Understanding ABLE Accounts, Special Needs Trusts and Pooled Trusts

A special needs trust or pooled trust is a legal arrangement in which a person or financial institution, called the trustee, holds and manages assets for the beneficiary. It can maintain a person's eligibility for needs-based government benefits such as Medicaid and Supplemental Security Income. All special needs trusts are divided into two categories: first-party trusts and third-party trusts.

A first-party trust may be established or funded by or for an individual with a disability and may be used to cover supplemental needs, some of which public benefits may not cover. First-party trusts are funded by the person with a disability. Funds from earnings, a divorce settlement, life insurance, a personal injury award or retirement benefits may be deposited into a first-party trust. A first-party trust will normally have a “payback” for any Medicaid benefits used over their entire lifetime.

Third-party trusts are funded by someone other than the person with a disability (e.g., a parent, grandparent or someone else) and may include funding from sources such as income, life insurance, a home, a trust or a will.

Pooled trusts are managed by nonprofit organizations who are the trustee. The PT combines the resources of many beneficiaries into one account with individual sub-accounts. The pooling of funds means lower administrative costs and investment optimization. Most pooled trusts have both a first-party and third-party program.

You may have multiple first- and third-party trusts. First-party trusts contain the funds of a person with a disability and are set up by the person with a disability, a parent, grandparent, court-appointed or legal guardian or by someone with authority to act for the beneficiary (i.e., an agent under a power of attorney or legal guardian). Third-party accounts are set up by someone other than the person with the disability. Other than attorney fees, which can range from about $200 to upward of $1,000, there are usually no recurring costs associated with a trust until it receives funds.

A SNT or PT may deposit funds directly into an ABLE account and this will not affect means-tested benefits. An ABLE account may accept up to the calendar year limit in total contributions. As an example, an ABLE account owner who wants to move to a safer or a more accessible housing unit or neighborhood, can ask the SNT or PT trustee if the trust can pay for these costs through a transfer of funds to the ABLE account. If a pooled trust or special needs trust were to directly pay for shelter (or food) costs for a Supplemental Security Income recipient, the individual’s SSI would be reduced. When the costs are paid through the ABLE account, there is no reduction of SSI benefits.

If you don’t have an SNT or PT, but are considering one, review the “ABLE Account, Special Needs and Pooled Trust Comparison Chart” for the differences in eligibility based on the types of trusts. Depending upon the type of SNT or PT, there may be restrictions on who can contribute. It is recommended that you discuss your options with an attorney who can open an SNT or PT.

Ask yourself questions such as:

• how much money you expect to save?
• who is setting up and contributing to the trust?
• are there assets other than money to save in an SNT or PT account (i.e., life insurance, a home, property, etc.)?
• will a third party need to manage or support the management of the trust?
• what will funds be used for?
• do you receive means-tested benefits?

When answering these and other questions, and in arriving at a decision on whether a SNT, PT and/or an ABLE account suits your needs, it is recommended that you include your circle of support as you think about your options. Learn more about a circle of support and Supported Decision Making in the Decision Guide, Managing Your ABLE Account. Depending upon the answers to these questions, an SNT or PT might be the best option either alone or in addition to having an ABLE account.