A pooled trust can be a surprisingly useful estate planning tool. However, confusion abounds about how this type of instrument works and when and under what circumstances it makes sense to set one up. To that end, let’s review several frequently asked questions about pooled trusts.
- What is a pooled trust?
This trust, created and administered by a nonprofit entity, helps individuals with modest assets protect loved ones dependent on government programs, such as Supplemental Security Income (SSI) or Medicaid.
- What are the benefits of creating a pooled trust?
Here are a few:
- When a family isn’t sure that it wants to establish a Special Needs Trust (SNT), a pooled trust offers a degree of flexibility.
- Both the beneficiary (e.g. your child) as well as the grantor (e.g. you, if you’re contributing assets to the trust) can benefit from the pooled trust administration.
- If you don’t know someone who can be the trustee – for instance, a sibling or close friend – you can set up a third-party pooled trust and have a nonprofit do the heavy lifting assisted by seasoned counsel.
- What is the difference between first-party and third-party pooled trusts?
First-party trusts are designed just to hold funds for recipients of public benefits. Third-party trusts, by contrast, hold money contributed by others (i.e. not the recipients). One major distinction is the way they handle assets upon the death of the loved one with special needs. With a first-party pooled trust, the remaining assets are frequently retained by the non-profit organization. With a third-party pooled trust, any remaining funds go directly to other heirs, and no government fees are withheld.
- How do I know which pooled trust is the right fit?
According to an analysis conducted by The American Bar Association, all pooled trusts are not the same. They vary with respect to culture, fees, administrative style, and management. For example, some trusts only accept those with developmental disabilities, while others work with people who need someone to manage their monies from a litigation recovery. Assess the reputation of the nonprofit, cost of membership, longevity of the trust, and ease of requesting distributions.
Feel free to call us at 501-221-7776 with any questions you may have about pooled trusts or other estate planning vehicles.