Pooled Special Needs Trusts (PSNT) are designed to preserve public benefits of children and adults living with disabilities while providing a financial vehicle for future planning. Special Needs Trusts are essential for any individual who receives needs-based public benefits, such as Medicaid or SSI, and who may be in receipt of an inheritance, financial gifts, investments, or even receipt of a lawsuit settlement.
Veronica Rohrlack, Vice President of Administrative Services at Bobby Dodd Institute (BDI), explains that the Trust serves as a supplement to these benefits rather than a replacement. The special needs trust allows individuals to maintain an unlimited amount of funds, while protecting essential government benefits. The PSNT can also act in conjunction with an ABLE Account, as a part of a comprehensive financial plan for individuals living with disabilities.
The following article covers the basic of a Pooled Special Needs Trust.
Who can have a Pooled Special Needs Trust
Individuals living with a disability and currently receiving governmental benefits can establish a special needs trust. The interested individuals must provide evidence of receiving any of the means tested governmental benefits, including Social Security Income (SSI) or Medicaid. There are two types of trusts: first-party trusts, set up by eligible individuals using their own funds, and third-party trusts, set up by someone for a family member or loved one*. More information on the difference and requirements for the first- and third-party trusts will be covered in an upcoming article.
Veronica explains, “Parents or grandparents often list the trust as a beneficiary in their estate plan or life insurance. By doing so, they can place assets into the Special Needs Trust before they mature. This ensures that the individual never directly touches or possesses the funds. It is crucial to protect means-tested governmental benefits and prevent the assets from negatively impacting those benefits.”
The PSNT is particularly beneficial when someone receives a settlement agreement. Placing the money in a trust is the best way to safeguard those assets without losing existing benefits. Veronica adds, “For example, if someone receives a $500,000 settlement agreement and immediately takes possession of the funds, they will lose their benefits until their assets fall below the $2,000 threshold. However, if the money is placed in a trust, these resources will be protected as long as the trust is maintained, and secure necessary medical and financial supports.”
The goal of the trust is to ensure the availability of funds throughout the person’s lifespan. Not only are the funds protected from being counted towards means tested benefit limits, but they are also invested to facilitate growth. Veronica explains, “We take a conservative approach because our main goal is not to be an investment provider for individuals, but to provide for individual supplemental needs, while enhancing the individual’s quality of life.”
The Georgia Community Trust of BDI operates three different investment pool options. Investments are based on expected annual spending, and age plays an important role in determining the investment approach. Younger individuals usually have a more aggressive investment strategy, while older individuals usually select a more conservative approach. Veronica states, “We offer three different options and review them annually to ensure the best fit. We consider moving individuals up or down based on the best approach for the specific individual, this includes understanding the service and support needs of the individual, their current assets, and what pool could maximize the value of their trust. Our investment portfolio is managed by an external professional investment company called True Link Financial.”
What Can You Buy With the Money in Your Pooled Special Needs Trust?
One of the key factors of a special needs trust is that it must be for the sole benefit of the beneficiary (person the account has been set-up to benefit). It is only for services and goods that are going to be used by the person. The beneficiaries must remember that the money can’t be spent on things that are already covered by SSI or Social Security Disability Income (SSDI) including, rent, utilities, or food. Other than that, there’s very few limits on what the money can be spent on. The beneficiary can buy a vehicle, make special accommodations for that vehicle, modify their home, pay for college, travel, purchase clothing, hobbies, and cover medical expenses not covered by Medicaid. “This money is meant to improve and sustain the quality of life of that person beyond their basic needs,” explains Veronica.
One of the most popular expenses is pet care. Pets are often an important part of the beneficiary’s life, and the trust will pay all the bills and provide food to ensure the pet is well taken care of.
What are the Fees Associated with Pooled Special Needs Trust?
There are multiple fees associated with a Special Needs Trust that the eligible individuals must have in mind when applying for an account. The account setup fee is $900, which can be deducted from the initial deposited amount on First-Party accounts. There are also monthly fees that vary depending on the account balance and are calculated as 1.5 percent of the total account balance, with a $600 annual minimum and, covers management fees. Additionally, fees include investment management fees of 0.7% of the total account balance. Moreover, annually there are required special needs trust tax filing fees of $50.00 annually. All accounts also have closing fees of up to $500. Fee however is covered by the funds in the account, and beneficiaries never receive an invoice for these fees.
It’s crucial for beneficiaries to be aware that special needs trust taxes differ from regular income taxes. “It’s important to note that special needs trust taxes are not the same as your regular income tax. These taxes are specifically related to a pooled special needs trust. Our special needs trust focuses on mitigating these costs for beneficiaries,” added Veronica.
“Recently, we have successfully reduced the annual tax cost for our beneficiaries from $300 to $50. We are constantly seeking opportunities to reduce fees and enhance services while ensuring the protection of their benefits and participation in investment opportunities,” explained Veronica.
What Are the Benefits of Having a Pooled Special Needs Trust?
There are numerous benefits associated with opening a PSNT account.
The Pooled Special Needs Trust enables individuals to safeguard their benefits while also setting aside savings to meet their long-term needs. Currently the trust provides protection of benefits for over 300 individuals for an annual protection of an estimated $5 million dollars.
“Without the Trust, individuals can potentially lose their Medicaid coverage and Social Security benefits. If you have means-tested housing, such as Section eight, you could also jeopardize your housing situation. The Trust truly provides protection by preserving these benefits and maintaining eligibility, all while improving the quality of life. With professional management handling, reporting requirements and purchase verifications, it alleviates the burden and provides peace of mind,” Veronica emphasized.
Professional case management is a key benefit. Having professionals that stay up to date with all the rules and regulations from the Social Security Administration and Medicaid, including annual reporting requirements, can be a relief for families.
“The rules and regulations regarding trusts can be quite complex and having a professional taking care of all the compliance, administrative, monitoring, bookkeeping, and reporting tasks gives families peace of mind knowing that their loved one’s benefits are secure while their funds are being professionally managed and invested.” Veronica expressed.
Pooled investment options let multiple account holders be treated as a single account holder by pooling their funds. Pooling of funds benefits the account holders because the pool can buy more shares collectively than someone could individually. In addition, pools save on transaction costs and can further diversify their portfolios. GCT of BDI’s investment goal is 3%, which ideally covers the costs of the fees while allowing the account principal value to grow. Now, just like any investment, it is important to note that the market returns are unpredictable and investment performance can vary, which is why it is so important to have professional investment management firm overseeing the pooled investment accounts who are aware of market trends and understand how to best manage the funds for optimal returns.
Selecting a Pooled Special Needs Trust minimizes fees. Pooled Special Needs Trust must be managed by a non-profit agency. This often results in a substantial savings to fees from initial account opening. These fees may be upwards of $5000 with an attorney or bank, while with the Georgia Community Trust of BDI (GCT of BDI) these fees are only $900. Also, attorney’s often charge management fees based on their hourly rates, whereas GCT of BDI maintains a low percentage rate of 1.5%. Depending on the value of the individual account this could save individuals thousands of dollars if not tens of thousands of dollars every year.
Mistakes to Avoid When Setting Up a Trust
One of the most common mistakes people make when setting up their Special Needs Pooled Trust is not having the appropriate advisory co-trustee. In the state of Georgia, this role is crucial as it involves guiding the beneficiary to ensure that the money is spent in the best possible way, promoting a good quality of life while also saving some funds for the individual’s entire lifespan. Often, individuals may assign their sister, brother, or other family member as the co-trustee, but this may not always be the optimal choice. Selecting the right co-trustee is vital.
The eligible individuals need to ensure they choose a co-trustee who will provide support and act as a liaison between the trustee and the pooled trust managers. “It should be someone who truly understands your needs and can be your advocate. This person needs to be someone you trust, someone who can assist and serve as a bridge between you as the beneficiary and the trust, enabling us to effectively work together. If they are unfamiliar with your needs or if they themselves become overwhelmed by the complexity of the beneficiary’s requirements, it can affect our ability to provide the necessary support,” Veronica explains.
About The Georgia Community Trust of BDI
There are really a few organizations currently authorized to provide pooled special needs trust in Georgia, and the Georgia Community Trust of BDI is one of them. Established in 1997, it has been helping families ensure a comfortable future without risking their eligibility for government benefits. The Georgia Community Trust of BDI currently manages over 600 accounts. Over 250 of these accounts are actively managed each month by the GCT of BDI Team.