If you have a loved one with special needs and you want to leave a part of your estate to them, you may have considered creating a special needs trust, so that their eligibility for benefits such as Medicaid and SSI are not in jeopardy. But creating and executing a separate trust for your loved one can be expensive and time-consuming. If the amount you plan to leave isn’t substantial or if you can’t find anyone willing to serve as trustee of the special needs trust, you may want to consider a pooled trust.
What Is a Special Needs Pooled Trust?
A special needs pooled trust is essentially an institutional trust, typically operated by a non-profit entity, where individual beneficiaries have their own accounts and trustees designated by the pooled trust. Any assets placed into the pooled trust are combined and invested together by trust administrators. The pooled trust will typically charge fees for the services it provides—some pooled trusts offer a wide range of care, whereas others simply manage beneficiary assets.
The Pros and Cons of a Pooled Trust
Pooled trusts are not appropriate for every situation. Here are some of the advantages of a pooled trust:
- You can turn the day-to-day administration of your loved one’s special needs trust over to someone else. As a general rule, the trust directors of pooled trusts are connected to the special needs community and have a good understanding of your loved one’s needs.
- The administrators of a pooled special needs trust will likely know the rules governing distributions and spending from the trust, so that your loved one’s eligibility for benefits will not be compromised
- You’ll spend less money up front to set up the special needs trust
There are, though, limitations to pooled trusts:
- Some pooled trusts will not own real property or other assets with limited liquidity
- It can be difficult to move the assets placed in a pooled trust
- A pooled trust can be more costly in the long run—there’s typically a small setup fee, but you’ll also pay annual fees based on a percentage of assets under management
- There can be limitations on distributions from a pooled trust—the trust may only distribute assets at certain times or may have limits on the number of distributions that can be made
- Before making decision regarding special needs trusts vs. pooled trusts, you should consult with knowledgeable legal counsel
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