If you are an attorney working with a disabled claimant, you’ll want to bring in a settlement planner to review your client’s options. When a disabled individual anticipates accepting proceeds from an injury settlement, certain steps must be taken to help the claimant maintain eligibility for needs-based government benefits (e.g., Medi-Cal, SSI) and preserve their settlement proceeds.
A first-party special needs trust (also known as a (d)(4)(a) trust) is often tapped as a tool to accomplish both goals. However, while a first-party special needs trust is an excellent option for some claimants, the associated overhead costs and age restrictions make it inaccessible for others. A pooled trust, on the other hand, can serve as a viable alternative for claimants over the age of 65 and those who don’t receive millions in settlement proceeds.
How does a pooled trust work?
A pooled trust (also known as a (d)(4)(c) trust) is established and maintained by a nonprofit organization. A sub-account is added for an individual beneficiary; then the assets are “pooled” for investment purposes. The sub-account is established after signing a joinder agreement, and the account is managed by a professional trustee.
Once the beneficiary passes away, the terms of the trust determine how any remaining funds in the sub-account will be handled. In some instances, excess funds may be allowed to remain in the pooled trust, while in other cases, funds not retained by the trust must be used to reimburse Medicaid (Medi-Cal in California) before final distribution.
Who should consider a pooled special needs trust?
As is the case with any settlement option, there is not a one-size-fits-all approach. First-party special needs trusts tend not to be the best option for disabled claimants receiving settlements of $500,000 or less because of administration and management costs. When coupled with regular distributions from the trust to meet the individual’s needs (housing modifications, for example), the costs can quickly eat away at the settlement. A pooled trust provides a lower-overhead alternative with the ability to maintain access to important needs-based government benefits. There is no age restriction on pooled trusts, so even claimants over the age of 65 are eligible.
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