Evaluating the Rising Number of Pooled Trust Programs

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

Pooled Special Needs Trusts (PSNT’s) were codified over 25 years ago when the Omnibus Budget Reconciliation Act (OBRA) was signed into law in 1993. So much has changed since then.  Many 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 address where the industry is in 2021 and what you should expect from a provider in the modern-day.   Instead of reviewing and discussing all the organizational structures, the focus will be on what to ask, review, and look for in a PSNT provider. In this article, we will touch on the five best practices which are compliance and oversite, fees and transparency, investments, technology innovation and administration support to help you evaluate a PSNT Provider. All in all, we have developed a special tool for a greater deep dive into rating/scoring programs.

The depletion rate of the limited funds for those who are unable to earn a living are alarming.  Courts continue to see very high costs in trust funding minimums and trust administrative costs by corporate trustees, private trustees, and fiduciaries. There are significant challenges associated with trying to meet the trust/trustee needs for cases that involve a small corpus and/or monthly funding streams. This is common in workers compensation claims, structured cases and those trusts receiving child support ordered for disabled children of divorce. Keep in mind most providers have cases of all sizes, from tens of millions to some with just small deposits like stated above.

With this great need, a modern PSNT provider with economies of scale and leveraged technology can fill this void. Of course, not all providers are the same so how do you as practitioner evaluate these programs?

Compliance and oversite. First, be sure the PSNT provider uses state specific master trusts to comply state by state rules because they vary dramatically. Review the master trust for a summary of compliance and references to your specific state Probate code requirements. The organization should be registered to do business and reviewing their past Form 990’s which will give you a glimpse of how their nonprofit organization is managed. Another critical point is to determine who is the Trustee for the PSNT’s. 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 beneficiary. If they are a national provider, your client should be able to move around the United States easily. Annual audits should be done by an independent third-party accounting firm who report to the provider’s board of directors. Special needs planning state support counsel and non-profit counsel should also be retained. All providers should be bondable and have certificates of proof of insurance for E&O, crime, and theft. Lastly, be sure to ask about level of reserves. Most programs should have at least one year of operation expenses in their reserves.

Fees and transparency. Pay close attention to fees, look for full transparency on the organization’s website. Determining the full scope of the fees can be challenging.  All PSNT providers have setup fees and trustee fees. However, many do not openly disclose the full extent of their fees. Obtain full disclosure of money management fees (MMF) and determine how they are assessed. The best option is to seek a provider with low annual fixed trustee fees and MMF below two percent. Ask them to disclose if they share MMF or trustee fees with any third-party referral sources. This is important as programs that do this often have significantly higher fees. Be sure, MMF is based on average daily balance, not the highest balance during the calendar year. Keep in mind, that many programs will reduce MMF’s on larger trust accounts. Some programs may even offer significant reductions in their setup fee when a SNT/Elder law attorney is enrolling a client.  Lastly, ask for a full list of items a trust beneficiary can be billed. 

Investments. Investment options by providers wildly vary; here are a few best practices to consider. Investment policy should prohibit the use of front load, trail fees, and proprietary investment products. This is critical to allow for transfers of portfolio, if necessary, to a new asset custody agent.  Multiple investment models should be available to meet your client’s specific needs.  Always ask for model performance reports to see rates of returns.  All investments should be U.S. based securities.

Technology Innovation. Technology is the greatest differentiator in PSNT providers. Consider programs that provide multiple resources for a client to submit requests. For example, via their website and/or an application via their mobile devices. Another critical function is if their program processes requests within one to two business days, except large purchases like homes and vehicles.  Always consider mail times so beneficiaries know how long it will take to get their bills paid. Clients should have a specific representative with a direct line or extension.  The PSNT provider should have a client portal so they can see how much of their funds are available in cash, how much is invested, as well as any outstanding or pending requests that 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 large organizations do not accept third party checks from trustees. All client record changes, and communication should be tracked.

Administration Support. Administration support are 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/or 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.  When establishing a trust, the setup process should have the ability to be completed in days or same day in some circumstances. It is recommended to always have a phone/video consult with your client and provider staff to set proper expectations and verify the information you have gathered are always 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. 

In summary, a modern-day PSNT provider should follow the below five best practices. First, they should have state specific master trusts and maintain compliance in the state the operate in. Second, their fee schedule should be transparent to all parties involved. Third, be sure to clearly understand the providers investment policy, confirm their model portfolios, and have U.S. based securities. Fourth, the modern-day provider should leverage the use of technology to keep their clients informed and make the administration of their account seamless. Lastly, a great PSNT provider should have good customer service and overall client satisfaction. Evaluating PSNT providers can be intimidating, but with the above five best practices, it can assist you in making the right choice for your client.