available to the beneficiary.

Pooled trusts can be funded by a deposit of assets that exceed the government’s countable resource limit or regular deposits or excess income.

Open to Persons 65 and Over – People over 65 years old are not eligible to establish a first-party Supplemental Needs Trust (SNT) unless it is a pooled trust.

Professional Investment Managers – Once pooled  trusts are managed by professional investment managers in nonprofit organizations that generally have extensive knowledge and experience dealing with issues that affect people with disabilities. Their expertise and awareness of applicable rules can make them more responsive to any changes that may occur in the law.

Lower Fees and Costs – Another advantage of a pooled trust is the cost-effectiveness of the management fees. Instead of paying the costs of a trustee’s services from a single trust’s assets, fees are shared  among all pooled trust beneficiaries. Similarly, the proceeds generated by the pooled trust are tracked and distributed into each of the component trusts.

The pooled trust’s sharing of management fees and costs produces significant savings for each beneficiary, especially those with modestly funded trusts. 

Continuity of Trustee – Pooled trusts are managed by a nonprofit organization whose trust oversight is not interrupted if individual investment managers change. A trustee managing an individual trust may need to be replaced if they become ill or die, requiring a new trustee to be named and to become familiar with the trust’s assets and investments. During this transition period, the beneficiary may experience inconvenience and delays.

Supplemental Needs – Funds held in pooled trusts can be used to pay for needs that are not covered by government benefits. Costs of modifying a home, increasing accessibility to a vehicle, education, travel, and even recreation. The assets are intended to benefit the whole person, their physical well-being as well as their enjoyment of life.

Pooled Trusts Advantages and Disadvantages
Pooled trusts are only one type of trust that may meet your individual circumstances. Before choosing a particular type of trust for yourself or your family member, seek the professional guidance of a skilled estate planning attorney.

Disadvantages of Pooled Trusts

Loss of Control – Once assets are placed in a pooled trust and under the management of an investment professional, the grantor loses control over how those assets are invested and used. The grantor cannot tell the trustee what to invest in. The decisions regarding what holdings to buy and sell and when such transactions occur is within the sound discretion of the fund manager.

These decisions may result in more conservative investments than the grantor would prefer, be less responsive to market changes leading to lost opportunities for quick profits or to reduce losses and have tax consequences.

Fees – Professional investment managers generate fees and costs at different rates for their administration, investment, and other services. Some charge fees of less than 1% or 2% annually while others charge an annual percentage plus monthly and/or annual fees. There are several pooled trusts from which to choose in New York. An experienced estate planning attorney can help you select the pooled trust that best fits your individual circumstances.

Minimum Contribution Requirements – Many pooled trusts have minimum contribution requirements which may be beyond the means of some trust grantors.

Alternatives to Pooled Trusts

Pooled trusts are only one type of trust that may meet your individual circumstances. Before choosing a particular type of trust for yourself or your family member, seek the professional guidance of a skilled estate planning attorney. Ely J. Rosenzveig & Associates has many years of experience guiding clients to the most appropriate trust form for their needs.

A few alternatives to pooled trusts that families may want to consider include:

Individual Special Needs TrustsIndividual special needs trusts are tailored to the specific needs of the beneficiary and can offer more flexibility and control than pooled trusts. However, individual special needs trusts can also be more expensive and time-consuming to establish and manage.

ABLE Accounts – An ABLE account is a tax-advantaged savings accounts that can be used to pay for qualified disability-related expenses that are not covered by means tested government assistance programs like Medicaid or SSI. Congress enacted the Achieving a Better Life Experience Act of 2014 (ABLE Act) to allow contributions to be made on behalf of a beneficiary that can pay for uncovered transportation needs, accessibility repairs, personal care services, etc.

Any income earned by the ABLE account is not taxed and anyone can contribute to the account with post-taxed dollars.

Supplemental Needs TrustsSupplemental Needs Trusts (SNTs) are trusts that are created to provide supplemental support for individuals with disabilities who receive government benefits such as Medicaid and SSI. SNTs can be used to pay for expenses that are not covered by government benefits, such as education, travel, and recreation.

Trusts are complicated subjects that can provide substantial value to a beneficiary with special needs. But choosing the right trust for your circumstances requires the sound advice of an experienced estate planning attorney whose extensive knowledge of trust law will help you select the right trust for you.

Call Ely J. Rosenzveig & Associates for New York Trust Help
Call 1.914.816.2900 or email us at: [email protected]

Ariel S. Rosenzveig
Ariel Rosenzveig

Ariel S. Rosenzveig received his Juris Doctor from the Benjamin N. Cardozo School of Law in May, 2011, and has been practicing law with the firm since August, 2011. During his summers while in law school, Ariel interned with the United States Commodity Futures Trading Commission in New York and with the Securities & Futures Commission in Hong Kong, China.

While in law school, Ariel served on the staff of the Cardozo Public Law, Policy & Ethics Journal, volunteered with the Cardozo Advocates for Battered Women, and participated in the National Institute for Trial Advocacy’s Intensive Trial Advocacy Program. Prior to attending law school, Ariel worked as an arbitrage trader for a small proprietary trading firm on Wall Street. Ariel graduated summa cum laude from Yeshiva University in 2006.

Ariel is licensed to practice law in the states of New York and New Jersey, and is a member of the New York State Bar Association (NYSBA), NYSBA’s Elder Law section, and the National Academy of Elder Law Attorneys (NAELA). In June, 2015, Ariel successfully completed a certificate program in mediation through the Program on Negotiation at Harvard Law School.

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