It is important to understand the benefits of pooled special needs trusts. Parents of children with special needs often want to set aside funds to provide for them in the future. Grandparents and other relatives also may want to leave inheritances to the children. However, setting aside assets for children with disabilities can be complicated.
As children with special needs become adults, they are likely to become increasingly reliant on government programs whose eligibility is based on limited income and assets. A special needs trust (SNT) allows parents and relatives to save for the future financial needs of a child with disabilities while still maintaining eligibility for these crucial government benefits. Both pooled and individual SNTs can achieve this goal, although the two have significant differences. Rubin Law can help you determine the best option to provide for the current and future financial needs of your child with special needs.
Understanding Pooled Special Needs Trusts
Nonprofit associations, including charitable organizations under Section 501(c)(3) of the Internal Revenue Code, establish pooled special needs trusts. In pooled SNTs, multiple individuals place their assets into the trust, and the nonprofit organization manages the assets of the trust. The individual with special needs or a third party, such as a parent, grandparent, guardian, or court, must establish the bank account containing the assets. Everyone who is a beneficiary of the pooled SNT maintains a separate trust bank account. Still, the assets are “pooled” with all other beneficiaries’ assets for investment and management.
Special Needs Trusts and Eligibility for Government Programs
The most attractive feature of SNTs, whether pooled or individual SNTs, is that the assets in these trusts are generally exempt from the resource limitations of most government programs. For instance, both Medicaid and Supplemental Security Income (SSI) require that recipients have limited income and resources to remain eligible for those benefits. As a result, if recipients begin receiving too much income each month, receive a large inheritance, or accrue too much money in a bank account, they can lose their government benefits.
However, the Social Security Act, 42 USC § 1396p(d)(4)(A) and (C), exempts self-settled or first-party SNTs and pooled SNTs from the general rule of counting trusts as income or resources for eligibility for SSI and Medicaid. As a result, individuals with special needs can accrue assets in pooled SNTs without fear of losing the government benefits that provide them with essential medical care and living expenses.
With a pooled first-party SNT, the state can seek “repayment” for government benefits after the trust beneficiary’s death. In Illinois, after an individual who is the beneficiary of a pooled special needs trust passes away, the balance of the trust account goes to the state to repay the Medicaid benefits that the state paid for the individual during their lifetime. The repayment is capped at the total amount of Medicaid benefits the individual received during their lifetime.
Due to this requirement, some nonprofits have established pooled third-party SNTs for third parties contributing to the pooled trust. As a result, when the beneficiary passes away, the funds contributed by third parties will not ever be subject to repayment for Medicaid benefits. This type of account is often called a third-party pooled SNT.
Pooled and Individual SNTs: Similarities and Differences
If there is only going to be a small inheritance left to the beneficiary or the individual with disabilities has a small amount of assets that are making them ineligible for government benefits, it might make sense to leave that inheritance or place those assets into a third-party pooled trust or a first-party pooled trust respectively.
Pooled SNTs can give families professional trust administration without requiring large contributions upfront. In most cases, pooled SNTs allow you to establish a trust account with any amount of funds, whether small or large.
Both types of SNTs have some similarities, in that the trustee must spend all funds in the trust for the sole benefit of the trust beneficiary. The trustee also has discretion in making all disbursements to the trust beneficiary. Finally, as previously mentioned, when the trust beneficiary passes away, any remaining funds in pooled SNTs and self-funded or first-party SNTs are subject to Medicaid recovery by the state. However, remaining funds in third-party SNTs are NOT subject to Medicaid recovery upon the beneficiary’s death. Those remaining funds would go to the successor beneficiary or beneficiaries named in the trust by the third party who established it.
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Rubin Law is the only Illinois law firm to dedicate itself exclusively to providing compassionate legal services for children and adults with special needs. We offer unique legal and future planning techniques to meet your family’s individual needs.
Call us today at 866-TO-RUBIN or email us at firstname.lastname@example.org to learn more about the services we can offer you and your family.