Administering a Special Needs Trust and Its Impact on SSI

By: Bridget O’Brien Swartz, Esq., Vice President and Sr. Trust Officer, Camelback, Ariz. branch, First International Bank & Trust

Prior posts have defined a special needs trust (SNT) and who can benefit from one and explained the difference between first and third party in SNTs.

This post focuses on what most interests people: how a SNT can be used to benefit the individual with special needs.

SNTs fill the gap
What often comes to mind is that SNTs are intended to supplement and not reduce or supplant the public benefits for which a beneficiary is eligible.

The trust itself is hopefully crafted in such a way that the assets held in the trust are not treated as available to the beneficiary for purposes of his or her financial eligibility for public benefits.  The Settlor (the person who establishes the trust) hopes that the beneficiary will remain eligible for public benefits and that the trust will provide for those items and services that public benefits do not cover; in other words, that the trust will fill the gap to help improve the beneficiary’s quality of life.

Deciphering SSI, SNT, Medicaid
The two primary public benefits for which an individual who is disabled may qualify are cash assistance through the Social Security Administration, such as Supplemental Security Income (SSI) and medical assistance through Medicaid.  This post will focus on SSI benefits.

The federal maximum benefit rate for SSI is $710 per month in 2013 and $721 per month in 2014.  This benefit is intended to provide for a disabled individual’s support needs.  It is often insufficient to cover such needs, considering rent or mortgage, maintaining real property the individual may own (which is an excluded or exempt asset for SSI and Medicaid eligibility purposes), utilities, food, and other incidentals.

Many who create a special needs trust are under the misimpression that a disabled individual’s support and maintenance are not “special needs” and, therefore, may not be provided for by a special needs trust.  If a special needs trust is drafted in such a way so as not to prohibit or disallow distributions to provide for such needs, then it certainly can be used to do so.

Guiding principle: Don’t say you can’t and don’t say you can
If a special needs trust, or any third party for that matter such as a parent, provides for an SSI-eligible individual’s support and maintenance needs, then the SSI benefit will be reduced, likely by one-third (1/3) as long as the distributions or payments are being made directly to the vendor or provider rather than cash being given directly to the beneficiary to pay such expenses.

Is this permissible?

Yes, as long as the language of the trust does not restrict the ability to use trust funds to provide for maintenance and support, and does not admonish the trustee from making distributions that may “reduce or supplant” benefits.

Should these distributions be made?

In many cases, yes, since SSI is typically insufficient to cover an individual’s support expenses.

Learn by example
By way of example, let’s say an SSI-eligible individual’s rent and utility expenses are $750 per month and food expenses are $250 per month. SSI of $710 per month will obviously not meet the expenses. If the individual were a beneficiary of a special needs trust, the trust could pay the rent and utilities directly, which would result in a reduction of the individual’s SSI from $710 to $473 per month. The individual need not pay his or her rent or utility expense with the remaining SSI benefit, and has sufficient funds to provide for his or her food needs, and then some. He or she also has the opportunity to improve his or her living arrangement as the additional expense could be paid directly by the special needs trust.

Two key points on administration
We’re always happy to guide you through SNTs. Meanwhile, here are two key points on administering SNTs:

-        Make sure your special needs trust is not overly restrictive and is drafted so the trustee can make distributions to provide for the beneficiary’s support. This may reduce benefits, if that is in the beneficiary’s best interest.

-        Don’t assume that SSI on its own will support the individual. Use the special needs trust to improve upon his or her living circumstances and free up the SSI benefit (even though it may be reduced) for the beneficiary to spend in his or her discretion.

Bridget O’Brien SwartzBridget is originally from Duluth, Minnesota, earned her undergraduate degree from Notre Dame, then and her law degree as well as a Masters in Public Administration from ASU.  She has been a specialist in Estate & Trust Law certified by the State Bar of Arizona and a Certified Elder Law Attorney certified by the National Elder Law Foundation.  She remains actively involved in national attorney organizations such as National Academy of Elder Law Attorneys and the Special Needs Alliance.

2 thoughts on “Administering a Special Needs Trust and Its Impact on SSI

  1. looking to speak with Bridget Swartz. Family member in NY needs information pertaining to Lissa Heider. Janet Barrett gave us your name. Thank you

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