What is a pooled income trust and how does it work

A pooled income trust is an arrangement that allows a person to have a charity manage their money in exchange for that money not being counted as their income for purposes of eligibility for Medicaid.

The way it works is as follows: Contributions to the pooled income trust can be used for one’s recurring living expenses, such as rent, food, clothing, entertainment and travel expenses, medical procedures not provided by government, attorney and guardian fees. It cannot, however, be used to pay for gifts, payments or loans to third persons, child support and alimony payments, vacation expenses of family members, health insurance premiums for other individuals, and the like. If there is any unused amount monthly, it can be accumulated for other expenses of the individual, but any unused amount upon death shall be transferred to the non-profit organization administering the pooled income trust.

The pooled income trust account functions similar to a managed bank account. The monthly non-discretionary bills, such as rent, mortgage, cable, healthcare premiums, etc., can go straight to the pooled income trust for payment. The variable expenses, such as food, clothing, travel and entertainment expenses, can be charged to a credit card, with such bill being submitted to the trust at the end of the month for payment.

In New York, to be eligible for Medicaid benefits, one must be over 65 years old (or under 65 but with disability) and with assets below $15,150 for a single person. In addition, one’s maximum monthly income (in 2021) should be $884 plus $20 for miscellaneous expenses. If a person has a monthly income in excess of that amount, it must be spent on Medicaid in order to be eligible for Medicaid. Thus, a person who has a monthly income in excess of $884 cannot claim Medicaid benefits. The law, however, provides an exception in the computation of maximum monthly income. If one makes monthly contributions to a qualified pooled income trust / pooled trust, these monthly contributions will not be counted in computing for maximum monthly income. For example, if one has monthly income of $2000, but makes monthly contributions to a pooled income trust of $1200, he/she (the “beneficiary”) can be eligible for Medicaid, and still use her monthly contributions to the pooled income trust to pay for her other living expenses.

There is some paperwork involved in applying for Medicaid with the spenddown paid instead to the pooled income trust. One needs to enroll in the trust and submit documents to the trust. Then, one needs to submit the trust with other required documents to the Medicaid program with a request to change the budget to reduce the surplus or spenddown. Lastly, you need to follow up and ensure the Medicaid rebudgeting is done correctly.

If you need an attorney to represent you in setting up a pooled income trust, you can give us a call. We are the Law Offices of Albert Goodwin and we can be reached at 212-233-1233.

The Statutory Basis

Pooled income trusts (technically called pooled trusts) are authorized by 42 U.S.C. § 1396p(d)(4)(C). The statute permits a nonprofit organization to operate a trust that pools the funds of multiple disabled or aged beneficiaries for investment purposes, while maintaining separate sub-accounts for each beneficiary's records. Funds placed in a properly structured pooled trust are not counted as available resources or income for Medicaid eligibility purposes.

Pooled trusts come in two main variants for income spend-down purposes. The first is the income-spend-down structure described above, where excess monthly income is deposited into the trust each month and used to pay the beneficiary's bills. The second is the resource-shelter structure where lump-sum assets are deposited and used to supplement Medicaid services.

Who Should Consider a Pooled Income Trust

The income-spend-down pooled trust is most useful for individuals who:

• Have monthly income exceeding the Medicaid limit (currently around $1,732 for a single person in 2024, with $20 disregard).
• Need Medicaid coverage — typically for home care, prescription drug benefits, or other ongoing medical needs.
• Are 65 or older, or disabled if under 65.
• Have predictable monthly bills that the trust can pay (rent, utilities, food, etc.).

Without a pooled trust, an individual whose income exceeds the Medicaid limit cannot qualify. With a pooled trust, the excess income is sheltered each month, and the individual qualifies for Medicaid while still using the money for their own living expenses.

How the Mechanics Work Each Month

The monthly mechanics of a pooled income trust:

1. The beneficiary's Social Security, pension, or other income comes in — say, $2,500.
2. The beneficiary keeps the Medicaid-allowed amount — say, $1,732.
3. The excess of $768 is deposited into the pooled trust account.
4. The trust uses the deposited funds to pay the beneficiary's bills — rent, utilities, food, transportation, etc.
5. Any amount not spent in a given month accumulates in the trust account for future expenses.

The beneficiary applies the same approach each month. Over time, the trust funds are used for the beneficiary's needs. Medicaid covers the medical services the beneficiary needs for home care or other coverage.

What the Trust Will Pay For

Pooled trust funds can be used for a wide range of legitimate beneficiary expenses:

• Rent or mortgage payments.
• Property taxes and homeowners insurance.
• Utilities (electricity, gas, water, internet, telephone).
• Food and household supplies.
• Clothing.
• Transportation (vehicle expenses, public transit, ride services).
• Personal care items not covered by Medicaid.
• Health insurance premiums (Medicare Part B, supplemental insurance).
• Out-of-pocket medical expenses not covered by Medicaid.
• Cell phone bills.
• Cable television and internet.
• Entertainment, hobbies, and recreation.
• Educational expenses.
• Travel expenses.
• Attorney's fees and accountant's fees related to the beneficiary's affairs.

What the Trust Cannot Pay For

Trust funds generally cannot be used for:

• Gifts to other people.
• Loans to family members.
• Child support or alimony.
• Expenses of other family members (paying for someone else's groceries, for example).
• Cash distributions to the beneficiary (cash counts as income).
• Travel or other expenses primarily for the benefit of someone other than the beneficiary.

The trust administrator reviews each requested payment to ensure it qualifies. Improper distributions can put the trust's tax status and the beneficiary's Medicaid eligibility at risk.

The Application Process

Setting up a pooled trust spend-down arrangement involves multiple steps:

1. Selecting a pooled trust. Several nonprofit organizations operate pooled trusts in New York. Each has its own fees, services, and procedures. We help clients choose the right one for their situation.
2. Completing the joinder agreement. The joinder agreement is the document that opens the beneficiary's sub-account in the pooled trust.
3. Funding the trust. The first month's income is deposited into the trust.
4. Applying for Medicaid. The Medicaid application is filed (or amended if Medicaid is already in place) with documentation of the trust arrangement.
5. Medicaid budgeting. Medicaid recalculates the eligibility budget to exclude the trust contributions.
6. Setting up monthly transfers. Automatic transfers are set up so the excess income flows to the trust each month.
7. Submitting bills. The beneficiary submits bills to the trust for payment, either as they come in or in batches.

The Fees of the Pooled Trust

Pooled trusts charge fees for administering the sub-accounts. Fees typically include:

• An initial enrollment fee.
• Monthly maintenance fees.
• Transaction fees for each bill paid.
• An annual fee.

The total fees vary by organization but are typically modest in comparison to the value of the Medicaid benefits the arrangement preserves. Some pooled trusts charge a flat monthly fee that covers everything; others use per-transaction fees that scale with activity.

What Happens When the Beneficiary Dies

When a pooled trust beneficiary dies, any funds remaining in the sub-account are subject to the trust's remainder provisions. Most pooled trusts retain a portion of the remainder for the trust's charitable purposes (or pay it to the state to satisfy Medicaid recovery), with any balance going to a remainder beneficiary the depositor named at enrollment. The specific allocation depends on the pooled trust's documents.