Recently, we have been seeing more and more clients who are concerned with the possibility of them needing the long-term care and not being able to apply for Long-Term Care Medicaid due to the excessive monthly income or assets.
Of course, we all want to stay in the comfort of our houses for as long as we can. Unfortunately, many people had to move to the nursing homes and lost their hard-earned assets, as they were not eligible for Long-Term Care Medicaid Insurance and could not afford paying for home-care agency’s bills out of pocket. A pooled income trust can be used to prevent such events from occurring.
What are Trusts?
Trusts are legal arrangements employed by individuals and families to distribute their assets in a fast and cost-efficient way. They maintain the privacy of the grantor, the individual who sets up the trust, avoid probate, a costly legal process, provide management guidelines for beneficiaries, and protect the involved assets from creditors’ claims. There are various types of trusts that fulfill different purposes suited for specific financial situations.
The Benefits of a Pooled Income Trust
The pooled income trust option can help many disabled people who are otherwise not eligible for Medicaid afford such care without bankrupting their families.
It further allows any disabled person to put the monthly funds and/or assets that are in surplus to the allowable Medicaid limit into a special type of trust and become eligible for Medicaid Long-Term Care Insurance. The money that was put aside in the trust can be used to pay for any expenses not covered by government assistance programs. This assistance can help cover a person’s living expenses, housing costs, private care services, supplemental nursing care, unfunded medical procedures, entertainment and travel expenses, and attorney and guardian fees. Meanwhile, Medicaid will pay for the long-term care.
Pooled income trusts are managed by the non-profit organizations. Once the person dies, the money left in the trust at the time will, most likely, remain in that non-profit organization or be claimed by Medicaid. However, in most cases, due to the specifics of the income trust, the amounts left are insignificant. It’s important to note that pooled trusts are not available in all states and, since they depend on Medicaid rules and regulations, their effectiveness can vary from one state to another.
The Effectiveness of a Pooled Income Trust – A State-by-State Comparison
There are several types of pooled income trusts in the states managed by various nonprofit organizations. These organizations require different minimum fees and depositions and consist of different services and regulations.
Most states require that when the beneficiary passes away, the funds held in the pooled trust account be used to repay the government for any medical expenses provided on the beneficiary’s behalf. Oftentimes, the non-profit organization that created and managed the pooled trust can keep a percentage of a deceased beneficiary’s account in order to support its benefits.
In New York State, Medicaid law requires that before they provide any coverage, any monthly income allowance cannot be spent on living expenses, but must instead be spent down on medical or home care services. However, a pooled income trust protects the income, as these rules do not apply to Medicaid recipients who deposit their income into a pooled income trust. In short, the amount transferred into pooled income trust does not interfere with the determination of the Medicaid budget. This allows the beneficiary to qualify for Medicaid and keep the surplus income that they have deposited into the trust. In order to qualify for Medicaid using a pooled income trust in New York State, people must submit documentation of a disability to Medicaid in addition to a pooled income trust documentation so that they can be reviewed for eligibility.
What are the advantages and disadvantages of a Pooled Income Trust?
A pooled income trust can provide you investments and management services with the money they receive from many other beneficiaries. However, a pooled income trust may not work for everyone or may require additional planning to accomplish its ultimate goal, so it is best to learn about its benefits and drawbacks.
Joining a pooled income trust offers many advantages. One such benefit is that you can access government benefits such as Medicaid, as long as you transfer your funds into a pooled trust. You can trust that the nonprofit organization administering the pooled trust can assist you effectively, as they are generally very knowledgeable, and they can guide you with the necessary resources and answer your questions regarding Medicaid and Supplemental Security Income programs. On top of that, a pooled trust can offer special needs benefits if you do not have a lot of money to hand down to your loved ones.
Although a pooled income trust may sound like a perfect plan considering all of its benefits, its disadvantages must be considered as well before making a decision. Pooled Income Trusts can be expensive, as their price is based on which organization you choose and the amount of assets you deposit into the trust. Therefore, it is best that you find out how much the organization charges you for the trust before you join one. Usually, there is a one-time setup fee that can range from a few hundred dollars to a couple thousand dollars and an annual fee that is determined by the percentage of assets that are placed into the trust. In addition, once the assets are placed into the trust, they cannot be transferred into another trust, so if the nonprofit organization happens to have a financial or management problem, you cannot do much about it. Lastly, many states, as a result of their differing interpretations of the federal law, do not allow people over 65 to use pooled income trusts, so you must consider the location of where you create your trust too.
What are some other types of trusts and their purposes?
Other than the pooled income trusts, there are many other types of trusts that serve different purposes. The two main classes of trusts are known as the revocable trust and the irrevocable trust.
A living trust, or a revocable trust, is set up by an individual who retains ownership of their assets included in the document, such as property, tangible goods, and intangible assets, as they are transferred to a beneficiary declared in the trust. In addition, the grantor can adjust the trust at any time to changing circumstances.
An irrevocable trust passes the ownership and control of assets mentioned in the trust to the declared trustees. Unlike the revocable trust, the grantor no longer owns or controls the properties and thus cannot make any changes to the trust.
Similar to a Pooled Income Trust, a special needs trust can also protect your assets and allow a disabled person to qualify for public assistance benefits while receiving supplemental funds. The supplemental fund can be used to pay for many services and goods that are not covered by public assistance programs.
As a result of the various states and nonprofit organizations who have different regulations for pooled income trusts, it is recommended that you consult with an experienced trusts and Medicaid planning attorney to learn about the services that the organizations provide. The attorney will walk through your situation and assess whether applying for a pooled income trust or another trust is the best course of action for you.