Menu

What Is The Special Needs Pooled Trust?


A special needs pooled trust is analogous to a mutual fund for investments. A charitable nonprofit organization manages the assets for multiple special needs trusts, as the trustee. That person does the accounting, and other things that are best done by a professional. They charge a low fee, compared to hiring professionals on your own. Usually special needs trusts have smaller amounts of principal where it would not be economically efficient to pay separately for those special services that need to be rendered, but through the economy of scale, they are able to do so where it allows a more efficient management of the trust. It also gives the assurance that funds are being disbursed properly, and accounted for properly. Professionals who are well versed in special needs trusts prepare these trusts.

Does The Type Of Disability Or Special Need Affect How The Special Needs Trust Is Structured?

No, the type of disability or special need has no effect on how the trust is structured. The biggest effect on the structure of a trust has to do with the amount of assets, and how much professional management if any, the donors need, and the source of the funds that are going into that trust. Those have a bigger impact on structuring the trust than the specific disability.

What Is A Third Party Special Needs Or Supplemental Trust?

The third party trust is one that is usually created by a family member. The beneficiary’s parents, or grandparents, create the trust. This money never belonged to the beneficiary. Because the money never belongs to the beneficiary, it is less restricted than a first party trust. The main difference is that the beneficiary can be of any age. With a self-funded or first party trust, the beneficiary has to be under the age of sixty-five. Once they reach sixty-five, those assets may no longer be held in a first party trust. Therefore, with a third party special needs trust; it can be for a beneficiary of any age.

Also, with a third party trust, when the beneficiary dies, there is no requirement that the remaining assets in that trust be paid to Medicare, or any other government agency as reimbursement, which is the case with a first party, or self-settled trust. There could be a contingent beneficiary, such as another family member. They could receive those funds after the death of the disabled beneficiary with a third party trust. It also allows for others to contribute to that trust. If the parents of a disabled child establish a special needs trust for that child, other family members could leave an inheritance to that child into that special needs trust, but with a first party trust, no one else may contribute funds.

What Mistakes Do You See Families Make When Considering Setting Up A Special Needs Trust?

I see two common mistakes. First, choosing the wrong trustee, for all the reasons that we just listed above. The second most common mistake is that the families are too involved, and are put off by the complexities and formalities involved in a special needs trust. They decide that it would be simpler to leave an inheritance to that beneficiary, or to leave the money that would have gone to the beneficiary to another beneficiary. They have an informal agreement to use that money for another sibling, for instance. This can be a terrible idea.

Even if the one who received the extra benefit is honest, and has their disabled sibling’s best interest in mind, it does not protect those assets in the same way that a special needs trust does. Those assets are still subjected to the sibling’s creditors, or divided if that sibling gets a divorce, or possibly the sibling’s reconsiders. There might be perceived needs, or emergencies for the named beneficiary may arise. I have witnessed this on too many occasions. I would say that the worst mistake I have seen is leaving the disabled beneficiary’s inheritance to one of their siblings, or someone else, hoping that the person will use the assets to take care of the disabled beneficiary.

For more information on Special Needs Pooled Trusts, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (626) 385-6303 today.

Newell & Havens Attorney At Law

Call for a free assessment of your needs
(626) 385-6303.

Related Articles

Follow Us On