A Special Needs Trust, sometimes called a Supplemental Needs Trust (SNT), is a trust designed to qualify or preserve the trust beneficiary’s eligibility for government benefits based upon financial need, such as Medicaid and Supplemental Security Income (SSI). These needs-based programs are often vital for the beneficiary of SNT, who is an individual with a disability.

There are different types of SNTs – depending upon whose money is funding the Trust. A First Party SNT is a trust that is funded with the assets of the beneficiary with a disability. It must be established by a parent, grandparent, guardian or Court. It is not possible for the beneficiary to establish his or her own First Party SNT. To establish a First Party SNT three (3) criteria must be satisfied:

• The beneficiary must have a disability, i.e., he/she must be unable to work;
• The Beneficiary must be under the age of 65 when the Trust is created; and,
• The SNT must contain a provision obligating the Trustee to repay Medicaid, when the SNT is terminated, for all of the benefits paid by Medicaid for the benefit of the beneficiary over his or her lifetime.

How Decisions By A SNT Trustee Impact Entitlement to Government Benefits

Medicaid and SSI are not the only government benefits that individuals with disabilities receive. Beneficiaries of SNT may qualify for assistance in housing, food and heat, and receive disability benefits based upon his or her own work history. Using an SNT will not affect benefits that are not based upon financial need (they do not have an income limitation or resource level). However, as federal and state rules are constantly changing, it is incumbent upon the Trustee, and the advisory team, to remain abreast of changes to all the benefits programs the beneficiary is receiving or may receive in the near future.

Making Appropriate Disbursements

A. Paying for Housing/Shelter and Food (buying a home; paying/subsidizing rent). It is important to know that a beneficiary who is receiving SSI will have his or her SSI monthly payment reduced (up to a maximum reduction of one third) if the Trust pays for some or all of the  beneficiary’s food or shelter. An attorney can guide you through the calculations of the precise reduction so that you may determine whether the beneficiary’s reduction of the monthly SSI payment is worth the benefit of having food or shelter expenses paid by the Trust. The Social Security Administration considers the following items to be distributions for shelter: mortgage payments, insurance premiums if required by the mortgage company, real estate taxes, rent, heating fuel, gas, electric, water, sewer, and garbage removal.

B. Paying for Utilities (electric, gas, water). As mentioned above, electric, gas, water and the like are considered provisions of shelter which will reduce the Beneficiary’s monthly SSI award. Therefore, in most instances, the beneficiary’s SSI monthly payment should be used to meet these obligations.

C. Paying for other Household Expenses (phone, cable, internet, maid service, lawn service). The Social Security Administration does not consider things such as cable, phone, internet, cleaning services, landscaping, newspaper subscriptions, and other non-essential items as shelter. Therefore, the Trustee should try to structure the beneficiary’s bills so that the Trust is bearing the cost of these non-essential expenses. Using Trust funds to pay them will not reduce the beneficiary’s monthly SSI award. These expenditures also do not reduce Medicaid benefits.

D. Paying for Household Furnishings and other Personal Property. There is presently no limit on the value of household furnishings and other personal property that the Trust may own or purchase for the beneficiary without reducing the beneficiary’s monthly entitlement to a SSI award.

E. Buying the beneficiary clothes. Paying for clothing for the beneficiary with SNT assets will not affect SSI or Medicaid eligibility.

F. Buying the Beneficiary Food (weekly groceries, meals out). The Trust’s purchase of food for the beneficiary will result in the reduction of that beneficiary’s SSI award. “Food” has been defined by the SSI program to include groceries, dinners out, entertainment dinners and gift cards to establishments selling food. Purchasing these items for the beneficiary from the Trust does not affect Medicaid benefits.

G. Paying for a Car and all Insurance related thereto. It is permissible for the SNT to purchase, own, insure, and pay for upkeep of an automobile for the beneficiary. In order to reduce insurance costs, it is often preferable to have the beneficiary own the automobile with expenses paid from the Trust, with the approval of the Medicaid agency.

H. Setting up a Prepaid Funeral Account. The Trustee may pay for a pre-paid funeral agreement while the beneficiary is alive. Beneficiaries are encouraged to pay for these arrangements before the Trust is created, or request a payment from the Trust for a burial agreement during the beneficiary’s life. The Trust may not purchase a funeral once the beneficiary has passed away if sufficient funds will not remain for the Medicaid agency to be paid back for all Medicaid provided to the beneficiary.

I. Paying for Travel and Entertainment Expenses. Travel and entertainment expenses are supplemental needs. In some instances, a companion may also need to travel with the beneficiary. It is important to understand the local Social Service district’s position on disbursements from the Trust for the expenses relating to a companion.

J. Credit Cards. Paying the beneficiary’s monthly credit card bill is a way for the beneficiary to remain independent. So long as the credit card does not purchase food or shelter items, the credit card will not affect eligibility for SSI. The Trustee may not authorize a debit card against the Trust assets or gift card purchases for the beneficiary.

K. Paying for Educational Expenses. The Trustee is permitted to use SNT assets for educational expenses for the beneficiary. However, if the educational expenses encompass food and shelter, such as dormitory expenses or a meal plan for a student in a residential educational setting, the Trustee must take care to not use Trust assets for these types of expenses or else risk a reduction in the beneficiary’s SSI award.

L. Paying for Medical Expenses. It may be appropriate to use the Trust assets to pay for medical related equipment or therapies not provided by government benefits.

M. Paying for Insurance (health, auto, homeowners, long term care, disability, life, other). The Trust may pay for insurance beneficial to the beneficiary. For life insurance, the named beneficiary on the policy must be the Trust if the Trust is paying the premiums. Car insurance may be purchased and maintained by the Trust for a vehicle owned by the Trust, or by the beneficiary outright. Homeowner’s insurance may be paid by the Trust, although it might result in a reduction of SSI benefits. Renters insurance may be paid and not affect the SSI benefits as it is seen as a personal property insurance rather than a shelter payment.

N. Cash, Gifts from Trusts, and Other Items that will affect SSI and Medicaid. Giving the beneficiary spending money reduces dollar-for-dollar SSI benefits. Gifts to others on behalf of the beneficiary should not, in general, be made from the Trust.

O. Final Expenses Upon Death. The local Social Service district will allow the Trust to pay taxes due because of death of beneficiary, fees for administration of trust estate such as accounting to a court, etc. before reimbursing Medicaid, but the Trust may NOT pay debts owed to third parties, such as paying off a mortgage, credit card debts, etc. The Trust may NOT pay for a funeral prior to reimbursing the State for all Medicaid provided to the beneficiary during the beneficiary’s lifetime.

 (Adapted from a pamphlet entitled “Guidelines for the Trustees of First Party Supplemental Needs Trusts” published by the New York State Bar Association’s Elder Law Section. Mr. Vanarelli is admitted to practice law in New Jersey as well as New York State)

For additional information concerning special needs trusts and disability planning, visit:
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