(d)(4)(A) vs. (d)(4)(C) - The Great Debate
We are seeing a lot of attorneys drafting d4A Special Needs Trusts for disabled beneficiaries under age 65 when they should use a Pooled Trust. We administer both individual and our pooled SNT, so it doesn't really matter to us. I will propose a thought that there is never a good reason to draft an individual SNT over our Pooled Trust. The traditional arguments for drafting a stand alone (d)(4)(A) SNT over a pooled trust include: 1) I want to be the trustee (or name a family member), 2) I want the trustee to pay back the Medicaid lien and then the rest go to designated beneficiaries and 3) I want to invest the funds, or have my investment person handle the investments. I will take each of these points in turn.
Individuals do not know how to administer trusts in general, let alone SNT's. The federal law and policy is constantly changing, particularly for beneficiaries receiving Supplemental Security Income, or SSI. It is extremely difficult to keep up with these changes and family members are not attuned to these programs. We routinely see well-intentioned Trustees who have improperly administered a SNT and thus caused a loss of benefits. Then there is the opposite - the Trustee who runs into financial problems and decides to "borrow" from the SNT, or just outright steals the money. Individual Trustees are often not insured and do not have independent auditing of the SNT. It is a rare individual who can do a good job as Trustee of a SNT.
The Medicaid payback and naming of a remainder beneficiary argument is an easy one to refute. We will agree to do this with our Pooled Trust which is something that not many other Pooled Trusts will agree to do. We automatically get the Medicaid trust lien when any beneficiary in our pooled trust dies. If there is enough money in the beneficiary's account to fully pay back the Medicaid trust lien (after our required small retained interest) we will give the remaining funds to the beneficiary's estate, or to the trustee of their revocable trust to be paid out to heirs. This is exactly the same process as settling a d4A.
Finally, if you have enough money to make the trust account attractive to your investment advisor we are fine delegating the investments. Of course we must do our due diligence before delegating the investments under the Prudent Investor Act, so your broker must "check out." We often work with outside investment advisors, for larger accounts, both individual and in the pooled trust.
There is really no good reason to opt for an individual SNT. We have intentionally made our pooled trust a better alternative. Our fee for the pooled trust is always equal to (for accounts over $250K) or less than (for trusts under $250K) the fees for individual trust administration. We will work with you and your clients to be the right fit. We have the experience, knowledge, insurance and auditing and we most importantly, we know what we're doing.
Travis D. Finchum
Board Certified Elder Law Attorney
Co-Trustee, Guardian Trusts