June 2022 – By Tom C. Rueger, J.D., CFP®
A recipient of Supplemental Security Income (SSI) is eligible to receive a monthly benefit when the Social Security Administration (SSA) determines that the recipient’s “income and resources” fall below certain limits. Funds held in certain kinds of Trusts (Special Needs Trusts) can be used to supplement, but not replace, the basic support that Medicare and SSI can provide to a special needs person. If drafted properly, funds in a Special Needs Trust can be specifically excluded from consideration of the “income and resources” limit that determines the eligibility for SSI, thereby allowing a special needs person to receive Medicare and/or a monthly SSI benefit. In other words, a Special Needs Trust is a method to shelter assets to ensure that government support is not lost or forfeited.
In general, if Special Needs Trusts provide cash or pay for food or shelter (either directly or indirectly) the Medicare or SSI benefit can be reduced or even eliminated. However, Special Needs Trusts can pay for items like education, recreation, counseling, and medical expenses without reducing the Medicare or SSI benefits.
There are two main kinds of Special Needs Trusts that can be used to exclude assets from consideration of the “income and resources” limit. A First Party (self-settled) Trust is usually created with the special needs person’s own assets, sometimes from an award or a settlement. A Third-Party Trust is usually funded with the parents money and will never be in the child’s name. Most often the funds will come from life insurance or the parent’s estate.
A few words of caution. If funds are distributed from a Special Needs Trust to an SSI recipient, the SSA will carefully evaluate the Special Needs Trust to make sure that is properly drafted so that the Trust distribution is not included in the recipients “income and resources,” thereby allowing the funds to be used for other items. Special Needs Trusts are complicated and very technical, so it is particularly important to work with an experienced special needs planning attorney. More resources are available at the Special Needs Alliance or the Academy of Special Needs Planners. If you have questions regarding this topic or would like more information, please contact us at Vantage Financial.
This material is for informational purposes only. It is not a recommendation or solicitation to buy or sell any securities. Vantage Financial is not a tax advisor; please consult your tax advisor prior to making any investment decisions. Vantage Financial is an Investment Advisory Firm registered with the Securities and Exchange Commission (“SEC”). SEC registration does not imply any particular level of skill or expertise.