Administering Special Needs Trusts and Preserving Public Benefits
While setting up a special needs trust will shelter assets—whether inherited (read here), earned, or won as a personal injury settlement or judgment (read here)—so they won’t be counted in determining the beneficiary’s eligibility for public benefits, this is just the first step. This is because public benefits programs also have income restrictions which can wreak havoc for both Medicaid and Supplemental Security Income (SSI) purposes. I am not going to address the Medicaid rules for two reasons. First, for those people getting SSI, Medicaid is an automatic additional benefit. Second, the Medicaid rules are too complicated and too variable from state to state to cover here. Rules differ depending on whether the beneficiary is living in a nursing home or in the community and, if in the community, which of potentially up to six Medicaid programs the individual is seeking. They also can differ depending on the beneficiary’s age. So, anyone seeking information on the Medicaid eligibility rules outside of SSI needs to seek local advice.
Supplemental Security Income
SSI is simpler than Medicaid in large part because it’s federal and the same rules should apply nationwide, but it’s far from simple. In some instances, local SSA offices come up with different interpretations of the rules, but this is not the norm. In essence, under SSI every dollar of income above $20 a month paid directly to the SSI beneficiary is offset by a one dollar decrease in SSI benefits. So special needs trusts should never make distributions directly to beneficiaries receiving SSI. Payments made on behalf the beneficiary are not counted, with two important exceptions: payments for food or housing are considered to be in-kind income and, again, there’s an offset of one dollar of SSI for every dollar of value received. (This used to include clothing as well, but not anymore.) Fortunately, there’s a cap on the offset of $257 a month (in 2020). So, even if a trust is paying rent of $1,500 a month for an SSI beneficiary, he will receive all but $257 of his monthly SSI benefit, a reasonable trade off to be able to live in a decent place.
These rules apply no matter where the income comes from, whether from a special needs trust or directly from parents or other relatives. The beneficiary has the obligation of reporting all income he receives.
This brings up a problem with the drafting of some special needs trusts which contain language restricting the trustee’s ability to make distributions that might diminish eligibility for public benefits. I’ve never been a fan of this restriction in trusts. Isn’t it better to lose some benefits if the upside in terms of lifestyle far exceeds the value of the benefit foregone? In some instances, it may even be reasonable to give up SSI and its stringent restrictions all together, especially in those states that permit Medicaid qualification separate for SSI eligibility.
Using Credit Cards
Often paying for goods and services for SSI beneficiaries can be cumbersome. The trust may pay for haircuts and entertainment, but can’t pay the funds directly to the beneficiary. In most instances, the trustee can’t accompany the beneficiary to every appointment or on every shopping trip. One solution is to give the beneficiary a limited credit card that may be used up to a specified monthly dollar limit and cannot be used to pay for food items. A company called TrueLink (www.truelink.com) offers such a credit card with online monitoring and controls.
The new ABLE accounts can also be a good solution to permit the special needs trust to distribute money to the beneficiary that she can use for her benefit without impacting her benefits. Read ABLE Accounts Offer Flexibility for SSI Beneficiaries.
Finally, every special needs trustee needs to know about the POMS. These are the Social Security Administration’s Program Operations Manual System, which in great detail tells SSA workers how to decide various issues, including those around trust distributions.