Evaluating the Rising Number of Pooled Trust Programs

By William Lindahl, MBA, CLPF
Executive Director at CPT Institute

Individual and Pooled Special Needs Trusts (PSNTs) were codified 25 years ago with the Omnibus Budget Reconciliation Act (OBRA) in 1993. A few National PSNT providers have been able to develop a sophisticated and robust infrastructure that allows them to keep costs low for those living with disabilities and who are no longer able to earn a living.  This article will teach you how to question providers to determine if they are safe, efficient, and reliable. We will focus on what to ask, review, and look for in a PSNT provider. We will touch on the best practices, program structures, compliance and oversight, fees and transparency, investments, technology innovation, and administration support.  The depletion rate of the limited funds for those unable to earn a living is alarming. Excessive court costs and fees create significant depletion for those with limited resources in their trust. Courts continue to see high costs, high funding minimums, and trust administrative costs by corporate trustees, private trustees, and fiduciaries. Significant challenges are associated with meeting the trust/trustee needs for cases involving a small corpus and monthly funding streams. High fees and costs are a common issue in workers’ compensation claims, structured cases, and those trusts receiving child support ordered for disabled children of divorce. Most PSNT providers have cases of all sizes, from tens of millions to some with small ongoing deposits from structured settlement annuities. A modern PSNT provider with economies of scale can leverage technology to fill this void. When evaluating a PSNT provider, consider the following.

Compliance and oversite

First, be sure the PSNT provider uses state-specific master trusts to comply with state-by-state rules. Review the master trust for a compliance summary and references to your state Probate code requirements. Review the organization’s 990s to get a glimpse of their non-profit organization’s revenues and scale. Determine who the trustee is. Is it the non-profit association/charity, an individual, or a corporate trustee? The primary advantage of programs where the actual charity/non-profit is the trustee is that management can change without impacting the trust beneficiaries. If they are a national provider, your client should be able to move around the United States without further court involvement. Annual audits are required for organizations with gross receivables over one million dollars. An independent third-party accounting firm reports its findings to the board of directors, not the executive director. All programs should consult with a Non-Profit attorney to be sure they remain compliant in the states they serve. All programs should retain a special needs planning attorney. All providers should be bondable and have certificates of proof of insurance for E&O, crime, and theft. Lastly, be sure to ask about the level of reserves. Most programs should have at least one year of operation expenses in their reserves.

Essential Program Components

• Charity/Non-Profit Association is the Trustee
• Non-Profit Counsel
• Special Needs Planning Counsel
• Annual Audits
• Redundant array backup system off-site
• Umbrella Investment Policy Statement
• Independent Asset Custody Agent (Investment Firm)
• Bond Accounts
• E&O, crime & Cyber Insurance
• At least one year of operating cost in reserve
• Direct line and calendar link to assigned Trust Administrator

Fees and transparency. 

Pay close attention to fees, and look for full transparency on the organization’s website. Obtain full disclosure of money management fees (MMF) and determine how the fees are calculated; seek a provider with low annual fixed trustee fees and MMF below two percent. Ask them to disclose whether they share MMF or trustee fees with third-party referral sources. All providers will provide a reduced MMF fee on larger trust accounts. 

Investments

Provider investment options vary wildly; here are a few best practices to consider. Investment policy should prohibit using front load, trail fees, and proprietary investment products. Multiple investment models should be available to meet your client’s specific needs. Model performance reports should be presented to the board of directors to see rates of returns and overall performance every quarter. 

Technology Innovation.

Technology is the most significant differentiator in PSNT providers. Consider programs that provide multiple resources for clients to submit requests via their website, an application, or mobile devices. Disbursement request payments should be processed within one to two business days, except for large purchases like homes and vehicles. Always consider mail times so beneficiaries know how long it will take to receive the payment. Clients should have a specific representative with a direct line or extension. The PSNT provider should have a client portal so the trust beneficiary can see how much of their funds are available in cash and invested and if any outstanding or pending requests may affect their current available balance. The scope of the client portal is critical as most clients are on a tight budget. A great plus is when a PSNT Provider has the option of Secured True Link cards that clients can use to access immediate funds, as many prominent organizations do not accept third-party checks from trustees. 

Administration Support.

Administration support is critical to good customer service and overall client satisfaction. Providers should be able to provide policies, POMs references, and resources to show rationale for approval and a denial of a disbursement request. Multiple forms of communication should be available, such as email, phone, and text options. All records for communication via phone, text, and email should link to the client record for support to resolve issues and disputes. Always have a phone/video consult with your client and provider staff to set proper expectations and verify that the information you have gathered is accurate. Lastly, all providers should offer an “Orientation” to help the new client transition into the PSNT program and understand the rules and regulations of their new trust.  A modern-day PSNT provider should follow the five best practices below. First, they should have state-specific master trusts and maintain compliance in the state in which they operate. Second, their fee schedule should be transparent to all parties involved. Third, clearly understand the provider’s investment policy, confirm their model portfolios, and have U.S.-based securities. Fourth, the modern-day provider should leverage technology to keep their clients informed and make their account administration seamless. Lastly, a great PSNT provider should have good customer service and overall client satisfaction. Evaluating PSNT providers can be intimidating, but the above five best practices can assist you in making the right choice for your client.