SPECIAL NEEDS TRUST

You are the trustee of a special needs trust. Your beneficiary (Beth) lives in public housing, receives SSI (Supplemental Security Income) and MA (Medical Assistance), and has just asked you for a $200 gift card to Target so that she can buy headphones, clothes, toiletries, and some food.

Remember, a special needs trust (SNT) is a trust that is exempt for purposes of eligibility for SSI and MA even if the trust holds assets that came from the individual getting SSI or MA. “Exempt” means that the assets in the trust are not counted when determining eligibility for those means-tested programs. The assets themselves are also not counted for purposes of public housing (including Section 8) rent calculation, although the creation of the trust may affect rent. Distributions can, however, affect eligibility for all of these programs, so when you make a distribution from the trust, you need to make sure that the distribution does not affect your beneficiary’s public benefit eligibility.

Determining the most cost-efficient way to make these sorts of distributions is a dilemma most trustees face:

• Should you give Beth the gift card?
• What about giving Beth cash to pay for the items?
• Should you just go to Target and purchase the items – or purchase them online and have them delivered? This is called “in-kind” income – goods or services purchased for the beneficiary.
• If Beth purchases the item with a Target credit card, can you pay the bill?
• What about giving Beth a debit card?

So, let’s take a look at Beth’s benefits to decide whether or not to make the distribution she requested – and the best way to make the distribution. There are a few things to keep in mind. Receipt of cash or something that can be converted to cash is income that affects many benefits. For SSI, receipt of food or shelter reduces benefits, but no more than 1/3 of the maximum SSI payment or Federal Benefit Rate (FBR). For MA, this rule doesn’t apply. And finally, for most public housing, rent is computed as 30% of income (gross income less some allowable deductions). Income for this purpose includes cash, and payments on behalf of the tenant that are recurring. (Payment of medical expenses doesn’t count). Some local public housing authorities may have other rules, so it’s important to check. Also, remember that some disability benefit programs, including Social Security Disability Insurance (SSDI) and Medicare, don’t have these rules at all.

How does this work in practice?

Effect on SSI

Assume Beth is on SSI getting the maximum FBR ($733 in 2015 in most states).

Cash. If you give Beth cash, her SSI will be reduced dollar for dollar down to $0.00 (not counting the first $20). If you give Beth the $200 in cash, her benefit will be reduced by $180.00 (the first $20 is disregarded) so that in the month you give her the money, she must report the distribution of cash and would be entitled to only $553.00 in that month. So that won’t work – she may as well just spend her SSI.

Gift Cards. SSI considers a gift card that can be transferred to someone else to be cash. It depends on the card’s terms, but if you give Beth the Target gift card, her benefits may be reduced by the same amount as if you gave her cash.

Buy It for Her. If you purchase the toiletries, head phones and clothes for Beth, then her benefits will not be affected. (If, however, you purchase food or shelter for her, then her benefits will be reduced, dollar for dollar by up to a maximum of one-third of the FBR.) If you’re a family member, fine, but if you’re a professional who charges by the hour, this approach can be challenging.

Pay Beth’s Credit Card Bill. If Beth uses a credit card to purchase the above items, benefits will not be reduced as long as the credit card is not used to pay for food or shelter. SSI considers Beth’s purchase using a credit card to be a loan and by using trust funds to pay off the credit card, you are simply paying the loan. It may be hard for Beth to get a credit card, however, and, depending on her circumstances, may not be advisable.

Debit Cards. The debit card is tricky. Usually the amount of money subject to withdrawal by the holder of the card is considered cash, making that amount countable as income in the month it becomes available and as an asset in following months. However, some trustees set up a small account and then link that account to a debit card with restricted access by the beneficiary. There is at least one company that offers this type of limited access debit card. The beneficiary never gets the PIN to get cash withdrawals and the card will have Beth’s name on it so the card cannot be transferred. The trustee can restrict where the card can be used. Unfortunately there is no way to restrict specific purchases, so if Beth uses the card at Walmart for food, she can lose up to one third of her monthly SSI benefit. These limited access debit cards are new so there is no track record as to how SSI will treat them.

Effect on Medicaid

In some states, only if a person is eligible for SSI does the person get Medicaid. In those states – see the preceding section! If a distribution results in Beth losing all of her SSI she could lose Medicaid too.

In other states, SSI eligibility isn’t required, but the beneficiary has to fall under the income limit. Depending on the state, receiving income over the limit may cause loss of Medicaid benefits, or may create a “spenddown,” a kind of Medicaid deductible, where there is no coverage until medical expenses are incurred that exceed this excess income. Let’s say Beth doesn’t have SSI after all, but SSDI and her monthly cash benefit is $773:

Cash. The critical issue is the income limit. Provided Beth’s total income in any month doesn’t exceed the limit, she’s OK for Medicaid. Let’s say the limit in her state is 100% of the Federal Poverty Guidelines (FPG), currently $973 for a single person. If Beth gets $200 cash from the trust, she still has Medicaid ($773 + $200 = $973). If the distribution put her over the limit, then the state’s spenddown rules would kick in. Either way, though, Beth will have to report the $200 cash distribution to her state Medicaid agency.

Gift Cards. Most Medicaid agencies don’t seem to have a problem with a gift card, as long as they are not tracking the SSI regulation. If Beth doesn’t have SSI but has SSDI instead, the gift card may work.

Buy It for Her. In most states, you could purchase the toiletries, head phones, clothes and even food for Beth, without a problem. The food and shelter rules only apply to SSI.

Pay Beth’s Credit Card Bill. As with SSI, no problem here.

Debit Cards. As with SSI, the debit card should be used with caution. It is not strictly prohibited, nor is it sanctioned. It is unclear how MA will view Beth’s ability to access the trust account using a debit card. A new, restricted card may work. If Beth has a PIN and can access cash with the card, this will be a problem.

Effect on Public Housing

Beth lives in public housing, subsidized through the federal Section 8 program. Let’s say her income is $900 of SSDI. As discussed, most public housing calculates rent at 30% of income, and runs the calculation every year. Beth’s rent starts as $270.

Cash. Say the trust is brand new and Beth asks for $1,000 as a one-time distribution to buy some furniture. Onetime or sporadic gifts should not count. But if the trustee sends Beth $300 cash every month, that will count as income so that her gross income is $1,200 per month. The next time her rent is calculated, it will go up to $360 (30% x $1200 = $360).

Buy It for Her. Beth wants basic cable TV and internet which add up to $90 per month. The bill goes to the trust, and the trust pays the bill. Since it’s a monthly item, it’s income. Beth’s income is now $990/month and her rent goes up to $297. What if instead Beth needs a psychiatrist who doesn’t accept Medicare or Medicaid, and the trust pays $300/week for therapy? Since it’s a medical expense, Beth’s rent doesn’t change. Note that some housing authorities are counting virtually all distributions as income available to the household and increasing rent accordingly. It is important to work with the housing agency to find out its rules and make distributions carefully. When a tenant’s rent is raised due to this harsh and overly broad view of income, you should challenge the rent calculation.

Gift card. The same analysis applies as with SSI and Medicaid.

Debit cards. The Housing Authority won’t care that Beth has access to the account as the trust itself is not an asset. Having a debit card will have no effect on a Beth’s rent. A bigger issue will be whether Beth will use it on a recurring basis and increase her rent.

Conclusion

When you become the trustee of a special needs trust, make sure you have clearly identified each public benefit program the beneficiary is receiving.

• It is almost never a good idea to give the beneficiary cash, with some exceptions.
• Gift cards should also be avoided unless it is clear the card cannot be transferred to another person. Some trustees make the beneficiary sign an agreement acknowledging that the beneficiary cannot sell the gift card, requiring the beneficiary to provide receipts of how it was used and treating any unauthorized use as a loan that must be repaid from the beneficiary’s own income.
• If you pay off a credit card, make sure you get receipts for each purchase to make sure you are making payments only for the beneficiary and also not for the beneficiary’s food or shelter).
• Each public housing authority may have different rules, and you may need to meet with someone from the agency to understand how distributions will be treated.
• If you give a debit card that draws on one small trust account, make sure it is not linked to a bigger account so that when the small one overdraws there is no access to the trust’s funds.

Beth wants a sense of independence and involvement in how her trust is used for her benefit, and the trustee does not want to incur unnecessary administrative expenses in making purchases for Beth’s benefit. There are ways to meet Beth’s goals, but the benefit rules are complicated and a mistake by the trustee can result in a costly loss of valuable benefits. Talk to an attorney knowledgeable about special needs trusts if you have any questions about distributions.

(Source: Laurie Hanson, Special Needs Alliance Newsletter)

Special Needs Trusts – The Differences

By: Jason D. Lazarus, J.D., LL.M., MSCC, CSSC

A special needs trust is a trust that can be created pursuant to Federal law whose corpus or any assets held in the trust do not count as resources for purposes of qualifying for Medicaid or SSI.  Thus a personal injury recovery can be placed into a SNT so that the victim can continue to qualify for SSI and Medicaid. Federal law authorizes and regulates the creation of a SNT. The 1396p[i] provisions in the United States Code govern the creation and requirements for such trusts.  First and foremost, a client must be disabled in order to create a SNT.[ii] There are three primary types of trusts that may be created to hold a personal injury recovery and one type used when it isn’t the injury victim’s own assets, each with its own unique requirements and restrictions. First is the (d)(4)(A)[iii] special needs trust which can be established only for those who are disabled and are under age 65. This trust is established with the personal injury victim’s recovery and is established for the victim’s own benefit. Second is a (d)(4)(C)[iv] trust typically called a pooled trust that may be established with the disabled victim’s funds without regard to age. The third is a trust that can be utilized if an elderly client has too much income from Social Security or a pension to qualify for some Medicaid based nursing home assistance programs.  This trust is authorized by the federal law under (d)(4)(B)[v] and is commonly referred to as a Miller Trust. Lastly, there is a third party[vi] SNT which is funded and established by someone other than the personal injury victim (i.e., parent, grandparent, donations, etc. . .) for the benefit of the personal injury victim. The victim still must meet the definition of disability but there is no required payback of Medicaid at death as there is with a (d)(4)(A) or (d)(4)(C).

Since the pooled (d)(4)(C) trust and the (d)(4)(A) SNT are most commonly used with personal injury recoveries, I will focus on comparing these two types of trust. There are several significant differences between a (d)(4)(C) pooled trust and a (d)(4)(A) special needs trust. I will discuss these differences first starting with the (d)(4)(C) pooled trust. As a starting point, a disabled injury victim joins an already established pooled trust as there is no individually crafted trust document. There are four major requirements under Federal law necessary to establish a pooled trust. First, the trust must be established and managed by a Non-Profit.[vii] Second, the trust must maintain separate accounts for each Beneficiary, but the funds are pooled for purposes of investment and management.[viii] Third, each trust account must be established solely for the benefit of an individual who is disabled as defined by law, and it may only be established by that individual, the individual’s parent, grandparent, legal guardian, or a Court.[ix] Fourth, any funds that remain in a Beneficiary’s account at that Beneficiary’s death must be retained by the Trust or used to reimburse the State Medicaid agency.[x]

As for the differences from a (d)(4)(A) special needs trust, there are four primary differences.  First, a (d)(4)(A) special needs trust can only be created for those under age 65. However, a (d)(4)(C) pooled special needs trust has no such age restriction and can be created for someone of any age. Second, a Pooled Special Needs trust is not an individually crafted trust like a (d)(4)(A) special needs trust. Instead, a disabled individual joins a Pooled Trust and a professional non-profit trustee pools the assets together for purposes of investment but each beneficiary of the trust has his or her own sub-account. Third, a pooled trust is managed by a not for profit entity who acts as trustee overseeing distributions of the money. The non-profit trustee may manage the money themselves or hire a separate money manager to oversee investment of the trust assets.  Fourth, at death the non-profit trustee may retain whatever assets are left in the trust instead of repaying Medicaid for services they have provided as is the case with a (d)(4)(A) special needs trust.[xi] By joining a pooled trust, a disabled aged injury victim can make a charitable donation to the non-profit who manages the pooled trust and avoid the repayment requirement found within the Federal law for (d)(4)(A) special needs trusts. Other than the aforementioned differences, it operates as any other special needs trust does with the same restrictions on the use of the trust assets.

With a (d)(4)(A) special needs trust, a trustee needs to be selected unlike the pooled trust where it is automatically a non-profit entity. This provides some flexibility to the family or loved ones to have a hand in the selection of the trust company or bank acting as trustee. However, it is important to have a trustee experienced in dealing with needs based government benefit eligibility requirements so that improper distributions are not made. Many banks and trust companies don’t want to administer special needs trusts under $1,000,000.00 in trust assets which can make it difficult to find the right trustee. Most pooled special needs trusts will accept any size trust and the non-profit is experienced in dealing with those that are receiving disability based public benefits. With the (d)(4)(A), there are no startup costs except the legal fee to draft the trust which can vary greatly. The (d)(4)(C) pooled trusts typically have a one-time fee at inception which can range from $500 to $2,000 which is typically much cheaper than the cost of establishing a (d)(4)(A) special needs trust. Most trustees (pooled or (d)(4)(A)) will charge an ongoing annual fee which is typically a percentage of the trust assets. These fees vary between 1-3% depending on how much money is in the trust. A (d)(4)(A) will offer many investment choices for the funds held in the trust while a (d)(4)(C) will have only one investment strategy.

The major limitation of all types of special needs trusts is that the assets held in trust can only be used for the sole benefit of the trust beneficiary. So in the case of a disabled injury victim that funds a pooled special needs trust with their personal injury recovery, those funds can only be used for their benefit. The disabled injury victim could not withdraw money and gift it to a charity or family. The purpose of the special needs trust is to retain Medicaid eligibility, and use trust funds to meet the supplemental, or “special” needs of the beneficiary. These can be quite broad, however, and include things that improve health or comfort, non-Medicaid covered medical and dental expenses, trained medical assistance staff (24 hours or as needed), independent medical check-ups, medical equipment, supplies, programs of cognitive and visual training, respiratory care and rehabilitation (physical, occupational, speech, visual and cognitive), eye glasses, transportation (including vehicle purchase), vehicle maintenance, insurance, essential dietary needs, and private nurses or other qualified caretakers. Also included are non-medical items, such as electronic equipment, vacations, movies, trips, travel to visit relatives or friends and other monetary requirements to enhance the client’s self-esteem, comfort or situation. The trust may generally pay for expenses that are not “food and shelter” which are part of the SSI disability benefit payment. However, even these items could be paid for with trust assets but SSI payments could be reduced or eliminated. This may not be problematic if the disabled injury victim qualifies for Medicaid without SSI eligibility. However, many states grant automatic Medicaid eligibility with SSI so one has to be careful about eliminating the SSI benefit.

Why Consider Using a Pooled Trust Regardless of the Size of the Settlement?

Pooled Trusts are useful in smaller settlements because of the relatively low costs of joining a pooled trust. As discussed above, they are also preferable in many settlements to a (d)(4)(A) SNT because a (d)(4)(C) pooled trust can be established by the injury victim and does not require a parent, grandparent, legal guardian or court order like a (d)(4)(A) SNT. Even though the pooled trust accepts relatively small settlements, the trust beneficiary gets the benefit of having a professional trustee manage their trust. With a (d)(4)(A) it is very difficult to find a professional trustee to manage a small trust. The pooled trust under (d)(4)(C) avoids that problem. There are no minimum trust deposits required for a pooled trust so it can be used for settlements as small as a few thousand dollars. It may not make sense to establish a pooled trust with too small of a settlement, but it is a viable option.

Benefits of Using the Settlement Solutions National Pooled Trust

The Settlement Solutions National Pooled Trust (SSNPT for short) is the only national pooled trust created exclusively for personal injury victims. The trustee, Foundation for Those With Special Needs, Inc. is a non-profit formed exclusively to protect those with special needs.  Through retained funds, the Foundation is able to support other charitable organizations that protect and promote the civil justice system. SSNPT has the lowest fees of any national pooled trust.  In addition and most importantly, SSNPT has a very generous retained funds policy. If the client elects to have the funds distributed at his or her death instead of them being retained by the non-profit, the trustee will distribute the remaining funds after Medicaid is paid back and only retains 10% or $10,000 whichever is less. Many pooled trusts retain 100% of the remaining assets at death and don’t allow distribution at all. Other will retain a large amount with many retaining as much as $25,000.00.

SSNPT has a wide array of investment options that can be utilized by the trust beneficiary. Most pooled trusts manage all of the assets a single way and don’t provide any options in regards to managing the assets held in trust. This makes the SSNPT a great alternative for cases of any size where the client needs to keep Medicaid/SSI eligibility and customized management is desired.  SSNPT even has a sub-trust for those that are “dual” eligible for Medicaid and Medicare. In those cases, where an MSA is done, it needs to be wrapped in a special needs trust wrapper to keep it from being an available resource. SSNPT has a low cost solution for these types of clients.

For more information on the SSNPT, visit www.ssnpt.com

[i] 42 U.S.C. § 1396p.

[ii] To be considered disabled for purposes of creating an SNT, the SNT beneficiary must meet the definition of disability for SSDI found at 42 U.S.C. § 1382c.  42 U.S.C. § 1382(c)(a)(3) states that “[A]n individual shall be considered to be disabled for purposes of this title … if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or … last for a continuous period of not less than twelve months (or in the case of a child under the age of 18, if that individual has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or … last for a continuous period of not less than 12 months).”

[iii] 42 U.S.C. § 1396p (d)(4)(A) provides that a trust’s assets are not countable if it is “[a] trust containing the assets of an individual under age 65 who is disabled (as defined in section 1382c (a)(3) of this title) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this subchapter.”

[iv]42 U.S.C. § 1396p (d)(4)(C) provides that a trust’s assets are not countable if it is “[a] trust containing the assets of an individual who is disabled (as defined in section 1382c (a)(3) of this title) that meets the following conditions: (i) The trust is established and managed by a non-profit association. (ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts. (iii) Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1382c (a)(3) of this title) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court. (iv) To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this subchapter.”

[v] 42 U.S.C. § 1396p (d)(4)(B).

[vi] Third party special needs trusts are creatures of the common law.  Federal law does not provide requirements or regulations for these trusts.

[vii] 42 U.S.C. § 1396p (d)(4)(C).

[viii] Id.

[ix] Id.

[x] Id.

[xi] If the funds remaining in the trust at death are sufficient to repay Medicaid’s payback right in full, many pooled trusts will distribute some portion of the remaining monies to the trust beneficiary’s heirs.  However, each pooled trust will have a different policy and the amount retained at death can vary greatly.  It is very important to investigate how much is retained in this type of situation.  Some trusts will only retain $5,000 while others may retain $50,000.