What Is a Pooled Trust Account and How Does It Work?

A pooled trust account offers a financial solution for individuals with disabilities or chronic illnesses who need to manage their assets without compromising eligibility for means-tested public benefits, such as Medicaid or Supplemental Security Income (SSI). Non-profit organizations establish and administer these trusts, managing funds collectively for many beneficiaries. The objective is to allow individuals to use their resources for supplemental needs that improve their quality of life while still qualifying for essential government assistance programs.

Understanding the Structure

A pooled trust operates under a master trust document, established and managed by a non-profit organization. Within this master trust, each beneficiary has a separate sub-account. Although individual sub-accounts maintain distinct balances and are used solely for the benefit of their designated beneficiary, the funds from all sub-accounts are “pooled” together for investment and management purposes. This pooling allows for greater diversification and access to a wider array of investment opportunities, which can reduce risk and achieve economies of scale.

The non-profit organization acts as the trustee, holding a fiduciary responsibility to manage the pooled funds. The professional management offered by these non-profits provides continuity, as beneficiaries do not need to worry about replacing an individual trustee. While investments are combined, each beneficiary’s financial needs are addressed individually from their specific sub-account.

Types of Pooled Trusts

Pooled trusts are categorized into two main types based on their funding source and the treatment of remaining funds upon the beneficiary’s death: First-Party Pooled Trusts and Third-Party Pooled Trusts. First-Party Pooled Trusts, also known as “D4A” or “Self-Settled” trusts, are funded with the beneficiary’s own assets, such as personal injury settlements, inheritances, or accumulated savings. Federal law, 42 U.S.C. § 1396p, authorizes these trusts and requires that upon the beneficiary’s death, any remaining funds must first be used to reimburse the state Medicaid program for services provided during the beneficiary’s lifetime.

In contrast, Third-Party Pooled Trusts are funded by someone other than the beneficiary, such as parents or other family members. The assets have never belonged to the beneficiary. This type of trust is not subject to the Medicaid payback rule upon the beneficiary’s death. Instead, any remaining funds can pass to designated remainder beneficiaries according to the trust agreement, offering greater flexibility in estate planning. Understanding the source of funds is crucial, as it determines the rules governing the trust’s remainder beneficiaries and potential state recovery claims.

Establishing and Using a Pooled Trust

Establishing a sub-account within a pooled trust involves a process. Potential beneficiaries or their legal representatives (e.g., parent, guardian, or court) can initiate the trust. The individual must meet the Social Security Administration’s definition of disability. The process begins with selecting a non-profit organization and signing a joinder agreement, which outlines the terms for the beneficiary’s sub-account.

Assets such as accumulated savings, personal injury settlements, or inheritances can be placed into a pooled trust. Once funds are deposited, they are no longer considered countable assets for means-tested government benefits like Medicaid and SSI, thereby preserving eligibility. Disbursements from the trust are made for the beneficiary’s “special needs” or to improve their quality of life, covering expenses not otherwise provided by public benefits. Examples of eligible expenses include:
Medical or dental services not covered by insurance
Housing expenses
Transportation
Education
Personal care items
Vocational expenses
Recreational activities

Funds cannot be given directly to the beneficiary as cash, and all expenditures must be for the sole benefit of the individual.

Managing Funds and Oversight

The non-profit organization serving as trustee for a pooled trust has ongoing responsibilities for fund management and oversight. These responsibilities include investing the pooled funds in a prudent manner, maintaining detailed records for each sub-account, and ensuring adherence to all state and federal laws, including those governing Medicaid and SSI eligibility. The trustee provides regular statements to beneficiaries or their representatives, detailing account activity and balances. These organizations often offer various investment portfolios, ranging from conservative to more moderate options.

Fees are associated with pooled trusts and cover the costs of administration, investment management, and compliance. These can include a one-time enrollment or setup fee (ranging from a few hundred to a couple of thousand dollars) and annual administrative fees (often 0.60% to 3% of assets under management). Some trusts may also charge additional fees for tax preparation or account closing. Upon the death of the beneficiary, the disposition of any remaining funds depends on the type of pooled trust. For first-party trusts, federal law mandates that remaining funds must first be offered to reimburse state Medicaid programs for services rendered. For third-party trusts, remaining funds are distributed to named remainder beneficiaries as outlined in the trust agreement, without a Medicaid payback requirement.