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.
How Pooled Special Needs Trusts Work
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:
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.
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.
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.
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