If you are serving as trustee of a special needs trust, you need to know whether you can use trust funds to pay for food or shelter. The short answer, is you can, but you may not want to. This article explains why.
If the trustee of a special needs trust pays for the beneficiary’s food or shelter, the amount paid is considered income to the beneficiary. Specifically, it’s called in-kind income or in-kind support and maintenance (ISM). The SSI program treats ISM differently from other types of income.
If the ISM can be assigned a specific value, that amount is deducted from the SSI grant—up to a limit. The amount of the deduction is currently capped at $265 (for 2017). That’s one-third of the maximum federal portion of the SSI grant ($735 in 2017) plus $20.
EXAMPLE : Leo, who receives an SSI grant because of his Down syndrome, loves to eat out. Each month Leo’s restaurant tab averages $120. If the cost of the meals is picked up by a special needs trust or other outside source, Leo’s SSI grant will be reduced dollar for dollar by $120. If Leo had fancier tastes and, courtesy of his special needs trust, spent $500 a month eating out, his grant would also be reduced, but only by a maximum of $265.
These rules mean that if necessary, a special needs trust can provide your loved one with food or shelter—and still leave him or her with the lion’s share of the SSI grant as well as continued eligibility for Medicaid benefits.
The question of ISM comes up most often with shelter, because the SSI grant is so inadequate when it comes to paying rent in the private housing market. Trust payments for rent or mortgage payments on a house owned by the beneficiary are considered ISM, so they trigger a reduction of the SSI grant. Still, if a beneficiary’s shelter needs can be met only through rental assistance from the special needs trust, a $265 reduction in the monthly SSI grant is usually a great deal.
EXAMPLE : Sonya, the beneficiary of a special needs trust, receives SSI and Medicaid. When Sonya’s group home closes, she is forced to seek shelter at private market rents. She finds a suitable apartment for $2,000 per month—considerably more than her potential $733 SSI grant. The trustee of Sonya’s special needs trust decides to pay for all of Sonya’s rent and utilities, a total of $2,300 a month. Trust payments for rent and utilities are ISM, so Sonya’s SSI grant will be reduced. The federal portion of the grant in 2017 is $735, so Sonya will lose $265 of her SSI check. She will also continue to receive Medicaid. In other words, Sonya’s trust pays $2,300 for a nice, safe and clean apartment for Sonya and she continues to receive $470 in SSI without any further reduction in SSI.
It’s important to know how much SSI a beneficiary is receiving. If Sonya was receiving less than $265 in SSI because she was receiving income from another source, the payment of the rent in the example above would eliminate her eligibility for SSI. Thus, it is important to know how much SSI the person with a disability is receiving to make sure that there is not a total loss of SSI and an accompanying loss of Medicaid.
Once the ISM maximum reduction of $265 (in 2017) is reached, the trustee may pay for all the beneficiary’s food, rent and utilities without any further reduction in SSI.
If a special needs trust owns a house or has enough assets to buy one outright, the beneficiary may be able to live in the house rent-free without affecting his or her SSI grant. (For more about this, read How Special Needs Trust Funds Can Be Used.)
However, if the trust pays other expenses associated with shelter—such as electricity, heat, or water—the amounts are considered ISM, and the grant is reduced dollar-for-dollar up to the $265 per month (in 2017) maximum deduction. If the trust were making mortgage payments on the house, those payments would also be considered ISM and would result in an SSI reduction, up to $265 per month.
The maximum federal SSI grant increases every year, as the cost of living increases. In 2017, it is $735. One-third of this amount is $245; add $20 to get the maximum deduction of $265 per month. For more information on federal and state SSI benefits, visit the Social Security Administration’s website at www.ssa.gov.
Food stamps, low-income housing assistance, state-funded cash benefits, and noncash government benefits don’t count as income in kind for purposes of computing an SSI grant.
To learn more about special needs trust, go to the Special Needs Trusts section of Nolo.com.
For a detailed description about properly administering a special needs trust, read Administering the California Special Needs Trust, by Kevin Urbatsch and Michele Fuller.
This article was excerpted from Special Needs Trusts, by Kevin Urbatsch and Michele Fuller-Urbatsch (Nolo), which provides all of the information and forms you need to create a special needs trust without a lawyer.