Special Needs Trusts Distributions and the Sole Benefit Rule

For years, trustees of special needs trusts hesitated over ordinary expenses because of the strict sole benefit rule. Could the trust buy a television that someone else might also watch? Could it pay for a companion to travel with the beneficiary? The Social Security Administration answered many of these questions when it revised its POMS manual, the policy guide that governs how these trusts are examined, and the practical effect was to loosen the rule into what is now often called the primary benefit rule. What a trust can safely pay for turns on two things. It depends on whether a distribution is primarily for the beneficiary, and whether any third party involved is genuinely providing a needed service. This article explains how the rule works now, what the trust can pay for, and the newer tools, prepaid cards and ABLE transfers, that give beneficiaries more flexibility. For the broader picture, see our overview of allowable special needs trust distributions.

The Sole Benefit Rule and the Primary Benefit Rule

A first-party special needs trust must still be established for the sole benefit of the disabled person, naming only that person as lifetime beneficiary. What changed is how individual distributions are judged. Before the update, there was real confusion about whether a trustee violated the sole benefit rule by making distributions that also helped someone else, even incidentally.

A trustee might have been wary of buying a television, worrying that if other people watched it, the purchase was not solely for the beneficiary. The same doubt hung over paying for a companion on a vacation, or paying for someone to travel and visit the beneficiary. Each felt like it might cross the line.

The updated policy, found at POMS SI 01120.201, provided clarity. The sole benefit rule was relaxed. When a trust makes a payment to a third party for goods or services, those goods or services now only need to be for the primary benefit of the beneficiary. As the POMS puts it, buying a house for the beneficiary does not mean no one else can live there, and buying a television does not mean no one else can watch it.

The line still exists, though. It would violate the rule if a trust bought a car supposedly for the beneficiary's grandson to drive her to medical appointments twice a month, but he also drove it to work every day. The incidental benefit to others is fine; using trust money mainly for someone else is not.

Paying Third Parties for Companion Services

Under the current policy, found at SI 01120.201F.3.a, paying a third party for companion services can be a valid trust expense. The classic example in the POMS is an Alzheimer's patient who cannot be left alone and needs a sitter, or a beneficiary who needs someone to drive her to the store and help with grocery shopping.

Family members often do these things for free, but that does not stop the trust from paying for them. Some incidental costs for the companion are payable too. If the trust pays a companion to take the beneficiary to a museum, it can also pay the companion's admission, because that cost is part of providing the service. A third-party service provider can be a family member, a non-family member, or a professional company, and the policy treats all three the same.

The SSA will not routinely second-guess a companion's rate of pay as long as it is reasonable. If a rate looks high, the policy tells the evaluator to weigh the time and effort involved and the normal pay for similar services in that region.

Paying for Companion Travel Expenses

In the right circumstances, a special needs trust can pay a companion's travel costs, meaning transportation, lodging, and food. Under SI 01120.201F.3.b, the trust can pay for a companion providing services or assistance the beneficiary needs to travel, such as when the beneficiary is a minor who cannot travel unaccompanied.

A few practical points make this workable. Absent evidence to the contrary, the SSA will accept the trustee's statement that the companion's help is necessary for the beneficiary to travel, so no physician's letter is required, and the companion needs no special medical training. When reasonable, the trust can even pay travel costs for more than one companion, and the SSA applies a reasonableness test to the number of people involved.

A common example is a disabled minor child going on vacation. It is reasonable for the trust to pay for parents or caretakers to come along to provide supervision and assistance, because the trip would not be possible without them. It would violate the rule, though, to have the trust pay for people who are not providing necessary help. In that scenario the trust can pay for a parent, and perhaps both parents, but not for the beneficiary's brother or sister. The fact that the parents cannot afford the siblings' trip, or cannot leave them home, does not change the analysis.

Paying Travel to Visit the Beneficiary

Special needs beneficiaries are not always children living with family. Sometimes relatives or concerned friends live far away. Under SI 01120.201F.3.c, certain travel expenses to visit the beneficiary are allowed, and do not violate the sole benefit rule, when the purpose is to ensure the safety or medical well-being of the beneficiary. The POMS gives two examples.

• Travel for a service provider to oversee the beneficiary's living arrangements when the beneficiary lives in an institution, nursing home, or other long-term care facility, such as a group home or assisted living facility.
• Travel for a trustee, a trust advisor named in the trust, or a successor to exercise fiduciary duties or to check on the well-being of a beneficiary who does not live in an institution.

Newer Distribution Tools for Special Needs Trusts

Since this topic first became settled, the same POMS framework has grown to include two tools that give beneficiaries more day-to-day flexibility while keeping the trustee in control.

Administrator-Managed Prepaid Cards

Trustees can now provide an administrator-managed prepaid card, such as a True Link card, to the beneficiary. This is a restricted debit card the trustee owns and controls, and it can be set to block cash withdrawals, specific merchants, or entire spending categories. The beneficiary gets a measure of independence and dignity in everyday spending, while the trustee keeps the guardrails that protect benefits. Used carefully, it is one of the more practical advances in trust administration.

Distributions to an ABLE Account

A special needs trust can also move funds into the beneficiary's ABLE account, up to the annual ABLE contribution limit. Because the beneficiary can control an ABLE account directly and spend it on qualified disability expenses without the same distribution scrutiny, pairing a trust with an ABLE account can be an efficient way to hand over some control while keeping SSI and Medicaid intact.

A Note of Caution

The relaxed rule is good news, but it is not a blank check. Not every third-party payment passes review, and certain fact patterns still fail. A distribution that mainly benefits someone other than the beneficiary, or a companion arrangement that looks like a way to fund a family trip, can trigger problems, including the loss of SSI and Medicaid eligibility. Because the stakes are high and the analysis is fact-specific, it is wise to run any significant third-party distribution past the attorney who drafted or administers the trust before the money goes out.

Key Takeaways

• A first-party special needs trust must still exist for the sole benefit of the disabled person, but individual distributions now only need to be for the beneficiary's primary benefit.
• Under POMS SI 01120.201F.3, the trust can pay third parties for companion services and, when necessary, companion travel, including more than one companion when reasonable.
• Travel to visit the beneficiary is allowed when it protects their safety or medical well-being, such as a trustee overseeing care.
• Newer tools, administrator-managed prepaid cards and ABLE account distributions, give beneficiaries more control while keeping benefits protected.

Frequently Asked Questions

Q. What is the difference between the sole benefit rule and the primary benefit rule?

A. A first-party special needs trust must still be established for the sole benefit of the disabled beneficiary. But under the updated POMS SI 01120.201F.3.a, individual distributions only need to be for the primary benefit of the beneficiary, so a distribution that also gives incidental benefit to someone else, like a television others can watch, is allowed.

Q. Can a special needs trust pay for a companion to travel with the beneficiary?

A. Yes, when the companion provides services or assistance the beneficiary genuinely needs to travel. Under POMS SI 01120.201F.3.b, the trust can pay a companion's transportation, food, and lodging, and even more than one companion when reasonable, such as both parents accompanying a disabled minor, but not siblings who are not providing assistance.

Q. Can a trust pay for family to visit the beneficiary?

A. In specific situations, yes. Under POMS SI 01120.201F.3.c, travel to visit the beneficiary is allowed when it ensures their safety or medical well-being, such as a trustee or advisor traveling to oversee living arrangements or exercise fiduciary duties, without violating the sole benefit rule.

Q. Can a special needs trust give the beneficiary a debit card?

A. Yes, through an administrator-managed prepaid card such as a True Link card. The trustee owns and controls the card and can block cash access and certain merchants, while the beneficiary uses it for approved purchases. This gives independence while keeping the trustee in control of distributions.

Q. Can a special needs trust move money to an ABLE account?

A. Yes. The POMS permit a special needs trust to distribute funds into the beneficiary's ABLE account, up to the annual ABLE contribution limit. This can be a useful way to give the beneficiary more direct control over some spending while preserving benefits.

Get Distribution Decisions Right the First Time

If you serve as trustee of a special needs trust, or you are setting one up for a loved one in Florida, the difference between a good distribution and a benefit-ending mistake often comes down to the details. A sensible first step is to keep a written record of why each third-party payment serves the beneficiary, since that reasoning is exactly what the SSA looks for. From there, a special needs planning attorney can review a proposed distribution before it goes out and help structure prepaid cards or ABLE transfers correctly.

The payoff is peace of mind, knowing the beneficiary gets the fullest possible use of the trust without risking SSI or Medicaid. Elder Needs Law, PLLC works with special needs families throughout Florida, and you can reach the team through our contact page to talk through your trust.