What Is a Pooled Trust and How Does It Protect Medicaid Eligibility?

A pooled trust is a special-needs arrangement that lets a person with a disability set aside money without losing Medicaid or Supplemental Security Income. A nonprofit organization runs a single master trust and opens an individual sub-account for each beneficiary; the assets inside your sub-account are not counted when the state decides whether you meet Medicaid’s resource limit. In exchange, whatever is left in a first-party sub-account when you die is used first to reimburse Medicaid for the care it paid for during your lifetime.

The exemption comes from federal law at 42 U.S.C. § 1396p(d)(4)(C). To qualify, the trust has to be managed by a nonprofit, pool everyone’s money for investment while keeping separate sub-accounts, serve beneficiaries who meet the federal disability definition, and include a Medicaid payback provision.¹

How the Sub-Account Works

Your money goes into your own sub-account, but the nonprofit invests all beneficiaries’ funds together. That is where the “pooled” name comes from. The nonprofit serves as trustee and makes the spending decisions for each account according to the master trust terms. You do not draft a trust document from scratch. The nonprofit has already done that, and you join by signing a joinder agreement that establishes your sub-account inside the existing structure.

Who Can Have a Pooled Trust

The beneficiary has to meet the Social Security Administration’s disability definition: a physical or mental impairment severe enough that you cannot engage in substantial gainful activity, lasting or expected to last at least 12 continuous months or to result in death.² Children under 18 use a different standard focused on marked and severe functional limitations.

Only certain people can open the sub-account: you, a parent, grandparent, legal guardian, or a court.¹ A sibling, friend, or social worker cannot, though a court petition can sometimes fill the gap.

First-Party vs. Third-Party Sub-Accounts

The label depends on whose money funded the trust, and it drives everything about payback and age rules.

A first-party pooled trust holds the beneficiary’s own money: an inheritance received directly, a personal injury settlement, savings, or income. Because the money was yours before it went in, federal law requires that funds remaining at your death either stay with the nonprofit for other disabled beneficiaries or reimburse the state Medicaid program.¹

A third-party pooled trust holds someone else’s money, typically contributed by a parent or grandparent who wants to leave assets to a disabled relative. No Medicaid payback is required, and remaining funds can pass to family or other heirs. A third-party sub-account can be established at any age, no matter when the disability began.

Many organizations offer both. If you are sheltering your own settlement or savings, you need a first-party sub-account. If a family member is planning ahead to leave money to a disabled relative, a third-party sub-account avoids the payback entirely.

What a Pooled Trust Protects

Medicaid is means-tested. For most applicants the resource limit is $2,000 for an individual.³ A $50,000 inheritance would put you over the limit instantly. Deposited into a properly structured pooled trust sub-account, that same money is not counted as a resource.⁴

In many states, a pooled trust also solves an income problem. If your monthly income is above Medicaid’s limit, the difference is your surplus, or spend-down, which you would otherwise have to spend on medical costs before Medicaid starts paying. Depositing that surplus into your sub-account each month excludes it from countable income and effectively zeroes the spend-down. This is common for people over 65 with Social Security or pension income above Medicaid thresholds who still need long-term care.

The Age 65 Trap for First-Party Trusts

Nothing in federal law bars someone 65 or older from joining a pooled trust. The SSA’s policy manual is explicit that “there is no age restriction for this exception.”⁴ But the Medicaid transfer penalty rules create a serious wrinkle.

Federal law exempts transfers into disability trusts from the usual Medicaid transfer penalty only for individuals under 65.¹ For someone 65 or older, funding a first-party pooled trust can trigger a period of Medicaid ineligibility. The penalty is calculated by dividing the amount transferred by the average monthly cost of nursing home care in your state.

CMS issued guidance in 2008 telling states to apply the transfer penalty to individuals 65 and older who fund pooled trusts. Some states follow it strictly, others do not. If you are 65 or older, this is the single most important thing to check in your state before funding a first-party sub-account. The POMS also warns that transferring resources into a pooled trust after age 65 “may result in a transfer penalty,” potentially creating up to 36 months of SSI ineligibility.⁴

Third-party pooled trusts are not affected by any of this. A family member can fund a third-party sub-account for a disabled relative of any age without triggering a transfer penalty.

How Distributions Affect SSI

Holding the money in a pooled trust protects your eligibility, but how the trustee spends it can still cut your monthly SSI check. The maximum federal SSI benefit for an individual in 2026 is $994 per month.⁵ The form of the distribution decides the impact.

Cash paid directly to you reduces SSI dollar-for-dollar. Competent trustees almost never distribute cash.
Payments for food or shelter are treated as in-kind support and maintenance and reduce SSI by up to the presumed maximum value, which equals one-third of the federal benefit rate plus $20. In 2026 that cap is roughly $351 per month. Even if the trust pays $2,000 in rent, the SSI reduction is capped at about $351.
Payments the trustee makes directly to vendors for anything other than food or shelter, such as a phone bill, clothing, entertainment, education, or out-of-pocket medical costs, do not reduce SSI at all.

A well-run pooled trust pays vendors directly for non-food, non-shelter expenses whenever possible. Paying shelter costs from the trust can still make sense if the alternative is worse, but it should be a deliberate choice.

What the Trust Can Pay For

A pooled trust exists to supplement government benefits, not replace them. The trustee can pay for things Medicaid and SSI do not cover: personal care items, electronics, furniture, entertainment, vacations, education, transportation, vehicle modifications, out-of-pocket dental and vision care, legal fees, and adaptive equipment.

Distributions have to be for the sole benefit of the disabled beneficiary. The trustee cannot use trust funds to benefit anyone else during your lifetime, meaning no gifts to family members, no paying a relative’s rent, and no loans to third parties.⁴ A single distribution that benefits someone else can disqualify the entire trust, not just that payment. The trustee has discretion over spending requests and can deny anything that would jeopardize your benefits.

Joining a Pooled Trust

You do not create one; you join an existing one. The steps are roughly the same across organizations.

Find a nonprofit that operates in your state. Some national organizations accept beneficiaries from multiple states. Confirm the nonprofit status under your state’s laws and ask about experience with Medicaid and SSI beneficiaries.
Sign the joinder agreement, which is the contract that opens your sub-account inside the master trust and specifies funding source, distribution preferences, and what happens to any remainder at death.⁴
Provide proof of disability. An SSA award letter, disability determination, or medical records will usually do. If disability has not been formally established, that determination may need to happen first.
Fund the account. Timing matters. Assets need to be inside the trust before your Medicaid eligibility determination, and monthly spend-down deposits generally have to happen in the same month the income is received.

Fees typically include a one-time enrollment charge, often from a few hundred dollars up to around $1,000, plus an ongoing management fee that is frequently a percentage of the sub-account balance under 1% per year. Some organizations charge a flat monthly fee instead. Ask for the fee schedule before signing and compare organizations when more than one serves your state.

What Happens to the Money When You Die

For a first-party pooled trust, the statute gives the nonprofit a choice: keep the remaining funds for the benefit of other disabled beneficiaries in the pool, or pay the state back for Medicaid services provided during your lifetime. Most nonprofits retain a portion and pay the rest to the state.¹ Anything left after retention and reimbursement can pass to remainder beneficiaries named in the joinder agreement.

Some expenses cannot be paid out of the sub-account before Medicaid is reimbursed: funeral costs, the beneficiary’s debts to third parties, inheritance taxes owed by other heirs, and distributions to remainder beneficiaries.⁴ Families often assume trust funds can cover a funeral. They cannot. Prepaid burial plans or ABLE account funds are the alternatives to arrange during the beneficiary’s lifetime.

A third-party pooled trust has no Medicaid payback. Because the money was never the beneficiary’s, whatever remains goes to the heirs or charities designated by the person who funded the trust.

ABLE Accounts as a Companion

ABLE (Achieving a Better Life Experience) accounts shelter assets from benefit calculations too, with simpler mechanics. Starting in 2026, individuals whose disability began before age 46 can open an ABLE account and contribute up to $20,000 per year from all sources combined. The account holder controls spending without trustee approval and can use the funds for housing, food, education, transportation, and other qualified disability expenses.

The trade-off is scale. ABLE accounts handle modest savings well but cannot absorb a six-figure personal injury settlement the way a pooled trust can. Many people use both: an ABLE account for day-to-day flexibility and a pooled trust for larger sums that need long-term management. ABLE accounts also have a friendlier payback rule, since states can only recover funds still in the account at death and some states have waived recovery. If your disability began after age 46 or you need to shelter more than $20,000 in a single year, a pooled trust remains the primary option, but an ABLE account is worth opening alongside it because ABLE distributions for food and shelter do not reduce SSI the way trust distributions do.

1
Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
2
Social Security Administration. Disability Benefits – How Does Someone Become Eligible?
3
Medicaid.gov. January 2026 SSI and Spousal CIB
4
Social Security Administration. POMS SI 01120.203 – Exceptions to Counting Trusts Established on or After January 1, 2000
5
Social Security Administration. How Much You Could Get From SSI