Special Needs Trust Assets: How to Supplement Public Benefits to Maximize Quality of Life
We regularly receive inquiries from clients who wish to leave assets to beneficiaries with special needs. These are often parents or grandparents but can be anyone who wants to leave resources to a disabled beneficiary without jeopardizing public benefits.
First off, who is a beneficiary with “special needs”? In this context, we are referring to an individual who currently receives public benefits, or who may receive public benefits in the future, due to a mental or physical disability. A family member or friend who wishes to leave assets to a beneficiary with special needs, without compromising that person’s public benefits eligibility, will often do so through a “Special Needs Trust” (“SNT”). We discuss SNTs in detail in an excellent article on our website, titled “Estate Planning for Persons with Special Needs”, which I recommend to anyone interested in a comprehensive overview of SNTs.
This article focuses specifically on a common question we receive from parents and grandparents who wish to leave assets to a beneficiary with special needs: “What can SNT funds be used for?”
SNT Assets: The Basics
SNTs are meant to supplement, but not replace, public benefits. Third-party (3rd Party) SNTs, discussed elsewhere on our website, are created by a third party (parent, grandparent, friend) for the benefit of a beneficiary with special needs. A designated Trustee will act as the manager, or administrator, of the SNT. The over-arching rules regarding 3rd Party SNTs require that:
1. Assets must never be distributed directly to the beneficiary but shall be distributed to the SNT. The Trustee will manage and use these assets for the beneficiary’s benefit.
2. Once the SNT is funded, the Trustee must make payments on behalf of the beneficiary, but not directly to the beneficiary.
3. If a beneficiary receives Supplemental Security Income (“SSI”), that beneficiary’s assets may not exceed $2,000.00 at any time. Anything over $2,000.00 will reduce SSI benefits on a dollar-for-dollar basis.
4. The SNT must not pay for food, shelter, or medication in order to preserve full public benefits.
5. SNT assets may only be used for the beneficiary’s benefit. A guardian may accompany a beneficiary for entertainment or travel, for example, if the beneficiary requires or would benefit from the guardian’s presence. The purpose of the entertainment expense, including the guardian’s costs, must be to provide for the beneficiary.
“What Can SNT Funds Be Used For?”
Clients are normally happy to hear the answer to this common question: SNT assets can be used liberally for expenses not covered by public benefits. The Trustee, following the guidelines listed above, can make almost any payment on the beneficiary’s behalf. These may include, but are not limited to:
· Medical expenses not covered by public benefits
· Medication not covered by public benefits
· Special equipment necessary due to disability but not covered by public benefits
· Transportation costs, such as bus or rail passes, Lyft, Uber, taxi, or specialty van rental
· Purchase of transportation, such as a car or van
· Travel costs, which can include a companion, driver, and/or caretaker
· Recreation and entertainment
· Electronic equipment
· Legal expenses
· Guardianship expenses
· Insurance (Life Insurance is limited to a policy with a combined face value of $1500.00 or less)
· Burial and final expenses ($1500.00 limit for funds set aside for burial expenses in a bank account, financial instrument, or prepaid burial arrangement).
This list is broad, and leaves the Trustee a high level of flexibility. Many clients have questions about the following specific categories, listed below:
Food, Housing, and SSI
SSI benefits are available for qualified individuals to assist with food and shelter costs. In 2023, SSI payments total $914 per month for a qualified individual. Many parents and caretakers have questions regarding what SSI funds can be used for versus what SNT funds may pay for regarding food and shelter expenses, addressed in greater detail below.
Food
A Trustee must use SSI funds rather than SNT assets for food in order to maintain the beneficiary’s full SSI eligibility. SSI funds can be used for groceries, of course, but may also be used for restaurant meals, snacks at entertainment events, and other food expenses outside the home. A Trustee will therefore use SSI funds at the supermarket, when taking the beneficiary out for ice cream, buying popcorn at a movie, or a soda at a basketball game.
SNT funds used to cover food and shelter are known as In-Kind Support and Maintenance (“ISM”). ISM payments will reduce SSI payments by a dollar-for-dollar amount, up to a defined monthly cap [currently 1/3 of monthly SSI payment + $20 ($324.66 in 2023)].
While a Trustee should exhaust all SSI funds allotted for food on food purchases, what if SSI funds for food are depleted, but the Trustee wants to take the beneficiary out for a birthday dinner and a movie? In that case, funds spent on that birthday dinner ($50.00) and candy and a soda at the movie theater ($14.00) will be considered ISM. In this case, the beneficiary’s SSI monthly payment will be reduced on a dollar-for-dollar basis, or by $64.00.
Housing
The same rules apply to housing payments, which include rent, mortgage payments, utilities, property taxes, home repair, and other housing-related expenses. Since monthly housing costs will almost always exceed $324.66, Trustees who use SNT funds to pay rent, for example, will normally see the beneficiary’s monthly SSI payments reduced by the monthly cap, currently $324.66.
If a beneficiary lives with a family member and does not pay rent, their SSI payments will not be reduced. Conversely, if an SNT owns a home outright, and therefore the Trustee does not pay monthly mortgage payments, SSI will not be affected. If a Trustor owns a home free and clear, and distributes that house to an SNT for a beneficiary’s use, that beneficiary will be able to reside in that home without a reduction in SSI.
CalABLE Accounts, discussed later in this article, provide a possible work-around, and may be used to cover housing costs without a reduction in SSI.
Medical Expenses
Many parents and caretakers have questions regarding whether SNT assets can pay for prescriptions, medical devices, and services. Here, the short answer is that covered medical expenses will differ for each individual, and will be determined on a case-by-case basis. The SNT may pay for medical and related expenses that are not covered.
In-Home Support Services (“IHSS”): the beneficiary will need to be assessed by IHSS to determine if he or she is eligible for in-home care. If they are, SNT funds cannot be used for any medical care covered by IHSS.
Medi-Cal or Medicare: the beneficiary will need to be assessed to determine which medications and services they qualify for on an outpatient basis. SNT funds may be used for medications, devices, and services that are not covered.
The critical take-away: it is crucial that Trustees work closely with an assigned social worker, or with public agencies directly, to manage benefits and determine which expenses are covered. SNT assets may not pay for medical expenses covered by public benefits, but can be used to supplement those benefits to pay for any non-covered medical expenses.
Transportation, Entertainment, and Travel
Beyond food, shelter, and medical expenses covered by public benefits, Trustees have broad authority and discretion to care for beneficiaries. Many caretakers have questions about transportation, entertainment, and travel, addressed in greater detail below.
Transportation
An SNT can pay for public transportation, rideshare, and taxi fare. Funds may be used for specialized transportation, such as a van equipped to carry a wheelchair, on a one-off or recurring basis. A Trustor may leave a vehicle to an SNT for the benefit of the beneficiary. A Trustee may decide to purchase a vehicle and pay a driver to shuttle the beneficiary to work, medical appointments, and social obligations.
Entertainment
Many caretakers and potential Trustees state that travel and entertainment expenses make them nervous: they do not want to mistakenly misuse SNT funds. Here, there is little cause for worry. The SNT may pay for entertainment and travel expenses that the Trustee believes are reasonable. The Trustee has a duty to cover the beneficiary’s needs while also preserving Trust assets, but ultimately the Trustee decides what entertainment and travel expenses are reasonable.
Non-food expenses for special events, sporting events, movies, concerts, amusement parks, streaming entertainment subscriptions, books, and video games are all covered, at the Trustee’s discretion.
The Trustee may pay for travel expenses and may even pay for a guardian or companion to accompany the beneficiary if required. This may include airfare, hotels, and associated expenses. Again, the Trustee will decide what is reasonable based on the beneficiary’s needs and wishes, and on Trust resources, but the Trustee is ultimately empowered to make that call.
A CalABLE account, covered in the next section, will allow a Trustee flexibility to pay for food at special events or during travel without a reduction in SSI.
CalABLE Accounts
One way to ensure payments for beneficiaries without risking a reduction in public benefits is to establish an “ABLE” account. ABLE, known in California as “CalABLE”, stands for Achieving a Better Life Experience. These accounts are covered in greater detail in an article titled, “529 ABLE Accounts: A New Tool in the Estate Planner’s Toolbox, but Not a Replacement for Special Needs Trusts”, available on this firm’s website.
In short, a CalABLE account can be established on behalf of a disabled beneficiary, as long as the disability occurred before the beneficiary’s 26th birthday. This age is set to increase to 46 in 2026. Deposits can be made by anyone (including a beneficiary’s Special Needs Trust) but cannot total more than the annual gift exclusion amount, currently $17,000. In addition, the beneficiary may also deposit wages up to $13,590 per year. Funds in an ABLE account grow tax free, and do not count as a resource for public benefits qualification, as long as the balance is less than $100,000. Withdrawals are tax free if used for “Qualified Disability Expenses.” Importantly, all food and housing expenses count as Qualified Disability Expenses. This means that payment of these expenses from an ABLE account will not affect a beneficiary’s SSI benefits.
SNTs Supplement Public Benefits to Provide the Best Possible Quality of Life
The rule of thumb is that an SNT may supplement public benefits to provide for a beneficiary. Each beneficiary has interests, desires, entertainment preferences of their own. Some dream of travel, while others prefer not to leave the house. Some beneficiaries prefer social activities and public events, while others opt for private entertainment at home. Whether a Trustee pays for electronics, travel, video games, or special events, clothes, and miscellaneous expenses, they are only limited by the general rules outlined above and their own good judgment.
Please contact Senior Attorney, Terri Easlon, at DROBNY LAW OFFICES, INC. if you have any questions regarding special needs trusts.
This testimonial or endorsement does not constitute a guarantee, warranty or prediction regarding the outcome of your legal matter.