A special needs trust can be an important part of a comprehensive estate plan, especially for Utah parents of minors or adult children with special needs. A person who qualifies for disability benefits such as SSI or Medicaid faces restrictions on the assets and income that the person can have without losing these government benefits.

When established and administered correctly, a special needs trust can make it possible to improve the quality of life for the disabled person, without losing eligibility for government benefits. The contents of this page should be taken only as general information, and should not be viewed as legal advice. For the best answers to legal questions relating to special needs trusts or other estate planning issues in Utah, a personal consultation with an attorney is strongly advised. Contact us today to see how the right lawyer can help you.

Determining Eligibility for for Needs-Based SSI / Medicaid

The first step to qualifying for needs-based SSI benefits or Medicaid is to demonstrate status as “categorically needy.” In addition to being disabled, blind, or 65 years of age or older, a person must also meet qualifications relating to income and assets. A special needs trust that violates these eligibility rules can disqualify the trust beneficiary from receiving needs-based government benefits.

Violations can occur through the way trust assets are titled, the way trust assets are administered, or through the trust language itself. Care should be taken not only to ensure that the trust is established and funded correctly, but also to educate the trustee on principles of proper trust administration. (Please note that the numbers and limits below are current as of 2017, but are subject to adjustment based on inflation or based on legislative changes.)

INCOME TEST – In order to maintain eligibility, a disabled person cannot have income greater than $1,170 per month and a blind person cannot have income greater than $1,950. (These numbers are adjusted annually for inflation.)

ASSET TEST – Eligibility rules require that a single person have no more than $2,000 in available assets. Some assets are considered “non-countable” for purposes of determining eligibility, including the beneficiary’s home, one vehicle, household furnishings and personal effects, tools or equipment used in employment, and pre-paid burial plans, funds, or life insurance up to $1500 set aside for funeral expenses. (Each of these asset categories may be subject to exceptions and special rules.)

SPEND DOWN AND EXCESS PAYMENTS – A person who exceeds the monthly income limits or accumulates assets in excess of countable resource limits may still be able to qualify for benefits. But eligibility will require first that the person spend down their assets to below the $2,000 limit and/or pay their excess monthly income either to the State or to a medical provider to cover eligible medical bills. (Note that payment of excess income will only help in qualifying for Medicaid, not SSI; and not all states allow this practice.)

FIVE-YEAR “LOOK BACK” – Medicaid eligibility rules provide a five-year “look back” period. The purpose of the look back period is to discourage people from giving away assets (often to family members) just to qualify for Medicaid. Transfers of assets for less than fair market value can result in a delay in qualifying for benefits. The length of the delay is based on the value of assets transferred for less than adequate consideration.

Maintaining Eligibility with a Special Needs Trust

A special needs trust should be set up, funded, and administered in a way that does not destroy eligibility for SSI or other government benefit programs. Distributions from the trust should be made in a way that avoids having such distributions count either as assets of or income to the beneficiary.

FOOD AND SHELTER – Any payment from a trust to a third party provider for goods or services considered necessities similar to food and shelter (sometimes referred to as in-kind support and maintenance, or ISM), are treated as countable income. Payments for food, mortgage (including insurance), real property taxes, rent, heating fuel, gas, electricity, water, sewer and garbage removal would all be treated as countable income. In general, these items should be paid for using funds or income received from disability payments or benefits.

EXTRAS – Funds from a trust are not be treated as countable income when used to provide clothing, phone, cable, internet services, purchasing a vehicle, auto insurance, vehicle maintenance, and gas (gas-company credit card), pre-paid burial and funeral arrangements, school tuition, books, tutoring, household furnishing, television, computers and electronics, durable medical equipment, care management (limitations may apply if payments are made to family members), alternative therapy, medications, and treatments (only if not regulated by the state), taxes, legal guardianship and trustee fees. Funds from a special needs trust can also be used for travel and entertainment, but there is concern about hotel and restaurant payments as they may be considered shelter and food expenses, and states may have limitations on companion travel.

LOANS – A loan will generally not count as income for the SSI or Medicaid programs, so a trust can make a loan of cash directly to the beneficiary. A written agreement to pay the loan back is required, and the loan must be considered feasible (meaning that it must have terms that the disabled person can reasonably be expected to be able to meet). If a loan is forgiven, then the amount of the loan being forgiven will count as income to the beneficiary at that time the forgiveness is granted. The funds borrowed also must be used within that month or the unspent amount can be counted against the resource/asset limit ($2,000 for an individual) and may affect your eligibility.

CREDIT AND DEBIT CARDS – Credit cards and debit cards are treated differently for purposes of maintaining SSI eligibility. A purchase made by a beneficiary using a credit card is treated as a loan that must be paid back to the credit card company, so it is not considered as income to the beneficiary at time of purchase. An exception to this general rule arises when a credit card is used to purchase items that are classified as food or shelter. If these purchases are paid for by the trust, they can be treated as in-kind support and maintenance. A debit card issued through the trust can give the beneficiary access to the trust’s bank account, which might then be considered an asset of the beneficiary. The beneficiary’s use of a debit card may also be treated as income directly to the beneficiary.

GIFT CARDS – A gift card purchased by the trust and provided to a beneficiary may or may not be considered to be a distribution of income to the beneficiary. SSI rules are not yet clear on the issue of gift cards.  A gift card could be treated like a line of credit established with a vendor that is paid for by the trust (similar to a credit card). A gift card might also be treated as granting access for an in-kind purchase of goods or services by the trust on behalf of the beneficiary. Either way, a trustee should avoid using a gift card to provide items that could be classed as food or shelter. A trustee should also keep receipts for items purchased via a gift card, and should be prepared for potential adverse treatment of the purchase.