Supplemental Security Income (SSI) and Medicaid are “means-tested” programs, available only to people who can show that their income and assets are below a specified limit. Millions of people with disabilities rely on these programs for essential goods and services. But when a person with disabilities receives an inheritance, or secures a legal settlement, that influx of cash can threaten their eligibility for benefits programs.
Special Needs Trust Fund
Special needs trusts are one way of working around this problem. Money gifted to a special needs trust doesn’t count towards an individual’s assets or income, so it won’t interfere with “means-tested” benefits. But managing a special needs trust isn’t easy.
Trustees – the people who manage trusts – can’t just give money directly to the trust’s beneficiary. That would threaten the person’s eligibility for government benefits. Instead, the trustee can spend assets in the trust to purchase a variety of goods and services – all to improve the life of the trust’s beneficiary.
In order to maintain SSI or Medicaid eligibility, trustees can’t overstep their boundaries. After all, these trusts are designed to supplement – not replace – programs like SSI and Medicaid. The assets in a special needs trust pay for “special needs” – nonessential goods and services, or “luxuries” – that government benefit programs don’t pay for. In short, the money in a special needs trust can be used to pay for anything that government benefits don’t cover.
Normally, SSI and Medicaid don’t consider “non-countable” resources or assets towards an individual’s eligibility. Here are some examples of “non-countable” purchases that can be made from a special needs trust:
- One home. Owning a home shouldn’t compromise an individual’s eligibility for SSI benefits – as long as it can be considered the person’s primary residence. For people who receive Medicaid, but not SSI, the value of the home could be limited, to between $500,000 and $750,000.
- Home furnishings and personal belongings. Furniture, decorations, art, appliances and other personal effects are okay. This category is fairly broad, and loosely-defined, so nearly anything that can fit inside a person’s home is probably covered.
- One car. The beneficiary of a special needs trust can own one motor vehicle without threatening SSI benefits, regardless of the vehicle’s value.
- Occupational goals. PASS, or Plan To Achieve Self-Support, is a program of the Social Security Administration (SSA) that allows people receiving SSI to use funds towards achieving educational or work goals – without threatening their benefits. People usually use PASS to pursue a college degree, receive vocational training or start their own business. Once an individual’s goals are approved by the SSA, the money they spend working toward those goals won’t count in eligibility determinations.
You can learn more about applying for PASS here.
- Essentials for self-support. Purchases for property that will be used in work, either as an employee or as a business owner, are usually allowed. There are, however, limits on the value of these items based on their rate of return.
- Life insurance policies. SSI and Medicaid do not count life insurance policies toward eligibility, as long as those policies have a cash surrender value lower than $1,500. The cash surrender value is how much an insurance company pays the policyholder if the insurance policy is voluntarily terminated before it matures.
- Burial expenses. Special needs trusts can set funds aside to cover the expenses of burial, but no more than $1,500.
SSI benefits are limited to individuals with $2,000 or less of countable resources. So if a trustee gives the beneficiary countable assets that will likely affect the individual’s eligibility for SSI and Medicaid. Here are a few examples of what the government considers to be countable assets:
- Cash (intended for any purpose)
- Food and groceries
- Meals at restaurants (unless given as occasional gifts)
- Homes that are not the beneficiary’s primary residence
- Rent and utility payments
- Mortgage payments
- Property taxes
- Checking and savings accounts
- Stocks and bonds
- Investment accounts
- Retirement assets, like an IRA or 401(k)
Sometimes, a payment for countable resources doesn’t eliminate the beneficiary’s eligibility completely. Giving a beneficiary $2,000 in cash likely would, since that’s the limit for SSI eligibility. But paying for assets less than $2,000 will reduce – not terminate – the beneficiary’s SSI payments in the month that the payment is made. SSI benefits are reduced dollar-for-dollar, so every dollar spent on countable resources is one dollar less in benefits.
In some cases, a trustee can decide that, while making a payment may threaten a portion of the beneficiary’s government payments, that loss is still justified under the circumstances. Some particularly important expenditures may warrant taking a cut in benefits for the month. Of course, this is a determination that should be made after consulting an attorney well-versed in special needs trust law.
For more information on preserving government benefits through proactive financial planning, visit MilestoneSeventh.com.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).