New Trust Option for Individuals with Disabilities

The Third Party Pooled Flexible Spending Trust: A Powerful Way to Plan for Your Special Needs Loved One

By Brittany D. O’Diam, CELA (O’Diam & Estess Law Group, Inc.)

The Disability Foundation proudly has served individuals with disabilities in Ohio for more than 20 years as a supporting organization of The Dayton Foundation. In 2021, The Disability Foundation was thrilled to enhance its services by launching a powerful new planning tool, the Third Party Pooled Flexible Spending Trust.

The Third Party Trust is ideal for people who want to provide for their loved ones with special needs without having any of the money go to Medicaid. This new trust offers all of the same benefits of the existing Ohio Community Pooled Flexible Spending Trust, with one key addition. There is no requirement for Medicaid payback! This means that funds held in the Third Party Trust for the benefit of an individual with disabilities will not impact that individual’s eligibility for public benefits (like SSI and Medicaid), but they will be available to enhance his or her quality of life above and beyond those public benefits. And, if anything remains in the Third Party Trust when the beneficiary passes away, the remaining funds can go to the people or charities selected by the donor, without first having to pay the State of Ohio back for any Medicaid benefits received by the beneficiary.

The key difference between the new Third Party Trust and the existing Flex Spending Trust is a distinction in the source of the funds that are contributed to the trust. Medicaid payback is required only in cases where the pooled trust was funded with money that the beneficiary owned (called “first party” trusts). When the pooled trust is funded with money that the beneficiary never actually owned, Medicaid payback is not required. Prior to the launch of the Third Party Trust, The Disability Foundation only offered first party trusts that required Medicaid to be paid back upon the death of the beneficiary. This often resulted in no funds being left to pass to the other people or charities selected by the donor. Now, with the new Third Party Trusts, donors have much broader options and control.

The Third Party Trust is a wonderful tool for people who want to provide for a loved one with special needs. Donors can designate the Third Party Trust to receive a gift made through their Last Will or their Trust as part of their estate plan, or a donor can make a current gift directly to a Third Party Trust. When the donor sets up the Third Party Trust, the donor gets to choose who will benefit from the funds if anything remains when the individual with disabilities passes away.

By making it even easier for people to provide for their loved ones with disabilities, the Third Party Trust is another exciting advancement in The Disability Foundation’s mission to enhance the lives of individuals with disabilities. We encourage you to contact Greg Darling, executive director of The Disability Foundation, at (937) 225-9939 to learn more. And, if you are a donor who has already established, but not yet funded, a pooled trust for a special needs loved one, this is the perfect opportunity to reach out to update your plan.

Please note: The Dayton Foundation does not practice law or offer financial or tax advice. The Foundation recommends that people considering establishing funds or legacies through the Foundation consult their financial, tax or legal advisor.