Estate Planning Attorney Harry Margolis Talks About Pooled Disability Trusts
Harry Margolis is an elder law and estate planning attorney with the Wellesley law firm Margolis Bloom & D’Agostino. This series explores different topics related to finding the right supportive housing for your loved one with intellectual or developmental disabilities. This interview has been edited for length and clarity.
Please explain how Pooled Disability trusts work
Pooled disability trusts are a safe harbor created by Congress where people with disabilities can hold their own assets and still get Supplemental Security Income (SSI), Medicaid and SNAP benefits. It’s a safe harbor because in most cases, if you put your own assets into trust – and you’re still a beneficiary of the trust – those assets will be considered belonging to you when you apply for benefits. And in most cases, it will put you over the asset limit, which is just $2,000 for most programs. The safe harbor allows you to put your own assets into trust and still be the beneficiary, but there are some restrictions.
There are two kinds of trusts that you can do this with. Both are self-settled. One is an individual trust, which is for your own benefit. These are often referred to as (d)(4)(A) trusts, a reference to the statute that enables them. The others are pooled disability trusts, which are run by nonprofits for the benefit of many beneficiaries, but they keep separate accounts for each beneficiary.
There are pros and cons to both types. The individual (d)(4)(A) trust is typically for when you have a larger amount and you have somebody that you know or trust to act as trustee. But if you don’t, you would more likely want a pooled disability trust, which is already set up with the infrastructure of a trustee and investment people.
The main drawback of the (d)(4)(A) and pooled disability trusts is that when you pass away, if there are funds still remaining in the trust, the trust must repay Medicaid (known as MassHealth in Massachusetts) for whatever they paid for your care during your life. It is not a way, in most cases, to protect money for your heirs, but it allows you to get the benefit of the money for the rest of your life. One big distinction between the (d)(4)(A) trust, the individual trust, and the pooled disability trust, which sometimes are also called (d)(4)(C) trusts, is that you must fund the (d)(4)(A) trust before you reach age 65, but you can fund a (d)(4)(C) or pooled disability trust at any age, at least in Massachusetts. The rule may differ state to state.
Can you address the difference between a regular special needs trust and a pooled disability trust?
Most special needs trusts are created by somebody else. The D4A and the (d)(4)(C) – or pooled disability trust safe harbors – are created with your own money. But if somebody else is leaving money to you, you need to use a third-party special needs trust, where the person’s is giving the money as a third-party to the beneficiary, and there’s no repayment obligation for Medicaid. Say a parent or grandparent is funding a trust for a person with a disability, then you wouldn’t want to use the normal pooled disability trust or the (d)(4)(A) trust because of that repayment obligation.
From a family’s perspective, what would be some of the reasons to choose a (d)(4)(A) trust versus a pooled disability trust?
A lot depends on the amount of money involved and whether you have somebody who can serve as trustee. When there is a large amount of money and you have a family member to serve as trustee, you may want to set up your own (d)(4)(A) trust because you have a lot more control, a lot more flexibility, and it’s more private. We often like to see a combination of a family member and a professional trustee, whether that’s a law firm, a bank, a trust company, to manage it.
If, instead, there’s not so much money involved, or you don’t have these people in place, then a pooled disability trust probably makes more sense because they already have the trustees, they have the investment people, they have oversight — since it’s a nonprofit, they have a board that is keeping an eye on things.
Are there advantages to setting up an ABLE account instead of a pooled trust?
ABLE accounts are simpler because you don’t have a trust. With ABLE accounts, the beneficiary can have total control, so there are a lot of benefits to the ABLE account. But it depends on whether you want the beneficiary to have full control. The main limit of the ABLE account relates to the funds, you can only put $19,000 a year into the account, and it can’t hold more than $100,000 in total. If you have smaller amounts, it’s going to be a lot easier to just set up an ABLE account than work with any trust. If you have larger amounts, you’re going to have to work with a trust.
Often, people have both because if they have larger amounts, they can put those in the trust and still have the ABLE account. The trust can make distributions to the ABLE account, and the beneficiary can use the funds to pay their own expenses without affecting their public benefits. This approach is especially useful with SSI because, if the trust makes a direct distribution to the beneficiary, that’s considered income and you lose your SSI benefit dollar for dollar. For those with SSI benefits, they can use the ABLE to pay rent and not get hit with the one-third reduction for in-kind income because the money in the ABLE account doesn’t have any effect on the SSI. So, it’s not necessarily an either/or. It can be both.
For families that would be interested in a pooled disability trust, how would they go about finding one?
There are a few in Massachusetts. The two that I’m most familiar with are the PLAN of Massachusetts and Rhode Island and the Bristol County ARC Community Trust. There are others, but those are the principal ones in Massachusetts.
For more information, you can call 617-431-5400 or email us at: contact@mainstayliving.org.
