Special Needs Trusts 101
Permissible payments or distributions from a Special Needs Trust (SNT) are typically not regarded as black and white. Several factors must be considered when administering an SNT, such as knowing the government benefits programs available to the beneficiary. Simply put, these are discretionary trusts drafted to exclude the income and assets as a resource to the disabled beneficiary for the purpose of eligibility of means-tested government benefits. The sole purpose is to improve the quality of life and NOT disqualifying the participant from eligibility for public benefits…
The public benefits include the beneficiary might be taking advantage of are, Social Security Disability Insurance referred to as SSDI or SSD, Supplemental Security Income known as SSI, and Medicaid. Types of Special Needs Trusts are known as Self-Settled or (d) (4) (A), established by the beneficiary or someone acting on behalf of the beneficiary and will include language in the trust document with a “payback” provision to Medicaid.
A Third-Party Special Needs Trust and is usually established by someone other than the beneficiary with assets that never belonged to the beneficiary. This type of Trust will not have a “payback” provision to Medicaid. The attorney drafting an SNT will review the SSA’s Program Operations Manual System (a.k.a POMS at https://secure.ssa.gov/apps10/poms.nsf/aboutpoms) to provide more guidance with permissible or allowable expenditures because Medicaid is state-specific.
What is Not Permissible?
Generally, food, shelter and possibly clothing are NOT permissible or allowable distributions and could jeopardize eligibility for public benefits. Distributions from an SNT should never include cash, gift cards, prepaid credit card, etc. because they are considered unearned income and could disqualify the beneficiary. There has been some confusion associated with a family caregiver receiving compensation from an SNT to pay for care but without the family member having expertise and certification as Medicaid may consider this benefiting someone other than the participant/beneficiary. Financial help might be available for family caregivers. Learn more by accessing this bulletin from AARP for federal cash benefits or federal income tax breaks.
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