It s Not Your Mother s PSNT - What PSNTs Offer to Special Needs Planners

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1 It s Not Your Mother s PSNT - What PSNTs Offer to Special Needs Planners Megan Brand, Executive Director, CFPD-Colorado Fund for People with Disabilities

2 I. Introduction Pooled Supplemental Needs Trusts (PSNT) have been in existence now for twenty-five years. During this time, they have grown both in numbers of people served and in their strength. The purpose of this paper is to review what a PSNT is, why you/your client should consider the PSNT, ways in which to review the PSNT, other ways in which the PSNT can benefit you and your clients and ways in which you can be of service to the PSNT. II. What is a PSNT? In 1993 Congress enacted the Omnibus Budget Reconciliation Act of 1993 (OBRA 93) which allowed for stand-alone first party trusts as well as pooled first party trusts. The Pooled Trust is defined by the U.S. Code at 42 USC 1396p(d)(4)(c). a. 42 USC 1396p(d)(4)(c) (C) A trust containing the assets of an individual who is disabled (as defined in section 1382c(a)(3) of this title) that meets the following conditions: (i) The trust is established and managed by a non-profit association. (ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts. (iii) Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1382c(a)(3) of this title) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court. (iv) To the extent that amounts remaining in the beneficiary s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount

3 equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this subchapter. 1 b. Social Security s Program Operations Manual System (POMS) also gives us guidance on PSNTs at SI D 2 c. Medicaid Statutes and Regulations Each state 3 has adopted their own statutes and regulations for pooled trusts. While they most generally follow the federal law, this is not always the case. The biggest difference among PSNTs is the treatment of remaining funds at the death of the beneficiary. 4 State Medicaid agencies allow the PSNT to retain 100%, a smaller percentage or not to retain at all, even though the federal regulation allows the PSNT to retain 100% of the funds. III. Why should my client consider the PSNT? There are many reasons to consider the PSNT for and with your client. Ultimately it is the decision of your client and/or his guardian to make the decision about which trust instrument is the right fit for them. Considering the PSNT in certain scenarios is a best practice of attorneys and professionals. Consider the following regarding PSNTs: a. PSNTs likely administer trusts for more individual beneficiaries than anyone else in your state. This sheer volume often comes with experience, expertise and ability to perform on a quantity of scale. Most PSNTs are really good at what they do. They are not only experienced fiduciaries, but they are providing a niche service through their work with people with disabilities and all of the nuances that come with them and their needs. They are also able to administer their trust and services on a mass scale and typically have good policies and procedures in place for making payments on time, and paying with items with a credit card to get This author believes pooled trusts are allowed in each of the 50 states but this research on this particular issue has not been conducted. 4 See also Brand, M; Wong, O 2016 Using Retained Funds Stetson SNT Conference

4 the trust beneficiary s needs met. They may also be able to take advantage of group plans and discounts for things such as cell phones, bus passes, etc. b. The set-up of the trust is time sensitive Prospective trust beneficiaries are often anxious to get their trust set up so that they can begin having access to the funds set aside for them. This is especially true for those individuals who have been waiting years for a personal injury settlement or an inheritance through an estate. The PSNT Master Trust Agreement should (more on this later) already be approved by the Social Security Administration and the Medicaid Department. Instead of going through a sometimes lengthy trust approval process (in Colorado, where the author resides, this process for a stand-alone first party trusts can take months), the PSNT trust administrator is only informing the SSA and Medicaid of the individuals joinder to the master trust. The process for proving disability can also be more streamlined and take less time with the PSNT than with the review process for a stand-alone first party trust. c. The beneficiary may move out of state The trust beneficiary should consider the portability of the trust when they are considering the type of trust. A stand-alone first party trust would need to be approved in each state the beneficiary resides and the trust termination provisions and state payback at the time of the beneficiary s death can be the biggest obstacle to approval of the trust agreement in the new state. Once again using Colorado as an example, CO Medicaid regulations require that a standalone first party trust terminate (and CO Medicaid be reimbursed up to the amount of services provided) when the trust beneficiary no longer qualifies for Colorado Medicaid. Conversely, a PSNT can port from one PSNT to another and this is codified in the POMS at SI F.2: 2. Exception for early termination clauses in Section 1917(d)(4)(C) trusts

5 For pooled trusts established under Section 1917(d)(4)(C), an early termination clause does not need to meet the above criteria if the clause solely allows for a transfer of the beneficiary s assets from one Section 1917(d)(4)(C) trust to another Section 1917(d)(4)(C) trust. The early termination clause must contain specific limiting language that precludes the early termination from resulting in disbursements other than to the secondary Section 1917(d)(4)(C) trust or to pay for the expenses listed in SI F.3 in this section and SI F.4. 5 An attorney reviewing the PSNT should ensure that the early termination provisions of the PSNT and the PSNT policy allow for porting from one state to another. Porting from one PSNT to another may become necessary if the provisions of the Master Trust Agreement are not acceptable in the state the beneficiary moves to. d. The asset size makes sense The average size of a pooled trust sub-account is going to vary from PSNT to PSNT, but could be in the neighborhood of $25,000-$30,000. The pooled trust may also be a good place to start small ($1,500-$5,000) and build over time as resources become available. They are also a great tool to consider with an annuity structure that pays monthly. When weighing the amount to place into the trust, the planned expenditures and the costs for an attorney to draft a trust, the pooled trust often makes the most sense. There are many pooled trust sub-accounts that are over $200,000 or even $300,000. Oftentimes the assets going into the trust are one of the biggest factors for considerations for clients. Their main decision point is generally related to what happens to the remainder when they die, if the PSNT retains any of the funds and if they think that they could potentially pass some of the remainder on to their family members. e. There are no family members or others who want to take on the liability/responsibility of serving as trustee We often hear from attorneys that they are choosing the PSNT because there just isn t anyone else to serve. Many times the trust beneficiary has outlived or will soon outlive their 5

6 family members or their family members are just not fit to serve as trustee. Further, there are also family members who are already busy providing care to their loved one with a disability and still others who do not want to take on the liability and responsibility of serving as a trustee. Finally, there are many attorneys who simply will not name individual, non-professionals as trustees due to the expertise and experience that managing a trust, especially a trust for a person with a disability receiving government benefits, entails. PSNTs are often asked to serve as successor trustee when it didn t work out with the former trustee due to various factors, but often due to the dwindling assets in the case of bank trust departments or irreconcilable differences or strain on a relationship in the case of family member trustees. f. Case Management and a Network of Professionals The level of service that a PSNT provides varies widely and will be discussed later. There are a number of PSNTs who provide some level of case management or who easily recognize that the case management for an individual trust beneficiary is necessary and helpful. The importance of individualized case management could be an entire topic for discussion. Certainly, the case manager enables the PSNT to fulfill it s fiduciary duty of loyalty to the beneficiary by evaluating needs of the beneficiary, assisting with access to government and community benefits and overseeing their health and safety. A PSNT that is active in the community (and it should be) will also develop and attract a network of professionals in all areas of need such as caregiving, contract work, transportation, guardianship, tax preparation, accessibility equipment and technology, attorneys, etc. The PSNT will also have experience in discerning the best professionals to work with particular trust beneficiaries or in certain areas. This also comes from operating in an economy of scale and positively impacts the pooled trust beneficiaries. g. The set-up and management fees are typically less expensive The PSNT, by it s nature as a pooled trust, is typically invested collectively. This reduces the fees that are charged both because there are typically only one or two investment accounts for the pool and due to the economy of scale and the rate negotiation the PSNT can have with the investment firm or bank. The less expensive fees are especially noticed in regards to the minimum fees that a PSNT charges, which often saves the beneficiary hundreds, if not

7 thousands of dollars per year. This is especially important as the PSNT trust assets dwindle over time. h. When a conservatorship or conserved funds are dwindling and Medicaid is imminent. While there are many sources to fund a PSNT, it is especially important for professional attorneys and conservators (guardians in some states) to review conserved assets as they are dwindling to determine if Medicaid is imminent. By placing the remaining conserved assets in the PSNT, the trust beneficiary is able to enjoy an enhanced quality of life by preserving the remaining assets and qualifying for Medicaid. IV. Getting to know the PSNTs It is really important for both you and your client to get to interview and get to know the staff at the PSNT. Each PSNT will have different staff members handling the process for prospective beneficiary but a phone call or in-person interview is highly recommended in order to get a feel for the PSNT and to have the opportunity to ask questions and gather information. a. POMS Guidance at GN D.2 and 3. Social Security s Program Operations Manual System (POMS) gives specific guidance to SSA Representative Payees about what actions they should take before establishing a trust for an individual. That guidance is found at GN D.2 and 3. 6 Most generally, the Rep Payee must be prepared to submit a copy of the trust and explain how the trust funds are used. b. PSNT Guidelines The homepage of the National Plan Alliance 7 reads as follows: In 2016, National PLAN Alliance members, along with a number of executive directors and attorneys representing Pooled Special Needs Trusts (PSNTs) across the country, formed the National Pooled Trust Standards Committee. A document, entitled the Guidelines for Pooled Trust Organizations was developed by this group in order to support quality of service delivery and to

8 develop standards for consistency in PSNT administration and management. The guidelines identify key factors to benechmark development of quality PSNT programs. National PLAN Alliance adopted the Guidelines for Pooled Trust Organizations in September 2017 as aspirational standards and recommend that members and others use them to guide organizational growth and development. The Guidelines for Pooled Trust Organizations 8 can be found at: 20Organizations%20v1_ pdf. A professional evaluating a pooled trust can use the guidelines as a guide in evaluating and interviewing the PSNT. c. Request Copies of the following: Further, it is strongly recommended to request copies of the following documents when evaluating a PSNT: i. Master Trust Document ii. Transfer/Joinder Agreement iii. Approval letter from Social Security iv. Approval letter from state Medicaid office. d. FAQs There are several questions that an attorney or potential beneficiary should consider asking the PSNT. Consider this list of Frequently Asked Questions: i. Mission/vision of the organization. ii. Stability of the PSNT 1. Length of time the PSNT and/or affiliated organization has been in operation 2. How many people are served by the PSNT? 3. What are the assets under management? pdf

9 iii. Structure of PSNT 1. National, Regional or State 2. Is another entity the trustee or investment manager? 3. Is the PSNT category (Ex: primarily people over the age of 65) or disability (Ex: primarily people with Intellectual/Developmental Disability) specific? iv. How and where are the funds invested? What is the rate of return? v. How is the tax statement handled? 1. Grantor Tax Letter 2. K-1 vi. What is the fee structure? 1. Monthly, Quarterly, Annually? 2. Fees for additional services such as case management? 3. Minimum and Maximum fees? 4. Tax Preparation fee? vii. What happens with the Remainder Funds? 1. Does the PSNT keep all or a portion? If so, how are these used? 2. Is the PSNT Remainder policy in line with the federal and state regulations? viii. Staffing model 1. Case Management/Trust administrator assigned to each person. Is this over the phone or in person? Does the case manager do work outside of the specific duties of trustee? (Ex: Help me to find an assisted living, go shopping with me) 2. Call Center in which the person calls a general line and whoever answers the phone addresses their request 3. Somewhere in between ix. Board structure 1. Do I know or recognize the board members?

10 2. What is the board involvement in requests? Are they providing general oversight, oversight for specific requests? Or are they reviewing every request? x. Procedure for Request Review 1. How are requests accepted? Are they accessible for my beneficiary? (Ex: in writing only? Or via Phone, Text, , Mail, Fax, in person?) 2. What is the approval process? a. Staff involvement or approval authority b. Board/Committee involvement c. Appeal process d. Timelines for requests to be decided and distributions to be made e. Logistics of distributions i. How creative is the PSNT in their distributions? ii. Do they make purchases in person? iii. Do staff have access to a credit card or do they rely only on checks? iv. Do they allow reimbursements to others? v. Are they utilizing TrueLink cards 9 or other pre-paid debit cards for distributions? xi. Process for establishment of the PSNT sub-account 1. Is Attorney review or involvement required? 2. What if my client lacks capacity and parents/grandparents are no longer alive? Does the PSNT have a template for court approval? 3. Once paperwork is submitted, how long until the first disbursement can be made? 4. Who will notify SSA (if necessary) and Medicaid? What about HUD, LEAP and SNAP (if necessary)? V. What else can the PSNT do for me? 9 POMS SI I.1.e

11 a. Other Services the PSNT may provide: It is important to determine what other services the PSNT may provide. Many PSNTs provide many other services and can be a one-stop shop for your clients. It is especially beneficial to your client when the PSNT can serve as both trustee and Representative Payee and/or Conservator so that all of the decisions re: the individuals money are made by the same entity. By providing additional services, the PSNT also becomes more knowledgeable about services and supports for people with disabilities in their community. Consider some of the other Services the PSNT may provide: i. 3 rd party pooled trust ii. Trustee for stand-alone first and third party trusts iii. Guardian of the Person iv. Conservator/Guardian of the Estate v. Representative Payee vi. Case Management vii. Trust Advisory viii. Contract work (Example: Case Management through the state for I/DD Services) b. Public Policy: PSNT organizations can be a great influence on public policy. Due to the fact that they represent so many individuals with disabilities who are Social Security and Medicaid recipients, they are often in a position of advocacy and can also have data and insight that no other organizations have. To that end, they can have great impact on both Social Security and Medicaid regulations. A recent example of this was the POMS issued by SSA on 4/30/18. Before the new POMS were released, the SSA sought the input of attorneys and pooled trust administrators across the country and then used that input in drafting the revised POMS. PSNT organizations can also have an impact on both legislative and litigation efforts affecting people with disabilities and those who are beneficiaries of trusts. In 2012, the department of Public Welfare of the Commonwealth of Pennsylvania attempted to require that a

12 pooled trust must meet expenditure requirements additional to the federal statute in that all distributions from the trust must be for the sole benefit of the beneficiary and must have a reasonable relationship to the needs of the beneficiary. Further, they defined special needs as items, products or services [that] assist in and are related to the treatment of the beneficiary s disability. Thankfully, Lewis v. Alexander 10 found that pooled trusts cannot be limited to the treatment of one s disability. PSNT organizations have also been instrumental in legislation and litigation re: individuals over the age of 65 joining the pooled trust. While there has not yet been a nationally precedent setting case in this matter, there has been legislation and litigation efforts in several states to allow individuals to transfer funds after the age of 65 without penalty. 11 The PSNTs have worked together, shared ideas, shared cases and strategy to advocate for PSNTs to be available for people of all ages. c. Experience By their very nature, PSNTs provide services to more trust beneficiaries than any other trustee. Due to the numbers, the PSNTs can begin to see trends in Social Security, Medicaid and other areas regarding people with disabilities. The PSNTs will often be the first to know that Medicaid is paying attention to a particular issue or that Social Security is requesting more accountings or information about certain distributions. In addition, many PSNT administrators, especially the Executive Directors and senior level staff, are members of the National PLAN Alliance, are attending national conferences, are participating in the pooled SNT listserv and communicating with one another regarding distributions, Medicaid, Social Security, investments, taxes and all of the other areas that affect 10 Lewis v. Alexander, 685 F.3d 325 (3 rd Cir. 2012). 11 See also Brand, Hanson 2013 Funding Pooled Trust Subaccounts for Beneficiaries Age 65 and Older 2015 Update. Stetson SNT Conference

13 their PSNT and their trust beneficiaries. With this level of engagement they are able to see national trends and are also able to make recommendations about PSNTs in other states. d. Education in the community Many PSNTs are active in educating their communities. Just as the services of the PSNT in your community may differ, so do the education and forum for educating. PSNT s are in a good position to educate you and your clients about trust administration, the importance of estate planning for people with disabilities, serving as rep payee and many other topics. VI. What Can I do for my PSNT? Ask not what your PSNT can do for you, but what you can do for your PSNT. In addition to all of the ways the PSNT can assist you and your clients, there are a number of things that you and your firms/organizations can do for your PSNT. PSNTs rely heavily on volunteers. PSNTs are often looking for experienced board members to serve on the board of directors and on committees. Attorneys who are skilled in Medicaid, Social Security, Taxes, Trust Administration, Fiduciary Services and other areas are extremely beneficial to the PSNT. A financially stable PSNT relies on various sources of income in addition to the fees that they charge for their services. Donations from you and those in your community make for stronger PSNTs. The donations may also support ancillary services such as Representative Payee or Guardianship and these services may ultimately benefit your clients. There are also many ways in which attorneys can provide direct services to the PSNT. An attorney may help with general legal work of the PSNT, with drafting the PSNT and amendments, with litigation efforts such as the 65 and older work or other matters. The attorneys providing services to the PSNT may agree to do this work at reduced rate or even pro bono. Finally, a PSNT is often in the position of referring its trust beneficiaries to attorneys for the following: Legal advice at the time a person joins the PSNT. (Some PSNTs require this.) When the beneficiary needs representation regarding their trust and any disagreement they may have with the PSNT.

14 To transition to a new PSNT. When guardianship or conservatorship is necessary. The best way you can support the PSNT in your community is to refer you clients to it. A healthy organizations relies on ongoing referrals to the PSNT. VII. Summary PSNT organizations can be of great value to you and your clients. However, not all PSNTs are created equally and must be reviewed and examined carefully to determine if they will meet the needs of your client.

It s Not Your Mother s PSNT What PSNTs Offer to Special Needs Planners. October 18, 2018

2018 National Conference on Special Needs Planning and Special Needs Trusts It s Not Your Mother s PSNT What PSNTs Offer to Special Needs Planners October 18, 2018 Megan Brand, Executive Director, CFPD