Funding Pooled Special Needs Trusts after Age 65

Over the course of the last year, one of the major developments in special needs law has centered around the funding of pooled special needs trusts after age 65. Historically, policy on this issue has been inconsistent among the states, and advocates have fought for clarification on policy. Recently, the issue has been heard at state courts resulting in a number of cases in which the courts have opined that a transfer to a pooled special needs trust, regardless of age, is not an uncompensated transfer that results in a penalty for public benefits.

A special needs trust may be established by a person with a disability to preserve assets and public benefits eligibility. There are two primary types of first party special needs trust, a standalone trust for which any individual, aside from the beneficiary, or entity with fiduciary powers may serve as trustee. The federal law, specifically 42 U.S.C. 1396p(d)(4)(A), expressly provides that the trust must be established and funded by an individual with a disability prior to age 65, and that upon the death of the beneficiary that Medicaid be repaid for the amount of medical assistance paid for on such beneficiary’s behalf during their lifetime. 

Unlike a standalone trust, a pooled special needs trust established pursuant to 42 U.S.C. 1396p(d)(4)(C) is managed by a nonprofit and in lieu of repayment to Medicaid, the funds may stay within the nonprofit to be used by other persons in the pool. Additionally, unlike the standalone trust, there is no expressed age restriction. As a result, by omission of the age limit, advocates argue that federal law expressly permits that a pooled special needs trust can be funded at any point in time.

Although the Virginia Medicaid Manual expressly states that transfers to a pooled special needs trust after age 65 will be treated as an uncompensated transfer, such provisions are not uniform among the states. Earlier this year, in Pfoser v. Harpstead, the Minnesota Supreme Court determined that transfers by an individual with a disability over the age of 65 into a pooled  special-needs  trust  is  not  subject  to  a  penalty  for  transferring  assets  when  he  made  a  satisfactory  showing  that  he  intended  to  receive  “valuable  consideration”.

Additionally, there have been two decisions rendered by Administrative Law Judges after reviewing adverse decisions made by the Social Security Administration that funding a pooled trust account did not provide fair market value to a beneficiary. The judge in the case of Sarah A. determined that the beneficiary retained beneficiary ownership of the assets and will have received valuable consideration within her lifetime. Similarly, based on a more thorough analysis of the Social Security Administration’s life expectancy tables and expert testimony regarding service and benefits to be received by the beneficiary, in the case of Shirley W., the judge determined that Shirley W. received fair market value in the goods and services that have been, and will be, provided to her.

As a result of these recent cases, the trend seems to be that the funding of a pooled trust after age 65 is not an uncompensated transfer. It will be interesting to see how case law will impact Virginia’s express policy that the funding of a pooled special needs trust after age 65 will be treated as an uncompensated transfer. 

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