SSI + Inheritance = Trust
In my last two blogs we shared information on asset building accounts. This month, let’s take a look at a way you can provide for the future financial needs of your disabled child or family member receiving Supplemental Security Insurance (SSI) in the event of your death.
The Social Security Administration (SSA) allows for the creation of specific trusts that allow for exceptions to the general rules of income and resource limits for SSI beneficiaries. These are known as “special needs” trusts or “supplemental needs” trust. There are three general types of trusts designed to protect disabled beneficiaries:
The Third-Party Special Needs Trust
A third-party special needs trust is one that is funded by assets owned by someone other than the disabled person. These are often created in a parent’s will to ensure that the disabled child’s needs are met after the parent dies. State legislation sometimes contains language that may be used to establish the trust. These trusts must be established for the “sole benefit” of the disabled person.
The Self-Settled Special Needs Trust
A special needs trust is established with the disabled person’s own assets (for example the proceeds from a medical malpractice claim) is called a “self-settled,” or “first-party” special needs trust. In a self-settled special needs trust, any proceeds that remain in the trust when the person dies must go to reimburse the state for costs spent on behalf of the individual. Additionally, the disabled person must be under the age of 65 and the trust must be established by the person’s parent, grandparent, or by the court.
The Pooled Asset Trust
A pooled asset trust contains the resources of the disabled person but is established and managed by a not-for-profit company. Although the individual’s funds can only be spent on his or her behalf, the company “pools” the funds of all the participants into one trust that it then manages and invests. Like the self-settled trusts, a pooled asset trust must be created for the sole benefit of the disabled person by a parent, grandparent, legal guardian, or the court. Also, like the self-settled trust, any amount that remains in the disabled person’s account when he or she dies is used to repay the state any Medicaid costs related to the individual’s care during his or her life.
Choosing a Trustee
A trustee is the person selected to oversee administering the funds in the trust. This should be someone you know who will only act in the best interest of the disabled person. Often third-party special needs trusts are part of the estate planning process, and so the trustee is named in the will that established the trust.
Created for the Sole Benefit of the Disabled Person
In order to qualify as a special needs trust, it must have been created for the sole benefit of the disabled person. This means that there cannot be any other named beneficiary in the trust instrument and the trust cannot have been created to benefit the person who created it (for example, to dispose of excess assets).
How the Money Can be Used
Special needs trusts generally should not be used to buy necessities like food or shelter, nor should they be used to provide the disabled person with the assets needed to buy food or shelter. The reason for this is that SSA may consider the money used for these purchases to be “in-kind” support and maintenance (ISM). ISM can reduce or in some cases eliminate your SSI benefits. Therefore, make sure that you check with a trusts and estates attorney before using the funds to buy food or shelter.
However, these trusts may be used to purchase clothing, and they can also be used to pay for things like physical therapy, entertainment, education, and travel.
Important to Keep in Mind
Some trusts and trust payments that SSA does not count as resources or income for SSI purposes can affect your Medicaid eligibility. Contact your state Center for Medicare and Medicaid services if you need more information about how trust and trust payments can affect Medicaid eligibility.
Additional rules apply to trusts established by representative payees. Your representative payee should contact the local Social Security office for more information.
I hope you have found value with the knowledge gained in these three blogs about building your assets. It has been wonderful to explore the paths to asset building and have a better understanding of how SSI + Inheritance = Trust!
We at Mission Possible are here to answer questions and provide information and referrals. Give us a call or send us an email to discuss your individual circumstances.
For more information see the resource links used for this blog:
Until next time,