Pooled Trusts
Pooled trust subaccounts may be established as either self-settled accounts, under 42 U.S.C. § 1396p(d)(4)(C), or as third-party subaccounts. The required elements of a self-settled trust are:
(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; and
(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 equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this subchapter.
Recently, states have attacked subaccounts created by individuals over 65 by imposing transfer penalties.[1] The basis for this attack is a disconnect between Section 1396p(d)(4)(C), which allows individuals over 65 to establish pooled trust subaccounts, and Section 1396p(c)(2)(B)(iii) and (iv) which fails to include pooled trusts as being exempt from the imposition of a transfer penalty when the transferee is over the age of 65. Imposition of a transfer penalty appears to run counter to the following language in HCFA 64, Section 3259.7:
Resources placed in an exempt trust for a disabled individual are subject to imposition of a penalty under the transfer of assets provisions unless the transfer is specifically exempt from penalty as explained in §3258.10 or unless the resources placed in the trust are used to benefit the individual, and the trust purchases items and services for the individual at fair market value.
NAELA Policy Statement: Application of Transfer of Assets Penalty for Pooled Trusts
Notes:
1. See S. Buscher, States Attack Pooled Trusts for Persons Who are 65 and Older, 20 NAELA News 18 (2008).
