What is a Pooled Special Needs Trust?

The pooled trust is a very useful means of providing for special needs beneficiaries without the hassle or expense of set-up and maintenance of other trust options. Assets transferred into a pooled trust are exempt from the transfer of assets rules, and when properly established, the assets are unavailable and not included in the estate of the beneficiary. Pooled trusts were made available in the OBRA 1993 legislation in 42 U.S.C. § 1396p(d)(4)(C).

The pooled trust functions as a special needs trust and can function either as a third party trust with assets gifted from a third party, or as a self-settled trust with the assets of the beneficiary.

Functionally, pooled special needs trusts are operated by a nonprofit organization that develops a master trust agreement used by all participants. Ordinarily, the pooled trust is administrated by a professional administrator, and the funds transferred into the pooled trust are then pooled and invested by an investment manager. The funds are accounted for in separate accounts.

In order to qualify as a pooled trust, there are six statutory requirements discussed below.

Disabled. The first requirement is that the trust must be for the benefit of a person with disabilities. As mentioned previously, the Social Security Act § 1382c(a)(3) creates the statutory definition of disability. If a beneficiary has already been determined to be disabled by the SSA and is receiving SSI, no further determination need be done.

Non-Profit Organization. A noon-profit organization is required to be the creator and manager of the trust. The organization must meet the statutory definitions of non-profit association under § 501(c) of the Internal Revenue Code, and must also have tax-exempt status under §501(a).

Separate Accounts. The pooled trust must maintain separate accounts for each beneficiary. The trust may, and usually does, pool the funds in the individual accounts, which provides for lower investment costs and lower administrative costs, which are usually passed on to the beneficiary. Additionally, the trust must be able to provide an individual accounting for each beneficiary POMS S1 01120.203 B 2.d. Each self-settled subaccount is taxed to the beneficiary as a grantor trust.

If you would like more information on Charitable Pooled Trusts, I recommend you visit the Charities Pooled Trust website by clicking here

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