For parents of kids with special needs, navigating the waters of financial planning can be daunting. There’s no comprehensive playbook to understand the ins and outs of government benefits, planning for and covering long-term care costs, and making the most of a birth injury settlement. And just as every child has different needs, there is no one-size-fits-all approach to future planning – making the whole process seem like a big puzzle. But certain nonprofits offer families a useful tool called a pooled special needs trust to help them plan for the road ahead.
Pooled trusts are exactly what they sound like: trusts that include resources pooled together from multiple individuals. They are always operated by nonprofit organizations. Each beneficiary has his or her own individual account within the fund. A trustee is appointed by the nonprofit that operates that particular pooled special needs trust, and he or she can administer the funds in each beneficiary’s account pursuant to the details in the individual’s trust agreement. So, the beneficiary’s family will not have to worry about things such as tax planning regarding the trust, investing the funds, or upsetting benefit plans.
It may be unclear at first glance why someone would elect to set up a pooled special needs trust over an individual special needs trust. After all, both types work to ensure a person remains eligible for government benefits such as SSI and Medicaid (since the threshold of monthly income to keep eligibility for benefits is relatively low, it can be easy to become disqualified after receiving a large sum of money like a settlement). However, money in both individual special needs trusts and pooled special needs trusts doesn’t count toward a beneficiary’s income, because it pays for things government benefits do not cover – like a home, a car, and educational expenses. So, a child who is about to receive more income can keep benefits coming in. But it’s not just the pool configuration and appointment of a trustee by a nonprofit that differentiates a pooled trust. One of the main reasons that families choose a pooled trust is cost. Setting up an individual trust requires a trust attorney, whereas to join a pooled special needs trust, a family only needs to sign a joinder agreement – no attorney fee required. By taking that avenue, startup costs shrink from several thousand dollars to just several hundred. This is especially helpful to beneficiaries who will receive a relatively small settlement; an individual special needs trust might be the right answer for a person who will receive $500,000, whereas the savings in setup associated with a pooled trust could be more helpful to someone receiving an amount lower than $100,000.
A pooled trust isn’t the right answer for everyone, and there’s more to know about them when you’re caring for someone with special needs – way more than I can explain in this newsletter. I welcome you to message me or contact my team for further discussion.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).