Per POMS section on Special Needs Trusts – SI01120.203 – 42 USC 1396p(d)(4)(A) and (C) set forth exceptions to the general rule of counting trusts as income and assets for the purposes of determining Medicaid eligibility.
BasicRequirements for Special Needs Trusts
My article on Special Needs Trusts, explains, in greater detail, the basic requirements needed to exclude a trust as a countable resource for Medicaid purposes: established for beneficiary under age 65 (unless pooled special needs trust); disabled; Medicaid recipient/disabled individual is sole beneficiary; must provide that the State of Washington (and any other state where beneficiary received Medicaid benefits) be primary beneficiary up to amount of benefits Medicaid paid to recipient (except from taxes due from trust at time of death and court/filing fees associated with the trust); and the special needs trust must be irrevocable. For more information on what a Special Needs Trust is please use this link.
Pooled Special NeedsTrusts may be established by individuals at any age (don’t need to be under age65 as is required to establish a first party special needs trust).
Also, the existence of aspecial needs trust must be reported to the local SSA office or to Washington’sDepartment of Social and Health Services (depending on which benefits thespecial needs trust beneficiary receives from the government). The recipientmust also provide any account statements or disbursem*nt reports showing (whor*ceived the payment, date payment was made, amount of payment and the purposeof the payment). The trustee may be audited periodically to ask for suchrecords – as their disbursem*nts may be deemed income for SSI purposes.
Self-SettledSpecial Needs Trust
Self-Settled SpecialNeeds Trusts, a/k/a First-Party Special Needs Trusts (most often needed after apersonal-injury settlement or unexpected inheritance – for those wishing tomaintain their public benefits). The test for determining whether a trust isself-settled is whether the beneficiary had the right to possess themoney/assets placed into the trust prior to the trust being established. If so,it is a self-settled special needs trust – even if the trust was created andinitially established by someone else acting on behalf of the real beneficiary.
Third-PartySpecial Needs Trust
Third-Party Special NeedsTrusts are established with assets of someone other than the disabledbeneficiary for the sole-benefit of the beneficiary. Testamentary Special NeedsTrusts are an example of this (where an SNT is created for the benefit ofPerson X, out of the Will of Person Y). A major benefit of a 3rd party specialneeds trust is that they do not require a Medicaid-payback provision (becausethe assets never belonged to the disabled beneficiary in the first place).Another very typical example is when a parent sets up a third party specialneeds trust for the benefit of their disabled child, and fund that trust out oftheir own funds.
SpecialNeeds Trust Disbursem*nts
Cash or gift cardsprovided from the special needs trust (SNT) directly to the beneficiary (forany purpose) are consideredunearned income. SSI rules state thatfor every dollar of unearned income received results in the same amount inreduced SSI benefits for the same month (Medicaid beneficiaries need at least$1.00 of SSI to qualify). In January, 2019, the maximum SSI benefit wasincreased to $771 per month.
In-KindSupport and Maintenance (ISM) | Food and Shelter Expenses
Food and shelter expenses paid for by the special needs trust (or any other source) are considered income as in-kind support and maintenance (ISM) to a third party provider of goods or services.
The following10items are theonlyonesthe SSA will count as ISM:
- Food
- Mortgage (including propertyinsurancerequiredby the mortgage holder)
- Real property taxes (less any taxrebate/credit)
- Rent
- Heating fuel
- Gas
- Electricity
- Water
- Sewer
- Garbage removal
ISM– Maximum 1/3rd Reduction in SSI Rule
Cash payments madedirectly to the beneficiary will reduce the SSI benefit dollar-for-dollarandmay result in loss of SSI / Medicaid eligibility if too much isgiven. Receiving non-cash benefits that are considered “In-kindsupport and maintenance” (ISM) benefits from the trust (or other source)will reduce the SSI benefit dollar-for-dollar up to a maximum of 1/3rd of themaximum SSI benefit + $20.00.
This is significant becauseof the SSI recipient is receiving less than 1/3rd of the maximum SSI benefit,distributions from ISM can kick someone off Medicaid (most Medicaid programsrequire that the beneficiary receive at least $1.00 from SSI).
The SNT Trustee mayreimburse third parties for items purchased for trust beneficiary. Purchase ofpersonal items such as clothing, a computer, paying a phone bill or incometaxes,would have no impact on SSI. But if food or shelter items arepurchased, it is deemed ISM.
Useof Credit Cards
An example of where thiscan get confusing is when a special needs trust pays a credit card bill. SI01120.201I.1.d. specifies:
If a special needs trustpays a credit card bill for the trust beneficiary, whether the individualreceives income depends on the list of itemized charges on the bill. If thespecial needs trust pays for food or shelter items on the bill, SSA willgenerally charge the individual with ISM for those items up to the PMV. If thebill includes non-food, non-shelter items, the individual does not receiveincome as a result of the payment, unless the items received would not betotally or partially excluded non-liquid resources the following month.
EXAMPLE:Ifthe credit card bill includes restaurant charges, payment of those chargesresults in ISM. If the bill also includes the purchase of clothing, payment forthe clothing is not income.
SNT trust disbursem*nts(as long as not cash to the individual), including payments directly made tothird-party vendors, that are not for ISM expenses are NOT considered income.Examples: educational expenses, psychological therapy, any medical services notcovered by Medicaid, phone bills, and recreational and entertainment expenses.
Other examples ofexpenditures that would not result in any adverse consequences forSSI-eligibility determination purposes are:
- one automobile/van
- accounting/legal services
- acupuncture/yoga/gym membership
- appliances (TV, DVD, washer, dryer,microwave, refrigerator)
- bus pass / public transportation costs /taxicab / uber / lyft
- camera
- clubs/dues (e.g. health clubs, serviceclubs, advocacy groups, museums, zoo)
- computers/software/internet service
- conferences
- courses/classes (academic orrecreational/hobby)
- curtains/blinds/drapes
- dental work not covered by Medicaid
- doctor specialists not covered by Medicaid
- dry cleaning/laundry services
- elective surgery
- fitness equipment
- furniture
- gasoline / oil changes / other vehiclemaintenance costs
- holiday decorations, parties, holidaycards
- home alarm systems
- home improvements / home maintenance /landscaping + lawn service
- home purchase
- house cleaning services
- insurance (auto/home)
- linens / towels
- massage
- musical instruments / music lessons
- non-food grocery items (e.g. laundrydetergent, fabric softener, deodorant, soap, personal hygiene products, papertowels, toilet paper, etc…)
- over-the-counter medications (includingvitamins or herbal supplements)
- pets and pet supplies
- private counseling if not covered byMedicaid
- repair services
- sporting goods / athletic equipment
- stationary / stamps
- storage units
- telephone services (cell phone)
- tickets to concerts or sporting events(for beneficiary and accompanying companion)
- utility bills that are not listed in ISMlist above (e.g. cable TV, direct TV, internet)
- vacations / travel (except SNT cannot payfor food).
It is best practice to,whenever possible, pay for goods / services directly to the provider of thosegoods or services.
ProhibitedSpecial Needs Trust Disbursem*nts
– A special needs trusttrustee should almost never distribute cash directly to the beneficiary.
– Providing debit cardsor gift cards are usually seen as cash equivalents and should also be avoided.
– SNT trustees should notmake gifts to others on behalf of the beneficiary (e.g. no wedding, birthday orgraduation presents). Gifts will result in a disqualification/penalty period.
– Do not pay for anythingthat is already paid for by another source and don’t pay for anything that isnot in the best interest of the disabled beneficiary.
If the SNT purchasesdurable items (e.g. a car), the beneficiary or trust must be the owner (cartitle may show trust as a lien holder). If the title does not name thebeneficiary or trust as owner, it could be construed as a gift that wouldresult in Medicaid penalty.
Special Needs Trusts areevaluated under POMS: SI 01120.199;SI 01120.200; SI 01120.202; SO 01120.203; SI01120.225; and SI 01120.227
