How Can I Support My Disabled Son Without Affecting his Section 8?
My son, George, now age 49, lives in Massachusetts. He was disabled in a mountain biking accident ten years ago which left him paralyzed from the waist down. Although he has participated in rehab programs, it would seem that the paralysis is permanent. He gets $1,072 per month from SSDI and receives Medicare and Medicaid benefits. Due to his low income, he qualifies for Section 8 subsidized rent of $262 a month. I am interested in providing sustained support of $15,000 per year to George which, as I understand it, is not taxed at my end or his end. However, my concern is that this will be viewed as increased income which will then diminish his Section 8 subsidy. Therefore, I am interested in setting up a trust for David whereby I can provide money to George on a sustaining basis in a way that has the least impact to his current benefits.
George is fortunate to have Social Security Disability Income (SSDI) and Medicare because they are not affected by his financial situation or support you might provide. Medicaid and Section 8, however, may be affected by your support. Unfortunately, the rules for each are not totally consistent. As you suggest, if you give George money or pay bills for him on a regular basis, under the Section 8 rules, this would be considered income and his rent would be increased by about a third of what you provided him, reducing the benefit of the support. Section 8 does not treat occasional irregular gifts as income. It also does not treat distributions made from a trust created and funded by the Section 8 tenant himself as income.
As a result, you can give George a lump sum and he can transfer those funds to a trust he creates with no effect on his Section 8 status. (There’s a small risk that this could be treated as a “step transaction” and deem you to be the funder of the trust, but I think that’s unlikely.) The trust can be entirely discretionary, giving the trustee full control over how the funds are spent on George’s behalf.
A potential problem with such a trust arrives when George reaches age 65. For Medicaid purposes (called MassHealth in Massachusetts), funds in a standard trust created by George for his own benefit would be treated as if they were in his name. That’s not a problem in Massachusetts for George now, since for those under age 65 MassHealth does not consider assets in determining eligibility, just income. However, beginning at age 65, beneficiaries are limited to $2,155 in countable assets. (Other states may have this restriction at any age.) Fortunately, Medicaid law has a safe harbor to shelter assets owned by a beneficiary known either as a (d)(4)(A) or payback trust. The second moniker refers to the necessary feature of such trusts that, should any funds remain in the trust upon the death of the beneficiary, they must go to reimburse the state for Medicaid expenditures on the beneficiary’s behalf.
So, George could create a (d)(4)(A) trust now, or create a trust without the payback provision now, and then create a (d)(4)(A) trust when he’s 64. Either way, it’s probably a pretty good trade off to get Medicaid and Section 8 benefits for life, with the risk that any funds remaining in the trust upon George’s death go to the state Medicaid program rather than reverting to your family.