(d)(4)(C) or Pooled Disability Trusts Shelter Assets for the Disabled

 In Long-Term Care Planning, Special Needs Planning

Similar to (d)(4)(A) or payback trusts described here, (d)(4)(C) or “pooled disability” trusts, permit disabled individuals to shelter assets and still qualify for Medicaid and Supplemental Security Income (SSI). Where a (d)(4)(A) trust is an individual trust managed by a trustee chosen by the grantor, a (d)(4)(C) trust is a pooled trust managed by a non-profit organization. Other differences and similarities are as follows:

  • For both, the beneficiary must be disabled as defined by the Social Security Administration. In general, if you qualify for SSI or Social Security Disability Income (SSDI), you meet the disability requirement. If you haven’t applied for either program, you will have to meet the screening requirements of your state.
  • The disabled individual, her parent, grandparent or guardian, or a court must fund the trust. For either trust, it should be funded with the beneficiary’s own assets.
  • Both types of trusts have a requirement that at the beneficiary’s death the state be repaid for Medicaid expenditures made on his behalf, but there’s a carve out for (d)(4)(C) trusts. They can hold money back for their own purposes. While the federal law permits them to withhold all of the remaining trust funds and pay no estate recovery, some states have limited the amount of the hold back.
  • While a (d)(4)(A) trust must be funded before the beneficiary reaches age 65, a (d)(4)(C) trust has no such restriction. However, the states are inconsistent on whether they penalize transfers to (d)(4)(C) trusts after age 65, some penalizing such transfers and some not doing so. To clarify this point, if you are 70 years old and disabled, and you transfer $50,000 into a (d)(4)(C) trust, the funds in that trust will not be counted in any state in determining your eligibility for SSI or Medicaid. However, in some states if you apply for Medicaid benefits during the five-year lookback period that follows the transfer you will be ineligible for coverage for a period of time based on the amount transferred. In other states, you will not be penalized. In the latter states, this option can be very useful for nursing home residents who can transfer funds to a (d)(4)(C) trust, qualify for Medicaid benefits to cover the basic nursing home cost, but still have some money on the side to pay for extras, whether that’s special aides, travel outside the facility, additional therapy or anything else the senior may want. This is not, however, a way to save money to leave family members since any funds remaining upon the seniors death will either remain in the trust or reimburse the state for its Medicaid expenditures on the beneficiaries behalf.

So, when would you want to use a (d)(4)(C) trust as opposed to a (d)(4)(A) trust? They both protect assets and provide for eligibility for Medicaid and SSI. Certainly, if you are over 65 and are in a state where the transfer into the trust is not penalized, you would use a (d)(4)(C) trust. For others, here are some factors to consider:

  • The amount of money to put in the trust. Larger amounts justify the cost of creating a separate trust and perhaps of paying a professional trustee. For smaller amounts, it’s usually more cost-effective to use the already existing structure of a (d)(4)(C) trust.
  • The availability of an appropriate trustee. You may have a trusted and reliable family member or friend who is willing and able to serve as trustee. If you don’t have anyone you can rely on to maintain the trust following both all the rules for administering trusts and those for maintaining eligibility for public benefits, the (d)(4)(C) trust may be your best alternative.
  • Control. You will have more of a sense of control if someone you’re close to is the trustee or is a co-trustee of your trust. With a (d)(4)(C) trust, decisions will be made according to the trust’s rules, sometimes disbursement requests being responded to by committee.

To learn about the (d)(4)(C) trusts available in your community, the Academy of Special Needs Planners maintains a nationwide list of pooled disability trusts here.

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