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Pooled Disability Trusts: Their Time is Now

By Harry S. Margolis

Pooled disability trusts are wonderful vehicles for protecting and administering funds for individuals with disabilities, especially for those who do not have family members who can serve as competent, disinterested trustees and whose funds are insufficient to justify the expense of a professional trustee. Along with preserving beneficiaries' eligibility for public benefit programs, such as Medicaid ("MassHealth" in Massachusetts) and Supplemental Security Income ("SSI"), the pooled disability trusts offer professional management of trust funds by non-profit organizations whose purpose is to serve individuals with special needs. As a result, trust beneficiaries profit from their expertise about available programs as well as their financial management.

There are two types of pooled disability trusts. The first is a so-called "third-party" trust holding funds contributed by someone other than the beneficiary, such as a parent or a grandparent. The other is a "self-settled" trust funded with assets that belong to the beneficiary with special needs.

While the rules for MassHealth and SSI are complicated and beyond the scope of this article, as a general rule, the availability of assets and income can bar an individual from eligibility for MassHealth, which provides health coverage, and for SSI, which provides cash benefits. In addition, if an individual transfers money into trust for her own benefit, typically the trust funds would be considered available to the individual and continue to render her ineligible for benefits. Pooled disability trusts, whether self-settled or third-party, are exceptions to these rules.

Difference Between Self-Settled and Third-Party Pooled Disability Trusts

Each of the non-profits sponsoring pooled disability trusts offers them in two forms. This is because the MassHealth and SSI eligibility rules treat trust assets differently depending on whether they are funded with the beneficiary's own money with or funds contributed by a third party, such as a parent or a grandparent. The rules governing so-called "first-party" or "self-settled" trusts created with the beneficiary's own funds require that upon the beneficiary's death, any funds not retained by the trust for its administrative costs (up to 20 percent) must be used to reimburse the Commonwealth for its MassHealth costs on his behalf. Only if funds remain after such reimbursement, may they be distributed to other family members.

The rules governing trusts created and funded by third parties are less stringent, the biggest difference being that there is no MassHealth payback requirement. That said, the non-profit itself may still require a contribution of some of the funds remaining upon the beneficiary's death to help it cover the costs of administering the pooled trust (up to 20 percent). That requirement may influence some clients in determining whether to use a pooled trust or a stand-alone, individual trust, for which they can choose their own trustee.

The other differences between self-settled and third-party trusts include the fact that anyone can create or fund a third-party trust and that the beneficiary may be any age when this occurs.

Pooled Trusts in Massachusetts

There are three principal pooled disability trusts in Massachusetts, the Berkshire County ARC Special Needs Trust, the CJP Disabilities Trust, and the MARC Trust. Following is information on each:

Berkshire County ARC

The Berkshire County ARC Master Special Needs Pooled Trust (BCARC Trust) was created by Berkshire County ARC to respond to the needs of the disabled community for reliable financial management services. Currently, the BCARC Trust has over $2.5 million invested.

The following are some important elements of the BCARC Trust:

It is self-settled.

After the trust beneficiary's death, 5% during the first two (2) years and 20% thereafter of any remaining funds are distributed to Berkshire Country Arc to be used to offset the cost of administering the trust and to aid any individual disabled person. MassHealth has second rights to any money remaining in the trust, then any designed beneficiaries.

There are no regularly-scheduled social services as part of the trust, however the Berkshire County ARC office is available to assist the beneficiary at all times in any way he might need.

The minimum investment to join the pooled trust is $7500.

There is a $500 or $600 enrollment fee; a yearly administration fee, 1% to Berkshire Bank and 1% minimum of $250 to Berkshire County Arc; and a $150 yearly tax preparation fee. 

A minimum amount of $2,500.00 must stay in the trust during the beneficiary's lifetime.

For more information on BCARC Pooled Trust, you may contact Maryann Hyatt, Pooled Trust manager by e-mail at mhyatt@bcarc.org or call her at (413) 499-4241, ext. 227.

CJP Disabilities Trust

The CJP Disabilities Trust and CJP Disabilities Trust II are pooled trusts that offer families a way to pay for expenses not covered by government benefits for their loved ones with a disability, without affecting government or other entitlements. Each individual enrolled in the trusts has her own account, but funds are pooled for investment purposes and investment fees are shared. There is currently approximately $2 million managed for 21 different beneficiaries.

The trusts are overseen by a five-person board of trustees who have professional and personal experience in the areas of developmental disabilities, mental illness, social work, finance, and trusts and estates. Jewish Family & Children Services manages the daily operations of the trusts and Combined Jewish Philanthropies provides financial expertise.

Trust funds can be used to pay for a variety of items and a service plan is developed when the individual enrolls, which guides the spending from the trust. The trusts are non-sectarian and serve all members of the community with physical disabilities, developmental disabilities, mental illness, and significant learning disabilities.

The CJP Disabilities Trust is a third-party trust and provides a lifetime of personal advocacy. It addresses a parent's most serious questions such as "What happens after I'm gone?" It has a $25,000 payable over three (3) years minimum and charges a set up fee of $400 and an annual fee of 2 percent.*

*Upon the death of the Beneficiary, up to 50% of these funds may be distributed to family members or organizations chosen by the Sponsor. At least 50% of the funds remaining in the CJP Trust Account revert to CJP and JF&CS and are applied to enhancing the services provided to other Beneficiaries of the CJP Trust.

The CJP Disabilities Trust II is a self-settled pooled trust funded with the individual''s own money. It has a $12,000 minimum and charges a set up fee of $400 and an annual fee of 2 percent.

For more information about the CJP Disabilites Trust and CJP Disabilities Trust II please contact Art Sullivan at Jewish Family & Children''s Service at 781-647-5327 or asullivan@jfcsboston.org or visit their website.

PLAN of Massachusetts

Currently, over 350 beneficiaries participate in this pooled trust, with total assets exceeding 6 million. All trust beneficiaries receive supportive services from PLAN's Licensed Independent Clinical Social Workers, including needs assessment, referral services, advocacy, and assistance accessing trust funds. All investments are professionally managed by PLAN's financial partner, Cambridge Appleton Trust.

Established in 1995, the MARC Trust is the oldest pooled trust in Massachusetts. This is a "self-settled" or "(d)(4)(C) trust" funded with assets belonging to the individual with a disability, assets often obtained through an inheritance.

There is a one-time, non-refundable enrollment fee, $600 for a basic enrollment and $750 for an enhanced enrollment (when a fiduciary is involved), due at the time an application form is submitted to PLAN of Massachusetts. Each beneficiary is charged an annual Management Fee of 3% of the amount in his or her individual trust account, the minimum annual Management Fee set at $500 and is charged on a quarterly basis. There is an annual $200 tax preparation fee and legal fees for mandatory reporting to the Social Security Administration or MassHealth.

Upon the death of the trust beneficiary:

If the Trust Beneficiary dies wtihin two (2) years of joining the trust, PLAN will retain 10% to be used for its charitable purposes after the payment of $500 for closing costs; If the Beneficiary dies more than two (2) years after joining the trust, PLAN will retain 20% of the remaining balance to be used for charitble purposes after the payment of $500 for closing costs.

MassHealth is entitled to be "paid back" the amount of the actual Medicaid benefits that the beneficiary received during his or her lifetime.

Any remaining funds (after 1 and 2) are distributed to the remainder person(s) designated by the Trust beneficiary.

The Third Party Pooled Trust is a newer program funded with assets belonging to families or other third parties to benefit a person with a life long disability. Funding can come from a variety of sources, including a Will, an insurance policy, or savings. If assets will not become available until sometime in the future, donors open a future-funded account.

This is not a payback trust. There is no requirement that government benefits that the beneficiary received be repaid upon the death of the Trust beneficiary. Furthermore, there is no requirement that PLAN of Massachusetts retain any percentage of remaining funds upon the death of the beneficiary.

For both future-funded and funded accounts, the enrollment fee is $750. The annual Management fee, tax preparation fee and any professional fees for additional services or termination fees are similar to that of the MARC Trust, however, future-funded trusts do not incur these fees until the sub-account is funded.

For general information you may visit the PLAN of Massachusetts website: www.planofma.org. To request detailed informational packets for both the MARC Trust and Third Party Pooled Trust, including fee schedules, disbursement guidelines, and applications, you may e-mail info@planofma.org or call (617) 244-5552.

(For those seeking a pooled trust outside of Massachusetts, a comprehensive list may be found on the Web site of the Academy of Special Needs Planners at www.specialneedsanswers.com under the Resources tab.)

When to Use a Pooled Disability Trust

Based upon the above information, when should you or your client consider using a pooled disability trust, either self-settled or third party? Following are some instances where such consideration is merited:

  • When there is no appropriate family member to serve as trustee. (Many practitioners in the field take the position that there should always be a professional trustee because family trustees invariably run into trouble.)

  • When there are insufficient funds to afford a professional trustee such as a bank, trust company or law firm.

  • When there is no parent or grandparent available to create a (d)(4)(A) trust (an option for individual self-settled trusts).

  • When the beneficiary is over the age of 65. Pooled disability trusts are often used for nursing home residents.

  • When the expertise of the pooled disability trustees in available public and private programs may be valuable to the beneficiary.

Conclusion

Massachusetts residents with special needs and their families face many challenges in accessing the resources and assistance they need to live as fulfilling lives as possible. Fortunately, Congress created a safe harbor which permits them to benefit from funds set aside by themselves or by others for their benefit and still qualify for vital benefits such as MassHealth and SSI. Non-profit organizations in the Commonwealth have taken advantage of the opportunity to create pooled trusts for the benefit of their constituents. Estate planners and personal injury attorneys need to be aware of the availability of these safe harbors which can be important tools for their clients.