Third-Party Pooled Special Needs Trust Topics to Discuss with Your Client
By Joanne Marcus On Aug 14, 2024
Disability
The Beneficiary of the sub-account must be disabled, but they do not need to have been determined
to be disabled by the Social Security Administration.
Reviewing the Joinder Agreement
Review the Joinder Agreement and Attachments A-E with the client, including the successor and
contingent beneficiaries and the limitation on paying expenses (including burial, cremation, and
funeral) after the Beneficiary passes away.
Funding the Sub-Account
The funds deposited into (or that my client plans to deposit into) the Third-Party Pooled Special Needs
Trust sub-account belong to a third party. Assets belonging to or owed to the Beneficiary, including
an inheritance left directly to the Beneficiary, cannot fund a third-party sub-account.
The clients should update their estate planning documents and beneficiary designations to include the
sub-account. Please visit the Beneficiary Designation webpage to review suggested language.
Qualified Plans/Retirement Accounts
There is a $50,000 minimum balance requirement to transfer a qualified plan, like an inherited IRA, to
the sub-account in-kind. If the balance is lower than $50,000 at the time of transfer, then the qualified
plan will likely be liquidated, and the proceeds added to the sub-account.
Documentation of the Beneficiary’s disability or chronic illness must be provided to the qualified plan
administrator at the time that the qualified plan is transferred to the sub-account (likely within the year
after the account owner’s passing) and that if sufficient documentation of disability or chronic illness
cannot be provided, then the qualified plan will likely be liquidated, and the proceeds added to the
sub-account.
Government Benefits
If the Beneficiary receives Supplemental Security Income (SSI) or Medicaid, then CCT follows the
federal and state rules regarding distributions for SSI and/or Medicaid in order to protect both SSI
and/or Medicaid benefits.
A pooled special needs trust sub-account may impact the Beneficiary’s eligibility for means-tested
benefits other than SSI or Medicaid.
Distributions
All distributions from the sub-account must be made for the benefit of the Beneficiary. Guidelines for
distributions can be found in the Disbursement Manual.
If the Beneficiary receives SSI benefits, then CCT usually does not disburse funds for shelter (and food
until Sept. 2024) because SSI is intended to pay for these expenses, which include room, rent,
mortgage payments, real property taxes, heating fuel, gas, electricity, water, sewerage, and garbage
collection services. C.F.R. § 416.1130(b). If shelter expenses (or food until Sept. 2024) are paid for SSI
recipients, such disbursements must be reported to SSA and may reduce the client’s SSI benefits.
Taxes
A K-1 tax form will be provided annually to the first Advocate listed on the Joinder Agreement. Any
income reported on the Grantor Letter will be attributed to the Beneficiary and may result in the
Beneficiary needing to file a tax return and possibly needing to pay taxes. The Advocate should
consult with a tax preparer with any questions. Documentation of taxes owed or accountant expenses
related to the Beneficiary’s taxes can be submitted to CCT for payment from the sub-account.
Distributions from or liquidation of a traditional (pre-tax) qualified plan or other tax-deferred assets will
be treated as income and may lead to taxes being owed by the sub-account or the beneficiary
themselves.
Court Orders
If the sub-account is being funded by a court order, then please review the suggested language
webpage on the CCT webpage. Also, if possible, submit the draft court order to
[email protected] for CCT counsel’s review prior to submission to court or signature by the
parties.
Power of Attorney
If the Joinder Agreement is being signed by or funded by an agent under a power of attorney, then
please submit the power of attorney document to [email protected] for review by CCT.
If the Joinder Agreement is being signed by or funded by an agent under a power of attorney, then
the agent should sign the CCT Agent Certification and submit it to [email protected].
Trust Transfer / Decanting
If this sub-account is being funded by assets transferred or decanted from another trust, then review
the CCT webpage on trust transfers and decanting and ensure that the transfer or decanting is
appropriate according to the state law where the original trust is sitused.
If this is a transfer or decanting, review the successor and contingent beneficiaries listed in the Joinder
Agreement to ensure that they match the original trust or the court order.
Required Documents to Include with the Joinder Agreement (if applicable)
- Court order for guardianship and/or conservatorship of Beneficiary.
- Power of attorney document and CCT Agent Certification form.
- If a court has required that the CCT Trustee qualify before the clerk of court and/or make annual filings with the commissioner of accounts or other court entity, a copy of the court order.
- If the sub-account is being funded by a transfer from an existing special needs trust, a copy of the existing trust and transfer and/or decanting documents, as well as a copy of the court order, if applicable.
- If custody arrangements exist for a minor Beneficiary, documentation of such arrangement or court order.
- If the sub-account is being funded by the Grantor’s will and/or trust, a copy of the will and/or trust.
- If the sub-account is being funded by a life insurance policy, investment account, retirement plan, or other account, a copy of the beneficiary designation and account or policy information.
Disclaimer: This is not intended to be legal advice nor is it an exhaustive list of everything that should
be considered or discussed when establishing a sub-account.
Author
Joanne Marcus has served as President and CEO of Commonwealth Community Trust, a nonprofit organization that administers Pooled Special Needs Trust for people with disabilities since 2000. Under her leadership, the agency has grown to provide pooled trust administration services to over 2,200 beneficiaries throughout the United States. As a nationally recognized speaker, Ms. Marcus is frequently asked to make presentations to professional associations and universities such as the National Academy of Elder Law Attorneys (NAELA), Academy of Special Needs Planners (ASNP), Workers’ Injury Law & Advocacy Group (WILG), Financial Planning Association of Central Virginia, American Academy of Estate Planning Attorneys (AAEPA), Stetson University College of Law, and The University of Texas School of Law.