Individuals with disabilities often rely on public benefits from programs like Supplemental Security Income (SSI) and Medicaid to meet their basic needs. These programs require beneficiaries to have limited financial resources. The receipt of a small inheritance or the settlement of a law suit can cost the individual his or her benefits.
What is a Pooled Trust?
A pooled trust is a way for individuals with disabilities to maintain their public benefits while setting aside some funds with which to pay for their special needs. The trust is managed by a nonprofit organization that receives assets from multiple beneficiaries, maintaining a separate account for each, but pooling the accounts for purposes of investment and management.
Funds such as an otherwise disqualifying inheritance or settlement can be transferred to a pooled trust account for the disabled person. Accounts in a pooled trust may be established by the parent, grandparent or legal guardian of the individual with a disability, by the individual with a disability or by a court.
Congress has favored the use of pooled trusts since 1993 when it exempted them from the normal Medicaid long-term care resource and transfer restrictions. (Note that funds placed in a pooled trust account established for someone age 65 or older may be subject to a transfer penalty). The federal law governing pooled trusts is set out in 42 U.S.C. §1396p(d)(4)(C).
Federal law provides that to the extent that amounts are remaining in a pooled trust beneficiary’s account at death the balance of the account may be retained by the trust and used to benefit its other beneficiaries. Any amounts that are not retained by the trust must be paid to reimburse the State up to the total amount of medical assistance it paid on behalf of the beneficiary.
Act 42: Pennsylvania Attempts to Limit Pooled Trusts
In Act 42 of 2005, Pennsylvania enacted a number of questionable restrictions on the operation of pooled trusts. Included in Section 1414 of Act 42 (62 Pa. Stat. Ann. §1414) was a provision that a pooled trust could retain no more than 50% of the amount remaining in the account of a deceased beneficiary. This was contrary to the federal law which allows the trust to retain 100%.
This and several of the other limitations in Act 42 were later struck down in Federal Court. See, Lewis v. Alexander, (685 F. 3d 325, 3rd Cir., June 20, 2012). See my earlier posting “Federal Court voids Restrictions on Pooled Trusts” for more on the Lewis case.
Act 186 of 2014
Senate Bill 428 was initially introduced to make a slight change in the wording of the Pennsylvania statute governing pooled trusts. (See the Senate Co-sponsorship Memorandum). As initially introduced the bill would have re-codified the mandatory 50% state reimbursement requirement that had been already been thrown out by the Federal court.
Aghast elder law attorneys noticed the bill and informed its sponsors that their legislative proposal would re-enact a provision that was in violation of federal Medicaid law. Eventually, after much discussion (which included legislative consultation with federal Medicaid authorities) the sponsors agreed and modified the bill to delete the illegal state reimbursement provision.
SB 428 as amended was passed by the legislature and has now been signed into law by Governor Corbett as Act 186 of 2014. Act 186 does not actually change the enforceable law. It just cleans up Pennsylvania law on pooled trusts by deleting the 50% state reimbursement requirement that has been thrown out by the Federal Court.
Regarding state reimbursement, Pennsylvania law will now provide that “any money remaining in a beneficiary’s account upon the death of the beneficiary that is not retained by the trust will be paid to the Commonwealth, up to the total amount of Medical Assistance paid on behalf of the beneficiaries.”
The Bottom Line
Pooled Trusts represent an important planning option for disabled individuals and those who want to help provide for them. For more information on whether a pooled trust is right for your situation Pennsylvania residents should talk with a knowledgeable elder law attorney like those at Marshall, Parker and Weber (1-800-401-4552) or contact one of Pennsylvania’s pooled trusts such as Achieva Family Trust (1-888-272-7229).
