How Special Needs Trust Funds Can Be Used

The person serving as trustee of the special needs trust can usually pay for anything for the person with special needs, as long as the purchase is not against public policy or illegal and does not violate the terms of the trust. Importantly, however, certain types of disbursements – most notably payments for food and shelter-- may reduce the amount of SSI. Read more about Payments for Food and Shelter.

It's common for the trustee to pay for a broad variety of services provided to the beneficiary—for example, travel, education, caregiving, or medical services not provided by Medicaid. The person serving as trustee can buy the beneficiary "non countable" assets without worrying about how much they're worth.

Non Countable Resources Are Okay

Non countable resources are types of property not considered to be a resource by the SSI and Medicaid programs for purposes of determining the owner's program eligibility. A beneficiary can usually own a substantial amount of these types of property without losing eligibility for SSI and Medicaid.

So a trustee may use trust funds to buy non countable items such as:

• One home of any value. Owning one home as a primary residence won't disqualify your loved one from receiving SSI. However, if the beneficiary receives only Medicaid (not SSI), the home value may be limited to $500,000 or $750,000.
• One motor vehicle. The beneficiary can own one motor vehicle, regardless of value, without affecting SSI eligibility.
• Home furnishings and personal effects. These categories are extremely broad and have no limiting definition. Pretty much anything that can fit in your loved one's home is covered.
• Property essential for self-support. This category encompasses property that is used for work, either as an employee or running a trade or business. There are limits on the value of these items depending on the rate of return they provide and other variables.
• Assets used toward an occupational goal. Under SSI's Plan for Achieving Self-Support (PASS) program, the government allows SSI recipients to use specific assets toward an occupational goal, such as college, vocational training, or starting a business. Under PASS, funds that might normally result in ineligibility, for benefits or lowering the SSI monthly payment, could be used toward an approved occupational goal without penalty. To learn more about PASS, go to http://www.socialsecurity.gov/ssi/spotlights/spot-plans-self-support.htm.
• Burial and life insurance policies. Life insurance policies with cash surrender values less than $1,500 and burial insurance policies of any value are not counted. However, funds set aside for burial expenses in an account or trust are limited to $1,500 or less.

Countable Resources Are Not Okay

Anyone who owns more than $2,000 worth of countable resources is not eligible for SSI. So a trustee should not give the beneficiary countable assets worth more than $2,000. If a trustee gives the beneficiary countable assets worth less than $2,000, the beneficiary's SSI grant will be reduced, dollar for-dollar, in the month the income is received. (A small exception to this rule is that the first $20 of a gift received in a given month is not counted.)

Countable resources include:

• cash
• checking and savings accounts
• stocks and bonds
• vacation home, rental property, or other real estate that is not the beneficiary's primary residence
• IRA, 401(k), and other retirement assets
• investment accounts, and
• Uniform Transfer to Minor Accounts.

How does the SSI program know what and how much a recipient owns? Generally, the bureaucracy relies on the recipient's own required reports and on information from the IRS, state motor vehicles department, and banks. If for some reason an investigation is begun, the recipient's financial affairs will be examined more closely.

Learn More

Read more about countable and non countable resources at http://www.socialsecurity.gov/ssi/text-resources-ussi.htm.

Learn more about The Trustee's Job.

For a detailed description about properly administering a special needs trust, read Administering the California Special Needs Trust, by Kevin Urbatsch.

Excerpted from Special Needs Trusts, by Kevin Urbatsch and Michele Fuller (Nolo).