Can Special Needs Trust Pay for Beneficiary’s Food and Rent?

 In Social Security, Special Needs Planning
special needs trust

Photo by Robert Linder on Unsplash

Question:

Can a special needs trust help pay for my son’s food and rent, if SSDI is not enough? What if he receives SSI?

Response:

Certainly. Social Security Disability Income (SSDI) is not affected by the beneficiary’s income or assets. Instead, it is a benefit of the Social Security system. Your son would be eligible for SSDI based either on his own work record or, if he became disabled as a child, by that of one of his parents. He could only receive benefits based on a parent’s work record when that parent either begins taking Social Security benefits themself or passes away. As a result, many adult children with disabilities switch from Supplemental Security Income (SSI) to SSDI upon the retirement or death of a parent.

In contrast, SSI eligibility is based on the income and assets of the applicant. They can have only $2,000 in countable assets (an amount that has remained unchanged since 1984) and the SSI benefit is reduced on dollar for every dollar the beneficiary receives in income. In general, payments made to the beneficiary from a special needs trust are considered income and payments made on the beneficiary’s behalf to pay for items or services are not considered income and do not affect their SSI eligibility or monthly stipend.

But you are right to ask about food and rent. Payments made by a special needs trust for food or housing for an SSI beneficiary are considered “in kind” income and cause a one-third reduction in the SSI beneficiary’s monthly stipend. (The reduction can be less than a third if the value of the food or housing benefit is less than a third of the monthly stipend, but that’s unusual.) Often the benefit of a trust paying rent far outweighs the loss of the SSI benefit. For instance, the trust may pay rent of $1,000 a month. If the SSI benefit would normally be $800 a month, it would be reduced to approximately $535 a month. The loss of $265 a month is unfortunate, but usually families determine that it’s worth it to make sure the beneficiary has decent housing.

One work around may be to use an ABLE account. If the beneficiary was disabled before age 26 (to be changed to age 46 in 2026), they can have an ABLE account holding up to $100,000 that would not affect their eligibility and they can spend the funds as they wish. However, ABLE accounts may only receive up to $17,000 a year. In the example above, the special needs trust could transfer $1,000 a month (or $12,000 at one time) to the ABLE account and the rent could be paid from the account, thus avoiding the one-third reduction in the monthly SSI benefit. It’s unfortunate that families are forced into this workaround, but at least it works.

Showing 5 comments
  • George
    Reply

    Any money paid from ABLE account towards housing must be paid out to the housing provider in the same month. Otherwise it will be counted as a resource in the following month. If $12000 was transferred out of the ABLE for 1 year rent, in the same month the SSI recipient must pay the landlord $12000 in rent (perhaps as 12 month advance payment). If the SSI recipient paid landlord only $1000 as rent for that month and retained the $11000 as assets for future rent payment, the following month the SSI will be suspended and no SSI benefit received. BEWARE!!!!
    So better to transfer $1000 from ABLE at the early part of the month (say the 1st) and immediately pay the landlord as soon as funds are received and the hold period has expired (for eg the 5th)

  • George
    Reply

    See
    https://secure.ssa.gov/poms.nsf/lnx/0501130740
    For rule regarding ABLE funds received for housing expense

    • Harry Margolis
      Reply

      George,
      I read the POMS differently from you. Paragraph (C)(3) reads: “Exclude up to and including $100,000 of the balance of funds in an ABLE account from the resources of the designated beneficiary.” The rule you cite about funds received being counted as assets if not spent down before the subsequent calendar month does not apply to ABLE accounts.
      Harry

  • Megumi Harker
    Reply

    Hi Harry, thank you for this site which is a hugely helpful resource! Questions – if a special needs trust pays for rent (and food), what would be the impact on the beneficiary’s Medicaid benefits?

    • Harry Margolis
      Reply

      Megumi,
      There should be no effect. Such payments would cause a one-third reduction in SSI benefits and if the money went directly to the beneficiary it could affect Medicaid eligibility. But payments on behalf of the beneficiary should have no impact on eligibility for Medicaid.
      Thank you for your comments about the site
      Harry

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