How Pooled Special Needs Trusts Work

When it comes to setting aside money for someone with special needs, there are a few important considerations to keep in mind. For instance, how do you provide for everyday needs and living expenses while also maintaining eligibility for public benefits programs, such as Medicaid? The answer often lies in special needs trusts, which allow a disabled person to protect and retain certain assets while also remaining eligible for public assistance. One such trust is called a pooled special needs trust. Here’s a look at what this type of financial account does and why.

A financial advisor can help you to make sure your special needs beneficiary is properly cared for.

What Is a Pooled Special Needs Trust?

A pooled special needs trust, or PSNT, is a type of financial arrangement in which a disabled person’s assets are held by a trusted organization on their behalf. These assets can be utilized by the beneficiary as needed, to pay for things like shelter, food and more.

The benefit of a special needs trust is that these assets are not counted against the beneficiary for the purposes of public assistance. This means that the individual can still qualify for Supplemental Security Income (SSI) benefits, Medicaid and other critical programs, even if they are using funds from that trust for personal needs or living expenses.

While typical special needs trusts can be costly and confusing to establish, a pooled special needs trust is a bit simpler. For example, PSNTs are typically managed by non-profit organizations, rather than being managed by an individual. A PSNT account can be created and funded by the disabled individual themself. A parent or grandparent, another guardian or even a court can also establish a sub-account.

As the name implies, assets held within PSNTs are pooled together into one account. This works similarly to your checking or savings account at your bank: the bank pools all depositors’ funds together, but offers each account holder a separate sub-account with his or her own available funds balance.

The nonprofit organization managing the PSNT holds all beneficiaries’ assets together in one collective account. These funds will then be invested or otherwise managed according to the trust’s terms.

When a beneficiary needs money, they can request a disbursement according to their sub-account’s available balance. These assets can be used for a variety of purposes, including:

Living expenses (shelter, food, clothes and utilities)
Medical expenses (including health insurance premiums)
Educational or vocational expenses
Personal needs
Entertainment
Legal expenses

While there is a lot of flexibility with pooled special needs trust funds, there are some limitations. For instance, disbursements cannot be used to pay down existing debt balances or to cover child support or alimony. The funds also can’t go toward expenses for family or other household members, including shelter costs for others or even family vacation expenses.

Advantages of Pooled Special Needs Trusts

There are many advantages of using a pooled special needs trust to manage the assets of someone with a disability.

They can be more affordable. A PSNT is already established and managed by a nonprofit organization. This means that you won’t be creating an entirely new financial vehicle. As a result, they are simpler and less costly to establish, fund and manage than first-party special needs trusts.
They’re a good option if you don’t have another trustee. Providing for a loved one with disabilities can be nerve-wracking, especially if you don’t have someone trusted to manage assets on their behalf. With pooled special needs trusts, the nonprofit is the trustee, so you can rest assured that an experienced and well-equipped entity will be there when your loved one needs them.
They help protect eligibility for public programs. Without a special needs trust, your loved one could find themselves ineligible for many public assistance programs — such as Medicaid or SSI — if they have certain assets. Putting those assets in a PSNT not only protects their financial interests but preserves eligibility for these programs.
It can be established by many different people. A PSNT can be set up and funded by the person with the disability, their parent(s), grandparent(s), other guardians or even a court. This differs from first-party special needs trusts, which cannot be established by the individual themselves.

Disadvantages of Pooled Special Needs Trusts

Of course, pooled special needs trusts aren’t without downsides to consider. Here are a few of the most important ones that you should keep in mind.

Funds are kept when the beneficiary passes away. When the disabled person dies, any remaining assets in their sub-account are absorbed by the charitable organization managing the PSNT. The organization may also be required to pay back the Medicaid program in their state for benefits received.
It is usually irrevocable. PSNTs are typically irrevocable trusts. If this is the case, any assets placed into a pooled special needs trust are permanently held there.
It can be limiting. Since special needs trusts, including PSNTs, are established under federal law, they must follow certain guidelines. This means assets can only be used for qualifying expenses, rather than being available for all purposes.

The Bottom Line

If you have a disabled loved one or are disabled yourself, preparing for future expenses can be daunting. A special needs trust can help manage certain assets on behalf of the disabled individual, while preserving eligibility for important public assistance programs. With a pooled special needs trust, your assets are managed by a nonprofit organization. This makes it easier and more affordable to establish than a first-party trust. However, the trust is usually irrevocable and funds can only be disbursed for approved purposes.

Tips on Estate Planning

If your estate planning process involves a loved one with special needs (or even your own disability), there are some important considerations to keep in mind. A special needs trust can help address these and may be imperative if you have a disabled beneficiary.
Consulting with a financial advisor can ensure that you not only protect your assets today but also plan for how they’ll pass to your beneficiaries. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.