Commonwealth Community Trust

Turning Settlements into Long Term Security: The Power of Trust Administration

Mon, 09 Mar 2026 18:56:16 GMT

By: Joanne Marcus, MSW President & CEO of Commonwealth Community Trust

Introduction

A successful settlement often feels like a turning point—a chance for financial security after a period of hardship. Yet for individuals who rely on means-tested public benefits such as Supplemental Security Income (SSI) or Medicaid, this windfall can unintentionally jeopardize eligibility. A lump-sum payment, if mishandled, may disqualify someone from essential programs that cover medical care, housing, and daily living expenses.

The good news? With proper planning, settlement funds can be preserved without sacrificing benefits. Two powerful tools—pooled special needs trusts (PSNTs) and settlement preservation trusts (SPTs)—offer solutions that protect eligibility while ensuring long-term financial stability. This article explores why these trusts matter, how they work, and the role of professional administration in safeguarding vulnerable clients.

Understanding Means-Tested Benefits

SSI and Medicaid are designed for individuals with limited income and resources. Eligibility hinges on strict financial thresholds—often just a few thousand dollars in countable assets. Receiving settlement funds directly can push a beneficiary over these limits, triggering loss of benefits. For someone with chronic health needs, losing Medicaid coverage can be catastrophic.

Common misconceptions abound: some believe they can “spend down” quickly or gift funds to relatives. Unfortunately, these strategies often violate program rules and lead to penalties. The safest approach is proactive planning through a trust structure that shields assets while complying with federal and state regulations.

What Is a Pooled Special Needs Trust?

A pooled special needs trust (PSNT) is a legal arrangement managed by a nonprofit organization. Multiple beneficiaries “pool” their funds for investment purposes, reducing administrative costs and increasing growth potential. Each participant has a separate sub-account, ensuring individualized control while benefiting from collective management.

PSNTs are ideal for individuals with disabilities who need to maintain eligibility for SSI and Medicaid while using settlement funds for supplemental needs. These trusts allow funds to be spent on items and services that improve quality of life without replacing core benefits.

What Is a Settlement Preservation Trust?

Not every client who receives a settlement qualifies as disabled or needs a special needs trust. For these individuals, a settlement preservation trust (SPT) offers a practical alternative. An SPT is designed to protect settlement proceeds from mismanagement, overspending, or exploitation.

While an SPT does not guarantee benefit eligibility in the same way a PSNT does, it provides structured oversight, professional investment management, and long-term planning. This is especially valuable for minors, individuals with limited financial experience, or those recovering from trauma who may be vulnerable to poor decisions. Attorneys often recommend SPTs when a client’s settlement is substantial but does not require Medicaid planning—ensuring funds are preserved for future needs rather than depleted prematurely.

Why Trusts Are Essential

Without a trust, settlement proceeds count as available resources. This can instantly disqualify someone from SSI or Medicaid, forcing them to pay out-of-pocket for medical care, housing, and other essentials. A trust acts as a protective barrier, allowing funds to be used for supplemental needs without replacing core benefits.

Beyond compliance, trusts offer peace of mind. Families know that funds will be managed responsibly, reducing the risk of missteps that could drain resources prematurely. For clients without disabilities, settlement preservation trusts provide similar security—ensuring that funds are professionally managed and distributed according to a long-term plan.

The Role of a Professional Trust Administrator

A trust is only as effective as its administration. Professional trust administrators serve as gatekeepers, reviewing every disbursement request to ensure compliance with benefit rules and alignment with the beneficiary’s goals. Their responsibilities include:

• Protecting Public Benefits: Confirming that expenditures do not jeopardize SSI or Medicaid eligibility.

• Ensuring Sole Benefit: Every disbursement must serve the beneficiary exclusively.

• Financial Prudence: Evaluating whether requests fit within the client’s budget and long-term plan.

• Documentation and Oversight: Maintaining records for audits and regulatory compliance.

This structured approach prevents impulsive spending and safeguards against errors that could have lasting consequences. For settlement preservation trusts, administrators also help clients avoid financial exploitation and ensure funds are invested wisely.

Tools That Simplify Access

Modern pooled and settlement preservation trust organizations recognize the need for convenience. Many offer prepaid debit cards linked to trust accounts, enabling beneficiaries to make approved purchases without cumbersome paperwork. Online portals provide real-time access to balances, transaction histories, and budgeting tools. These innovations empower clients while maintaining necessary oversight.

For families, these tools reduce stress and improve transparency. They can monitor spending, submit requests electronically, and receive timely updates—all critical for maintaining trust and accountability.

Allowable vs. Restricted Expenses

Trust funds can cover a wide range of supplemental needs, including:

• Medical care not covered by insurance

• Assistive technology and adaptive equipment

• Personal items and clothing

• Utilities and transportation

• Educational and recreational activities

However, certain expenses—particularly food and shelter—require careful handling. Improper payments for these items can reduce SSI benefits or trigger in-kind support penalties. A knowledgeable administrator ensures compliance.

Pooling for Investment Growth

Pooling funds offers significant advantages. By combining resources, trusts can access diversified investment strategies that individual accounts might not achieve alone. This approach reduces administrative costs and enhances growth potential, ensuring that funds last longer. Professional management adds another layer of security, with fiduciary responsibility guiding every decision.

Case Examples

Consider a client who receives a $150,000 settlement after a personal injury case. Without planning, this amount would disqualify them from Medicaid, leaving them responsible for costly medical treatments. By placing the funds in a pooled special needs trust, the client retains eligibility while gaining access to structured disbursements for uncovered expenses like therapy, home modifications, and assistive devices. Over time, prudent investment within the pooled structure helps the funds grow, extending their usefulness for years.

For another client—a minor without disabilities—a settlement preservation trust ensures that funds are professionally managed until adulthood. This prevents overspending and protects against financial exploitation, while allowing for approved expenses such as education and counseling. In both cases, the trust structure transforms a one-time settlement into a sustainable resource.

Choosing the Right Trust

Selecting between a PSNT and an SPT depends on the client’s circumstances. If maintaining SSI or Medicaid eligibility is critical, a PSNT is the clear choice. For clients who do not rely on means-tested benefits but need structured financial oversight, an SPT offers flexibility and security. Attorneys and financial planners play a key role in guiding clients toward the right solution.

Conclusion

Settlements should be a source of relief, not anxiety. For clients who depend on SSI or Medicaid, the stakes are high: mishandling funds can mean losing essential benefits. Pooled special needs trusts and settlement preservation trusts offer proven solutions, combining legal compliance with compassionate oversight. With professional administration, modern tools, and strategic investment, these trusts transform settlements into lasting support systems.

If you represent or care for someone in this situation, consult a qualified trust organization before taking action. The right plan today can protect benefits—and peace of mind—for years to come.

Written by Joanne Marcus, MSW President & CEO of Commonwealth Community Trust

Published in Nevada Justice Association Advocate Magazine, March/ April 2026 .

Using Pooled Trusts as a Safety Net When Drafting Estate Plans

Fri, 16 May 2025 16:59:53 GMT

By: Rachel Baer, Esq. Counsel & Director of New Clients.

I. Introduction

Pooled special needs trusts can provide an essential safety net in estate plans. Attorneys who draft estate plans must anticipate the unexpected, a client’s unforeseen disability, a fiduciary who becomes ill, a contentious relationship between the beneficiary and the fiduciary, or assets that are depleted below the corporate fiduciary’s minimum. By including additional authorities in documents, attorneys-in-fact, executors, and trustees can react to unforeseen circumstances and create and fund pooled special needs trusts for clients and their loved ones without the need for court involvement. This article will give an overview of pooled special needs trusts and will cover powers that should be considered for inclusion in trusts, wills, and powers of attorney to utilize pooled special needs trusts as a safety net.[1]

II. Overview of Pooled Special Needs Trusts

There are two types of special needs trusts—standalone special needs trusts created under a trust document or will, and pooled special needs trusts. Fundamentally, both types of special needs trusts allow assets to be set aside for the benefit of a beneficiary with a disability without those assets being considered resources that might impact the beneficiary’s eligibility for Supplemental Security Income (SSI) and Medicaid. And, like standalone special needs trusts, pooled special needs trusts can be either first-party or third-party, most pooled trusts will have one of each type to allow both beneficiaries with disabilities and their loved ones to fund them.

Pooled special needs trusts are different than standalone special needs trusts in several ways. First, while a standalone special needs trust generally has one beneficiary[2], pooled special needs trusts can have hundreds or thousands of beneficiaries. A standalone special needs trust is drafted for a particular beneficiary and contains all the necessary terms, including the identity of the beneficiary, the identity of the person who is establishing the trust, and the remainder beneficiaries. A pooled special needs trust master trust agreement provides the basic terms of administration, but the joinder agreement signed by the beneficiary or an authorized person to join the pooled special needs trust fills in missing pieces of the master trust agreement with the details of (1) the beneficiary, (2) the identity of the person signing the joinder agreement, and (3) the remainder beneficiaries (if that particular pooled trust allows remainder beneficiaries to be named).

Second , pooled special needs trusts are established and managed by a non-profit organization.[3] In order to be allowed to administer first-party pooled special needs trusts, the Social Security Administration requires not only that the pooled trust must be set up by the non-profit organization, but the non-profit organization must maintain managerial control.[4] This managerial control is a distinct role from the role as trustee. While some pooled trust non-profit organizations, which are commonly referred to as “pooled trust administrators” or “pooled trust managers,” also serve as trustee, other non-profit organizations employ a trust company, bank, or other professional to serve as trustee for the pooled special needs trust. In a pooled special needs trust, there are three unique roles played by (1) the trustee, (2) the non-profit trust administrator, and the (3) investment advisor. There can be some entities that will fill multiple roles, like a trustee that also serves as financial advisor or a non-profit organization that also serves as trustee, but these three roles exist in every pooled special needs trust. Whereas for a standalone special needs trust, the client must find a trustee and financial advisor.

Third , separate accounts, also referred to as a sub-accounts, are maintained for each beneficiary, but the funds in all the accounts are pooled together for investment and management purposes.[5] This structure is similar to an attorney’s Interest on Lawyer’s Trust Account (IOLTA); the clients’ funds are held in one account but accounted for separately. Due to the term “pooled” in “pooled trust,” there can be a misconception that the funds that an individual beneficiary puts into a pooled trust will be used for other beneficiaries. However, funds placed into a beneficiary’s sub-account can only be used for that beneficiary during his or her lifetime. Because the funds are pooled, this increases the capital available for investment and can lead to lower investment fees and the access to greater investment opportunities.[6] It is also important to note that due to the pooled structure, some pooled trusts will not accept unique assets, like inherited individual retirement accounts (IRAs) or real estate.

Fourth , pooled special needs trusts each have differing policies on how they administer the remaining funds after a beneficiary passes away. All first-party special needs trusts, both standalone and pooled, are prohibited from distributing funds to remainder beneficiaries unless Medicaid is fully reimbursed for all payments made for the beneficiary during their lifetime.[7] However, federal law permits the pooled trust to retain the remaining funds in lieu of repaying Medicaid. [8] For first-party pooled trusts, some non-profit organizations retain all the remaining funds in lieu of repaying Medicaid, which means that their joinder agreement might not include the ability to list remainder beneficiaries. Other pooled trusts only retain a percentage of the remainder or only when there are insufficient funds to repay Medicaid fully, which would give remainder beneficiaries a chance to receive funds if there are sufficient funds to repay Medicaid. For third-party pooled special needs trusts, some pooled trusts do not retain any part of the remainder funds, while some may keep a percentage. It is critical that the attorney and their clients understand this policy before choosing a pooled special needs trust.[9]

Fifth , first-party pooled special needs trust sub-accounts may be established and funded for beneficiaries who are sixty-five years of age or older, whereas once the beneficiary reaches the age of sixty-five federal law prohibits standalone first-party special needs trusts from being established or new sources of funds from being deposited into an existing trust.[10] But, even though it is permitted to establish and fund a first-party pooled special needs trust after the beneficiary is sixty-five years old, some states impose a transfer of assets penalty if the beneficiary is then receiving Medicaid long-term services and supports (“LTSS”), like long-term institutional care or home and community-based services, or applies for LTSS in the following five years.[11] However, for beneficiaries who have reached the age of sixty-five, first-party pooled special needs trusts are their only option.

III. Drafting Standalone or Testamentary Special Needs Trusts

Serving as trustee of a special needs trust requires specialized knowledge regarding applicable federal and state statutes and rules, in addition to the regular duties of a trustee. At times, a trustee will be unable or unwilling to serve or to continue to serve as trustee. Family members may lack the time or expertise, they might have health problems, or their role as trustee may compromise their relationship with the beneficiary. Individual attorneys can leave the practice of law and corporate trustees may struggle to maintain a special needs trust once the balance falls below their minimum requirements. In those cases, even though a pooled special needs trust was not Plan A, it can be an excellent Plan B.

When setting up a standalone or testamentary special needs trust, if the trustee is given proper authority, then trust assets can be transferred to a pooled special needs trust sub-account if the trustee becomes unable or unwilling to serve. The assets in the standalone or testamentary special needs trust can be transferred to a pooled special needs trust sub-account if (1) the original trust gives authority to transfer assets to the pooled special needs trust sub-account, (2) decanting is permitted under state law[12] in the state where the original trust is sitused (after the decanting process is completed), or (3) a court of appropriate jurisdiction approves the transfer of assets. Of these three options, the first option—where the drafting attorney has included a provision to authorize the trustee to transfer assets to the pooled special needs trust sub-account—is the simplest process. Decanting is a formal and technical process that requires attorneys to draft notices and decanting agreements. Even if decanting is permitted, it may still be necessary or prudent to seek court approval in some circumstances. And, for those where decanting is not feasible or permitted by state law, then petitioning the court for permission can be an expensive and time-consuming prospect.

Drafting attorneys should include language that gives the trustee of a special needs trust the discretion to transfer assets from an individual special needs trust to a pooled special needs trust sub-account.[13] After a transfer, the funds will be governed by the terms of the pooled trust master trust agreement and, if applicable, the original trustee will wind down the original trust.

Example : My Trustee may at any time, exercising sole discretion, distribute any income or principal held in [name of special needs trust], up to the entire value of the trust corpus, to the Trustee of the Commonwealth Community Trust [Third-Party OR First-Party] Pooled Special Needs Trust for the benefit of or a similar pooled special needs trust. I authorize my Trustee to sign all joinders and other documents and take all steps necessary to establish the sub-account and to facilitate the transfer of the trust assets to the [third-party OR first-party] sub-account for the benefit of.

Unless otherwise specified in the original trust or permitted by court order or state law, the remainder beneficiaries listed in the pooled special needs trust sub-account should mirror the remainder beneficiaries for the special needs trust in the original trust to avoid shifting beneficial interests.[14]

It is also important to note that depending on the type of special needs trust (first-party or third-party) and the terms of the pooled special needs trust master trust agreement, the pooled special needs trust may be unable to honor powers of appointment that are not exercised prior to the transfer. Further, first-party pooled special needs trusts are prohibited from paying for funeral expenses unless Medicaid has been fully repaid, so those expenses should be pre-paid using sub-account funds during the beneficiary’s lifetime if possible.[15]

IV. Drafting Other Types of Trusts or Wills

Most wills and trusts drafted by estate planning attorneys will include a list of alternate methods of distribution that give the fiduciaries flexibility in case of unexpected disability or minority. Alongside those authorities, drafters should give fiduciaries the authority and discretion to make distributions to a pooled special needs trust sub-account in lieu of an outright distribution to a beneficiary.

Example : At any time that my [Executor / Trustee] is directed or authorized to make a distribution of interest or principal to a beneficiary, my [Executor / Trustee] may, exercising sole discretion and without the necessity of a court order, pay such income or principal to Trustee of the Commonwealth Community Trust Pooled Special Needs Trust for the benefit of the beneficiary, or a similar pooled special needs trust sub-account, in lieu of making a distribution to the beneficiary.

Please note that this provision does not specify whether the funds should be deposited into a first-party or third-party pooled special needs trust sub-account. This determination should be made by the attorney at the time that funds are to be transferred, and the answer will depend on state law and whether the funds are determined to have vested in the beneficiary. If the bequest has vested in the beneficiary, then the funds will likely be considered “assets of an individual who is disabled”[16] and should be placed into a first-party pooled special needs trust.[17] This provision should allow fiduciaries to distribute funds without the need for a costly court order.

V. Drafting Powers of Attorney

Powers of attorney are the most powerful and often underutilized documents in the estate planning toolkit. By incorporating the necessary authorities, agents (more traditionally referred to as attorneys-in-fact) can be given the ability to plan on behalf of the principal and to complete any plans the principal began. The entire estate plan of a client can be strengthened by giving fiduciaries the authority to create, fund, and manage pooled special needs trust sub-accounts.

While the law differs from state to state,[18] generally the ability to establish a trust, including a special needs trust, is a power that must be explicitly granted in the power of attorney.[19] If this authority is not given in the power of attorney or state law, then the agent lacks the power to establish a special needs trust. In addition, if the power is given, but limited to establishing revocable trusts, then the agent lacks the power to establish a first-party special needs trust, whether standalone or pooled, because they are irrevocable trusts.

In addition, the power of attorney should give the authority to transfer the principal’s assets into an irrevocable or simply any inter vivos trust.[20] Limitations on funding irrevocable trusts will prevent the agent from being able to fund a first-party special needs trust for the beneficiary.[21]

Finally, the attorney should carefully consider terms limiting the agent from using the principal’s property to benefit the agent. If this term is placed in the power of attorney instrument, then this could be interpreted to prohibit the agent from being listed as a remainder beneficiary, even if he or she is a beneficiary of the principal’s estate plan.[22]

Drafting attorneys should consider adding the following authorities to powers of attorney to allow the agent to do emergency planning for both the principal and their loved ones.[23]

1. Establishing and funding a first-party pooled special needs trust sub-account for the principal.

Federal law permits an agent under a valid power of attorney to establish a first-party pooled special needs trust for the principal on behalf of the principal.[24]

Example : My Agent is authorized to (1) execute a pooled trust sub-account joinder agreement with Commonwealth Community Trust or another pooled special needs trust on my behalf, pursuant to 42 U.S.C. 1396p(d)(4)(c); (2) assign, transfer, deliver, and convey any and all of my assets, including any rights to receive income or assets from any source, to the Trustee of the pooled special needs trust sub-account for my sole benefit; (3) designate the remainder beneficiaries for the sub-account [or specify remainder beneficiaries]; and (4) make requests for disbursements and receive and use the disbursements on my behalf.

2. Establishing a third-party pooled special needs trust sub-account for the principal’s loved ones.

Giving the authority to establish and fund a third-party pooled special needs trust will allow an agent to do special needs planning for the principal’s loved ones.

Example : My Agent is authorized to (1) execute a pooled third-party trust sub-account joinder agreement with Commonwealth Community Trust or another pooled special needs trust for ; (2) designate the remainder beneficiaries for the sub-account [or specify remainder beneficiaries] ; (3) assign, transfer, deliver, and convey any and all of my assets, including any rights to receive income or assets from any source, in keeping with my Agent’s authority to make gifts to the Beneficiary of the sub-account, to the Trustee of the pooled special needs trust sub-account; (4) update pay on death, transfer on death, and other beneficiary designations that listed the Beneficiary of the sub-account to list the Trustee of the pooled special needs trust sub-account; (5) amend any trusts that I might have to update any bequests to the beneficiary of the sub-account to list the Trustee of the pooled special needs trust sub-account and (6) make requests for disbursements from the sub-account and receive and use the disbursements on the Beneficiary’s behalf.

3. Establishing and funding a first-party pooled special needs trust sub-account for the principal’s child or grandchild.

Federal law permits an agent under a valid power of attorney to establish a first-party pooled special needs trust for the principal’s child or grandchild on behalf of the principal.22

Example : My Agent is authorized to (1) execute a 42 U.S.C. 1396p(d)(4)(c) pooled trust sub-account joinder agreement with Commonwealth Community Trust or another pooled special needs trust on behalf of my child or grandchild [or insert names], (2) designate the remainder beneficiaries for the sub-account, and (3) make requests for disbursements and receive and use the disbursements for the Beneficiary.

4. Establishing & funding a first-party pooled special needs trust sub-account for the principal’s loved ones other than a child or grandchild.

Giving authority to use the principal’s funds will allow the agent to petition the court to establish and permit funding of a first-party pooled special needs trust for a loved one of the principal other than a child or grandchild, like a spouse or parent.[25]

Example : My Agent is authorized to use my funds to petition a court to create and fund a 42 U.S.C. 1396p(d)(4)(c) pooled trust sub-account with Commonwealth Community Trust or another pooled special needs trust on behalf of.

VI. Conclusion

Giving fiduciaries the authority to utilize pooled special needs trusts can save the client thousands of dollars in attorneys bills and weeks or months in unnecessary delays as the fiduciaries respond to unexpected circumstances. Empowering fiduciaries with the flexibility to use pooled special needs trusts as a safety net will result in more robust estate plans that better protect clients and their families.

Appendix: Corollary Powers for ABLE Accounts

In addition to and in conjunction with pooled special needs trusts, ABLE accounts are a beneficial tool to set aside funds for individuals whose disability began before the age of twenty-six without impacting their eligibility for Supplemental Security Income (SSI) and Medicaid.[26] Further, starting January 1, 2026, the eligibility criteria will change so that individuals whose disability began before the age of forty-six can open an ABLE account, which will allow far more people to qualify. In 2025, up to $19,000 can be put into an ABLE account for each beneficiary per year.[27]

1. Authority to transfer funds from a special needs trust to an ABLE account.

Drafters can give the trustee of a special needs trust the authority and discretion to make distributions to an ABLE account for the beneficiary. This authority can be particularly useful since ABLE accounts can be used to pay shelter expenses, which are considered qualified disability expenses, without reducing the beneficiary’s SSI payment.[28]

Example : The Trustee may, exercising sole discretion, transfer funds to an ABLE account established for the Beneficiary, up to the annual ABLE contribution limit.

2. Authority to transfer funds from a will or trust to an ABLE account.

Drafters should give the fiduciaries (whether executors or trustees) the authority and discretion to make distributions to an ABLE account in lieu of an outright distribution to the beneficiary.

Example : At any time that my [Executor / Trustee] is directed or authorized to make a distribution of interest or principal to a beneficiary, my [Executor / Trustee] may, exercising sole discretion and without the necessity of a court order, pay such income or principal to an ABLE account established for the Beneficiary.

3. Authority to set up and fund an ABLE account for the principal.

Example : My Agent shall have the power to: (1) open an ABLE account for me; (2) transfer and deposit any of my assets into my ABLE account; (3) withdraw, now or in the future, any funds from my ABLE account; (4) select the investment option(s) in accordance with the terms provided by the ABLE account; (5) change the beneficiary of my ABLE account in accordance with Section 529A of the Internal Revenue Code; (6) transfer funds from a 529 college savings plan to my ABLE account, as permitted by federal and state law; and (7) make representations and certifications on my behalf and to otherwise manage and enter into all other lawful transactions with respect to my ABLE account that I could perform if present.[29]

4. Authority to set an ABLE account for the principal’s spouse, descendants, or siblings.

Example : My Agent is authorized to open an ABLE account and designate my spouse, my descendants, or my siblings as the beneficiary.[30]

5. Authority to contribute from the principal’s assets into an ABLE account for any person to whom the agent can make gifts.

Example : My Agent is authorized to contribute my funds, up to the annual ABLE contribution limit, to any ABLE account for any person to whom my Agent is authorized to make gifts. Further, my Agent is authorized to transfer funds from a 529 college savings plan to an ABLE account, as permitted by federal and state law.

Rachel Baer, Esq.

Rachel Baer, Esq. is Counsel and Director of New Clients at Commonwealth Community Trust (CCT), a non-profit pooled trust administrator that has served over 3,000 beneficiaries across the United States who are vulnerable or have a disability.  Ms. Baer leads the New Client team at CCT and works with attorneys and other professionals as their clients join CCT.

Ms. Baer is a fiduciary attorney member of the Special Needs Alliance, a national, non-profit collective of many of America’s leading disability and public benefits attorneys, as well as the National Academy of Elder Law Attorneys. Ms. Baer frequently teaches continuing education classes on special needs trusts and preserving public benefits to professional organizations, including the Stetson University Law National Conference on Special Needs Planning and Special Needs Trusts, Practicing Law Institute, MyLawCLE, Virginia CLE, the State Bar of Georgia Annual Special Needs Trust Program, the Alabama State Bar Annual Conference, the Wyoming State Bar Annual Meeting, and the American College of Financial Services – Advanced Special Needs Planning Symposium.

Prior to joining CCT, Ms. Baer was a partner at Family First Law Group, PLLC, in Alexandria, Virginia, and her practice focused on estate planning, estate and trust administration, and guardianship and conservatorship.  Before entering private practice in 2012, Ms. Baer served as an Assistant Attorney General in the Virginia Attorney General’s Health Services Section for two years.

[1] While there are examples of language that can be included in estate planning documents throughout this paper, they are not intended as legal advice. Any provisions included in estate planning documents should be reviewed and edited by the drafting attorney to meet the needs of their clients and to ensure compliance with their state’s law.

Attached as an appendix is an overview of corollary powers to create and fund an ABLE account.

[2] While standalone first-party special needs trusts can only have one beneficiary, some standalone or testamentary third-party special needs trusts may be drafted to have multiple beneficiaries.

[3] 42 U.S.C. § 1396p(d)(4)(C)(i).

The non-profit organization should be overseen by a fully independent board of directors comprised of qualified individuals to ensure proper governance.

[4] Social Security POMS SI 01120.225.

[5] For first-party pooled special needs trusts, this organizational structure is required by 42 U.S.C. § 1396p(d)(4)(C)(ii).

[6] Due to the funds being invested, there is never any guarantee of returns.

[7] 42 U.S.C. §§ 1396p(d)(4)(A), (d)(4)(C)(iv).

[8] 42 U.S.C. § 1396p(d)(4)(C)(iv); Social Security POMS SI 01120.203(D)(8).

Despite the federal allowance, some states have set limitations on what percentage the pooled trust may retain. Examples include North Carolina (N.C.G.S. § 36D-6) and Georgia (Georgia DFCS Medicaid Policy Manual Section 2337-2).

[9] The pooled special needs trust’s remainder policy should be easily available on their website and included in their joinder agreements.

[10] 42 U.S.C. § 1396p(d)(4)(A).

Social Security POMS SI 01120.203(B)(3)

[11] Department of Health & Human Services, Centers for Medicare & Medicaid Services, May 12, 2008, State Agency Regional Bulletin No. 2008-05Medicaid Eligibility – Application of Transfer of Assets Penalty for Pooled Trust.

[12] According to the Uniform Law Commission, as of September 2024, eighteen states have enacted the 2015 Uniform Decanting Act, and it has been introduced in two additional states.

https://www.uniformlaws.org/committees/community-home?communitykey=5b248bac-9251-47fb-bad8-57a23f3df540

In addition, many other states have their own decanting statutes that were enacted prior to the Uniform Law Commission proposing the Uniform Decanting Act in 2015.

[13] If the original trust is a first-party special needs trust, even with the authority to transfer the funds into a first-party pooled special needs trust, the joinder agreement must still be signed by the beneficiary, either themselves or by their agent under a power of attorney with the necessary authorities; the beneficiary’s parent, grandparent, or legal guardian; or a court. 42 U.S.C. § 1396p(d)(4)(C)(iii); Social Security POMS SI 01120.203(D)(6).

[14] Except as it relates to the beneficiary with a disability, the second special needs trust receiving assets from the first trust “must grant each other beneficiary of the first trust beneficial interests in the second trusts which are substantially similar to the beneficiary’s beneficial interests in the first trust.” Uniform Trust Decanting Act, Section 13(c)(3).

“‘Beneficiary’ means a person that: (A) has a present or future, vested or contingent, beneficial interest in a trust; (B) holds a power of appointment over trust property; or (C) is an identified charitable organization that will or may receive distributions under the terms of the trust.” Uniform Trust Decanting Act, Section 2(4).

https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=a2373e59-2d11-ec52-5e7d-2a22f10677c7&forceDialog=1

[15] Social Security POMS SI 01120.203(E)(2).

Some third-party pooled special needs trusts may also not be permitted by their master trust agreement or policy to pay funeral expenses after the beneficiary passes away. In these cases, the funeral expenses should be pre-paid from the sub-account before the beneficiary passes away.

[16] 42 U.S.C. § 1396p(d)(4)(C).

[17] Even with the authority to transfer the funds into a first-party pooled special needs trust, the joinder agreement must still be signed by the beneficiary, either themselves or by their agent under a power of attorney with the necessary authorities; the beneficiary’s parent, grandparent, or legal guardian; or a court. 42 U.S.C. § 1396p(d)(4)(C)(iii); Social Security POMS SI 01120.203(D)(6).

[18] According to the Uniform Law Commission, as of September 2024, thirty-two states/jurisdictions have enacted the 2006 Uniform Power of Attorney Act, and it has been introduced in two additional states. In addition, eight states/jurisdictions have enacted a previous version of the Uniform Power of Attorney Act.

https://www.uniformlaws.org/committees/community-home?communitykey=b1975254-8370-4a7c-947f-e5af0d6cb07c

[19] Uniform Power of Attorney Act, Section 201(a)(1) only permits the agent to create an inter vivos trust is if authority is explicitly given in the power of attorney document.

https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=035bcb2c-b21c-e96d-f80f-5bfa14c2d604

A 2022 Massachusetts Supreme Court decision raised doubts as to whether a principal can delegate the authority to create a trust to their agent under current Massachusetts law. Barbetti v. Stempniewicz, 490 Mass. 98 (2022).

In 2023, the Uniform Power of Act legislation was introduced to the Massachusetts legislature, which includes the authority to create an inter vivos trust. Bill H.1523.

[20] “Attempting to establish a [pooled trust sub-account] with the assets of another individual without proper legal authority to act with respect to the assets of that individual will generally result in an invalid trust under State law.” Social Security POMS SI 01120.203(D)(6)(b).

[21] Uniform Power of Attorney Act, Section 211(b)(7) only permits the transfer of the principal’s assets into a revocable trust.

https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=035bcb2c-b21c-e96d-f80f-5bfa14c2d604

[22] Uniform Power of Attorney Act, Section 201(b) includes the term: “An agent that is not my ancestor, spouse, or descendant MAY NOT use my property to benefit the agent or a person to whom the agent owes an obligation of support unless I have included that authority in the Special Instructions.” In this case, it would be important to consider the principal’s entire estate plan when deciding whether to include terms in the Special Instructions to allow the agent who is not an ancestor, descendant, or spouse to list themselves as a remainder beneficiary.

https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=035bcb2c-b21c-e96d-f80f-5bfa14c2d604

[23] However, if state law does not permit a principal to delegate the authority to create a trust to an agent, then these authorities will not have full effect.

[24] Social Security POMS SI 01120.203(D)(6).

[25] A first-party pooled special needs trust joinder agreement must be signed by the beneficiary, either themselves or by their agent under a power of attorney with the necessary authorities; the beneficiary’s parent, grandparent, or legal guardian; or a court. 42 U.S.C. § 1396p(d)(4)(C)(iii); Social Security POMS SI 01120.203(D)(6).

[26] Although after the balance of the ABLE account reaches $100,000.00, then the beneficiary’s SSI payments will be suspended until the balance falls below $100,000.00. Letter from Centers for Medicaid and Medicare Services, Re: Implications of the ABLE Act for State Medicaid Programs, footnote 5.

https://www.medicaid.gov/federal-policy-guidance/downloads/smd17002.pdf

[27] This contribution limit is tied to the federal annual exclusion for gifts. 26 USC § 529A(b)(2).

[28] 26 U.S.C. § 529A(e)(5).

[29] This provision is adapted from the Virginia ABLEnow Durable Limited Power of Attorney form. https://www.ablenow.com/uploads/documents/ABLEnow_Durable_Limited_POA_Form.pdf

[30] The ABLE Act is far more expansive in its list of persons who can establish an ABLE Account for the beneficiary: the beneficiary themselves; their agent under a power of attorney; their guardian or conservator; their spouse, parent, sibling, or grandparent; or their Social Security representative payee. 26 CFR 1.529A-2(c)(1)(i)(C).

Published in NAEPC Journal of Estate & Tax Planning, Issue 46 - May, 2025.

Evaluating Pooled Trusts in 2024

Tue, 22 Apr 2025 18:27:41 GMT

By M. Benjamin Tiefenback, Esq. Counsel & Director of Client Services.

Pooled special needs trusts (PSNTs) are a unique and valuable tool for holding first-party or third-party funds for a client. They can hold multi-million-dollar accounts down to accounts small enough that a for-profit trustee typically would not accept. The focus of this article is to help you, as an attorney, evaluate PSNTs as both a nonprofit organization and a corporate trustee so that you have confidence in recommending them to your clients. Generally speaking, you want to find a PSNT that will protect your clients, provide quality services, and adhere to the best practices in PSNT administration.1

There are many exceptional individuals who work in the PSNT industry that I am proud to be associated with.2 Unfortunately, in recent years, we have witnessed bankruptcy, SEC actions, lawsuits, PSNTs closing their doors, and new PSNTs beginning operation. Cases of misbehavior are rare, but there have been instances of PSNTs embezzling client funds.3 While these events affect a small percentage of PSNTs, they naturally raise serious concerns. As professionals we want to be prepared, to have done our due diligence, and to know that when we recommend a PSNT we can do so with confidence.

PSNTs are unique in the world of trusts in that they have numerous beneficiaries, all governed by a single master trust agreement, and must be managed by a nonprofit organization, with all of the unique requirements of nonprofit administration.4 So, PSNTs should be evaluated both as you would evaluate any other trust, and as a nonprofit organization. It is a good practice to offer three PSNT recommendations to serve as a starting point for your client to do their own research. These guidelines can assist you in selecting PSNTs to recommend.

Evaluating a Pooled Trust as a Nonprofit Organization

As in any business, there are bad actors in the nonprofit world. When working with a nonprofit organization, including PSNTs, it is important to understand the structure and the safeguards needed to avoid exploitation and scandal. The good news is that by law, tax-exempt organizations must make certain financial information public. Under 26 U.S.C. § 6033, every nonprofit must file a Form 990 with the IRS annually, and 26 U.S.C. § 6104 requires that those forms be made available for public inspection. Form 990 contains a wealth of information about a nonprofit’s finances. For example, you can see how much it spends on fundraising and executive salaries compared to its actual charitable programs. Additionally, websites such as CharityNavigator offer independent evaluations of nonprofits.

However, this doesn’t necessarily tell you the full story because falsified records have been at the heart of some notable PSNT fraud scandals. So, what else can a discerning attorney look at when trying to find a PSNT they can rely on to honestly, openly, and reliably administer a trust account for a client? The fundamental underlying issue is the presence of checks and balances. If a board member, officer, or employee has bad intentions, does the PSNT have policies and procedures in place to maximize the chance that person will be detected and called to account.

Questions to ask when evaluating a PSNT as a nonprofit organization include:

1. Who is on the board of directors?

Look for a genuinely independent board of directors. Members of the board should be free of conflicts of interest, and the PSNT should be open about this information. Do they submit regular conflict of interest disclosures? Are there multiple CPAs and investment professionals serving on the board to oversee the organization’s investments, and to review and approve the organization’s Form 990 and other financial records (such as monthly financial reconciliations and investment policy statements) both for the organization and for the trusts? Information about the board should be publicly available for you to learn their professions and credentials and to ensure that they are truly independent and do not financially benefit from the PSNT. You should be able to learn what committees exist within the board, how often the board meets, the tenure of board members, and the bylaws. A PSNT that is dedicated to transparency will have no need to conceal any of this information.

2. Is the PSNT transparent about finances?

This goes beyond the mandatory reporting required of all nonprofits, such as posting a Form 990. A PSNT that has a legitimate commitment to transparency will be open to answering probing questions about their finances. Is the PSNT’s fee schedule readily available? How often does the PSNT send statements to its beneficiaries? The gold standard would be a minimum of quarterly statements, with regular online access to account information.

Evaluating a PSNT as a Corporate Trustee

Here are some helpful things to review and questions to ask:

1. Review the joinder agreement and master trust agreement.

This is the basic due diligence in evaluating any trust, pooled or not. It would be impossible to fully develop the topic of how to evaluate a legal document as complex as a master trust agreement in this brief article, but these documents should be readily available for the public to review — ideally posted publicly, but at least available on request. Different PSNTs offer different levels of flexibility in their joinder agreements, and you should look for one that fits your client’s needs.

2. How does the PSNT safeguard against exploitation?

In addition to an independent board of directors, PSNTs can implement numerous policies to ensure that bad actors are unable to exploit beneficiaries. These policies should be readily available and clearly communicated, either through a website or other publication, or on request. Does the PSNT protect whistleblowers? How many people review transfers of funds? Are there multiple eyes on every flow of money in and out of the trust? Best practices suggest that a PSNT should have at least two different people reviewing every distribution after the initial request. As an example, an organization might have one person open the mail, a second person enter the information into a database, and then a first approver and second approver review the distribution — with the final approver unable to make changes to the amount, payee, and other key information.

Additionally, every PSNT should have regular outside audits of their financial operations, their internal procedures, their electronic security, and the management of their investments. Ask the PSNT how often they are audited and by who — this information should not be secret. For example, financial audits should be conducted by a reputable CPA firm.

3. What are the staff’s qualifications?

This information should be available, either posted on the PSNT’s website or on request. Do the staff have relevant education and training? Backgrounds in fields directly relevant to special needs trust administration are a positive indicator. Inquire as to the PSNT’s hiring processes, particularly whether criminal background checks are conducted. Section 19 of the Federal Deposit Insurance Act prohibits persons convicted of a “criminal offense involving dishonesty” from owning or participating in the operations of a bank.5 The nonprofits that administer PSNTs do not fall under these laws, but best practices demand that PSNTs use similar vigilance in hiring.

4. Is the website easy to navigate and are the policies and procedures readily available?

With any trust arrangement, transparency is critical, and in the 21st century it requires a clear, informative, and easy-to-use website. Easy access to important documents like a fee schedule, disbursement policy manual, or master trust agreement is a sign of a general culture of transparency. Critical information should be easy to find. In particular, best practices suggest that the PSNT should have a written investment policy, both made available upon account creation and easily available to the public. Inquire as to how frequently this policy is reviewed — every PSNT should have their investment policy reviewed by investment advisors at least annually.

5. What is the remainder policy after the beneficiary passes away?

A best practice is to evaluate how the PSNT uses its remainder funds. Federal law and the laws of many states allow a PSNT to retain part or all of the remainder of a trust after the beneficiary’s death to advance their charitable purposes. You should review how much of the remainder is allocated to operations, special projects, or for marketing purposes. PSNTs have varied policies on this, so you should carefully consider what will happen to trust funds after the beneficiary passes away.

Conclusion

In the wake of a recent PSNT scandal, attorneys have a critical role in vetting PSNTs for our clients. In evaluating PSNTs, the details are important, but it’s also important to keep your focus on what those details are telling you. When building your list of preferred PSNT providers, the fundamental question you are asking is, “To the best of my knowledge, will this organization honestly, competently, and compassionately safeguard my client’s money?” And, to assure that you are making sound recommendations, your PSNT provider list should be subject to at least an annual review of the PSNT filings, website, joinder agreement and master trust agreement, and feedback from your peers about their experiences.

1 There are guidelines, but not laws, regarding the best practices for PSNT administration. See e.g. Stephen Dale et al., Life Passages PSNT Best Practices Guidelines, Stetson University College of Law (revised 2020), https://www.stetson.edu/law/academics/elder/home/media/Best_Practices_Guidelines_Final_42022.pdf (accessed Oct. 17, 2024).

2 The author is Counsel and Director of Client Services at Commonwealth Community Trust, a nonprofit pooled trust administrator.

Published in NAELA News, Volume 36 Issue 4, Oct, Nov, Dec 2024.

Pooled Special Needs Trusts

Tue, 09 Apr 2024 19:12:29 GMT

Written By Rachel Baer, Esq., Counsel and Director of New Client Services at Commonwealth Community Trust

Special needs trusts are incredible tools to protect assets and means-tested benefits for people with a disability. There are two types of special needs trusts (SNT)—standalone special needs trusts and pooled special needs trusts. While many attorneys focus on standalone trusts, pooled trusts are more accessible to many clients due to the lower setup costs and the availability of professional administration with low starting balance requirements and reasonable ongoing fees. Whether the trust is large or small, pooled trusts should be presented as an option for clients to consider when choosing a special needs trust.

This paper will lay out the basics of pooled special needs trusts, followed by a chart outlining the differences between pooled and standalone special needs trusts and a list of topics to consider when evaluating a pooled special needs trust.

Getting Started

One of the best features of a pooled SNT is that no drafting is needed! When the pooled SNT is established by a non-profit organization, first-party and third-party master trust agreements are drafted by an experienced special needs attorney. A client joins the pooled SNT by completing and signing a first-party or third-party joinder agreement, and then that client then has a “sub-account” with the pooled trust that is governed by the master trust.

Once the client has a sub-account (either first-party or third-party), then the sub-account is ready to be funded. Many pooled trusts have low starting balance requirements—often under $10,000, which makes a pooled SNT a great option for sums under $100,000 that already fall below the standard as an uneconomical trust. First-party sub-accounts are funded with money that belongs to or is owed to the beneficiary, like personal injury settlement proceeds, inheritance left outright to the beneficiary, Social Security back payments, child support, and more. Third-party sub-accounts are funded by estate plans and gifts from the beneficiary’s family and loved ones.

While anyone other than the beneficiary can establish a third-party sub-account for the beneficiary, federal law states that a first-party sub-account may only be set up by the beneficiary; the beneficiary’s agent under a valid power of attorney, legal guardian, parent, or grandparent; or a court. [1] Further, if the beneficiary is sixty-five years of age or older, federal law only allows them to set up a first-party pooled SNT; a standalone first-party SNT is not an option once the beneficiary reaches age 65. [2]

Investments

The pooled SNT is named for its investment structure. While funds in sub-accounts are segregated for ownership and accounting purposes, they are pooled together to invest. This allows for the possibility that the funds will receive a greater return because rather than investing a small sum, the total value of the sub-accounts are pooled together. It is important that the financial advisor, who is advising the trustee, tailor the investment strategy to be appropriate for special needs trust beneficiaries. Pooled trusts will often have more than one portfolio so that beneficiaries can be assigned to a pool with an investment strategy that best aligns with their needs.

Administering the Sub-Account

Once the sub-account is funded, then it can be used for the beneficiary. The normal SNT distribution rules, such as restrictions if the beneficiary receives SSI, apply equally to a pooled and standalone SNT. The beneficiary and their legal representatives, friends, and family work with the pooled trust staff to submit requests for funding and distributions that will enrich the beneficiary’s quality of life. Pooled trusts often have policies regarding what distributions can be approved or denied by a client services staff member and when it should be considered by a distribution committee. Pooled trusts can then directly pay a bill, reimburse a third-party who paid a bill, or load funds onto a pre-paid debit card so that the beneficiary or their representative can make the purchase directly. The pooled trust should also make it easy for the beneficiary to access their sub-account’s balance and see transactions through an online portal or app.

It is also critical that the beneficiary’s funeral expenses be paid in advance using a pre-need contract. Most pooled trusts close the sub-account upon the beneficiary’s passing and are therefore unable to distribute funds to pay for costs related to cremation, burial, funeral, etc.

Closing the Sub-Account

Every pooled trust has a different policy on how it handles remainder funds after the beneficiary passes away. What happens depends on (1) whether the beneficiary had a first-party or third-party sub-account and (2) the rules of the pooled trust.

For third-party sub-accounts, the remainder will be distributed to the remainder beneficiaries named in the joinder agreement, unless it is the policy of the pooled trust to retain part or all of the remaining funds.

For first-party sub-accounts, federal law allows the pooled trust to retain the remaining funds upon the beneficiary’s passing. [3] Even if the pooled trust does not retain the funds, the remainder beneficiaries cannot receive any funds until Medicaid has been fully repaid. Each pooled trust has a different policy on whether they retain funds and when funds can be distributed to remainder beneficiaries after Medicaid has been repaid.

[1] 42 U.S.C. § 1396p(d)(4)(C)(iii); Social Security Program Operations Manual System (POMS) SI 01120.203(D)(6).

[2] 42 U.S.C. § 1396p(d)(4)(A).

[3] 42 U.S.C. § 1396p(d)(4)(C)(iv).

Evaluating a Pooled Special Needs Trust

1. Review the terms of the Joinder Agreement

2. Review the terms of the Master Trust Agreement

3. What are the fees (both enrollment and ongoing)?

4. What is the minimum opening balance?

5. How long has the non-profit served as a pooled trust administrator?

6. Does the non-profit have managerial control over disbursements and day-to-day administration?

7. Who is on the Board of Directors?

8. How many staff members does the non-profit employ and what are their credentials?

9. How many beneficiaries does the organization serve?

10. Can the beneficiary maintain their sub-account if they move to another state?

11. Can the sub-account be transferred to another pooled or standalone special needs trust?

12. Are the governing documents, as well as policies and procedures, easily available on the website?

13. Can clients use an online portal or app to access account information and transactions?

14. Does each client have an assigned client services staff member?

15. Are phones answered during business hours?

16. Can clients easily submit disbursement requests online?

17. What is the timeline for reviewing disbursement requests?

18. Is there a disbursement manual or guide?

19. Can the beneficiary use a pre-loaded debit card to make allowable purchases?

20. What is the remainder policy after the beneficiary passes away?

Presented to the State Bar of Georgia as Continuing Legal Education (CLE).

A Comparison of Planning Tools for Disabled Individuals – Special Needs Trusts: Individual v. Pooled & First-Party v. Third-Party and The ABLE 529A Savings Account

Mon, 01 Nov 2021 01:00:00 GMT

By Karen Dunivan Konvicka, J.D., Former Director of Client Services and General Counsel

Planning for those with disabilities has multiple purposes from maintaining eligibility for public benefits to financial management and oversight for the beneficiary. The traditional special needs or supplemental needs trust funded with a family member’s or third party’s assets is the oldest and most utilized tool for estate planners, but the landscape changed in the 1990s when an individual was allowed to establish and fund his or her own special needs trust with his or her money. More recently, a new tool has been created through the Internal Revenue Code to mimic the 529 College Savings Plan that allows families and disabled individuals to save in a similar fashion as their college bound peers without jeopardizing public benefits. This article will address the utility and limitations of each.

Third Party Special or Supplemental Needs Trusts

Third party special needs trusts are those trusts funded with the assets of a third party and that limit the trustee’s authority to make distributions for the beneficiary’s support and maintenance or for any purpose that would jeopardize public benefits. The typical stated purpose is to provide for the beneficiary’s special or supplemental needs after taking into consideration the support provided to the beneficiary through government programs. The beneficiary cannot be the trustee and cannot have the authority to revoke or terminate the trust or direct distributions for his or her support and maintenance. See POMS SI 1120.200 D.1.b . Individual third party special needs trusts are administered by a trustee that may be an individual or a corporate fiduciary. The trust assets are invested and held specifically for that beneficiary with its own Taxpayer Identification Number and correlating responsibility to file a Form 1041 reporting the income thereon. Third party special needs trusts are typically “complex trusts” or “qualified disability trusts” which causes income to be taxable at the trust level unless it is “carried out” to the beneficiary. Income carried out to the beneficiary is reported to the beneficiary on a Schedule K-1. Individual third party special needs trusts can be testamentary in nature or created under an inter vivos trust agreement by a specific grantor. They are funded with lifetime gifts, estate or trust assets, qualified plans and insurance policies.

In contrast, pooled third party special needs trusts are administered by a nonprofit organization serving disabled individuals. The assets are pooled together for investment purposes with each beneficiary having an individual account within the pool. The nature of the investments allows pooled trusts to have lower fees and accept smaller account sizes than corporate fiduciaries would. Pooled trusts operate pursuant to one master trust agreement and the accounts for each beneficiary are created by executing a joinder agreement which is the contract “joining” the beneficiary with the pool. The account is funded by a lifetime gift, specific bequest or devise from an estate or trust, qualified plan or insurance policy. The pooled account would be designated as the beneficiary of an estate, trust, insurance policy or qualified plans. No additional trust need be created as a part of the estate plan. The trust administrator of the pooled trust is tasked with filing a Form 1041 for the entire pool and they are also typically taxed as complex trusts. The individual beneficiaries would receive a Schedule K-1 for any income carried out to the beneficiary. The joinder agreement, much like the trust document for individual trusts, specifies the remainder beneficiaries at the death of the disabled individual as well as any specific instructions to the trust administrator. When considering pooled trust options, the remainder policy must be reviewed carefully. Some pooled trusts retain the remainder at the death of the disabled individual to support its charitable purposes. Some do not and some retain a percentage. While choosing a pooled third party special needs trust is an excellent option, the remainder distinction can have enormous impact for families.

First Party Special Needs Trusts

For the first time, after the passing of the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) a disabled individual was empowered to create a special needs trust and fund it with his or her own money. The new statute specifically exempted trusts that complied with the statute from being counted as a resource for public benefits purposes. See 42 U.S.C. §1396(d)(4)(A) and (C) . Section (d)(4)(A) created the individual special needs trust, and Section (d)(4)(C) created the pooled special needs trust. ¹ The statute requires that these trusts be established by the disabled individual, a parent, grandparent, guardian, or the court; and, to the extent there are assets left in the trust at the beneficiary’s death, they must be used to repay the states up to the amount paid by the state agency for medical assistance provided to the beneficiary. All first party special needs trusts must be irrevocable and in the event of an early termination, Medicaid must first be repaid prior to distribution. But, “(d)(4)(A)” individual trusts and “(d)(4)(C)” pooled trusts have some differences too. The obvious difference is that individual trusts are invested and managed individually by a trusted family member, professional or corporate fiduciary. Pooled trusts, by contrast, pool the beneficiaries’ assets together for investment purposes, giving each beneficiary a sub-account within the pool that reflects the balance of that account. In addition, pooled trusts must be administered by a nonprofit organization and the statute allows the non-profit organization to retain the remainder for its charitable purposes without Medicaid repayment to the states. ² Much like the previous discussion of third party remainder policies, the remainder policies vary significantly from one first party pooled trust to the next. Layered onto the disparate remainder policies are disparate state statutes that dictate to the non-profit organizations the amounts or percentages that may be retained if not repaying Medicaid in full. The master trust agreement should describe a pooled trusts’ remainder policy. Because of the Medicaid repayment requirement, no first party trust, whether individual or pooled, for a Medicaid recipient can pay for funeral expenses prior to making the repayment. It is vitally important that these expenses be paid through a pre-need arrangement prior to death.

The ABLE 529A Saving Plan 3

After the passing of the Stephen Beck, Jr. Achieving a Better Life Experience Act of 2014, practitioners can now add the ABLE 529A Savings Plan as a third planning option for the disabled population. See 26 U.S.C. §529A . This plan was modeled after the 529 College Savings Plan but is utilized for disabled individuals who had the onset of a disability prior to the age of 26. The income in the account and certain expenses withdrawn from the account are not taxable and in some states an income tax deduction can be taken by the person funding the account. This tax advantaged plan has restrictions however, some of which mirror the 529 Plan. The maximum annual contribution, tied to the annual gift tax exclusion, is currently $15,000. The disabled individual may contribute a limited amount of wages earned under the ABLE to Work Act as well. An individual may only have one ABLE account and most states have imposed limits on the maximum account value. The first $100,000 is disregarded for means-tested public benefits. The value over $100,000 will be counted as a resource for Supplemental Security purposes, but it will not affect Medicaid eligibility. Just as the 529 Plan has allowable educational expenses that can be withdrawn without tax consequences, the 529A Plan has allowable “Qualified Disability Expenses” that can be paid from the account without tax consequences and without consequence to the person’s public benefit eligibility. The account must be set up by the disabled individual, a parent, legal guardian or person holding power of attorney for the disabled individual. The costs associated with the ABLE account are much less than even a pooled special needs trust and the accounts can be funded by the disabled individual and any third party (including a trust). Bear in mind that funding an ABLE account with third party assets, while economical from a fee standpoint, most likely subjects those funds to Medicaid repayment whereas funding a third party pooled account or creating a third party trust would not. The IRC statute ⁴ requires that ABLE accounts repay Medicaid for medical assistance, but unlike the first party special needs trust, the repayment is only for the time period during which the ABLE account existed, and in several states the Medicaid agencies are prohibited from seeking repayment at all unless required by federal mandate. In addition, the ABLE account can be used to pay funeral and burial costs prior to Medicaid repayment. Because of the autonomy the account offers to the disabled individual and the fact that some expenses can be paid from an ABLE account that cannot be paid from a trust, ⁵ there can be significant interplay between the two for qualifying beneficiaries.

These five options: individual third-party special needs trusts, third party pooled special needs trusts, stand alone first party special needs trusts, first party pooled special needs trusts and the ABLE account all have advantages and critical points to consider. In many cases, there is a need for more than one of these tools to adequately protect the disabled individual and meet the needs of the third party planning for a loved one.

1 Section (d)(4)(B) created the Income-Only Trust or Miller Trust, but it is only applicable in some states and is outside the scope of this article. 2 Presumably, this is why third party pooled trusts have adopted this practice as well 3 Additional information on the ABLE 529A Plan can be found on the website for the National ABLE Resource Center (https://www.ablenrc.org/). 4 26 U.S.C. §529A(f) 5 SSI recipients cannot receive third party assistance with food or shelter expenses; however, shelter expenses are qualified disability expenses under the ABLE act.

Published in the National Association of Estate Planners & Counsels (NAEPC) Journal: Issue 38

How a Pooled Special Needs Trust and ABLE Can Work Together to Close the Gap for SSI Recipients

Sun, 01 Aug 2021 18:45:00 GMT

By Joanne Marcus, MSW, President and CEO of Commonwealth Community Trust (CCT)

“Oh, I’ve been homeless.” says Christine, of Moneta, Virginia. “I never want that to happen again.” Christine has multiple sclerosis (MS). “It hurts to walk most of the time, so I have my push chair,” she explains. Christine’s need for stable housing and a way to pay for her disability expenses is top of mind for her. Christine’s disability prevents her from working, so she depends on Supplemental Security Income (SSI) and Medicaid to meet her living and medical expenses. Sometimes, however, those benefits are not enough. “Thank God I have my trust and ABLE. I’d be in trouble if I didn’t have them,” says Christine.

Joanne Marcus, President/ CEO of Commonwealth Community Trust (CCT), met Christine when she received an inheritance. For those receiving means-tested public benefits, such as Medicaid and SSI, an inheritance creates complex considerations. When given directly to a recipient of public benefits, an inheritance is counted as income when received and becomes a countable resource, if saved, and can threaten eligibility for these critical services. The inheritance became a threat to Christine’s access to her Medicaid and SSI payment.

CCT is a nonprofit organization that administers Pooled Special Needs Trust (PSNT) throughout the United States and is designed to help people in Christine’s situation. A PSNT improves quality of life of the beneficiary. PSNTs are funded with the beneficiary’s own money or the funds of a third party such as a parent, grandparent or family member.

Beneficiaries can enjoy the increased quality of life that comes along with increased financial resources, while still maintaining their access to critical government services and benefits such as Medicaid and SSI. Christine was able to use the money more effectively to support herself now and in the long-term. “It’s a blessing,” she says.

If Christine receives funds for food or shelter, in addition to the funds received from her SSI check, her SSI check will be reduced. CCT helps clients such as Christine manage their spending to ensure their eligibility for public benefits is protected.

This is where ABLE accounts and PSNTs can work hand in hand to meet the needs of beneficiaries. “I had this money, but I couldn’t use it for rent,” Christine told us. “It was really stressing me. Just trying to make plans, make do. It was really, really hard for me.” When Christine submitted housing expenses to CCT for disbursement, they could not pay those expenses directly without impacting her means-tested benefits, but they knew an ABLE account could help close the gap for Christine.

In cases where SSI payments are not enough to cover housing expenses, CCT will direct clients, who meet the criteria, to an ABLE account as a tool to enhance their PSNT while meeting critical shelter and other needs. The accounts are available to those who have a disability with onset prior to age 26. Caps to annual contributions and total balance apply. ABLE accounts are unique in that funds can be used for food and for certain housing and housing-related expenses without jeopardizing means-tested government benefits.

Christine opened an account with ABLEnow of Virginia. Now, CCT can disburse as much as $15,000 *(the ABLE contribution limit has increased to $16,000 for 2022) annually directly to Christine’s ABLEnow account and Christine can use that money to pay housing expenses that exceed her monthly SSI benefit, on her own behalf. This money is no threat to her eligibility for public benefits as long as she uses it within the same month it is disbursed for housing related “qualified disability expenses (QDE),” which include rent and electricity. When managed correctly by a PSNT, those disbursements do not threaten Christine’s benefits and give her the autonomy to pay her own housing expenses using an ABLE debit card or checkbook.

CCT makes deposits to Christine’s ABLE account for shelter expenses only. For other ABLE account users, the balance and the investment earnings are not countable or taxable income when spent on QDEs such as clothing, gas, maintenance for a car and haircuts. Upon the death of the beneficiary, the funds remaining in an ABLE account can be used to pay for outstanding QDEs including funeral and burial expenses. Trust beneficiaries can use their trust and ABLE accounts together to minimize fees and grow funds through ABLE investment options.

“When I first saw that money in my ABLE account, I called my aide over and just shouted, ‘YAY!’ I was so relieved,” says Christine.

Published on the ABLE National Resource Center’s Website, August 2021

Comparing and Understanding Pooled Trust Remainder Policies

Sun, 01 Aug 2021 00:00:00 GMT

By Karen Dunivan Konvicka, J.D., Former Director of Client Services and General Counsel

Introduction to Pooled Trusts

A pooled special needs trust (PSNT) is administered by a nonprofit organization that manages and invests funds for disabled individuals. The funds are “pooled” together for investment purposes, which allows the PSNT to offer lower administrative fees, and due to expanded investment opportunities, the potential for greater growth. The funds are then spent on goods and services for the beneficiary from his or her subaccount. The beneficiary’s assets in the PSNT are not “countable resources” for means-tested government benefits such as Supplemental Security Income (SSI) and Medicaid. Pooled trusts can be both first-party and third-party. The operations of PSNTs vary; in fact, there are so many moving parts to PSNTs, no two seem to look the same. PSNTs have different fee schedules, offer different services, implement different operational policies, and adopt different remainder policies. The remainder policy, which is the focus of this article, determines the distribution of the remaining funds upon the beneficiary’s death.

First-Party PSNTs

For most intents and purposes, first-party PSNTs are the same as “(d)(4)(A)” trusts and in fact, are defined at 42 USC 1396p(d)(4)(C), just two paragraphs following 42USC 1396p(d)(4)(A). The funds must be spent for the beneficiary’s sole benefit, disbursements are made at the discretion of the trustee, and at the death of the beneficiary, Medicaid must be repaid.

Since 2016 when a disabled individual was first allowed to establish his or her own (d)(4)(A) trust, there have been only three notable differences between the two types of first-party trusts: 1) PSNTs can be established ¹ by those 65 and older; 2) PSNTs are managed by a nonprofit organization; and, 3) after the death of the beneficiary, the nonprofit organization can, by statute, retain the remainder for its charitable purposes.

The first consideration is what processes occur immediately after the beneficiary’s death. First-party PSNTs, by definition, are “Medicaid payback trusts” that require the trustee to repay the state Medicaid agency for all medical services paid by the program, up to the amount remaining in the trust. After the beneficiary’s death and prior to Medicaid repayment, only two types of disbursements can be made pursuant to POMS SI 01120.203E.: 1) Taxes due from the trust to the State(s) or Federal government because of the death of the beneficiary; and 2) Reasonable fees for administration of the trust estate, such as an accounting of the trust to a court, completion and filing of documents, or other required actions associated with termination and wrapping up of the trust.

Many professionals incorrectly assume that all PSNTs retain the remainder of the sub-account upon the death of the beneficiary because 42 USC 1396p(d)(4)(C)(iv) states:

Not all pooled trusts do, however. Understanding and comparing the different remainder policies of different PSNTs will allow you to better inform your clients of the options they have when choosing a PSNT. The remainder policy should be a part of the master trust agreement or the joinder agreement (the contractual agreement between the beneficiary and the pooled trust) for each PSNT. If not easily accessible, it should be well-known by the staff when an inquiry is made.

Few PSNTs are as simple as the chart shown to the right. Some retain the balance of the remainder in its entirety no matter the size of the account or the years of its existence. Many retain a portion, dependent on definable circumstances, and some PSNT remainder policies are dictated by state regulations. Regardless of the proportion retained, PSNTs use the funds to further the charitable purposes of the nonprofit organization which often have ancillary programs benefiting the special needs population.

For the PSNTs that take a hybrid approach, the percentage of the retained funds may be dependent on the years the account existed; or the board of the nonprofit may set a maximum retention amount, or minimum distribution amount. And, often, the percentage is a decision made by the grantor at the creation of the subaccount.

In many states, regulations require that Medicaid be repaid in full prior to making any distributions whether to the nonprofit or successor beneficiaries. Some states impose a sliding scale based on the perceived work done by the PSNT that is usually measured by the years the account existed. For example, if the subaccount existed for one to five years, the nonprofit can retain 20% of the remainder, five to ten years, 40%, etc. The states do not dictate how much can be retained after Medicaid repayment.

Some PSNTs use a favorable remainder policy that may allow retention in lieu of Medicaid repayment, but never retain funds that would otherwise be paid to the successor beneficiaries. In other words, if the repayment amount is greater than the remainder, the PSNT retains the funds. If the repayment amount is less than the remainder, thereby leaving some money to be distributed to successor beneficiaries, the PSNT does not retain any of the funds but rather repays Medicaid and distributes the remaining balance to the named successor beneficiaries.

1 Although outside the scope of this article, it must be noted that while the federal statute does allow an individualwho is 65 and older to establish an account with a PSNT, many states and SSA impose a transfer penalty if that account is funded with the individual’s money within the look-back period. Such funding is considered a transfer of assets for less than fair market value and may cause a period of ineligibility for some public benefits. There are disparate rules imposed by different states and even within individual states these rules are constantly changing.

Published in NAELA News

How to Prepare Your Client for a Trust Administrator

Sat, 01 May 2021 00:00:00 GMT

By Joanne Marcus, MSW, President and CEO of Commonwealth Community Trust (CCT)

You have won the case for your client; however, the procedure for disbursing the settlement funds may not always be as simple as writing a check. When working with clients who have special needs or who are receiving means-tested public benefits such as Medicaid and Supplemental Security Income (SSI), the next step in the settlement process may be to recommend a pooled special needs trust organization to administer your client’s well-deserved funds. If your client with special needs receives the settlement directly, they would be over the allowable resource limit, jeopardizing their public benefits. In the case that a pooled trust is your recommendation, it is important to prepare your client for what to expect.

ROLE OF THE TRUST ADMINISTRATOR

The pooled special needs trust administrator has the responsibility to review each client’s disbursement requests to ensure the following criteria are met: (1) The request protects the client’s public benefits, (2) the request is for the sole benefit of the beneficiary, (3) the disbursement is prudent, and (4) the request adheres to the objectives and budget laid out for the use of the funds.

Understanding that the role and responsibility of a pooled trust administrator is discretionary, and that the administrator must make decisions to serve in the client’s best interest is important to convey to your client ahead of time.

ADMINISTRATIVE PROCESS FOR ACCESSING FUNDS

Given the responsibilities of a pooled special needs trust administrator, there is an internal process that each disbursement request goes through to make sure the criteria above are met, and appropriate documentation is received. Clients will need to take this processing time as well as shipping time into account to ensure their payments are made on time.

The trust administrator may offer tools to the client that increase efficiency for the disbursement process. A preloaded debit card option may be available that links the beneficiary’s trust account to a credit card set up in his or her name. The card is loaded for the beneficiary to use in place of a check and for the ease of making purchases such as movie tickets, gas and other day to day living items. Some trust administrators offer online access for clients to view their balance, make disbursement requests, download past statements, and more.

TYPES OF ALLOWABLE DISBURSEMENTS

Examples of allowable disbursements include, but are not limited to: assistive technology, medical devices, services not covered by insurance, clothing, household items, care providers, cable, internet, or phone bills, and much more. If a client is receiving SSI, disbursements for food or shelter related expenses for which SSI is already earmarked to pay would not be allowable, unless under extenuating circumstances but could result in a reduction of benefits. In addition, since disbursements must be for the client’s sole benefit, purchasing gifts for someone other than the beneficiary would not be permitted. If the client shares a bill with other people, their trust will be used to pay only the beneficiary’s portion.

Often, clients may have credit card bills they wish to pay off or wish to use their trust funds to repay borrowed money to another individual. Please advise your client to save receipts as receipts will be required in order to avoid appearing as if the trust is making a distribution to someone other than the beneficiary, violating the sole-benefit rule. Additionally, if your client is on SSI, and the debt includes payment food or shelter related expenses, we will subtract those amounts to avoid jeopardizing benefits.

Additionally, in cases where your client may be interested in purchasing a house or vehicle with their trust funds, you may advise that these are allowable purchases. However, please reiterate to your client the necessity of getting in touch with the trust administrator at the beginning of the process as there is specific documentation required during the distribution procedure to assure that the purchase will be approved.

INVESTMENT STRATEGY

Funds in a pooled special needs trust are pooled for investment purposes and records are maintained for each individual subaccount. Since the funds from all subaccounts are pooled together, administrative fees are reduced. Clients will see the market fluctuation reflected on their financial statements, as well as administrative fees. It is important to explain the while the investments have the potential for growth that over time it is possible that your client will see dips and rises on their statements as the market fluctuates. It can be a surprise to clients when they see their statement if they do not know ahead of time that their funds are invested.

DEPOSITS

Family members or friends of the client may wish to deposit funds into the subaccount. However, there are two types of pooled trusts based on whose money funds the trust. Only the client’s own money can go into the first-party (or self-settled) pooled trust. If a family member wishes to set up a trust with their money, they will need to explore the third-party pooled trust option. Additionally, the client cannot place their SSI checks into their trust, as this would jeopardize benefits.

CONCLUSION

A pooled special needs trust is a wonderful option for your client’s settlement funds in the case when they have special needs and are receiving means-tested benefits. While the trust administrator must follow certain guidelines when disbursing the client’s funds, they are doing so with the client’s best interest in mind while protecting benefits. Explaining the role of the trust administrator to your client is an important step in transitioning them to working with a pooled trust.

Published by the National Medicare Secondary Payer Network as their May Featured Article

Benefits of a Pooled Special Needs Trust for Clients with Special Needs

Mon, 01 Mar 2021 00:00:00 GMT

By Joanne Marcus, MSW, President and CEO of Commonwealth Community Trust (CCT)

This is the first article in a two-part series discussing Pooled Special Needs Trusts (PSNTs) and Medicare Set-Aside (MSA) accounts. This article will present an overview of PSNTs, their benefits, how to set up a PSNT for a client with special needs, and what to do for clients who also need an MSA.

Understanding PSNTs

A PSNT is administered by a nonprofit organization that manages and invests funds for individuals with special needs. Distributions are made from the trust to purchase goods and services that supplement public benefits and enhance the beneficiary’s quality of life. All beneficiaries must have a disability, but not all beneficiaries receive public benefits. In some instances, a PSNT is a good option for beneficiaries who simply cannot manage their own financial affairs. Funds placed in a PSNT are not countable resources and do not affect eligibility for means-tested benefits such as Supplemental Security Income (SSI) and Medicaid. Failure to consider a client’s means-tested benefits can result in a malpractice claim, a breach of fiduciary duty, or a dereliction of duty.

The following chart provides key information about Medicaid and SSI:

Clients may receive SSI, Medicaid, Medicare, Social Security Disability Insurance (SSDI), or a combination of benefits. The important consideration is that the individual has a disability. The following chart describing SSA’s definition of disability can be used as a guide:

Any adult or minor who is blind is considered disabled for purposes of the SSA.

The following describes two ways in which PSNTs are utilized:

How Pooled Funds are Managed and Invested

Trust funds are “pooled” together for investment purposes, offering lower administrative fees and the potential for greater growth opportunity. Individual sub-accounts are maintained for each beneficiary, and all earnings based on a beneficiary’s share of the principal are reinvested into each sub-account. The beneficiary, or the beneficiary’s advocate, should have access to account information online or via financial statements sent on a regular schedule. PSNTs serve beneficiaries of varying account sizes from modest settlements to those of more substantial amounts. Funding can be a lump-sum or part of a structured settlement. It is not unusual for a bank or other financial institution to require a minimum of $350,000 to $500,000 to fund a trust. A nonprofit organization, on the other hand, may only require a minimum of $5,000 to fund a PSNT.

Setting Up a PSNT

Each grantor joins the pooled trust and agrees to the terms of the Master Trust Agreement by completing a Joinder Agreement, the legal document to join the PSNT. The Master Trust Agreement allows the nonprofit organization to administer the pooled trust and sets out the terms of that administration.

To serve clients properly, trust administrators have the expertise to make disbursement decisions and understand the rules set forth by the Social Security Administration (SSA) and Medicaid offices in each state. Disbursements from the trust are for the sole benefit of the beneficiary. The following are examples of what a PSNT can be used for:

Remainder Policy

Funds remaining in the account, upon the death of a beneficiary who received Medicaid, are subject to repayment to the state(s) for medical bills paid during the beneficiary’s lifetime. Federal law allows the nonprofit organization to retain the remainder for its charitable purposes in lieu of this repayment, but not all do. Some only retain in the instance that successor beneficiaries would not receive any remainder, and some retain all. Since the policies of individual PSNTs differ, it is important to check with each one to understand its remainder policy completely.

Structured Settlements

Weaving a structured settlement into a PSNT provides tax advantages and future financial security for the beneficiary. The structure can be funded by the defendant’s insurance company, but most companies assign that liability by purchasing annuities to make the payments. Assignments must be done pursuant to IRS Code Section 130 to “qualify,” and these qualified assignments, which are irrevocable, must be done at the time of settlement.

Annuity payments should be made payable to a PSNT and not to the beneficiary as that can cause ineligibility for benefits during the period of the annuity payments. The contingent or successor payee should also be the PSNT to satisfy the Medicaid repayment requirement. A commutation clause which provides for a lump-sum payment to the SNT at the beneficiary’s death should be included as part of the annuity contract. Receiving the commuted value of the remainder allows for orderly administration of the trust including timely repayment to states and immediate payment to successor beneficiaries of remaining assets.

Summary

Setting up a PSNT can alleviate stress by providing individuals with a cost-effective framework for money management. The second article of this two-part series will explore the advantages of nesting an MSA account inside a First-Party PSNT.

Published in Workers’ F1RST Watch: Spring 2021 Issue | Workers’ Injury Law & Advocacy Group (WILG)

Estate Planning for the Personal Injury Client: Understanding Disability Benefits

Mon, 01 Feb 2021 00:00:00 GMT

By Karen Dunivan Konvicka, J.D., Former Director of Client Services and General Counsel

Estate planning can encompass much more than taxes. When an injury attorney colleague asks about planning for the client’s settlement, be prepared to answer. The foremost issue is determining how it will affect the client’s public benefits, if any. If there are benefits to protect, there are planning opportunities; if not, the client may still need the protection of a trust. The immediate questions are: What type or types of benefits is the client is receiving? And will the settlement put these benefits in jeopardy? Perhaps the attorney has not considered benefits but is concerned that the client is incapacitated and will need the assets managed; or perhaps public benefits may be necessary in the
future.

How did the client receive benefits — through means-testing or due to work history? Medicaid, the means-tested public health benefit is available for people with disabilities who are also impoverished, which is defined as having less than $2,000 in resources and below 133% of the federal poverty income limit. Personal injury proceeds may not be taxable, but they are countable resources. Medicare, by contrast, is the earned health care coverage received by permanently disabled workers who have worked enough quarters to become eligible. In addition to health benefits, income benefits are available to the disabled. Supplemental Security Income (SSI) is a means-tested benefit just as Medicaid is, whereas Social Security Disability Income (SSDI) is earned income provided to the eligible disabled worker based on the amount withheld from earnings while working.

The Medicare Secondary Payor (MSP) Act, 42 U.S.C. §1395y, requires that an individual receiving compensation for an injury, must use that compensation for the injury related expenses. Medicare, therefore, becomes the secondary payor for these injury related expenses. The MSP has long been enforced for Workers’ Compensation awards, and Workers’ Compensation attorneys are well versed in the necessity for Medicare Set-Aside (MSA) accounts to manage the proper use and expenditure of the compensation. The Centers for Medicare and Medicaid Services (CMS) has been indicating that it will begin enforcing the MSP for liability cases in the near future. Some clients are eligible for both Medicare andMedicaid. Both can be protected, but not without some planning because an MSA is a countable resource. Adding additional complexity, many
plaintiffs are choosing to utilize a qualified assignment of a structured settlement to minimize the tax consequences of growth on the award, see 26 U.S.C. 104(a)(2) and 130. While providing important tax benefits to the client, structured settlements also have pitfalls to be avoided when public benefits are involved.

Special Needs Trusts to Protect Public Benefits

The courts have held that not considering and planning for the client’s means-tested government benefits can result in a legal malpractice claim, Grillo v. Pettiette et al., 96-145090-92 (96th Dist. Ct., Tarrant Cty., Texas), and Grillo v. Henry Cause, 96-167943- 96, (96th Dist. Ct., Tarrant Cty, Texas), or a breach of fiduciary duty or dereliction of duty if not considered by a fiduciary or denied by a court, Department of Social Services v. Saunders, 247 Conn. 686, 724 A.2d 1093 (1999).

Clients receiving Medicaid, which can come in the form of health insurance benefits, long-term care, and waiver programs for those with intellectual disabilities, family support, technology assistance, home and community- based care, etc., must be advised that receiving the settlement proceeds will endanger these benefits. In the case of waiver benefits, there are often long waiting periods before the individual
can receive these waivered benefits again if the client loses eligibility making the timing of the payout and the planning especially important. Creating and funding a special needs trust pursuant to 42 U.S.C. §1396p(d)(4) ¹ will preserve these benefits.

Both stand-alone special needs trusts (SNTs) created under (d)(4)(A) and pooled special needs trusts (PSNTs) created under (d)(4)(C) are options to consider. When considering the stand-alone SNT, one must look at the choice of trustee. Banks and trust companies will agree to serve, but consider the cost benefit of these services given the size and value of the trust created. Many require minimum funding and fees can be steep. Family members may agree to serve as trustee, but while the family members usually have good intentions, they may not be equipped to monitor the disbursements for compliance with the complex federal regulations governing public entitlements. Mistakes can cause a period of ineligibility for Medicaid or a reduction in or loss of SSI benefits.

By contrast, PSNTs are administered by a non-profit organization, that works solely for the benefit of disabled individuals, and usually has great expertise in the administration of SNTs and the intricacies of Medicaid regulations and the Social Security Administration’s Program Operations Manual System (POMS). Assets in a PSNT are pooled for investment purposes, but each beneficiary has an individual sub-account, allowing investment and management fees to be less than stand-alone trusts. SNTs can be created by the individual, a parent, a grandparent, a guardian, or a court. Although PSNTs can be funded by those who are 65 and older (SNTs cannot), depending on the client’s state regulations, there may be a transfer penalty for funding the PSNT when 65 or older.

Finally, a stand-alone SNT must have a repayment provision that requires that the states providing medical services to the beneficiary must be paid back upon the death of the beneficiary. In contrast, the non-profit organization administering the PSNT is allowed to retain the remainder after the death of the beneficiary for the benefit of other people with disabilities. Some pooled trusts retain the remainders, some do not, and some have a hybrid approach. For example, Commonwealth Community Trust (CCT), only retains the remainder if the repayment amount is greater than the balance in the trust. When the repayment is less than remainder, CCT first reimburses the states’ Medicaid agencies, and then distributes to the successor beneficiaries. CCT never retains funds if the successor beneficiaries would have received the remainder otherwise.

Medicare Set-Asides Nested within the Special Needs Trust

In February 2017, and again in April 2017, CMS released transmittals ² requiring Medicare Administrative Contractors (MACs) to deny payment for services related to or associated with an open Liability Medicare Set-Aside (LMSA) or No-Fault Medicare Set- Aside (NFMSA). It warned in these transmittals ³ that CMS will begin denying payment for items and services that should instead be paid by a primary payor such as an insurance company or third party by October of 2020. No transmittal has been released mandating these set-asides nor has a formal process for Liability Medicare Set-Asides been dictated, but the writing is on the wall. Early in 2020, CMS released another article reiterating its position that Medicare should not be billed until any payment from a primary payor has been exhausted. ⁴

Adding more planning requirements, an MSA is a countable resource for public benefits purposes and will jeopardize benefits such as Medicaid and SSI with only one possible exception. ⁵ Careful planning to nest the MSA in a SNT allows management of the set-aside portion of the funds and the remainder of the settlement proceeds, while protecting eligibility for means-tested benefits, and ensuring that injury-related expenses are covered.

Clients not receiving means-tested benefits may ask about self-administering the MSA. While the answer is yes, the recordkeeping and accounting can be complex. The account must be funded either with a lump sum from the settlement or with seed money and subsequent settlement annuity payments. The account must be an entirely separate interest-bearing checking or savings account with no co-mingling of non-MSA funds. Interest earned must also be used for medical expenses related to the injury suffered that would otherwise be covered by Medicare.

Meticulous records of the distributions and expenditures must be maintained. For liability MSAs, accounting is required when the account balance reaches zero while Workers’ Compensation cases have annual reporting requirements. Medicare will use this report to confirm that all MSA funds have been exhausted and spent properly before the client can start to submit bills to Medicare. CMS has recovery rights when it has paid where it should not have and can levy damages and suspend Medicare benefits until the funds are paid back.

Weaving in a Structured Settlement

When incorporating a structured settlement into the already complex planning necessary to maintain public benefits and Medicare coverage, there are several issues to consider. Internal Revenue Code Section 104 ⁶ provides that personal injury settlements for physical injuries are not taxable. Income from those proceeds may be tax-deferred as well, if the settlement is structured pursuant to Internal Revenue Code Section 130. ⁷ Because of the tax advantages, as well as future financial security in the form of future payments, many cases include a qualified assignment funded by a structured settlement as a part of the mix. The structure can be funded by the defendant’s insurance company, but most assign that liability from their books by purchasing annuities to make the payments. Funding with an annuity is allowed pursuant to Internal Revenue Code Section 130,8 but the qualified assignment must be done at the time of settlement. The timing and sequence of events are critical. Moreover, the insurance companies selling these annuities must be highly rated by companies such as AM Best and Standard & Poor’s.

The choice of trustee may be complicated by a structured settlement. Many bank and trust companies have minimum deposit requirements. PSNTs usually have much smaller initial funding requirements and can accommodate the lower account size over time due to the continuing income stream.

While the initial funding may be payable to the SNT, whether by court order or otherwise, careful attention must be paid to the payee designation in the annuity documents. It must name the SNT as the payee. Many times, the insurance agents writing these annuities are not aware of the devastating effect of naming the beneficiary as the payee rather than the SNT, and the attorneys are concentrating on the court order, which even if correct, does not control the annuity. Once the qualified assignment is made and the annuity purchased, it is irrevocable. If the beneficiary is accidentally named to receive annuity payments in the future, his or her public benefits can be lost for the period of the annuity payments. This period is often years or for the life of the beneficiary. At a minimum, benefits such as SSI and Medicaid would be jeopardized in the months in which payments are received.

SNTs must contain a payback provision to reimburse the states that have provided Medicaid benefits to the beneficiary at the time of the beneficiary’s death. Therefore, the contingent or successor payees of the annuity must also be the SNT. Many states have memorialized that requirement in their Medicaid Manuals; however, the prudent course of action, even if in a state that has not, would be to ensure the entire amount of the structured settlement will eventually be paid to the SNT. While naming a successor payee at the death of the beneficiary may be an inventive way to avoid the repayment provision, the provision may cause the loss of means-tested benefits if the beneficiary moves to a state prohibiting such an arrangement.

Finally, if the annuity payments are for a term certain and not just for the life of the beneficiary, then a commutation clause should be included as a part of the annuity contract. A commutation clause provides for a lump-sum payment at the death of the beneficiary based on several different factors decided at the time of the annuity purchase. Receiving the commuted value of the remainder of the annuity at the time of the beneficiary’s death allows for the orderly administration and winding up of the SNT. The states’ Medicaid departments can be repaid, and any remaining assets in the trust can be distributed to the successor beneficiaries immediately. Fees and administrative costs necessary to leave the trust open while annuity payments continue are unnecessary, but most insurance companies require a commutation clause to commute the value of an annuity.

1 https://www.govinfo.gov/content/pkg/USCODE-2010-title42/pdf/USCODE-2010-title42-chap7-subchapXIX.pdf. 2 CMS Manual System, Pub. 100-04 Medicare Claims Processing, Transmittal 3750 (Apr. 19, 2017), https://www.cms.gov/Regulations-and-Guidance/Guidance/Trans. 3 Dept. of Health and Human Services, CMS, MLN Matters Number MM9893 Revised, (Jun.9,2017), http://www.mymedlien.com/wp-content/uploads/2017/06/LMSA-Article-2-CR9893.pdf. 4 https://www.cms.gov/Outreach-and-Education/Medicare-Learning-NetworkMLN/MLNMattersArticles/Downloads/SE17019.pdf. 5 Williford v. North Carolina Department of Health and Human Services (N.C. Ct. App., No. 16-393, Nov. 15, 2016). 6 Internal Revenue Code § 104-1, Compensation for injuries or sickness, https://www.gpo. gov/fdsys/pkg/CFR-2012-title26-vol2/pdf/CFR-2012-title26-vol2-sec1-104-1.pdf. 7 Internal Revenue Code § 130, Certain personal injury liability assignments, https:// www.gpo.gov/fdsys/pkg/USCODE-2011-title26/pdf/USCODE-2011-title26-subtitleA-chap1-subchapB-partIII-sec130.pdf.

Published in the National Association of Estate Planners & Counsels (NAEPC) Journal: Issue 36

What Is a Pooled Special Needs Trust

Fri, 18 Dec 2020 00:00:00 GMT

Published on the online blog of the National Institute on Mental Illness (NAMI)

By Joanne Marucs, MSW, President/CEO

1 in 5 adults have a mental illness and nearly 1 in 25 adults have a serious mental illness. When an illness impacts the individual’s ability to work or manage their finances, a plan is necessary to ensure careful management of funds. There are multiple options for future financial planning for loved ones with mental illness, but one such option is a Pooled Special Needs Trust (PSNT) .

This article provides information about PSNTs, the benefits of using a PSNT, what can be paid for by the trust, and the steps to establish one.

Understanding PSNTs

A PSNT is administered by a nonprofit organization that manages and invests funds for people with disabilities. The funds are used to enrich the quality of life of the beneficiary and to protect government benefits, such as Supplemental Security Income (SSI) and Medicaid. The funds are pooled together for investment purposes, which reduces administrative fees and provides an opportunity for growth.

There are two types of trusts:

For families that are setting up a third-party PSNT and planning for the future, it is helpful to ask the following questions:

The Benefits Of A PSNT

What Can The Trust Pay For?

Disbursements are not permitted for food or shelter if the beneficiary receives SSI but can pay for expenses that enrich the quality of life of the beneficiary.

Examples include:

How Can I Set Up A PSNT?

With its many benefits, a PSNT can be a convenient and cost-effective option for those living with mental illness.

Benefits of a Pooled Special Needs Trust

Wed, 02 Dec 2020 00:00:00 GMT

By Joanne Marcus, MSW, President and CEO of Commonwealth Community Trust (CCT)

A pooled special needs trust (PSNT) is administered by a non-profit organization that manages and invests funds for individuals with special needs. Distributions are made from the trust to purchase goods and services that supplement public benefits and enhance the beneficiary’s quality of life. All beneficiaries must have a disability, but not all beneficiaries receive public benefits. In some instances, a PSNT is a good option for beneficiaries who simply can’t manage their own financial affairs. Funds placed in a PSNT aren’t countable resources and don’t affect eligibility for means-tested government benefits such as Supplemental Security Income (SSI) and Medicaid. Failure to consider a client’s means-tested benefits can result in a malpractice claim, a breach of fiduciary duty or a dereliction of duty.

The following chart provides key information about Medicaid and SSI:

Clients may receive SSI, Medicaid, Medicare, Social Security Disability Insurance or a combination of benefits. The important consideration is that the individual has a disability. The following chart describing SSA’s definition of disability can be used as a guide:

Two Types

There are two types of PSNTs:

To determine if a third-party PSNT is the right option for a client, ask these questions. If the answers are yes, then it’s the right option:

How Pooled Funds are Managed and Invested

Trust funds are pooled together for investment purposes, offering lower administrative fees and the potential for greater growth opportunity. Individual sub-accounts are maintained for each beneficiary, and all earnings based on a beneficiary’s share of the principal are reinvested into each sub-account. The beneficiary, or the beneficiary’s advocate, should have access to account information online or via financial statements sent on a regular schedule.

PSNTs serve beneficiaries of varying account sizes from modest settlements to those of more substantial amounts. Funding can be a lump-sum or part of a structured settlement. It isn’t unusual for a bank or other financial institution to require a minimum of $350,000 to $500,000 to fund a trust. A non-profit organization, on the other hand, may only require a minimum of $5,000 to fund a PSNT.

Setting Up a PSNT

Each grantor joins the pooled trust and agrees to the terms of the Master Trust Agreement by completing a Joinder Agreement, the legal document to join the PSNT. The Master Trust Agreement allows the non-profit organization to administer the pooled trust and sets out the terms of that administration.

How the Trust Can Be Used

To serve clients properly, trust administrators have the expertise to make disbursement decisions and understand the rules set forth by the Social Security Administration and Medicaid offices in each state. Disbursements from the trust are for the sole benefit of the beneficiary and have to be carefully reviewed to ensure protection of these benefits.

The allowable uses for PSNT include:

Funds remaining in the account, on the death of a beneficiary who received Medicaid, are subject to repayment to the state(s) for medical bills paid during the beneficiary’s lifetime. Federal law allows the non-profit organization to retain the remainder for its charitable purposes in lieu of this repayment, but not all do. Some only retain in the instance that successor beneficiaries wouldn’t receive any of the remainder, and some retain all. Because the policies of individual PSNTs differ, it’s helpful to check with each one to understand its remainder policy completely.

Cost-Effective Framework

Setting up a PSNT can alleviate stress by providing individuals with a cost-effective framework for money management. Decisions should reflect concerns and hopes for the future as well as thoughtful planning for the resources that will be available to address a client’s needs. With its many benefits, clients will appreciate learning about the option to set up a PSNT.

Published in the WealthManagement.com ‘Trusts & Estates’ Newsletter on December 02, 2020

Nesting a Medicare Set-Aside Inside a Pooled Special Needs Trust

Sun, 01 Nov 2020 14:28:00 GMT

By Joanne Marcus, MSW, President and CEO of Commonwealth Community Trust (CCT)

This is the second article in a two-part series discussing First-Party PSNTs and Medicare Set-Aside (MSA) accounts. This article will provide an overview of MSA accounts and discuss the advantages of nesting an MSA account inside a First-Party PSNT.

OVERVIEW OF MSA ACCOUNTS

Following settlement of a workers’ compensation or liability lawsuit, Medicare is prohibited to pay for injury-related medical expenses or medications that an employer or health insurer is primarily responsible to pay. To prevent this, federal law requires that an allocated portion of settlement funds be “set-aside” in an account to pay for injury-related medical expenses in the future. Medicare will suspend payment for injury related costs until the allocated amount has been appropriately spent. Guidelines have been in place for years for workers’ compensation awards, and are on the horizon for liability cases.

The Centers for Medicare and Medicaid Services (CMS) has issued guidelines governing how MSA accounts should be handled in order to ensure future eligibility for injury-related Medicare benefits. The following guidelines are examples of the CMS guidelines for recordkeeping and the requirements governing how funds from the MSA account for prescriptions and other medical expenses can be disbursed:

Pay only for medical bills incurred for the exact injury that is the subject of the workers’ compensation or liability case and covered by Medicare;
Submit a yearly accounting of all expenditures from the MSA accounts to Medicare, including receipts;

Determine which medications are covered by Medicare, and if the medication is not covered, contact the doctor to find the appropriate alternative;
Monitor ongoing medical treatments and review any newly prescribed treatments or medications to ensure compliance with CMS regulations; and,
Find medical providers and pharmacies will to accept payment based on the pricing method selected in the MSA documents and approved by Medicare.

Failure to follow these regulations in addition to numerous others can jeopardize future Medicare eligibility for injury-related care.

HOW IT WORKS

***************

ADVANTAGES OF NESTING MSA INSIDE A PSNT

***************

It is possible for an individual to be dual-eligible for Medicaid and Medicare. MSA accounts, while necessary, are also a resource for public benefits eligibility. Clients who receive means-tested government benefits such as Medicaid and SSI may lose eligibility as a result of owning an MSA. The solution is the coordinated use of an MSA account within a First-Party PSNT. This arrangement should protect an individual’s eligibility for Medicaid and SSI as well as ensure injury-related expenses are appropriately paid. The PSNT also provides professional management of funds for a beneficiary, not receiving public benefits, but who may need assistance with financial management.

SELF-ADMINISTRATION CAN BE OVERWHELMING

While self-administration is an option, recordkeeping and accounting for an MSA account can be complex. The account must be funded either with a lump sum from the settlement or with seed money and subsequent structured settlement annuity payments. Also, the account must be an entirely separate interest-bearing checking or savings account with no non-MSA funds comingled. Interest earned must also be used for medical expenses related to the injury suffered that would otherwise be covered by Medicare.

Meticulous records of the distributions and expenditures from the MSA account must be maintained. For liability MSAs, accounting is only required when the account balance reaches zero, but workers’ compensation cases have annual reporting requirements. Medicare will use the report to confirm that all MSA funds have been exhausted and spent properly before the client can start to again submit bills to Medicare. CMS has recovery rights when it has paid where it should not have and can levy damages and suspend Medicare benefits until the funds are paid back.

CONCLUSION

It is important to be aware of the regulations that govern Medicaid and SSI eligibility and help clients plan accordingly so they are not at risk of losing their benefits. Understanding the importance of nesting an MSA account inside a First-Party PSNT is important in workers’ compensation and personal injury cases.

Published by the National Medicare Secondary Payer Network (formerly National Alliance of Medicare Set-Aside Professionals): November Featured Article

The Importance of Future Planning for a Loved One With Special Needs

Thu, 01 Oct 2020 00:00:00 GMT

Published by the National Medicare Secondary Payer Network (formerly National Alliance of Medicare Set-Aside Professionals): October Featured Article

By Joanne Marcus, MSW, Executive Director of Commonwealth Community Trust (CCT)

Understanding PSNTs

The following chart provides key information about Medicaid and SSI:

The following describes two ways in which PSNTs are utilized:

How Pooled Funds are Managed and Invested

PSNTs serve beneficiaries of varying account sizes from modest settlements to those of more substantial amounts. Funding can be a lump-sum or part of a structured settlement. It is not unusual for a bank or other financial institution to require a minimum of $350,000 to $500,000 to fund a trust. A nonprofit organization, on the other hand, may only require a minimum of $5,000 to fund a PSNT.

Setting Up a PSNT

Remainder Policy

Structured Settlements

Summary

The Disbursement Process

Thu, 01 Oct 2020 00:00:00 GMT

By Joanne Marcus, MSW, President/CEO, & Karen Konvicka, J.D., Director of Client Services and General Counsel

This article provides information about pooled special needs trusts, the disbursement procedure, and recommended best practices along with examples of the challenging disbursement decision-making process.

A pooled special needs trust (PSNT) is administered by a nonprofit organization that manages and invests funds for individuals with disabilities. The funds are used to purchase goods and services that will enhance the quality of life of the beneficiary. The PSNT will protect means-tested government benefits such as Supplemental Security Income (SSI) and Medicaid.

Trust funds are “pooled” together for investment purposes, offering lower administrative fees and the potential for greater growth opportunity. Because funds are pooled, PSNTs accept trusts funded with smaller amounts as well as larger estates. Most PSNTs accept only cash, but a few also accept tangible property, such as a home or ownership a business.

A PSNT administrator:

What Is a Disbursement?

A disbursement is the payment of expenses for the benefit of the beneficiary. Making decisions to approve or deny a disbursement request is one of the most challenging jobs of a trust administrator. It is helpful to have written guidelines for staff and information in a Disbursement Information Manual for clients that outlines an overview of policies and procedures. Disbursement decisions from a PSNT are influenced by the Master Trust Agreement and applicable laws, whether the beneficiary receives means-tested government benefits, whether the request is in the best interest of the beneficiary, the amount of funds in the trust, and established goals and objectives.

Disbursement Decision-Making Roles

Establishing a collegial working relationship with the beneficiary and/or the beneficiary’s advocate is the first step. The “advocate(s)” is the individual named by the grantor on the Joinder Agreement, the legal document to join a PSNT. That person relates to the trust administrator, is charged with making disbursement requests, and has access to confidential financial and personal information. The advocate can be the beneficiary, guardian, family member, attorney-in-fact, case worker, or a trusted individual who is familiar with the needs of the beneficiary.

An advocate can be changed by the grantor, beneficiary, or another advocate when the situation warrants. When a minor child reaches adulthood, the possibility of being one’s own advocate should be investigated by the trust administrator with the help of the beneficiary’s current advocate and family. Other such circumstances include when a mentally ill person begins to function well or when an injured person recovers. Conversely, individuals with mental illness may decompensate and need the help of an additional advocate. The current advocate should be allowed to name additional advocates or to resign as necessary. And, in rare and unfortunate situations, the trust administrator may become aware that an advocate is not performing his or her duties adequately or worse, is acting fraudulently. In some situations, it is necessary to hire outside case management services to help the beneficiary access the funds in an appropriate manner.

The relationship with the advocate is important as the advocate is the individual who will submit the requests for disbursements. A welcome call to the advocate when the trust is established begins this relationship. This is an opportunity for the trust administrator to get to know the advocate(s) and the client’s situation, to clarify the role of “trust administrator,” to answer questions, and to review the guidelines describing the role of the advocate(s) and the disbursement process.

The welcome call can be challenging as some beneficiaries and their advocates are distressed, “to have to ask permission to use my money.” The trust administrator’s objective is to explain that the intent is not to make complicated lives more stressful but to work together. The trust was set up with the shared goals of preserving means-tested government benefits, looking out for the beneficiary’s best interest, and so forth. The trust administrator explains that the responsibilities of the trust administrator are complex and further discusses how to manage differing roles effectively.

Disbursement Considerations

Once the disbursement request is submitted, the following variables should be considered:

Payment Request Process

The Payment Request Form is customarily easy to complete and asks for the amount requested, description of the request, who to make the check payable to, and the mailing address. The form is submitted with supporting documentation such as receipts, estimates, or invoices and can be faxed, emailed, or mailed. Some organizations have a website that allows the advocate to submit requests securely through a portal. Trust administrators review each request and assure that all supporting documentation is received and is correct.

For requests that are approved, it is recommended that payment be mailed within 10 business days.

When supporting documentation is missing or concerns arise, every effort should be made to contact the advocate. For advocates who are not responsive or when the request is not approved, it is recommended that a verbal and/or written explanation be provided.

In-House Disbursement Committee

It is helpful to organize a Disbursement Committee that meets regularly to review the following:

The Disbursement Committee engages in deep discussion to ensure requests are prudent and appropriate.

Advocate(s) submits the Payment Request Form with supporting documentation –>

Trust Administrator reviews the disbursement request–>

In-house Committee meets regularly to review requests of a complex nature

Appeals Process

While offering personalized and secure trust administration services for people with disabilities, it is important to welcome all client comments, complaints, suggestions, and concerns that will improve the client experience and trust administration services.

For escalating situations, a client grievance policy ensures that clients have an easy and accessible way to provide feedback. It is recommended that written complaints be filed within 30 days of the incident. A complaint can pertain to trust administration services or an employee for alleging discrimination based on race, color, or national origin. Every effort should be made to clarify and resolve the dispute, but once the grievance is received in writing, the written policy should be shared so that the expectations are clear on all sides.

A written description of the complaint(s) and subsequent related events will be maintained in the beneficiary’s case record, including date and type of complaint, summary of the allegations, and actions taken in response to the complaint. Clients should be able to submit feedback without fear of retribution.

How Can the Funds Be Spent?

The funds can be used to pay for expenses that enrich the quality of life of the beneficiary and for supplemental needs of the beneficiary who receives public benefits. Examples include:

Who Can Receive Funds?

The funds can be disbursed to the following individuals or entities with appropriate supporting documentation:

Examples of The Challenges Facing the Trust Administrator

When the beneficiary is competent to act as his or her own advocate, which depends upon the nature of the disability, a challenging situation can occur when the request, in the judgment of the trust administrator, is not prudent. It is recommended that:

There are times when, at the end of the day, the request is approved out of respect for the beneficiary’s decision-making autonomy.

Another example of a challenging situation is when the parental duty of support for a minor child collides with the parental advocate’s requests for financial support. In these cases, an assessment may include the parent’s financial information. Requests that relate to the beneficiary’s disability are typically approved, and when financial need is demonstrated, other requests may be approved as well. Frequently, parents are unable to work because they stay home to take care of their child with special needs. As trust administrators, decision-making is individualized based upon the client’s situation.

Conclusion

While the responsibility of a special needs trust administrator is challenging, it provides great professional rewards for the staff and financial security for the beneficiary and the family. It is not often that there is an opportunity to make such a positive difference in someone’s life.

Published in National Academy of Elder Law Attorneys (NAELA) News: Fall/Winter Issue

Survivor Benefit Plan and Pooled Special Needs Trusts for Dependent Children

Wed, 01 Jul 2020 00:00:00 GMT

Survivor Benefit Plan and Pooled Special Needs Trusts for Dependent Children: Enriching Quality of Life and Protecting Medicaid and Supplemental Security Income (SSI)

Published in Veteran Family Matters

By Joanne Marcus, MSW, President and CEO of CCT

With the passage of the Howard P. “Buck” McKeon National Defense Authorization Act of 2015 (Section 624, which amends title 10, United States code sections 1448, 1450, and 1455) military members and retirees were given the option of directing annuity payments from the Survivor Benefit Plan (SBP) to a Pooled Special Needs Trust (PSNT) for the benefit of a dependent child with special needs. A PSNT established in the name of the child does not jeopardize the child’s eligibility for SSI and Medicaid. The benefit described in this article should not be confused with eligibility for VA Benefits and that each program should be considered in detail.

WHAT IS A POOLED SPECIAL NEEDS TRUST (PSNT)?

A (PSNT) is a type of special needs trust that is administered by a nonprofit organization and is a cost effective way to preserve funds that will be used solely to enrich the quality of life of a child with special needs. SBP annuity payments fund the trust and the funds for each Beneficiary are “pooled” together for investment purposes. Pooling of funds reduces administrative fees and increases the principal for investment purposes. Individual subaccounts are created, and financial statements are provided electronically for those with internet access or by mail. Funding minimums are low and once the funded, the trust is irrevocable. The PSNT administrator makes decisions on how funds from the trust are disbursed on behalf of the Beneficiary and manages the investment of the funds.

By law, a Military Survivor Benefit Plan trust must be set up as a first-party funded special needs trust due to the Medicaid payback provision. Upon the death of a Beneficiary who receives Medicaid, there are specific rules for what happens to the remainder. These rules vary from state to state but in general, when funds remain in the account upon the Beneficiary’s death, it is required that the funds be used first to payback Medicaid for benefits the Beneficiary received during his or her lifetime. For a Beneficiary who has never received Medicaid benefits, the remaining funds are distributed to the Successor Beneficiary(‘s)3 after allowable fee distributions are deducted.

ESTABLISHING THE LINK BETWEEN SBP AND PSNTs

CURRENTLY SERVING MILITARY MEMBERS

Prior to making the Survivor Benefit Plan election the trust account must be established and the member must have the trust Tax Identification Number and the Special Needs Trust
Certification form. Election of Survivor Benefit Plan benefits prior to retirement is processed by the Service and once approved is irrevocable.

RETIRED MILITARY MEMBERS

To be eligible to elect the option to cover the special needs trust under the Survivor Benefit Plan, the retiree must have previously elected Spouse and Child or Child Only coverage for a disabled child under the Survivor Benefit Plan. There must also be an established and certified special needs trust. If the service member is alive and if they have previously elected Spouse and Child or Child Only coverage under the Survivor Benefit Plan, they may make the designation to direct payment on the behalf of a beneficiary to a special needs trust at any time. After the death of a member or retiree, if the service member or retiree had elected Spouse and Child or Child Only coverage under the Survivor Benefit Plan, any surviving parent, grandparent or court appointed legal guardian may make the designation on the behalf of a beneficiary.

WHY A MILITARY SURVIVOR BENEFIT PSNT MAKES SENSE

The trust can be used to pay for expenses that will enhance the quality of life for the beneficiary including, but not limited to, medical and dental services not covered by insurance, assistive technology, pre-paid burial expenses, caregiver expenses and more. By establishing a PSNT, there can be peace of mind knowing that payments from a Survivor Benefit Plan will be available for a loved one without jeopardizing eligibility for Medicaid and SSI.

Pooled Special Needs Trusts: Cost-Effective Trust Administration for Injured Workers: An Interview with Andy Reinhardt and Joanne Marcus

Wed, 01 Jan 2020 00:00:00 GMT

Published in Workers’ F1RST Watch: Winter 2020 Issue / Workers’ Injury Law & Advocacy Group (WILG)

The article is based on an interview hosted by Alan S. Pierce of Workers Comp Matters, a Podcast on Legal Talk Network, with attorney Andy Reinhardt, an expert in Workers’ Compensation claims and past President of Workers’ Injury Law & Advocacy Group (WILG), and Joanne Marcus, MSW, Executive Director of Commonwealth Community Trust (CCT), a Pooled Special Needs Trust (PSNT).

Question: What is a Pooled Special Needs Trust (PSNT), and why are they helpful to attorneys who practice workers’ compensation law?

Joanne Marcus: A nonprofit organization administers special needs trust for people with disabilities for the purpose of enriching the quality of the life of the beneficiary. Your client with an award can benefit in many ways from setting up a PSNT. The funds are “pooled” for investment purposes, which I like to think of as a large mutual fund. Having the funds pooled keeps administrative costs low and allows the trust to have greater opportunity for growth. Each client has their own subaccount and electronic access to financial information or statements are mailed quarterly.

Question: How is the utilization of a PSNT helpful for a personal injury attorney’s client?

Andy Reinhardt: There are three instances in which a client may benefit from professional management of his or her injury award:

PSNTs can provide solutions to two problems: naming a trustee to manage the funds and affordability. The nonprofit organization acts as the trust administrator and manages and invests the funds in the pool and makes disbursement decisions.

Question: Are the assets of the monies that go into a pooled trust settlement proceeds or could they be a weekly workers’ compensation benefits check?

Andy Reinhardt: It is going to be either a lump-sum or a stream of payments like an annuity. In either event, the monies are payable to the pooled trust for the benefit of the beneficiary, and by virtue of the money being held by them, the PSNT can manage the money, invest it, and pay bills for clients. Weaving a structured settlement into a PSNT provides advantages and future financial security for the client.

Question: Give us a real-world example of when you chose for your client not to have full possession of these funds, and why a PSNT was a vehicle of choice to accomplish your goal?

Andy Reinhardt: For example, a client is brain injured and has no responsible family member that can manage the money, or it is not in the client’s best interest to have a family member as the trustee. The funds can be deposited in to a First-Party PSNT, and funds for a Medicare Set-Aside account can be nested within the First-Party PSNT. The professional trust administrator receives the deposits in order to pay the bills.

The First-Party Special Needs trust is helpful in Workers’ Compensation and Personal Injury claims:

Question: So, the client’s $500,000 goes into the PSNT. How much does the client receive on a weekly or monthly basis, how does he or she receive it, and can it be varied? If the client wants to purchase a vehicle or use a larger sum of money than whatever he or she may be getting per month, how does that happen?

Andy Reinhardt: The PSNT acts as a fiduciary/trustee and will make decisions that are in the client’s best interest. However, up front, a game plan will be established that can be adjusted. For instance, we are going to know what the client’s monthly budget is, how much money the client needs on a regular basis, and if there is enough money to buy a vehicle, which is an exempt asset so the client can still qualify for Medicaid and SSI. The purpose is to provide for a client’s financial and other needs, and that can be done through a settlement where the money is administered by a PSNT.

SUMMARY

When presenting trust administration to colleagues and clients, it may be helpful to explain the benefits of a PSNT:

Setting up a PSNT can alleviate the financial burden for clients through low cost methods of trust administration and management.

SSA Updates to the POMS: Impact on Special Needs Trust Disbursements

Tue, 01 Jan 2019 00:00:00 GMT

Published in Jan/Feb/Mar 2019 Special Needs Trusts Section of NAELA News

By Joanne Marcus, MSW, President/CEO

Recent changes to the Program Operations Manual System, effective in April 2018, have an impact for trust administrators who make disbursement decisions for beneficiaries of special needs trusts.

This article will discuss:

SSA POMS Updates

These updates address how the Social Security Administration (SSA) will evaluate disbursements, however, individual states’s Medicaid rules may vary.

Distributions to an ABLE Account (SI 01120.201I.1.c.and h.)

The POMS has made it clear that funds transferred from a special needs trust (SNT) into an ABLE ac- count established by the trust beneficiary or individual with signing authority under the ABLE Act are not counted as income to the trust beneficiary.

Of significance is that funds from an ABLE account can be used to pay for shelter expenses such as mortgage or rent, homeowner’s insurance, taxes, heat, electricity, water, sewer and garbage pick-up without resulting in a reduction of monthly Supplemental Security Income (SSI). To avoid any impact to the beneficiary’s SSI benefits, funds from the ABLE account used to pay for shelter expenses must be spent within the same calendar month that funds are withdrawn from the account.

Sole Benefit Requirement (SI 01120.201F.3.a.)

The general rule for a trust established for the sole benefit of an individual remains the same. The key change in this provision is that when the trust makes a payment to a third party for goods or services, the goods or services must be for the primary benefit of the trust beneficiary. You should not interpret sole benefit so strictly as to prevent collateral benefit to anyone else. For example, if the trust buys a television, this does not mean that no one else can watch it. Caution: It is important to reasonably interpret this change when making disbursement decisions.

Service Providers (SI 01120.201F.3.a.)

A third-party service provider can be a family member, a nonfamily member or a professional entity and the trust can pay for needed services provided. Medical training or certification for family members who receive payment to provide care is not required.

Payment for companion services, such as taking care of a beneficiary who cannot be left alone, driving the beneficiary to the store, or assisting with grocery shopping, can be a valid expense. When reasonable, the trust can pay for incidental expenses for the companion, such as admission to an event that the beneficiary can only attend with assistance.

Third Party Travel Rules (SI 01120.201F.3.b.)

The guidelines allow payment of third-party travel expenses to accompany the trust beneficiary to provide services or assistance that is necessary due to the beneficiary’s medical condition, disability or age.

It is not necessary to request documentation from a medical professional that a third-party companion/caregiver is required for the beneficiary to travel. It is also not necessary to request evidence of medical training or certification for the person accompanying the beneficiary.

Travel expenses include transportation, food, and lodging. A trust administrator can also pay for entrance fees for activities when accompanying the beneficiary. A reasonableness test is recommended for the number of people required to accompany the beneficiary and may be more than one person. Those accompanying the beneficiary must provide services or assistance. For example, the trust may pay for two parents but cannot pay for other minor children.

Third-Party Travel Expenses to Visit a Trust Beneficiary (SI 01120.201F.3.c)

Payment of third-party travel expenses to visit a trust beneficiary to ensure the safety or medical well-being of the trust beneficiary are allowed and do not violate the sole benefit rule in the following situations:

Titling and Registration (SI 01120.201F.3.a.)

Purchased goods that require registration or titling must be titled or registered in the name of the beneficiary or the trustee, unless state law does not permit it. For example, state law may not allow a car to be registered to the beneficiary or may require a co-owner if the beneficiary is a minor or an individual without a valid driver’s license.

Some state Medicaid agencies may permit a car to be titled in a third party’s name if the trustee holds a lien on the car that guarantees that the trust receives the value of the car if it is sold and prevents the purchase from being considered a transfer of resources.
Caution: Even if a third party is listed on the title of the purchased goods, it must still be used for the sole benefit of the trust beneficiary.

Administrator-Managed Prepaid Cards (SI 01120.201I.1.e.)

It is now acceptable to offer administrator-managed prepaid cards, such as True Link cards. These cards are a type of restricted debit card that can be customized to block the cardholder’s access to cash, specific merchants, or entire categories of spending. The trustee is the owner and administrator and the trust beneficiary is the cardholder.
Giving a beneficiary access to an administrator-managed prepaid card offers independence while allowing the trust administrator to have controls in place.

Final Postmortem Disbursements

For both third- and first-party SNTs, any burial arrangements should be made and paid to the funeral director prior to the death of the beneficiary. The amount of the burial fund that is excluded is subject to individual state rules. In addition, some states re- quire irrevocability, while others do not. (SI 01120.201H.) Life insurance funded funeral arrangements, which are funded by an irrevocable life insurance policy, are excluded resources no matter the amount. (SI01120.201H.) In any case, these are expenses that are proper disbursements from a SNT.

For a first-party SNT for a beneficiary who receives Medicaid:

1. Upon the death of the beneficiary, the only expenses that may be paid prior to the first-party SNT Medicaid payback (SI 01120.203E.1.) are

2. Postmortem distributions that are expressly prohibited prior to the Medicaid payback (SI 01120.203E.2.) are:

After Medicaid is paid, distributions will be made as described in the trust agreement or joinder agreement for pooled trusts.

Special Considerations for Structured Settlements

When a structured settlement is incorporated into a SNT, the contingent or successor payees of the annuity must be the SNT due to the Medicaid payback provision. If the annuity payments are for a term certain and not just for the life of the beneficiary, then a commutation clause should be included as a part of the annuity con- tract. A commutation clause provides for a lump-sum payment at the death of the beneficiary based on several different factors decided at the time of the annuity purchase. Most insurance companies require a commutation clause on the original policy to com- mute the value of the annuity.

Receiving the commuted value of the remainder of the annuity at the time of the beneficiary’s death allows for the orderly administration and winding up of the SNT. The states’ Medicaid departments can be repaid, and any remaining assets in the trust can be distributed to the contingent beneficiaries immediately. Fees and administrative costs necessary to leave the trust open while annuity payments continue to come in are unnecessary.

Conclusion

In conclusion, the above POMS information dictates how the trustee or trust administrator evaluates payment requests, and in some cases allows for more flexibility in decision-making. Planning for post-mortem disbursements and including a commutation clause for structured settlement disbursements are important for final trust administration.

Planning for the Financial Future with Pooled Special Needs Trusts (PSNTs) and ABLE Accounts

Wed, 18 Jul 2018 00:00:00 GMT

Published in the National Disability Institute Blog

By Joanne Marcus, MSW, President and CEO of CCT

The article is intended to provide information as you prepare for the financial future of your loved one with special needs. Opportunities such as Pooled Special Needs Trusts (PSNT) and ABLE accounts provide options for managing funds and protecting means-tested benefits. These options each have benefits and can be used independently and together to create a financial plan.

What is a PSNT?

A PSNT is a way to set aside and administer funds that will enrich the quality of life of the beneficiary. It is designed to:

Understanding How a PSNT Works

A PSNT is administered by a nonprofit organization that acts as the trust administrator. The trust is established with funds from a third-party (usually a family member) or the beneficiary’s own money. Initial funding requirements can be as low as $5,000. A separate account is established for each beneficiary, and the funds are “pooled” to provide greater investment opportunities and lower administrative fees. Separate accounting is maintained for each beneficiary’s sub-account and financial statements are made available to authorized individuals. To access funds, a payment request form is submitted with backup documents such as a bill or receipts and the request is reviewed. Funds are disbursed by check to a vendor and/or a transfer is made to a credit card linked to the beneficiary’s trust account. The organization oversees investment of the funds and stays abreast of changing Medicaid and SSI regulations.

How the Funds in the Trust Can be Used

Funds in a PSNT can be used for expenses that may include medical and dental services not covered by insurance, assistive technology, eyeglasses, hearing aids, pre-paid burial expenses, education, clothing, home furnishings and modifications, caregiver expenses, transportation and more. The trust administrator assures that disbursements are for the sole benefit of the beneficiary and do not jeopardize SSI and Medicaid.

What is an ABLE Account?

An ABLE account is a savings account for individuals with disabilities. The account, modeled after the 529 college-savings plan, allows disbursements, including earnings, from the account to pay for certain qualified expenses. Eligibility is limited to individuals who become disabled before age 26. Eligibility for means-tested public benefits, Medicaid and SSI is preserved. An individual may have only one ABLE account and may enroll in an ABLE program in any state as long as the program accepts out of state residents.

How Does an ABLE Account Work?

Annual contributions by the account beneficiary, family and friends are limited to $15,000. Federal law stipulates that a state’s ABLE plan set a limit on aggregate contributions on behalf of a designated beneficiary, based on limits set for a state’s 529 college-savings plan. For individuals with disabilities who receive SSI, the first $100,000 in an ABLE account is exempt from the $2,000 individual resource limit. If and when an ABLE account exceeds $100,000, the beneficiary’s SSI cash benefit is suspended until the account balance falls below $100,000. There is no effect on the ability to receive or be eligible for Medicaid. The designated beneficiary or a person with signature authority can make qualified disbursements at their discretion by check and/or credit card.

How Funds in an ABLE Account Can Be Used

Funds may be used for Qualified Disability Expenses that are related to the beneficiary’s disability and include, but are not limited to: education; housing, transportation, employment training, assistive technology, health, prevention, wellness, financial management and administrative services, legal fees and more. The eligible beneficiary or person with signature authority is responsible for retaining documentation about disbursements for tax reporting purposes.

What to Consider with PSNTs and ABLE

Both ABLE and a PSNT protect eligibility for Medicaid and SSI. Some differences to consider include:

ABLE

PSNT

ABLE accounts are advantageous for small amounts that will be spent down. There may be an opportunity for a combination of both a PSNT and an ABLE account and PSNTs are funding ABLE accounts for their beneficiaries when advantageous. Both are considered to be planning vehicles which, if properly utilized, can offer a more comfortable and enriched life for people with disabilities.

Looking Toward the Financial Future of Your Child with Special Needs

Mon, 02 Jul 2018 00:00:00 GMT

Published in www.eParent.com

By Joanne Marcus, MSW, President and CEO of CCT

“You will always worry about your child.” says Betty, mother of Matthew, an adult child with disabilities. “It was really important to me to have something set up for when I am gone, where someone will be there to pick up and help look out.”

Betty’s concern relating to Matthew’s financial future is something all parents can relate to. The demands of daily life keep most parents busy with little time to think about the future. Like Betty, it’s important that parents plan for the time when they will no longer be here. A cost effective and convenient way to set aside and preserve funds is a Pooled Special Needs Trust (PSNT).

A PSNT is a way to administer funds to enrich the quality of life for the individual with special needs. It is designed to protect eligibility for Medicaid and Supplemental Security Insurance (SSI). An individual with a disability can have no more than $2000 in countable assets in order to qualify for these benefits. A monetary gift, personal injury settlement or inheritance can disqualify the Beneficiary from receiving benefits unless the funds are placed into a PSNT.

A PSNT is also an option in the case where an individual does not receive Medicaid or SSI but is not able to manage funds on their own.

Understanding How a PSNT Works

A PSNT is administered by a nonprofit organization. A separate account is established for each Beneficiary, but the funds are “pooled” to provide greater investment opportunities and lower administrative expenses. Separate accounting is maintained for each Beneficiary’s sub-account and financial statements are made available to authorized individuals. The pooled trust organization makes decisions on how funds from the trust are spent, oversees investments of the funds, and stays abreast of changing regulations with regard to Medicaid and SSI.

Research Ways to Fund a Trust

Inheritances, life insurance policies, employer benefits and gifts from friends and family are all common ways to fund a PSNT. Funding requirements, enrollment fees and ongoing administration fees will vary by organization. Generally, a pooled trust organization has low minimum funding requirements, often as low as $5,000, and lower enrollment and ongoing fees. Minimums and fees are usually much higher with a traditional financial institution where many require a minimum of $350,000 to $750,000 to fund a trust.

How the Funds in the Trust Can be Used

The trust can pay expenses that will enrich the quality of life for the beneficiary. Funds in a PSNT can be used for expenses that may include medical and dental services not covered by insurance, assistive technology, eyeglasses, hearing aids, prosthetic devices, pre-paid burial expenses, education expenses, clothing, home furnishings, home modifications, caregiver expenses, transportation and more.

A Family Member or Trusted Individual Will Play a Role

When establishing a PSNT, advocates are named who will work closely with the pooled trust organization to provide information about the beneficiary’s needs and wants and to submit disbursement requests for the benefit of the beneficiary. An advocate is generally a relative, guardian, conservator, case worker, agent under a power of attorney, or the beneficiary himself or herself. Input from the advocate is valuable to express how parents envision the trust being used.

Special Needs Planning Tools: A Comparison of 529 ABLE Accounts, Pooled Special Needs Trusts and Special Needs Trusts

Sun, 01 Jul 2018 00:00:00 GMT

Originally co-written by Joanne Marcus, MSW, President and CEO of CCT, and NAELA member, Theresa Varnet, MSW, JD. Updated July 2018 by Karen Konvicka, Former Director of Client Services and General Counsel of CCT, published in October 2018 NAELA News Online.

The ABLE Act allows an individual with a disability to have a tax-preferred savings account without jeopardizing his or her Medicaid and SSI eligibility.

See link above for the comparison chart of ABLE accounts and trusts at the end of this article.

The Stephen Beck, Jr., Achieving a Better Life Experience Act (ABLE Act) was signed into law on December 19, 2014. This Act allows an individual with a disability to have a tax-preferred savings account without jeopardizing his or her Medicaid and SSI eligibility. This new savings tool, modeled after the 529 college-savings plan, allows disbursements, including earnings, from the account to pay for certain qualified expenses. While these accounts were modeled after 529 accounts, there are distinct differences between a traditional 529 and a 529 ABLE account, which families and practitioners need to keep in mind.

Legislation to allow ABLE accounts was first proposed nearly 10 years ago. The concept of an exempt savings account was the result of a small group of parents in Massachusetts and Virginia who were concerned about the $2,000 cap on resources and how restrictive that was to individuals who wanted to live in the community and maintain a more normal life. In 2006, parents from Northern Virginia got the ear of their Congressmen to introduce what was initially known as the Financial Savings Account for Individuals with Disabilities Act. In 2010, after several unsuccessful attempts at passage, the name of the bill was changed to the Achieving a Better Life Experience (ABLE) Act with the hope that the new name would generate better understanding and support for the goals of the legislation. Proponents of the bill intended to introduce a simpler way to provide for the financial future of persons with disabilities. What began as a way of simplifying future planning has become quite complex as Congressional changes diminished the original version of this legislation. Changes to the bill are numerous but most significant is the suspension of SSI when the ABLE account exceeds $100,000. Retained in the legislation is the ability to keep Medicaid until the account exceeds the state’s 529 college saving plan limit. The initial legislation had no limitation on the age of the beneficiary of an account. As passed, the onset of disability must be established prior to the age of 26 years. The initial legislation also did not include a payback clause. As passed, any funds remaining in the ABLE account are subject to a payback similar to self-settled first party special needs trusts. Payback is limited to the date the ABLE account was created as opposed to the lifetime of the beneficiary. These and other changes were necessary in order to obtain support to pass the legislation.

Despite the many changes made to the bill, it still remains as a major step forward in enabling individuals to live more independently. It is ideal for avoiding a spend down and preserving a small amounts of money without the expense of creating a first party special needs trust, gives control to competent beneficiaries who are insulted by having to give up control of their own funds to preserve SSI and Medicaid eligibility, allows an accumulation of wages over time, and avoids the penalty of the SSI one-third reduction rule for assistance with housing expenses.

Not a Replacement for Special Needs Trusts

While an ABLE account provides a flexible savings tool, it has not taken the place of the need for a third party special needs trust or in some cases, a first party special needs trusts also known as (d)(4)(A) and (d)(4)(C) trusts. All of these planning tools protect Medicaid and SSI eligibility and provide a means of paying for expenses that can enrich the quality of life of an individual with a disability. This article provides information about the similarities and differences between these planning tools in order to determine if one is a better option given an individual’s circumstances, or if setting up one or more would be advantageous.

An amount equal to the annual federal gift tax exclusion (currently $15,000) can be deposited annually in the account while still maintaining the beneficiary’s eligibility for Medicaid and Supplemental Security Income (SSI). It is important to note that this is a total of $15,000 from all sources and not $15,000 per year from multiple donors. As stated above, if the account balance goes above $100,000, the beneficiary’s SSI payments will be suspended until the account balance falls below $100,000. A beneficiary’s eligibility for Medicaid benefits will continue until the account balance reaches the amount of the state’s ABLE plan maximum limit which is the same as each state’s 529 college savings plan limit.

ABLE programs are open for enrollment. For updated information about the ABLE Act, available state programs and legislative updates, visit Commonwealth Community Trust or ABLE National Resource Center.

This article compares ABLE accounts with pooled special needs trusts (both first party (d)(4)(C) and third party pooled trusts), First party (d)(4)(A) special needs trusts and the traditional third party special needs trust, which have an individual and not a pooled trust as trustee.

Practitioners are familiar with the use of pooled trusts known as (d)(4)(C) SNTs, but pooled trust organizations may also offer pooled and/or traditional third party special needs trusts.

What Is a Pooled Special Needs Trust?

A nonprofit organization administers the following types of pooled special needs trusts:

What to Consider?

The following highlights the notable differences between an ABLE account, pooled special needs trusts (first party (d)(4)(C) and third party) and special needs trusts (non-pooled first party (d)(4)(A) and the traditional third party):

Practical Concerns of an ABLE Account

As ABLE accounts are made available in more states, more clients will seek advice from experienced practitioners on the best planning tool or tools to use to address both current and future needs. It is important to keep in mind that having an ABLE account is not mutually exclusive of having a need for a special needs trust. While an individual is limited to having only one ABLE account, he or she may also have need for one of the other types of special needs trusts to manage larger amounts of money or to avoid a payback for funds and assets that are not subject to a payback if left to a third party special needs trust.

ABLE accounts have not taken the place of or the need for a third party special needs trust to protect life insurance and/or an inheritance. A combination of the two may enable individuals with greater control over their lives as well as provide a higher level of care than is currently provided by the government. ABLE accounts should be seen as another planning vehicle which, if properly utilized, will create a more comfortable and enriched life for persons with disabilities. Special needs planners must caution families that while ABLE accounts have been compared to 529 accounts, they are very different from higher education 529s. More than ever, families need the expertise of special needs planners to guide them in determining which planning tool or tools are right for each unique family situation. Special needs planners must become knowledgeable about the similarities and distinctions between the new ABLE accounts and the special needs trusts so that we can best advise our clients as to when to use ABLE vs. one of the other special needs trust options.

About the Authors

Joanne Marcus, MSW, is the Executive Director of Commonwealth Community Trust (CCT), a national nonprofit organization that provides administration of pooled special needs trusts. Since its founding in 1990, CCT has served more than 1,500 beneficiaries and CCT trust services are available nationwide. For more information, call 804-740-6930, toll-free 888-241-6039 or visit the CCT website.

Theresa Varnet, MSW, JD, is of counsel to the firms of Spain, Spain & Varnet, P.C., of Chicago, Illinois and of Fletcher Tilton & Whipple, P.C. of Worcester, Massachusetts.
This article and chart have been updated from the original (published in 2016) by Karen Dunivan Konvicka, JD, General Counsel for CCT.

Statements of fact and opinion are the responsibility of the authors and do not imply an opinion or endorsement on the part of NAELA or the officers or directors of NAELA unless otherwise specifically stated as such.

Why Special Needs Planners and Elder Law Attorneys Need to Understand Medicare Set-Aside (MSA) NOW

Fri, 01 Sep 2017 00:00:00 GMT

Published in Elder Law Answers for Attorneys

By Joanne Marcus, MSW, President and CEO of CCT

Medicare Set-Asides (MSAs) are not just an issue for workers’ compensation attorneys anymore. Earlier this year, the Centers for Medicare and Medicaid Services (CMS) released transmittals , stating that beginning on October 1, 2017, Medicare Administrative Contractors (MACs) must deny payment for items and services that should instead be paid from an MSA. If you do any work with personal injury (PI) attorneys and their clients, be prepared to explain the role that MSAs play in PI settlements and to advise clients when planning for their future Medicare expenses and eligibility for means-tested government benefits.

Historically Speaking

Until recently, most PI attorneys did not consider the Medicare Secondary Payer Act (MSPA) ( 42 U.S.C. 1395y and 42 C.F.R. 411:20, et.al .) beyond the lien that CMS asserts against the settlement for reimbursement for medical claims related to the injury. Under the MSPA, Medicare can (and does) assert a lien against settlement proceeds arising from personal injuries that generated claims paid by Medicare. Medicare is further prohibited from paying claims related to an injury when payment has been made or can reasonably be made under an alternate plan such as an automobile or liability insurance policy, workers’ compensation plan or no-fault insurance. CMS has not been enforcing this in liability cases. Simply stated, when there is a primary payer, Medicare will not be responsible for the medical expenses associated with an injury. The setting aside of funds received in a settlement for the purpose of funding future medical expenses associated with the injury is an MSA.

The Writing Is on the Wall

Beyond the initial lien resolved at settlement, CMS has no procedure in liability cases for tracking the payment of future medical expenses related to the injury. In contrast, CMS has regulations for workers’ compensation cases requiring MSAs and stipulating the methodology for creating and funding MSAs used to pay for the future medical expenses from the injury. While CMS has not released a transmittal mandating Liability Medicare Set-Asides (LMSAs) or creating the formal process for creating them, it is preparing the MACs for coding changes and to deny claims when MSAs do exist. Why? Most MSA experts predict, given this change in infrastructure, that LMSAs will be the reality for PI cases within the next few years.

If, or when, this becomes the case, CMS will require the Medicare claimant in liability cases to create and fund an LMSA to cover future expenses related to the injury. As in workers’ compensation cases, an MSA will be recommended when the plaintiff is on Medicare, or is predicted to begin Medicare coverage within 30 months of the settlement, and will have ongoing medical expenses related to the injury that would otherwise be covered by Medicare.

Is Self-Administration an Option?

Clients may ask if they can self-administer their MSA. While the answer is yes, the recordkeeping and accounting can be complex. The account must be funded either with a lump sum from the settlement or with seed money and subsequent settlement annuity payments. The account must be an entirely separate interest-bearing checking or savings account with no non-MSA funds comingled. Interest earned must also be used for medical expenses related to the injury suffered that would otherwise be covered by Medicare.

Meticulous records of the distributions and expenditures must be maintained. For liability MSAs, accounting is required when the account balance reaches zero. (Workers’ compensation cases have annual reporting requirements.) Medicare will use this report to confirm that all MSA funds have been exhausted and spent properly before the client can start to submit bills to Medicare. CMS has recovery rights when it has paid where it should not have and can levy damages and suspend Medicare benefits until the funds are paid back.

Dual Eligibility

Probably more important to the elder law attorney is the fact that the MSA is a “countable” resource for Medicaid and SSI eligibility, notwithstanding the decision in Williford v. North Carolina Department of Health and Human Services , 2016 N.C. App. LEXIS 1163 (November 15, 2016), which should not be relied on for precedent. So, even if self-administration were a viable option for your client, the MSA itself would disqualify the client for means-tested benefits, which puts dual eligible clients in a tight spot if they want to preserve both Medicare and Medicaid. The solution is to nest the MSA within a pooled special needs trust (PSNT), pursuant to 42 U.S.C. 1396p(d)(4)(C). The first step will be to transfer all of the settlement proceeds to the PSNT so they will not be resources for qualification purposes for Medicaid and SSI. With the advice of MSA experts, the trust administrator then creates an MSA and funds it with assets from the PSNT. A third-party administrator is used to manage the MSA payments and record-keeping while the trust administrator manages the disbursement requests for the beneficiary’s needs and manages his or her eligibility for public benefits.

Be Ready!

All signs indicate that the CMS is moving closer to requiring MSAs in liability cases. Your clients with special needs who have received a settlement will face bigger obstacles related to maintaining benefit eligibility. The ability to nest a MSA inside a PSNT will help manage the issues and the implementation of these accounts will fall to attorneys in the elder law and special needs communities.

Special Needs Trust Planning for the Future

Sat, 01 Apr 2017 00:00:00 GMT

By Joanne Marcus, MSW, President and CEO of Commonwealth Community Trust (CCT)

Dementia is costly, both financially and emotionally. If you or a loved one has been diagnosed with dementia, you are probably overwhelmed with the prospect of how to financially plan for the future. One option for managing finances is a pooled special needs trust (SNT). A pooled SNT is administered by a nonprofit organization. The organization makes decisions on how funds from the trust are disbursed on behalf of the trust Beneficiary, makes decisions on who invests the funds, fulfills reporting requirements to government agencies and stays abreast of changing regulations so that means-tested government benefits (like Medicaid and Supplemental Security Income (SSI) ) are not jeopardized.

Each Beneficiary’s funds are placed in an individual sub account. The cash assets from all sub accounts are then “pooled” together and invested as a group. Earnings based on the
beneficiary’s share of the principal are reinvested into each sub account. A financial record is maintained for each sub account that reflects all the activity in the account. Each beneficiary or their advocate has access to the financial information either electronically or by mail.

Most pooled trusts offer both First Party and Third Party SNTs. A First Party SNT is established with the Beneficiary’s own funds. A Third Party SNT is funded by a third party for the benefit of the individual with dementia or a family member with special needs.

A pooled special needs trust makes sense for multiple reasons. It allows one the opportunity to set aside funds that will enrich the quality of life for the Beneficiary. The beneficiary can benefit from trust administration services including investment and management. All disbursements are for the sole benefit of the Beneficiary. Pooling the funds reduces administrative fees and increases the principal for investment purposes. A pooled SNT will also protect eligibility for Medicaid and Supplemental Security Income in many instances; however, special planning is required for Beneficiaries over the age of 64 for whom Medicaid Long-term Care benefits may be needed.

It is strongly recommended that you consult with a Trust and Estates Attorney or Elder Law Attorney who can advise you on how a pooled special needs trust can benefit your situation. When appropriate, a SNT can give you a sense of well- being regarding your own, or your loved one’s, financial future while continuing to live life with quality and dignity.

This article was originally published by Dementia Society of America, April 2017.