in 2019, the social security administration updated the POMS manual, which is how special needs trusts are examined. To read more general information about special needs trusts and allowable special needs trust distributions, please click the link.
Special Needs Trust Sole Beneficiary Rule and Primary Benefit Rule
Before the 2019 update to the POMS manual, there was confusion as to whether special needs trust trustees were violating the "sole benefit rule" when making certain distributions. The sole benefit rule essentially mandates that trustees of special needs trusts can only spend trust funds on goods and services that only ("solely") benefit the special needs beneficiary.
So a trustee might be wary of, for example, purchasing a television. Because if other people watched the television was it really for the sole benefit of the special needs beneficiary? Another example might be paying for a vacation where it was impossible for the special needs beneficiary to get around on their own. Could the special needs trust pay for a companion? What about more than one companion? Could the special needs trust trustee pay for someone to go visit the special needs trust beneficiary or would that violate the sole benefit rule?
Luckily, POMS Section SI 01120.201F.3 provided some clarity:
Explanation of the sole benefit rule to pay third parties
The "sole benefit rule" was relaxed and is now sometimes referred to as the "primary benefit rule." When the trust makes a payment to a third party for goods or services, the goods or services must be for the primary benefit of the trust beneficiary. A specific example provided in the POMS is, if the trust buys a house for the beneficiary to live in, that does not mean that no one else can live there, or if the trust purchases a television, that no one else can watch it.
But, on the other hand, it would violate the sole benefit rule if the trust purchased a car for the beneficiary’s grandson to take her to her doctor’s appointments twice a month, but he was also driving it to work every day.
The POMS also clarified that payment for companion services can be a valid expense. For example, perhaps an Alzheimer’s patient cannot be left alone and requires a sitter, or the beneficiary needs someone to drive her to the store and assist her with grocery shopping. Family members may normally do some of these things without compensation, but that does not prohibit the trust from paying for these services. Additionally, some incidental expenses for the companion can be payable. For example, if the trust pays a companion to take the beneficiary to a museum, the trust can pay for the admission of the companion to the museum, as this cost is part of providing the service.
A third party service provider can be a family member, a non-family member, or a professional services company. The policy is the same for all.
The POMS simply notes that the social security administration will not routinely question the reasonableness of the companion's rate of pay so long as it is, in fact, reasonable. If the rate seems too high, the POMS directs the evaluator to consider the time and effort involved in providing the companion services as well as the normal rate of pay for similar services in the region in which the services are being rendered.
Payment of third party travel expenses are OK if necessary due to the trust beneficiary’s medical condition, disability, or age.
In certain situations, the travel expenses (transportation, lodging and food) for the companion, can also be paid for by the special needs trust. Per, POMS section SI 01120.201F.3.b. the trust can pay for:
- Providing services or assistance necessary due to the trust beneficiary’s age (e.g. the beneficiary is a minor and cannot travel unaccompanied).
- Absent evidence to the contrary, the SSA will accept a statement from the trustee that the service or assistance provided is necessary to permit the trust beneficiary to travel. They wont request a physician statement concerning medical necessity and the companion needs no special medical or other training to accompany the special needs beneficiary.
- If reasonably, the special needs trust can pay for more then one person's travel expenses to accompany the beneficiary.
- SSA is instructed to use a reasonableness test in evaluating the number of people the special needs trust is paying to accompany the beneficiary. For example, it is reasonable for an SNT to pay for other individuals, such as parents or caretakers, to accompany a disabled minor child on vacation to provide supervision and assistance. Travel without this support would not be possible. However, it would violate the sole benefit rule if the trust paid for other individuals who are not providing services or assistance necessary for the beneficiary to travel.
NOTE: In this example, the fact that the parents or caretakers cannot afford to pay for their other children’s trip, or cannot leave them at home, is not a consideration relevant to the sole-benefit requirement. So the SNT can pay for mom, and maybe dad - in this example, but not brother or sister.
Payment of third party travel expenses to visit a Special Needs beneficiary
Certainly, special needs beneficiaries are not always children that already live with family. Sometimes family or concerned friends, live far away. In this case, the POMS clarifies that certain travel expenses, if for the purpose of ensuring the safety or medical well-being of the trust beneficiary are allowable, and will not violate the sole-benefit rule. The examples provided in the POMS section SI 01120.201F.3.c., are:
- Travel for a service provider to oversee the trust beneficiary’s living arrangements when the beneficiary resides in an institution, nursing home, other long-term care facility (for example, group homes and assisted living facilities).
- Travel for a trustee, trust advisor named in the trust, or successor to exercise his or her fiduciary duties or to ensure the well-being of the beneficiary when the beneficiary does not reside in an institution.