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Question:

Your last comment on the question titled: Can Special Needs Trust Pay for Beneficiary’s Food and Rent? was confusing. You say with respect to the effect on Medicaid eligibility of a special needs trust paying the beneficiary’s rent: “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.” Is there an effect on Medicaid or not? If a special needs trust pays for rent for a disabled adult child (DAC) who receives Social Security Disability Income (SSDI) does it affect their Medicaid? I read that it will not affect the SSDI payment but does it affect Medicaid eligibility and benefits?

Response:

I’m sorry about that. The problem is that the rules for third-party payment of rent vary by state and by Medicaid program. It’s much clearer with the other benefit programs. With respect to Supplemental Security Income (SSI), there’s the one-third reduction rule I describe in the post you reference. And there’s no effect on SSDI or Medicare benefits.

Medicaid is more complicated in part because it’s a joint state-federal program. As a result, each state administers its own program and applies the rules differently. In addition, there are different types of Medicaid with different rules.

All that said, I found this comprehensive article on the topic that indicates that payment of rent by a trust should not be considered income if unearned, while payment by a legally responsible parent would be income. Here’s what the writer says:

The value of goods and services is considered in determining eligibility for Medicaid only when they are provided by a legally responsible relative living outside the household or in return for services rendered. In-kind income received from anyone other than a legally responsible relative is considered available income only if it is earned income.

This would indicate that if the trust pays the rent directly, rather than distributing the income to the beneficiary to pay the rent, there should be no effect on their Medicaid eligibility. But I’d recommend that you check with your state Medicaid agency to be certain.

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