Friday, February 27, 2015
Texas attorney Renée C. Lovelace has literally written the book -- a guidebook -- on Pooled Trust Options. Renée was a recent guest speaker at Penn State's Dickinson Law, appearing before students in an advanced seminar on planning techniques. Indeed, our students had specifically asked to hear from experienced practitioners on special needs trusts, and with the help of the National Elder Law Foundation we were able to host a nationally known speaker to do just that.
Renée (third from the left, in blue) helped our students identify appropriate uses of pooled trusts, such as where the beneficiary's needs could be uniquely well-served by a trustee who is familiar with the challenges sometimes encountered in managing assets on behalf of persons with disabilities.
While the special needs beneficiary may be frustrated by a manager's handling of "his" (or "her") money, sometimes it is the family that has questions about application of the law. Recently I was reading a New Jersey case decision, where a family was challenging the state's attempt to seek reimbursement for medical and care expenses expended by the state, following the death of their disabled daughter. At the core of the dispute was what appeared to be a misunderstanding on the part of the family about the nature of their daughter's special needs trust, which they were describing as a pooled trust. The court pointed out, that in the absence of a nonprofit manager, the trust could not be deemed a (d)(4)(C) trust or "pooled" trust, that would have allowed assets remaining after the death of the daughter to stay in the trust for the benefit of other disabled persons, rather than be subject to the state's reimbursement claim.
Thus, the case is a reminder that pooled trusts, properly created and managed are usually drafted as special needs trusts (SNTs). However, not all SNTs are pooled trusts. Or as Renée explains so well in her thorough guidebook:
"At the death of a beneficiary, the d4A [federal] statute, which applied to nonpooled self-settled SNTs, mandates a payback to the State for Medicaid services received by the beneficiary. In contrast, the d4C statute authorizes pooled trusts to retain the remainder interests in self-settled pooled trust sub-accounts. When organizations retain remainder interests, they may be able to further their nonprofit purposes, which could include helping to fund services for some of the beneficiaries who live longer, past the time when their pooled trust sub-accounts have been depleted."
State interpretations of the d4C language may also affect how a particular state analyzes payback requirements from pooled trusts. During her presentation to our law students, Renée explained that while some advocates argue that a pooled trust's right to retain the remainder in a deceased beneficiary's sub-account is "completely clear" under the federal statute, some states will still argue they are entitled to repayment.
Nonprofit organizations may also approach the "remainder" question differently, with some organizations retaining all, while others retain only a portion -- or even none -- of remaining assets. Further, since Medicaid payback rules only apply to self-settled trusts, pooled trusts may or may not request -- or require -- that the pooled trust retain a portion (or all) of the third-party pooled funds.
Renée has helped nonprofit organizations create viable pooled trusts, but she also cautions that the fiduciary responsibilities associated with managing such trusts are not for the faint of heart. She cautions, "Pursuing new markets and strategies for growth could put a pooled trust at the leading edge of special needs planning, but could also weigh down an organization that is not prepared with adequate staff, resources and professional allies."