Millions of people with special needs rely on government programs like Supplemental Security Income (SSI) and Medicaid to pay for for essential goods and services. When a person receives an inheritance or settlement, however, the extra cash can impact his or her eligibility for benefits.
Establishing a special needs trust is one way to work around this issue. Money “gifted” to a special needs trust doesn’t count towards an individual’s assets or income, so it won’t interfere with SSI and Medicaid benefits. But managing a special needs trust isn’t easy.
The caveat to a special needs trust’s power of program compliance is that trustees cannot just give money directly to the trust’s beneficiary. 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.
Which Resources Can Special Needs Trusts Cover?
Special needs trusts are designed to supplement, but not replace, SSI and Medicaid. The assets in a special needs trust pay for items that fall into two categories:
- “Special needs,” meaning nonessential goods and services, and/or
- “Luxuries” that government benefit programs don’t pay for.
The money in a special needs trust can pay for anything that government benefits don’t cover, and these items are considered “non-countable.” Non-countable purchases that can be made from a special needs trust include items like the following:
- One home, as long as it can be considered the person’s primary residence
- Home furnishings and personal belongings.
- One motor vehicle
- Programs that use the funds to achieve educational or work goals
- Essentials for self-support, including certain purchases that will be used to work
- Life insurance policies (limited)
- Burial expenses of no more than $1,500.
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.
Which Purchases Affect Benefits Eligibility?
SSI benefits are limited to individuals with $2,000 or less of countable resources. If a trustee gives the beneficiary countable assets that will likely affect the individual’s eligibility for SSI and Medicaid. Countable assets include the following (and others):
- 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 does not 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, but not terminate, 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.
John Bair Can Answer Your Questions
If you have questions about establishing a special needs trust or implementing other strategies for maintaining benefits eligibility, we can help. John Bair is an experienced settlement planner and financial consultant. He helps families develop strategies to provide lifelong financial support for children with disabilities, catastrophic injuries, special needs, and congenital abnormalities. Read more about Milestone Consulting at http://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).