A pooled trust is also known as a d4C trust because it is authorized by US Code 1396p(d)(4)(C). It is established and managed by a non-profit organization and is funded by the individual with special needs, for that individual’s sole benefit. An individual’s pooled trust is a subaccount within a master trust, a collection of other individual trusts. The managing entity oversees the collective individual accounts within the pool as a whole. A pooled trust entity will have its own joinder agreement; the terms of the trust are controlled by the entity.
An alternative to a pooled trust is a Self-Settled Special Needs Trust (SNT). Such trust is also called a d4A trust because it is authorized by US Code 1396p(d)(4)(A). This trust is the beneficiary’s standalone trust, so the beneficiary has control over the terms of the trust. With both a pooled trust and Self-Settled SNT, certain terms are mandated by federal law, such as a payback provision. This is because both a pooled trust and Self-Settled SNT are funded with the beneficiary’s own assets.
What are the advantages of a pooled trust over a Self-Settled SNT?
- The administrative costs of a pooled trust are lower.
- There isn’t a need to find a Trustee; the pooled trust entity will provide a Trustee.
- The pooled trust administrators can pool funds together for better investment opportunities and returns.
- There is an entity (likely with insurance coverage) to hold accountable if things go south.
What are the downsides of a pooled trust over a Self-Settled SNT?
- The beneficiary has little or no control over the terms of the pooled trust.
- There is no control regarding who is serving as Trustee.
- Distributions are oftentimes more difficult for the beneficiary to obtain since the distribution request is subject to the pooled trust’s practices and policies.
- The investment strategies of a pooled trust are not based on the individual beneficiary’s needs or circumstances.
Self-Settled SNTs are usually more desirable than pooled trusts since there is more control and flexibility in the former. However, pooled trusts are used when the amount funding the trust is relatively small and the costs to administer a Self-Settled SNT are not warranted. Both options allow an individual to set aside funds for their special needs while remaining eligible for government benefits.