How a Pooled Income Trust Can Help You Qualify for Medicaid

KEY TAKEAWAYS:

• A pooled income trust helps an eligible person keep Medicaid when their monthly income exceeds the program’s limit.

• The trust is established and managed by a nonprofit organization. 

• The beneficiary deposits excess income into an individual sub-account within the larger pooled trust.

• The beneficiary generally must be disabled, but the person contributing money does not necessarily have to be.

As a person ages, it’s possible they may become incapacitated, or simply unable to safely live on their own and require care in a nursing home or long-term care center. Because these facilities can be extremely expensive, people often need to rely on Medicaid to pay for the costs. However, qualifying for Medicaid assistance is a complicated process with strict financial guidelines.

If your loved one needs the financial benefits from Medicaid but isn’t eligible because they have too much money or too many assets, elder law and Medicaid planning attorneys can help you understand how to establish a pooled income trust and determine whether your loved one may qualify for assistance.

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What to Know About Medicaid

Generally, people can begin receiving Medicare when they turn 65. This federal health insurance provides coverage for many types of medical expenses. However, the program doesn’t cover long-term health care needs. So if your loved one becomes incapacitated, ill, or disabled, they may need long-term care in a nursing home or assisted living facility, but most people can’t afford it, and look to the other federal financial assistance program, Medicaid, to help pay the costs. 

However, Medicaid only pays these costs if the applicant meets unyielding financial requirements. For a clearer understanding, refer to A step-by-step guide to medicaid eligibility in New York, which explains how the program sets a monetary limit for eligibility. Those who need help from this program can’t earn an income or have assets worth more than that amount. Many New Yorkers make too much to qualify for financial assistance from Medicaid, yet don’t earn enough to pay for long-term care on their own.

Any income above the Medicaid threshold, often referred to as surplus or excess, must be reduced for an individual to receive Medicaid. This “spend down” is often difficult—if not impossible—for many people to achieve.  

Understanding a Pooled Income Trust

A pooled trust account (PIT), also called a pooled special needs trust, is one of the three types of special needs trusts designed to help people with disabilities keep their eligibility for government benefits—especially Medicaid—by setting aside income that doesn’t count toward eligibility.

For example, New York Medicaid has an income limit of $1,836 per month. Let’s say you receive $2,836 per month in Social Security and a pension. The extra $1,000 could disqualify you from receiving Medicaid. Contributing to a PIT allows you to set aside money for expenses and also meet Medicaid’s eligibility requirements. Instead of spending that $1,000 until you qualify, you can deposit it into a pooled income trust each month. Because the money is placed into the trust and managed according to Medicaid rules, Medicaid generally does not count that income against the person's eligibility.

Who Can Contribute to a Pooled Trust?

The answer depends on the type of pooled trust and applicable state and federal law, but generally:

The Beneficiary

A person with a disability can transfer their own money into a pooled trust. This is common when someone receives:

• An inheritance
• Social Security back pay
• A personal injury settlement
• Retirement funds

Family Members or Others

Parents, grandparents, siblings, friends, or others can contribute money to the beneficiary's pooled trust account. Contributions may include:

• Gifts
• Lifetime transfers
• Inheritances directed into the trust

Who Manages a PIT?

A pooled income trust is a legal account managed by a nonprofit organization. The nonprofit combines (pools) the trust funds of many beneficiaries for investment and administrative purposes. However, each person still has their own separate account within the trust. For example:

• Susan’s account could contain $5,000.
• Amy’s account could contain $13,000.
• Jason’s account could contain $700.

The money may be invested together, but the nonprofit keeps detailed records so that each person's funds remain separate. Susan’s money cannot be spent on Jason’s expenses.

How the Money Gets Used

The beneficiary deposits excess income into the trust each month. The nonprofit then uses that person's trust funds to pay approved expenses, such as:

• Rent or mortgage
• Utilities
• Property taxes
• Medical bills
• Home health care services
• Other approved living expenses, depending on state Medicaid rules and the trust's policies

In most cases, the beneficiary does not simply withdraw cash whenever they want. Instead, the trustee pays bills directly or reimburses approved expenses according to the trust's procedures.

How Nonprofits Manage Trusts

The nonprofit organization acts as the trustee of the PIT. The nonprofit will typically do the following:

• Maintain each beneficiary's individual account
• Review payment requests
• Pay approved expenses
• Keeps record for Medicaid compliance
• Invest pooled assets, often using professional financial managers

The Benefits of a PIT

The primary reason people use a PIT is to preserve eligibility for public benefits while still allowing the beneficiary to have resources available for supplemental needs.

If you don’t have a trust and receive a large inheritance or lawsuit settlement, either could push your income over Medicaid or SSI asset limits.

PIT assets are typically held outside of the beneficiary's countable resources (if legal requirements are met), while the trustee pays for approved supplemental expenses, including the following:

• Dental care not covered by insurance
• Wheelchairs and adaptive equipment
• Therapy
• Education
• Transportation
• Computer equipment
• Furniture and household items

The trust generally cannot simply give cash directly to the beneficiary without potentially affecting benefits.

What Happens to Leftover Money After the Beneficiary Dies?

When a beneficiary dies in New York, the money left in their PIT account is either retained by the nonprofit organization to help other disabled individuals or used to reimburse the State for Medicaid costs. The funds cannot go to family members or personal heirs

• The nonprofit may retain some or all of the remaining funds to support its charitable mission.
• Medicaid may have a right to reimbursement for benefits it paid on the beneficiary's behalf.
• Any remaining balance may then pass according to the trust's terms.

How a Pooled Income Trust Helps With Medicaid Eligibility

Because many people can’t afford to spend down their total assets to meet Medicaid eligibility, they may choose to place their overage assets into a pooled income trust. This income trust is generally used to protect people with special needs to ensure their access to government benefits such as Medicaid.  

New York Medicaid rules state that income over the earning limit can’t be used to pay for cost of living expenses, such as utility bills or rent. Instead, the overage amount must be used to pay for in-home care or long-term care. If the Medicaid applicant places their assets in a standard trust, those assets are still counted when determining financial eligibility.  

However, assets placed into a pooled income trust aren’t considered by Medicaid as part of the applicant’s earning limit. So they’re not counted when Medicaid assesses your expenses and monthly income. This means a pooled income trust can be a beneficial tool for meeting eligibility requirements.

How a New York Pooled Income Trust Works

If you’re over 65 and have disabilities or are incapacitated, you can join an existing pooled income trust, and you become a beneficiary. As such, you’re assigned an individual account.

Once you become a beneficiary, you make monthly deposits into the trust from your regular income. You might fund the trust through money you receive from Social Security, retirement accounts, IRAs, and other sources. This money can be used to pay your cost of living expenses—however, you can’t withdraw the money and pay the bills yourself. The person managing the trust uses the funds in your personal account to pay them for you. So, you’re still able to pay your monthly expenses while meeting Medicaid’s financial limits.

Medicaid’s Look Back Period

It’s important to understand the ways to spend down without a Medicaid penalty, especially since institutional Medicaid reviews all financial transactions made by an applicant during what’s called a “look back period.” Typically, Medicaid looks back five years. It investigates whether you:

• Gave away money to other people as a way to spend down your total assets.
• Transferred assets for less than their market value.
• Gifted assets to get under the Medicaid limit for qualification. 

For example, if you had $10,000 in your bank account and you gave it all to a child within the last five years, Medicaid will flag that as a strategy for reducing your total assets to qualify for benefits. It knows that after the look-back period, your child could return that money to you. If the agency discovers you’ve done this, it imposes a penalty period—an amount of time the applicant won’t be eligible for financial assistance. This is Medicaid’s way of ensuring that people don’t give away their assets to appear that they have less money than they really might have. 

For Community Medicaid in New York—which includes adult day care, assisted living services, home health care, and personal care assistance—a new 2.5-year look-back period begins in 2024.