Per POMS section on Special Needs Trusts – SI 01120.203 - 42 USC 1396p(d)(4)(A) and (C) set forth exceptions to the general rule of counting trusts as income and assets for the purposes of determining Medicaid eligibility.
Basic Requirements for Special Needs Trusts
My article on Special Needs Trusts, explains, in greater detail, the basic requirements needed to exclude a trust as a countable resource for Medicaid purposes: established for beneficiary under age 65 (unless pooled special needs trust); disabled; Medicaid recipient/disabled individual is sole beneficiary; must provide that the State of Florida (and any other state where beneficiary received Medicaid benefits) be primary beneficiary up to amount of benefits Medicaid paid to recipient (except from taxes due from trust at time of death and court/filing fees associated with the trust); and the special needs trust must be irrevocable.
Pooled Special Needs Trusts may be established by individuals at any age (don’t need to be under age 65 as is required to establish a first party special needs trust).
Also, the existence of a special needs trust must be reported to the local SSA office. The recipient must also provide any account statements or disbursement reports showing (who received the payment, date payment was made, amount of payment and the purpose of the payment). The trustee may be audited periodically to ask for such records – as their disbursements may be deemed income for SSI purposes.
Self-Settled Special Needs Trust
Self-Settled Special Needs Trusts, a/k/a First-Party Special Needs Trusts (most often needed after a personal-injury settlement or unexpected inheritance - for those wishing to maintain their public benefits). The test for determining whether a trust is self-settled is whether the beneficiary had the right to possess the money/assets placed into the trust prior to the trust being established. If so, it is a self-settled special needs trust – even if the trust was created and initially established by someone else acting on behalf of the real beneficiary.
Third-Party Special Needs Trust
Third-Party Special Needs Trusts are established with assets of someone other than the disabled beneficiary for the sole-benefit of the beneficiary. Testamentary Special Needs Trusts are an example of this (where an SNT is created for the benefit of Person X, out of the Will of Person Y). A major benefit of a 3rd party special needs trust is that they do not require a Medicaid-payback provision (because the assets never belonged to the disabled beneficiary in the first place). Another very typical example is when a parent sets up a third party special needs trust for the benefit of their disabled child, and fund that trust out of their own funds.
Special Needs Trust Disbursements
Cash or gift cards provided from the special needs trust (SNT) directly to the beneficiary (for any purpose) are considered unearned income. SSI rules state that for every dollar of unearned income received results in the same amount in reduced SSI benefits for the same month (Medicaid beneficiaries need at least $1.00 of SSI to qualify). In 2016, the maximum SSI benefit was $733.00 per month. In 2017, that amount was raised to $735.00 per month.
In-Kind Support and Maintenance (ISM) | Food and Shelter Expenses
Food and shelter expenses paid for by the special needs trust (or any other source) are considered income as in-kind support and maintenance (ISM) to a third party provider of goods or services.
The following 10 items are the only ones the SSA will count as ISM:
- Mortgage (including property insurance required by the mortgage holder)
- Real property taxes (less any tax rebate/credit)
- Heating fuel
- Garbage removal
ISM – Maximum 1/3rd Reduction in SSI Rule
Cash payments made directly to the beneficiary will reduce the SSI benefit dollar-for-dollar and may result in loss of SSI / Medicaid eligibility if too much is given. Receiving non-cash benefits that are considered "In-kind support and maintenance" (ISM) benefits from the trust (or other source) will reduce the SSI benefit dollar-for-dollar up to a maximum of 1/3rd of the maximum SSI benefit + $20.00.
This is significant because of the SSI recipient is receiving less than 1/3rd of the maximum SSI benefit, distributions from ISM can kick someone off Medicaid (most medicaid programs require that the beneficiary receive at least $1.00 from SSI).
The SNT Trustee may reimburse third parties for items purchased for trust beneficiary. Purchase of personal items such as clothing, a computer, paying a phone bill or income taxes, would have no impact on SSI. But if food or shelter items are purchased, it is deemed ISM.
SNT trust disbursements (as long as not cash to the individual), including payments directly made to third-party vendors, that are not for ISM expenses are NOT considered income. Examples: educational expenses, psychological therapy, any medical services not covered by Medicaid, phone bills, and recreational and entertainment expenses.
Other examples of expenditures that would not result in any adverse consequences for SSI-eligibiilty determination purposes are:
- one automobile/van
- accounting/legal services
- acupuncture/yoga/gym membership
- appliances (TV, DVD, washer, dryer, microwave, refrigerator)
- bus pass / public transportation costs / uber rides
- clubs/dues (e.g. health clubs, service clubs, advocacy groups, museums, zoo)
- computers/software/internet service
- courses/classes (academic or recreational/hobby)
- dental work not covered by Medicaid
- doctor specialists not covered by Medicaid
- dry cleaning/laundry services
- elective surgery
- fitness equipment
- gasoline / oil changes / other vehicle maintenance costs
- holiday decorations, parties, holiday cards
- home alarm systems
- home improvements / home maintenance / landscaping + lawn service
- home purchase
- house cleaning services
- insurance (auto/home)
- linens / towels
- musical instruments / music lessons
- non-food grocery items (e.g. laundry detergent, fabric softener, deoderant, soap, personal hygiene products, paper towels, toilet paper, etc...)
- over-the-counter medications (including vitamins or herbal supplements)
- pets and pet supplies
- private counseling if not covered by Medicaid
- repair services
- sporting goods / athletic equipment
- stationary / stamps
- storage units
- taxicab / uber / lyft
- telephone services (cell phone)
- tickets to concerts or sporting events (for beneficiary and accompanying companion)
- utility bills that are not listed in ISM list above (e.g. cable TV, direct TV, internet)
- vacations / travel (except SNT cannot pay for food).
It is best practice to, whenever possible, pay for goods / services directly to the provider of those goods or services.
Prohibited Special Needs Trust Disbursements
- A special needs trust trustee should almost never distribute cash directly to the beneficiary.
- Providing debit cards or gift cards are usually seen as cash equivalents and should also be avoided.
- SNT trustees should not make gifts to others on behalf of the beneficiary (e.g. no wedding, quinceanera or bar mitzvah presents). Gifts will result in a disqualification/penalty period.
- Do not pay for anything that is already paid for by another source and dont pay for anything that is not in the best interest of the disabled beneficiary.
If the SNT purchases durable items (e.g. a car), the beneficiary or trust must be the owner (car title may show trust as a lien holder). If the title does not name the beneficiary or trust as owner,it could be construed as a gift that would result in Medicaid penalty.
Special Needs Trusts are evaluated under POMS: SI 01120.199; SI 01120.200; SI 01120.202; SO 01120.203; SI 01120.225; and SI 01120.227