Pooled Trust

Most attorneys that have at least some exposure to the world of the aged and/or disabled have heard of “special needs trusts” (SNT’s) and many have used them to the advantage of their clients who are on or are going on to any governmental assistance program that has asset limitations, such as SSI, SSDI or Medical Assistance. SNT’s are creatures of Federal Statute, 42 USC 1396 p (d)(4)(a).

The same group of attorneys may have at one time or another read down the page a bit farther past 42 USC 1396 p (d)(4)(a) and read (d)(4)(c) that describes something called a pooled trust, thought it was interesting and moved on. Well, given some new events in Minnesota, the introduction of a (d)(4)(c) pooled trust, the question is “What is a Pooled Trust?”

A pooled trust is in many respects identical to a SNT. The creation of both types of trusts move assets from being countable, for purposes of eligibility determination, to being non-countable assets. Both trusts are created by the beneficiary’s own funds. Both trusts require that the disbursements be for products or services that are not supplied by the particular government program, thus the money is used to supplement the government benefits to the beneficiary of the trust. Both trusts require that the trust asset be used solely for the benefit of the beneficiary.

There are several notable differences. First, SNT must be established prior to the 65th birthday of the beneficiary. Pooled Trusts have no such requirement. An established SNT cannot be added to after the 65th birthday, without incurring the imposition of a penalty period. Pooled Trusts do not have that limitation. Second, an SNT can be drafted to name any number of types of trustees to manage the trust assets. A pooled trust, on the other hand, is required by statute to be established and administered by a non-profit corporation, as defined by Section 501(C)(3) of the IRC.

The end result is that a Beneficiary of a Pooled Trust can start to receive or continue receiving public benefits for meeting essential needs and still have resources available for their special, or supplemental, ne

Additional Benefits of a Pooled Trust

Pooled Trusts can offer additional significant value to Beneficiaries in addition to the primary benefit of protecting their public benefits. This added value is derived from the fact that the funds are pooled for investment and management purposes. Most Beneficiaries’ funds could never perform as well in the financial market as those funds will perform when strengthened by their addition to a pool. Well designed pooled trusts can command better interest rates and other financial benefits from the market that are not available to individuals with smaller amounts of money.

Who can benefit from a Pooled Trust?

The following list provides some examples of potential Trust Beneficiaries who can benefit from a Pooled Trust.

• Elderly persons who have become infirm.
• Nursing home residents or soon-to-be nursing home residents.
• Recipients of government assistance programs that are based on asset and income limitations, such as Medical Assistance or SSI.
• Applicants for government assistance programs that are based on asset and income limitations, such as Medical Assistance or SSI.
• Recipients of personal injury settlements who need to apply for or protect government assistance benefits.

How Pooled Trust Funds can be used?

The list below illustrates some of the uses for which supplemental payments may be made out of the Trust.

• Geriatric care services.
• Supplemental nursing care.
• Medical procedures not provided through government assistance.
• Differentials in housing costs between share and private rooms in institutional settings.
• Travel expenses.
• Entertainment expenses.
• Any other expense not provided by government assistance programs.
• Guardian fees.
• Attorney Fees.

How does a Pooled Trust work and how do you get someone into a pooled trust?

First, it is important to have a clear understanding of the technical pieces of the pooled trust. There are three main parts – the Master Trust agreement, the Joinder Agreement and the intake forms.

The Master Trust document is drafted by the non-profit for the pooled trust and defines the nature, character and purpose of the trust along with the underlying legal basis for the trust. The document is the same for every beneficiary in the pooled trust.

The Joinder Agreement is drafted to include the specific matters that apply to the specific beneficiary, without contravening the Master Trust. This is the document that places, joins, the beneficiary into the Master Trust. The Joinder is most likely to be drafted within a set of guidelines provided by the specific non-profit trustee that has created and administers the pooled trust.

The intake forms are the source of all the information provided to the Trustee about the specifics of the beneficiary. Type and nature of the disability, prognosis, care plan, governmental programs currently enrolled in and those to which application is being made, description of the grantor’s wishes concerning types of future disbursements and other related information is collected at this step. Note: the Trustee has to have absolute discretion in the amount and the timing of asset distribution, in order for the trust assets to be considered unavailable. The request of the grantor for comments concerning desired future distributions has no effect upon the Trustee’s absolute discretion.

The beneficiary establishes themselves in a pooled trust by completing the required forms that the non-profit trustee provides, pays whatever enrollment fee that there may be and funds the their trust.

The Trustee, upon receipt of the completed form and the funds, establishes a sub account in the Master Pooled trust account in the beneficiary’s name. This is the event that the government agencies look at as one of the critical dates regarding when the pooled trust was established for a specific individual.

How are pooled trust distributions made for the benefit of the beneficiary?

Distribution practices and procedures will vary from one non-profit Trustee to the next, the following will be an overview of what steps a request might go through.

Step 1 - The beneficiary or a legal representative of the beneficiary makes a request in writing for a particular product or service that will benefit the beneficiary.

Step 2 - The Trustee, in the light of the particular benefit program that the beneficiary is currently a recipient and it’s rules regarding assets and expenditures, evaluates the request. If the Trustee determines that the request is not for something that would create a benefit disqualification for the beneficiary, the request goes to step three.

Step 3 - The next threshold question is whether or not the expenditure will legitimately benefit the beneficiary and improve the quality of their life. Given a positive answer at this stage, arrangements are made for the Trustee to pay the vendor of the product or service directly, for the benefit of the beneficiary.

Each Trustee will have different nuances to this process but this should be representative of how the distributions are made.

What does Minnesota say about Pooled Trusts?

Minnesota Statutes

Chapter 256B.056 Sub 3(b)(b) identifies the source of authority for the enforcement/regulation of pooled trusts. To provide some context for the language of Sub 3(b)(b), here is the language that leads up to the cited language.

256B.056 Eligibility; residency; resources; income. examples

Subd. 3. Asset limitations for elderly and disabled individuals. To be eligible for medical assistance, a person must not individually own more than $3,000 in assets …..

Subd. 3b. Treatment of trusts. (a) A "medical assistance qualifying trust" is a revocable or irrevocable trust, or similar legal device, established on or before August 10, 1993, …..

(b) Trusts established after August 10, 1993, are treated according to section 13611(b) of the Omnibus Budget Reconciliation Act of 1993 (OBRA), Public Law 103-66. (emphasis added)

Department of Human Services (DHS)

DHS’s direction to its employees on how to administer the statutory law, 256B.056 Sub 3(b), is identified in their department manual. (The Manual).

The following are the relevant clips of language in the manual concerning SNT’s and pooled trusts, for the full discussion on assets see: http://www.dhs.state.mn.us/main/groups/county_access/documents/pub/DHS_id_018434.hcsp

MDHS HEALTH CARE PROGRAMS MANUAL
ML 32 JULY 2002
SPECIAL NEEDS TRUSTS 0909.21.05

For trusts established ON or AFTER 8-11-93:

If a trust meets all of the general criteria AND the criteria listed for 1 of the 2 types of Special Needs Trusts described below, the corpus (principal) is considered an excluded asset for MA purposes.

To be considered a Special Needs Trust, the trust must meet all of the following general criteria: (emphasis added)

- A Special Needs Trust must contain only the income and/or assets of the disabled client to be considered an excluded trust. If the trust contains the income or assets of the client and others, including the client's spouse, it can be treated as a Special Needs Trust if it is for the sole benefit of the disabled person.

-Require the trustee to verify whether the trust allows for funding by other persons or allows the trustee the power to receive additions to the trust from any other source. The trustee must verify the source and amount of all additions to the trust at the time of the 6-month income or income and asset review. See §0905.09 (6-Month Reporting).

- A Special Needs Trust must specify that upon termination of the trust, DHS will receive all amounts remaining in the trust up to an amount equal to the total medical expenses paid through MA on the client's behalf. If the trust is revocable, it must contain a clause that certifies DHS is the primary recipient of the funds remaining in the trust upon the death of the client. If the trust is revoked prior to the death of the client, the corpus of the trust is no longer excluded. Review assets to determine the client’s continued eligibility.

-If the trust is irrevocable, it must contain a clause that certifies DHS is the primary beneficiary upon the death of the client. ….

To be considered an excluded Special Needs Trust, a trust must meet all the criteria of 1 of the following 2 types of trust in addition to the general criteria. (emphasis added)

TRUST FOR DISABLED CLIENT UNDER AGE 65:

- The client must be under age 65 when the trust is established. A trust

established while a person is under 65 remains excluded when the person

reaches 65. However, consider any addition to the trust after the client reaches age 65 as an asset transfer. See §0909.27 (Asset Transfers) and §0909.27.01 (MA Transfers--Cont.)

- The client must be disabled according to Social Security or State Medical Review Team (SMRT) criteria. See §0906.15 (Disability Determinations).

- If the client was not receiving SSI or RSDI payments at the time the trust was established, SMRT must determine that the client was disabled at the time the trust was established.

- The trust must be established by the client's parent, grandparent, legal

guardian, or a court using the client’s own funds or the funds of others, if it is for the sole benefit of the disabled person. It cannot be established by the client.

POOLED TRUST FOR DISABLED PEOPLE:

- The trust must be managed by a non-profit association and contain separate trust accounts of more than 1 person.

- A separate account within this pooled trust must be maintained for the client. However, the income or assets of all beneficiaries of the trust may be pooled for investment and management purposes.

- The client's separate trust account must contain the income and/or assets of only the client.

- The client must be disabled according to Social Security disability criteria at the time the trust is established. If the client was not receiving SSI or RSDI Disability benefits at the time the trust was established, SMRT must make a retroactive determination that the client was disabled at that time. See §0906.15 (Disability Determinations) and §0906.15.03 (Disability Determination/SMRT Referral).

- The trust account must be established by the client, the client's parent(s), grandparent(s), legal guardian, or a court using the client’s funds.

There are no age requirements for pooled trusts. (DHS Manual language, emphasis added)

Conclusion on the question “What does Minnesota say about pooled trusts?”

First , Minnesota has contemplated the use of trusts for the purposes of determining whether an asset is countable or non-countable and statutorily adopted the Federal approach in Chapter 256B.056 Sub 3(b)(b).

Second , DHS has also contemplated the use of pooled trusts for the purposes of determining whether an asset is countable or non-countable and has communicated the Department’s favorable position to pooled trusts in “The Manual” at 0909.21.05.

Two frequently asked questions

1. Are transfers in to a pooled trust by a person over the age of 65 subject to the transfer penalties of Medical Assistance?

No. Here is the analysis.

First, the Federal statutory language in 42 USC 1396 p (d)(4)(a) provides clear language defining qualified SNT’s. One of the primary requirements for qualification is the establishment of the SNT prior to a disabled person’s 65 ^th birthday. Two paragraph’s later, Congress chose to focus d(4)(c) on the type of trustee that would be required for a pooled trust and chose not to add other restrictions, such as age, to this section. In fact of the three distinct paragraphs in 1396p(d)(4) – (a), (b) and (c), only paragraph (a) discusses the issue of age.

Second, the CMS manual, section 3259.7 (A) gives direction regarding SNT’s and specifically discusses the establishment prior to age 65 requirement but goes further to say that additions to a properly created SNT after the beneficiary has reached the age of 65 are countable assets for eligibility determinations. Section 3259.7 (B) addresses pooled trusts with its primary attention given to the issue of the trustee and the beneficiary accounts and with a noted lack of mention of any age issue. The lack of discussion concerning age is persuasive concerning a presumed intent of having no age restrictions.

There is, however, a “note” following both subsections A and B that says :

“Establishing an account in the kind of trust described above may or may not constitute a transfer of assets for less than fair market value. For example, the transfer provisions exempt from a penalty trusts established solely for disabled individuals who are under 65 or for an individual’s disabled child. As a result, a special needs trust established for a disabled individual who is 66 could be subject the to a transfer penalty. (See Sec 3258.10 for the exceptions to imposing penalties for certain transfers of assets.)”

This “note” requires its own analysis.

The first step in correctly interpreting this language is to continue reading the rest of section 3259.7B. Reading beyond the second “note” that follows the discussion of pooled trusts, the next paragraph says:

“While trusts for the disabled (as well as Miller trusts described in subsection C) are exempt from treatment under the trust rules described in §3259.6, funds entering and leaving them are not necessarily exempt from treatment under the rules of the appropriate cash assistance program. The following are rules applicable to funds entering and leaving both kinds of exempt trusts for the disabled .” (emphasis added)

Minnesota is not an income cap state so we will pass over 3259.7B(1) and go to 3259.7B(2), with particular attention to the second paragraph:

Trusts Established with Resources. --When an exempt trust is established for a disabled individual using resources either in whole or in part, those resources are treated as follows.

Resources placed in an exempt irrevocable trust for a disabled individual may or may not count as resources to the individual in determining eligibility, depending on the circumstances. Resources are counted as resources only during those months in which they are in the possession of the individual, up to but not including the month in which the resources are placed in the trust. Beginning with the month the resources are placed in the trust, they are exempt from being counted as resources to the individual.

Resources placed in an exempt trust for a disabled individual are subject to imposition of a penalty under the transfer of assets provisions unless the transfer is specifically exempt from penalty as explained in §3258.10 or unless the resources placed in the trust are used to benefit the individual, and the trust purchases items and services for the individual at fair market value. See subsection C for the rules concerning application of the transfer of assets provisions to assets placed in an exempt trust. These rules apply to both income and resources placed in the exempt trusts discussed in this section. (emphasis added)

Now if we go to Section 3258.10 and look at the exemptions from penalty we find that there is in 3258.10(B) a specific exemption for trusts established for a disabled person under the age of 65, in other words a SNT, but we find no equivalent exemption for pooled trusts. However, the rules, outlined in 3259.7B(2) provide another alternative to determine if the transfer into one of the types of exempt trusts described in 3259.7 can still be considered exempt. Here is the alternative exemption to 3258.10:

“…the resources placed in the trust are used to benefit the individual, and the trust purchases items and services for the individual at fair market value.” 3259.7(B)(2)

Whether there is a penalty for a transfer into a pooled trust does not rest on the issue of age but rather whether or not the pooled trust is administered in such a way to satisfy the alternative exemption noted immediately above this sentence. If the Trustee uses the resources for the benefit of the individual and pays fair market value for the goods and services provided to the individual, then there is no penalty.

Now back to the “note” following the text of 3259.7(B) that discussed pooled trusts:

“Establishing an account in the kind of trust described above may or may not constitute a transfer of assets for less than fair market value. For example, the transfer provisions exempt from a penalty trusts established solely for disabled individuals who are under 65 or for an individual’s disabled child. As a result, a special needs trust established for a disabled individual who is 66 could be subject the to a transfer penalty. (See Sec 3258.10 for the exceptions to imposing penalties for certain transfers of assets.)” (emphasis added)

Looking at the active phrases in this note: “may or may not constitute a transfer” and “could be subject the to a transfer penalty” they present the possibility that the transfer might not pass the muster of either 3258.10 or the alternate exemption of 3259.7(B), nothing more .

Trying to find an absolute prohibition in these “notes” against exempting transfers into a pooled trust would be to say that all the language concerning pooled trusts was frivolous and totally useless.

Second, is the Minnesota statutory and regulatory analysis, much of which has already been discussed above in the section, “What does Minnesota say about pooled trusts?” The last sentence of DHS’s manual discussion of pooled trusts says, “There are no age requirements for pooled trusts.” These are the DHS’s words and taken at face value and in the context in which they are written, which includes the discussions earlier in the same section 0909.21.05 that SNT’s are age sensitive not only for creation but for augmentation, they have to mean just what they say - “There are no age requirements for pooled trusts.” . There is little way to read the words to be restrictive in the matter of age for either creation or augmentation of a pooled trust for those over 65 years of age.