Individuals with disabilities often need a special needs trust in place to help provide for their care. Special needs trusts are so beneficial because they allow the disabled to maintain sufficient resources, while protecting their entitlement to government benefits. There are several ways to establish or fund a special needs trust. The trust can be created by family members, through the court, or through a non-profit organization. Using a pooled trusts in special needs planning is a great option to consider.
What is a pooled trust?
A pooled trust is a special type of trust formed and administered by a nonprofit organization. There are no limitations on who is allowed to contribute to the trust fund, in fact, the beneficiary can even contribute. This type of trust is referred to as a “pooled” trust because the trust funds come from several beneficiaries and are pooled together, for investment purposes. The nonprofit organization makes investments on behalf of all of the beneficiaries. If there are any funds left when the beneficiary dies, those funds are used to help others with special needs, as opposed to being surrendered to the state.
The benefits of pooled special needs trusts
When you join a trust that has already been established, you can enjoy the benefits of investing a large amount of money, which is a great option for people with modest means. Establishing the trust is simple, as there is no new trust document that needs to be drafted. All that is necessary is executing a Joinder Agreement, setting out the membership terms of the trust. Even though your assets are pooled together for purposes of the trust, the nonprofit organization will establish a separate account for each individual member. The benefit comes when all of the assets are pooled together, which allows the trust to maximize the return on the investments, while reducing the costs of management and administration of the trust.
First-Party and Third-Party Pooled Trusts
Not every pooled trust is the same. For example, a first-party pooled trust is used only to hold the benefits the person with special needs, receives from public assistance. On the other hand, the purpose of a third-party pooled trust is to hold funds other than public benefits. The distinction is significant because, upon the death of the individual with special needs with a first-party pooled trust, all remaining assets are usually retained by the non-profit organization. Third-party funds can go directly to the heirs, instead of being retained by the organization.
Pooled trusts provide flexible planning
In addition to investment benefits, pooled trusts provide a great deal of flexibility. Pooled trusts can be used even when it is not certain that a special needs trust is necessary. Since, each family is unique, your estate planning attorney can include language that will prompt the trustee to convert an inheritance to a special needs trust, if necessary.
If you have questions regarding pooled trusts, or any other special needs planning needs, please contact the Schomer Law Group either online or by calling us at (310) 337-7696.