Special needs trust often are the first “go to” option for persons with disabilities who are in danger of losing valuable public benefits due to the receipt of an inheritance, personal injury award or divorce settlement. In most cases, the use of a properly drafted special needs trust will preserve the beneficiary’s eligibility for public benefits, such as SSI and Medicaid, while the trust assets provide for the beneficiary’s needs and wants.
Special needs trust must meet very specific criteria under federal and state law. The trust must be irrevocable, with the trustee having absolute discretion to make distributions for the sole benefit of the trust beneficiary. The trustee must be independent from the beneficiary. The trustee should never be the beneficiary himself or the beneficiary’s legal representative. Finally,
the trust must also contain a payback provision. This provision provides that upon the beneficiary’s death, the trustee must first reimburse the state(s) that provided Medicaid benefits to the beneficiary during his lifetime.
Persons with a disability may also consider a pooled trust as an alternative to creating and funding a special needs trust. A pooled trust is similar to a special needs trust except that it must be established and managed by a nonprofit organization, and the nonprofit organization chooses the trustee. Although each trust beneficiary has his or her own separate account, this trust allows the appointed trustee to “pool” all beneficiaries’ accounts for investment purposes.
Pooled trusts may be the only viable option in the following cases:
- Persons who have a small amount of money to contribute to the trust and who cannot afford to have an attorney draft a special needs trust.
- Persons who cannot find an individual or financial entity to serve as trustee of the trust. Most individuals do not have the requisite knowledge base on public benefits, trust administration, investment and taxation to serve as a trustee. Furthermore, most financial entities will decline to serve as trustee unless the initial trust balance will exceed $200,000 or more.
- Individuals age 65 and older who cannot use a special needs trust under federal law because of their age (please note: some states don’t authorize individuals age 65+ to join a pooled trust either).
- Persons who have difficult or unique circumstances due to the nature of their disabilities, family conflict, and/or the type of assets to be transferred to trust.
There are many pooled trusts operating nationwide. Wisconsin is fortunate to have two renowned pooled trust organizations, WisPACT, Inc. and Life Navigators, which exclusively serve Wisconsin residents. Before contacting a pooled trust organization, an attorney should be consulted to weigh the advantages and disadvantages of choosing a pooled trust. The consulting attorney can assist a client in choosing a pooled trust organization that is best suited to his or her needs considering the person’s geographic location, disability and public benefits.