What can a special needs trust pay for?
The purpose of a special needs trust is to supplement, but not to endanger, the public benefits for which the beneficiary may be eligible. Maintaining eligibility for means-tested government benefits like SSI and Medicaid is never easy because program rules are complex and often vary by region and state. Maintaining eligibility for SSI in many states means automatic eligibility for Medicaid and loss of SSI may mean loss of Medicaid.
This article will set out some general rules of thumb for coordinating eligibility for a program like SSI, that is designed to provide for basic needs like food and shelter, with a trust that is funded with the beneficiary's funds and is designed to provide for his or her special needs.
Know the Rules. In order to obtain and keep eligibility for much-needed government benefits, it is essential for both special needs families and trustees to understand the basic income and asset eligibility requirements of means-tested government benefit programs and how the creation and administration of a special needs trust could affect eligibility for these programs.
Means-tested programs like Medicaid and SSI have specific regulations limiting the assets an individual can own and still be eligible for benefits. Excess assets of a person with disabilities from an inheritance or personal injury settlement can be placed in a special needs trust to preserve eligibility, so long as the trust is drafted and administered to prevent the beneficiary from revoking the trust or compelling disbursements for personal support or maintenance. If the beneficiary can require such disbursements, the government can count trust principal as an asset and disqualify the beneficiary. Beneficiaries and their families must understand this limitation and realize that the trustee of such a trust has a duty to avoid distributions that would lead to loss of benefits for the beneficiary.
Means-tested government programs like SSI also have income limits. Any direct payment (over $20) from a trust for basic necessities like food or shelter will be treated as countable income and could limit or cut off SSI eligibility. The direct purchase of items other than food or shelter does not affect SSI, so long as the purchased items cannot be converted to food or shelter.
Knowing this basic rule can prevent a family from expecting a trustee to make problem distributions that could lead to a loss of much-needed public benefits. Cash paid from the trust directly to the beneficiary or the beneficiary's guardian is income to the beneficiary because it could always be used to buy food or shelter. Thus, it is of the utmost importance that the trustee of a special needs trust does not give money outright to the SSI beneficiary or the beneficiary's guardian.
Because the direct purchase of food and shelter-related items will reduce or even eliminate the beneficiary's SSI-eligibility, the trustee should consult with qualified special needs counsel before making such purchases. The food and shelter-related items for which, as a general rule, distributions should not be made include groceries, restaurant meals, property insurance, rent, mortgage payments, property taxes, water/sewer/garbage or heating fuel/gas/electricity bills. The trust cannot reimburse the beneficiary for any of these expenses, earmark cash payments for any of them or make payments directly to individual third-party vendors for them without affecting eligibility for SSI.
Expenses for Which the Trust May Pay. Basically, the trust may pay for special needs that are "for the benefit" of the disabled trust beneficiary. States have different definitions of "for the benefit," varying all the way from strict rules requiring that disbursements be for the "sole benefit" to more reasonable rules requiring that the person with the disability receive the "primary benefit." Certainly, the trust cannot pay for expenses that benefit mainly individuals other than the beneficiary. The trustee may inquire into the specific uses of any item requested and ask for receipts to ensure that the beneficiary will be the person who benefits. Also, government agencies may review trust accountings to be sure that distributions qualify.
The following items are special needs that a trust can pay for without problems in the author's home state, Texas. Check the rules in your state.
Gift Cards--The general rule is that any gift card purchased for the beneficiary by the trust must not be redeemable for cash or usable for the purchase of food or shelter expenses. The best way to ensure that the purchase of a gift card does not endanger the beneficiary's benefits is to purchase cards only from stores that do not sell food. Thus, the trust could purchase an Old Navy gift card because it sells clothing only but could not purchase a Wal-Mart card because that could be used to buy groceries.
Technology--The trust can pay for any technology the beneficiary might need or want. The trustee should work with the beneficiary to be sure the beneficiary is able to use the often expensive technology effectively. If the trustee purchases a computer, for example, it may be necessary to purchase special software or other equipment to make the computer easier for the beneficiary to use. The trust can also pay for training and equipment updates as needed and for the services of companies and agencies that can assist the beneficiary in the selection and use of adaptive equipment such as cell phones and computers.
Medical Treatments, Supplies and Equipment--The public benefits system covers many, but not all, medical procedures that could improve the beneficiary's quality of life. The trust can cover treatment and equipment (and associated maintenance costs) not covered by the public benefits system, but it is important to seek multiple medical opinions before expending valuable trust resources.
Credit Card Debt--If the beneficiary has debt that is related to the beneficiary's care, then some payment from the trust is reasonable. Although the trust cannot be used to pay off the beneficiary's credit card debt on a regular basis, it may be appropriate for the trustee to reach a settlement with the credit card company by making a one-time payment.
Attendant Care--Parents have an obligation to support and care for their minor children, but it can be appropriate for the trust to compensate a family member or other caregiver for care given above and beyond the level of care that he or she has a duty to provide. The amount paid should be based on the average rates for such services by a person with the same training and expertise as the family member. The caregiver should consult with the trustee, however, before any payment is made to be sure that the payment will not be deemed to the beneficiary. And, because of a recent case, it would be wise for a trustee to check with qualified special needs counsel before making any payments to a parent for a minor child's care or for insurance coverage on a parent/ caregiver.
Educational, Vocational Services, and Social Services--The trust may pay for any tuition, books, fees and supplies needed for educational opportunities or vocational training for the beneficiary and may pay tutors or job coaches to assist the beneficiary in obtaining employment.
Personal Services--The trust may pay for personal services that improve the beneficiary's quality of life and are for his or her primary benefit. These services could include maid services and housecleaning, babysitters, lawn maintenance, grocery delivery and personal services such as massage therapy.
Weatherization Assistance and Home Repairs--A trust may indirectly assist a beneficiary with monthly household expenses that would otherwise be considered income by making improvements to the home to make it more energy efficient. This could include insulation, storm doors, and windows.
Home--Many times the current housing of the beneficiary and family will not be suitable for the specialized needs of the disabled person. Funding either the purchase of a new home or renovation of the current home can present the first major challenge in the administration of a special needs trust and is an area where good advice is essential. If the family currently owns a home, then it might be appropriate for the trust to modify the home to meet the needs of the beneficiary. If a new home is needed, it is important to make sure the real estate being purchased is appropriate for the beneficiary's needs and the size of the trust. As a general rule, courts are unlikely to approve purchases which are larger than 25% of the trust assets. Although the trust can purchase a home, it is important to understand that the purchase price will be considered income in the month received and disqualify the beneficiary for public benefits that month. It is also important to note that if the trust, funded with the beneficiary's money, holds title to a home, the home will be subject to Medicaid payback claims at the beneficiary's death.
Automobile--A special needs trust can purchase a vehicle to transport the beneficiary. The vehicle must meet the needs of the beneficiary. Thus, it might be appropriate for the trust to purchase a van equipped with a wheelchair lift, while it would not be appropriate for the trust to purchase a new sports car.
Irrevocable, Prepaid Burial/ Funeral Arrangements--There are certain requirements, that may vary state by state, but the purchase of pre-paid, irrevocable funeral and burial arrangements is one of the most desirable items for the trust to purchase during the beneficiary's lifetime.
Household Goods and Furniture--The trust may purchase household goods and furniture for the beneficiary. The trustee may inquire into the use of the furniture and household items to ensure that the trust's purchase does not violate a parental support obligation or the benefit rule. For example, if the request is for a television in the beneficiary's room, it is clear that the distribution is for the sole benefit of the trust beneficiary. However, it is unlikely that the purchase of storage cabinets for tools in the garage would be for the beneficiary's primary use.
Vacation and Travel Expenses The trust may purchase domestic airline tickets for the beneficiary and a travel companion. The tickets must have no cash surrender value. The trust can also make disbursements for other reasonable vacation expenses for the beneficiary.
Phone, Cell Phone, and Internet Expenses--Although the trust generally should not make disbursements for food or shelter, it may pay for cable, internet, and phone. This may free the beneficiary to spend non-trust money on those food and shelter expenses for which the trust cannot pay.
Recreation and Entertainment--The trust may pay for recreational items such as books, magazines, video games, television sets, musical instruments, hobby materials, and DVD players for the beneficiary's use. Disbursements must be made directly to the vendors for these items. The trust may also pay for recreational activities such as concerts or sporting events for the beneficiary and one friend, so long as the cost to the trust is relatively small in relation to the trust assets.
Monthly Budget. The first step in establishing realistic expectations for special needs trust administration is for the beneficiary and family members to meet with the trustee to establish a monthly budget for the trust. This is an opportunity to learn what kind of income the trust can expect to produce and the limits on how much the trust can disburse. The budget should include a reasonable rate of return and should also account for expenditures such as taxes and trustee fees.
A special needs trust can be a valuable tool for preserving eligibility for public benefits while providing adequate resources to improve the beneficiary's quality of life. Although the laws governing special needs trusts can be difficult to understand, when the trustee and the family work together, the administration can go quite smoothly. Another invaluable guide on distributions from a special needs trust is Administering a Special Needs Trust: A Handbook for Trustees available through the Special Needs Alliance. You can request your free copy of the handbook at http://www.specialneedsalliance.org/free-trustee-handbook.
Pi-Yi Mayo is a Certified Elder Law Attorney by the National Elder Law Foundation and an accredited attorney for the Department of Veterans Affairs in Baytown, Texas. His practice areas include Medicaid and VA benefits planning, special needs trusts, Medicare benefits, and Qualified Settlement Funds. Pi-Yi is an active member of the National Academy of Elder Law Attorneys and the Texas Chapter of National Academy of Elder Law Attorneys. He is also a member of the Special Needs Alliance, a national, non-profit organization committed to helping individuals with disabilities, their families, and the professionals who represent them. To contact a member Special Needs Alliance Member in your state, call 877.572.8472 or visit www.specialneedsalliance.org.