How a New York Nonprofit Can Start a Pooled Supplemental Needs Trust

By the Law Offices of Albert Goodwin. Reviewed by Albert Goodwin, New York trusts and estates attorney.

This guide is for executive directors, board members, and counsel of New York not-for-profit corporations that are considering serving as trustee of a pooled trust. It covers the federal and New York rules a pooled trust must meet, the documents you will need, how Medicaid and Social Security review them, and the operating costs and fiduciary risks that come with the role. It is general information, not legal advice for your organization.

The Short Version

A pooled trust is a supplemental needs trust run by a nonprofit association. Disabled individuals deposit their own funds into separate sub-accounts. The nonprofit pools the sub-accounts for investment and pays approved expenses for each beneficiary. Federal Medicaid law sets the core requirements in 42 U.S.C. §1396p(d)(4)(C). New York applies them through Social Services Law §366(2)(b), 18 NYCRR 360-4.5, and Administrative Directive 96 ADM-8. EPTL 7-1.12 governs supplemental needs trusts generally. For a consumer-level explanation of how supplemental needs trusts protect benefits, see our page on the benefits of a special needs trust.

For a nonprofit, the trust is a long-term fiduciary operation. Each sub-account holds a vulnerable person's money. Errors can cost a beneficiary Medicaid or SSI eligibility, and they can expose the organization and its directors to surcharge claims.

Federal Requirements Under 42 U.S.C. §1396p(d)(4)(C)

A pooled trust is exempt from Medicaid's trust-counting rules only if it meets every element of the federal statute:

• Nonprofit association: The trust must be established and managed by a nonprofit association. A for-profit trust company cannot be the sponsoring entity, although a nonprofit may hire a bank or investment adviser to handle investments under its supervision.
• Separate accounts: The trust must keep a separate account for each beneficiary. Accounts may be pooled only for investment and management purposes.
• Disabled beneficiaries: Each account must be for an individual who is disabled under the Social Security definition in 42 U.S.C. §1382c(a)(3).
• Who may establish an account: The account must be established by the individual, a parent, grandparent, legal guardian, or a court.
• Sole benefit: Each account must be for the sole benefit of that beneficiary.
• Medicaid payback: When a beneficiary dies, any amount the trust does not retain must be used to repay the State for medical assistance paid on the beneficiary's behalf, up to the total paid.

The Social Security Administration applies parallel rules for SSI in its Program Operations Manual System at POMS SI 01120.203. SSA reviews pooled trust documents independently of Medicaid, and its reviewers sometimes flag language that Medicaid accepted. Drafting to satisfy both sets of rules from the start saves revision cycles.

Retained Funds and the Payback Rule

Under the statute, a pooled trust may keep some or all of a deceased beneficiary's remaining balance. Whatever it does not keep must go to Medicaid repayment before any other beneficiary or heir receives anything. Remainder funds cannot simply pass to family members while Medicaid goes unpaid.

New York pooled trusts handle retention in different ways. Some retain a set percentage of the remaining balance. Some retain the full balance. Others allow a beneficiary to choose a retention option at enrollment. Whatever the policy, the master trust agreement and the joinder agreement must state it plainly. Agencies review this language closely.

A nonprofit should not treat retained funds as a planning assumption for its budget. Many accounts, especially surplus income accounts, are spent down month to month and have little or nothing left at death. Retained amounts are also trust property. The trust document should say how they will be used. Many trusts devote retained funds to other disabled beneficiaries or to programs consistent with the trust's purpose. Your board needs to approve that policy and follow it.

New York's Use of Pooled Trusts for Seniors and Surplus Income

New York is unusual in how widely pooled trusts are used by people 65 and older. Its rules shape the demand a new trust will see and the type of administration it must support.

Community Medicaid surplus income

A disabled person whose monthly income exceeds the Medicaid income limit faces a "spend-down" or surplus. In New York, that person may deposit the surplus each month into a pooled trust sub-account. The local district then disregards the deposited income for community Medicaid eligibility. The trust uses the deposits to pay the beneficiary's rent, utilities, and other living costs. Many New York pooled trust accounts work this way.

Applicants 65 and older still must be disabled to use a (d)(4)(C) account. Age alone does not qualify. The local social services district, the NYC Human Resources Administration (HRA), or the State Disability Review Team may need to make a disability determination before the trust deposit is counted.

Surplus income accounts are high-volume and time-sensitive. Each month the trust must receive a deposit, post it to the correct sub-account, and pay the beneficiary's bills on time. A late rent payment can put a beneficiary's housing at risk. Your staffing and software decisions should assume this workload.

Transfers of assets by people 65 and older

Federal guidance allows states to treat a deposit of assets into a pooled trust by someone 65 or older as a transfer for less than fair market value. In New York, a lump-sum deposit of assets by an older applicant can raise transfer penalty issues for nursing home (institutional) Medicaid, which carries a 60-month look-back. New York enacted a look-back for community-based long-term care in 2020, but implementation has been repeatedly delayed. Check the current status before advising an applicant.

SSI consequences

SSA treats transfers into a pooled trust by someone 65 or older differently from transfers by younger beneficiaries. A deposit by an older SSI recipient may trigger the SSI transfer-of-resources penalty. Separately, trust distributions can reduce an SSI check. Cash paid to the beneficiary is income. Payments for shelter are in-kind support and maintenance. Since September 30, 2024, SSA no longer counts food in that calculation. Your disbursement policies and staff training must reflect these rules, and joinder materials should warn SSI recipients to get advice before enrolling.

A Formation Checklist

The steps below follow roughly the order we use when helping a nonprofit set up a pooled trust. Some run in parallel.

1. Confirm tax-exempt status and corporate authority: The sponsoring organization should be a New York not-for-profit corporation (or a qualified foreign nonprofit authorized to operate here) with 501(c)(3) status. Review the certificate of incorporation. Its purposes must permit serving as trustee for disabled individuals. If they do not, the organization will need to amend the certificate under the Not-for-Profit Corporation Law or form a separate affiliate to serve as trustee. Some organizations choose a separate entity to isolate fiduciary liability from their other programs.
2. Board authorization and governance: The board should formally authorize the trust, adopt or confirm a conflict of interest policy under N-PCL §715-a and a whistleblower policy under §715-b, and assign oversight to a committee. Directors owe a duty of care under N-PCL §717. Related-party transactions, such as a director's firm managing trust investments, require review under N-PCL §715.
3. Master trust agreement: This document creates the trust. It must track 42 U.S.C. §1396p(d)(4)(C), POMS SI 01120.203, EPTL 7-1.12, and New York's Medicaid regulations. It should cover trustee powers, sole-benefit language, the payback and retention terms, separate-account requirements, early termination, successor trustees, and the trust's governing law.
4. Joinder agreement: Each beneficiary enrolls by signing a joinder agreement. It identifies who is establishing the account and in what capacity, the beneficiary's disability, the retention option, fees, the beneficiary's representative, and how disbursement requests will be made. Agencies review joinder forms as closely as the master trust, because the joinder is what a local caseworker sees in each application.
5. Sub-account accounting: You need a system that tracks every deposit, investment allocation, fee, and disbursement by beneficiary, and that produces statements a caseworker or SSA can review. Commingling errors, such as paying one beneficiary's bill from another's account, can jeopardize the trust's exempt status.
6. Investment policy: As trustee, the nonprofit must follow the Prudent Investor Act, EPTL 11-2.3. That statute requires diversification, attention to the purposes and needs of the beneficiaries, and reasonable costs. Surplus income accounts need liquidity. Lump-sum accounts may have longer horizons. A written investment policy statement, adopted by the board and reviewed periodically, is the practical way to document compliance. If you delegate investment management, EPTL 11-2.3(c) requires reasonable care in selecting and monitoring the agent.
7. Agency review: Before or as the trust begins accepting beneficiaries, the documents are reviewed by Medicaid authorities. That includes the NYS Department of Health, which administers Medicaid, and the local districts that process applications, including HRA in New York City. SSA reviews the documents for SSI recipients. Where the trust will serve people with developmental disabilities, the Office for People With Developmental Disabilities (OPWDD) may also be involved. Expect requests for revisions.
8. Charities Bureau and annual filings: Charitable organizations generally register with the Attorney General's Charities Bureau under Executive Law Article 7-A and EPTL 8-1.4 and file annual reports (Form CHAR500). Ask counsel whether the trust's activities change the organization's filing obligations, audit thresholds, or reporting.
9. Accountings and statements: The trust must give each beneficiary or representative regular statements, and it must respond to Medicaid and SSA requests for account records during renewals. A trustee can also be asked to account in a court proceeding. See our page on trust and estate accountings.

Practical Problems New Nonprofits Run Into

• Revision cycles: Agency reviewers may return documents with comments more than once. SSA and Medicaid comments sometimes pull in different directions.
• Disbursement turnaround: Beneficiaries and their families expect bills to be paid quickly. A trust that takes weeks to process requests will lose referrals and may harm beneficiaries.
• Caseworker questions: Local district staff vary in their familiarity with pooled trusts. Your staff will need to answer questions about deposits and joinders during applications and renewals.
• Insurance and bonding: Consider directors and officers coverage, fiduciary or professional liability coverage, and crime or fidelity coverage for employees who handle trust funds. Confirm that policies cover trustee activity specifically.
• Fiduciary liability: A trustee that makes improper distributions, invests imprudently, or keeps poor records can be surcharged. See our discussion of breach of fiduciary duty.
• Representative conflicts: Family members acting for beneficiaries may request distributions that benefit themselves. Sole-benefit rules require the trust to say no.

Operating Economics

Pooled trusts charge fees to cover administration. Common structures include a one-time enrollment fee, a monthly or annual administrative fee, and in some trusts a fee tied to account balance. Fee levels vary widely among New York pooled trusts. Before setting your own schedule, review the published fee schedules of established New York pooled trusts and price for your actual costs.

On the cost side, plan for:

• Formation: Legal fees for corporate work, document drafting, and the agency review process.
• Staffing: Trust officers or account administrators, plus supervision. Surplus income accounts generate monthly work for each beneficiary.
• Systems: Trust accounting software that tracks sub-accounts and produces statements, and secure document handling for beneficiary records.
• Insurance and audit: Annual premiums and, depending on revenue, audited financial statements.
• Investment management: Adviser and custodian fees, which the Prudent Investor Act requires you to keep reasonable.

Most new trusts operate at a loss until enrollment is large enough to cover fixed costs. Your board should approve a budget that projects a break-even enrollment number and funds operations until then. Retained remainders should not be counted toward that budget.

Timeline

Formation is not quick. Corporate amendments, board approvals, document drafting, systems setup, and agency review each take time, and agency comments can add more. Many organizations should plan on many months from the first meeting to the first enrolled beneficiary. An early feasibility assessment gives you a more specific estimate for your organization.

Is Your Organization Ready?

Before committing resources, ask:

• Governance: Can your board supervise a fiduciary operation and meet regularly to review it?
• Finances: Can the organization fund formation and early operating losses?
• Staff: Do you have, or can you hire, people who understand Medicaid and SSI rules?
• Mission: Do you already serve seniors or people with disabilities, so referral sources know you?

How We Can Help

The Law Offices of Albert Goodwin assists New York nonprofits in setting up and maintaining pooled trust operations. Our work typically includes:

• A feasibility assessment covering regulatory issues, costs, and a preliminary timeline
• Formation of a trustee entity or amendment of your existing certificate of incorporation and bylaws
• Drafting the master trust agreement and joinder agreement for Medicaid and SSA review
• Handling agency submissions and responding to reviewer comments
• Drafting disbursement, beneficiary acceptance, and investment policies for your organization

For more on our trust practice, see our page on lawyers for pooled trust organizations and our New York trust attorney page. To discuss forming a pooled trust, call 212-233-1233.

Sources

• 42 U.S.C. §1396p(d)(4)(C) (pooled trust exception)
• 42 U.S.C. §1382c(a)(3) (definition of disability)
• Social Security Administration, POMS SI 01120.203
• New York Social Services Law §366(2)(b)
• 18 NYCRR 360-4.5
• NYS Department of Social Services Administrative Directive 96 ADM-8 (trust provisions; Medicaid now administered by the NYS Department of Health)
• New York EPTL 7-1.12 (supplemental needs trusts)
• New York EPTL 11-2.3 (Prudent Investor Act)
• New York Not-for-Profit Corporation Law §§715, 715-a, 715-b, 717
• New York Executive Law Article 7-A and EPTL 8-1.4 (charitable registration)

This article provides general information about New York and federal law and is not legal advice. Medicaid and SSI rules change, and agency practices vary by district. Consult counsel about your organization's circumstances before forming or operating a pooled trust.