Author: Joanne Marcus, MSW
Commonwealth Community Trust, Richmond, VA
This is the second article in a series on Pooled Special Needs Trusts. Click here to read the first installment, An Overlooked Planning Option: Pooled Special Needs Trust.
The number one concern among Beneficiaries and Advocates regarding a pooled special needs trust (PSNT) is understanding how the trust and disbursement process work. Accessing the trust and requesting disbursements should not be frustrating. Upfront explanation of how the disbursement process works and how and why decisions are made can help your client avoid confusion.
A PSNT is administered by a nonprofit organization whose job is to direct the administrative and distribution aspects of the trust. The role of the trust administrator is complex. The administrator is required to prudently manage the funds in the trust while considering the Beneficiary’s right to autonomy and self–actualization, as well as the grantor’s intent for the trust. Disbursement decisions are made using criteria related to enriching the quality of life of the Beneficiary and preserving eligibility for means-tested benefits (Medicaid and SSI) for clients who receive them. The administrator is concerned with managing the funds to meet future needs and acts as a watchdog to prevent exploitation of the Beneficiary.
Tools to Manage the Trust
Luckily there are tools to assist an administrator in this complicated job, beginning with establishing a budget and setting objectives for the trust. In the case of a Third Party trust, these will be influenced by the Grantor’s (the person whose assets fund the trust) intent. Is the intent of the trust to pay for a one time large expense like a home renovation? Or, is it to provide for the on-going needs of the Beneficiary? This information will be considered for disbursement decisions as the administrator tries to balance the intent and monetary needs of the trust.
For a First Party trust, the objectives may be similar, but influenced more heavily by the Beneficiary/Advocate’s input as it is the Beneficiary’s assets that fund the trust. It is also recognized that the intent and budget are a guide and will be updated as needed.
Rules that Guide Disbursements
The following questions are considered for each disbursement request:
- Will the request jeopardize means-tested benefits (Medicaid and SSI)?
- Is the request for the SOLE benefit of the Beneficiary?
- Are there adequate funds in the trust to cover the request?
- Is the request prudent?
- Is the request consistent with the intent of the Grantor?
- Is the request consistent with the Objectives and Budget?
There are additional special considerations when the Beneficiary is a minor. Parents and guardians have a responsibility to support their children (provide food, clothing and shelter, to assure that the child attends school and for their general well-being). The Trust Administrator’s objective is to maximize the parents’/guardians’ responsibility to the minor while utilizing the trust to improve the child’s quality of life.
Examples of How the Trust Can be Used
The trust can be used to pay for expenses that will enrich the quality of life of the Beneficiary. Receipts and supporting documentation are required for all disbursement requests. Disbursements are not permitted for food or shelter if the Beneficiary receives SSI.
Examples of allowable disbursements include, but are not limited to:
- Medical and Dental Services not covered by insurance
- Assistive Technology-iPads, computers, Text-to-Speech
- Eyeglasses, Hearing Aids, and Prosthetic Devices
- Pre-paid Burial Expenses
- Computer and Internet Services
- Education Expenses
- Television and Telephone Services
- Home Modifications
- Home Furnishings
- Caregiver Expenses
Complicated disbursements for items, such as a vehicle or a home, will require additional documentation including insurance quotes, inspections and a budget detailing the ability to afford ongoing costs such as insurance, repairs and maintenance. A home purchased with trust funds is owned by the Beneficiary not the pooled trust. The home purchase must be for the sole benefit of the Beneficiary. If others live in the home they may be required to contribute toward the home’s purchase or pay rent. The trust can pay for maintenance and furnishing without affecting SSI or Medicaid.
If funds are used to pay wages to a private care provider, some pooled trusts will require a Caregiver Agreement Form that states that the trust is not the employer. If the trust pays the private care provider more than $600 in a calendar year, the trust will file form 1099MISC with the IRS showing that the care provider has received payment for which taxes may be owed. In the event there is no family member willing and able to act as an advocate for a Beneficiary, a case manager can be hired and paid for out of the trust.
Funds can be disbursed in the form of a check to the following with appropriate documentation:
- A vendor or service provider
- An Advocate who has purchased goods and services on behalf of the Beneficiary
- A credit card company for good and services purchased on behalf of the Beneficiary
No cash disbursements are permitted at any time.
Some pooled trusts offer a pre-paid credit card option. The intent of the card is to make it easier to purchase necessities. The card cannot be used to access an ATM or receive cash back on a purchase. A monthly fee is usually charged by the credit card company.
Reasons for Disbursement Denial
Some disbursement requests may be denied for the following reasons:
- Jeopardizes means-tested benefits – requests for food and shelter
- Represents a safety risk to the Beneficiary – weapons, ammunition, alcohol, illegal drugs
- Insufficient funds in the trust
- Not for the benefit of the Beneficiary
- Not a prudent use of the trust
- Inconsistent with Budget and Objectives for trust
Disbursements from the trust are not permitted after the death of the Beneficiary. For Beneficiaries of the First Party PSNT who received Medicaid, there is a provision to pay back Medicaid for medical claims paid on behalf of the beneficiary. There is no payback provision for Third Party trusts. Distribution of the remaining funds in the trust varies greatly among pooled trust organizations. Some organizations do not retain any of the remainder funds while others retain all or a portion of the funds.
A pooled special needs trust provides a cost-effective and convenient way to set aside and preserve funds that will be used to enrich the quality of life for individuals with special needs. Understanding what the trust can be used for and how requests are evaluated before entering into the trust agreement will smooth the relationship between Beneficiaries and the trust administrator and help achieve the common goal of prudent funds management.
Joanne Marcus, MSW, is the Executive Director of Commonwealth Community Trust (CCT), a nonprofit organization that provides administration of pooled special needs trusts since 1990. CCT trust services are available nationwide to more than 1,300 clients.
For more information, call 804-740-6930 or visit commonwealthcommunitytrust.org