Instead of naming a trustee to handle the special needs trust you create, you may be able to have your loved one’s inheritance managed as part of a group trust. These pooled trusts, also known as community or master trusts, are managed by nonprofit organizations. Pooled trusts are reasonable alternative to doing your own special needs trust if you can’t come up with a logical choice for trustee or if you don’t have enough money to justify creating an individual trust. However, they’re not ideal for every family.
This article provides an overview of pooled special needs trusts. For details about the pros and cons, read Special Needs Trusts, by Steven Elias and Kevin Urbatsch (Nolo).
What Are Pooled Trusts?
Special needs pooled trusts are run by nonprofit organizations set up to expertly and efficiently administer a master special needs trust on behalf of individual beneficiaries with disabilities. Assets are combined and invested together; funds are spent on beneficiaries in proportion to their share of the total amount.
No two pooled trusts are exactly alike. Each has its own fees, menu of available services, and contracts under which it operates. Some offer many options, complicated contracts, and complex fee schedules. Others offer a single agreement and an easy-to-understand fee schedule. Some are organized to provide complete care of beneficiaries while others just manage the money in an appropriate manner.
But whatever their differences, all pooled trusts share some basic pros and cons worth considering.
Benefits of Pooled Trusts
Here are some advantages of pooled trusts:
- The people managing the trust and its assets will be knowledgeable about agency rules regarding income and resources and will be able to deal with any questions from the SSI or Medicaid programs.
- The trust directors usually are relatives of people with disabilities and are attuned to that community.
- Even if you don’t have a lot of money to leave to your loved one, a pooled trust can give your loved one the benefits of a special needs trust.
Limitations of Pooled Trusts
While pooled special needs trusts work for many people, they do have some important limitations that you should consider . For example:
- Pooled trusts are only as good as the nonprofit that is managing it. Some may do a good job for a while, but in the face of financial problems or management changes, may end up doing a terrible job or even going out of business altogether.
- Some pooled trusts distribute assets only at certain times of the month. This can be a problem for a beneficiary who may need distributions more frequently.
- Pooled trusts can be very expensive. Find out exactly how much a pooled trust charges before you join. Generally, there is a one-time setup fee that can run from a few hundred dollars to several thousand dollars. Plus, there is an annual fee—based on a percentage of the assets that are put into the trust—that can be several thousand dollars a year. If you’re only putting a modest amount of assets into the trust, the fees of the pooled trust can seriously deplete these assets. In contrast, a friend or family member may not charge anything to serve as the trustee of an individual trust.
- Pooled trust are inflexible. Once the assets are in the pooled trust, it is difficult if not impossible to move the assets to another trust. Your beneficiary is then stuck with this pooled trust even if the trustee does not do a good job.
- Many pooled trusts will not agree to own real estate or authorize other nontraditional investments. If your inheritance will include these types of investments, an individual special needs trust would serve you better.
Finding a Pooled Trust
Pooled trust must adhere to strict state rules, so to keep things manageable, most pooled trusts only take residents that reside in the same state. To find a special needs pooled trust in your state, try contacting one of these organizations:
- Academy of Special Needs Planners: www.specialneedsanswers.com
- The Arc: www.thearc.org
- The Center for Special Needs Trust Administration, Inc.: www.sntcenter.org
- The National PLAN Alliance: www.nationalplanalliance.org
Before you sign on with a pooled trust, investigate your options. Pooled trusts vary in the services they offer and the fees they charge, so you should compare programs carefully. Read the materials carefully, meet with a program representative, and trust your gut. If something doesn’t feel right, you should keep looking.
Learn more about Finding and Choosing a Pooled Special Needs Trust.
Joining a Pooled Trust
When you’re ready to join a pooled trust, you will sign a joinder agreement and pay a ne-time nonrefundable enrollment fee described above. The joinder agreement links your loved one to the master trust provisions, describes your duties as the person supplying the money (the grantor), explains what happens if you wish to withdraw the funds later, and specifies what will be done with any funds left in your loved one’s account when it terminates. Some joinder agreements also let you describe your preferences for disbursements once the trust is funded and goes into effect.
After you die, the joinder agreement becomes irrevocable, which means any funds that have been put in the account will stay there. The trustee will manage and disburse them for your loved one’s benefit under the terms of the trust.
To fund the trust, you can use your will or living trust to leave property to the pooled trust. Learn more about How to Leave Property to a Special Needs Trust.
Also, instead of signing up for a pooled trust during your lifetime, you can use your estate plan to request that your executor join one after you die.
More About Special Needs Trusts
To learn more about special needs trust, go to the Special Needs Trusts section of Nolo.com.
This article was excerpted from Special Needs Trusts, by Steven Elias and Kevin Urbatsch (Nolo) which provides detailed information about pooled trusts and how to join them, as well as everything you need to make your own special needs trust.