(The folowing is part of a discussion, taken from a listserv, or electronic bulletin board, concerning the effect of distributions from special needs trusts to pay home expenses on eligibility for public benefits)
Question: Mother and her disabled daughter own their home equally as tenants in common. Daughter receives Supplemental Security Income (SSI) benefits. As part of daughter’s divorce, Court orders the establishment of a special needs trust (SNT) funded with a structured settlement annuity resulting from personal injury award with payments of $1,400 a month to mother for disabled daughter’s share of monthly mortgage, equity loan, property taxes, home insurance, upkeep of home and utilities. A 2008 Court order continued the payment.
My question is: do payments from daughter’s SNT to mother for expenses of the home owned in part by daughter mean that daughter is receiving in-kind support and maintenance (ISM) which will reduce her SSI benefits? I believe that the correct analysis of the issues results in that answer, meaning that the SSI monthly benefit is reduced but not eliminated. However, the Social Security Administration (SSA) has terminated the daughter’s SSI benefits. The agency considers the $1,400 per month distribution from the SNT to mom for the daughter’s expenses to be unearned income, countable against the daughter, and not ISM. The agency’s analysis renders the daughter ineligible for SSI benefits. I believe SSA is wrong. Shouldn’t the SNT distributions be considered ISM and the SSI benefit be reduced each month by the presumed maximum value (PMV), or 1/3rd of the federal benefit rate?
Answer: I believe you are correct and the agency is wrong.
If the home is purchased with a mortgage in the name of the SNT, the payment of the mortgage is a disbursement from the trust to a third party that results in receipt of in-kind support and maintenance (ISM) in the form of shelter in the month of the purchase. Program Operations Manual System (POMS) SI 01120.200(F)(3)(b).
The subsequent monthly mortgage payments will also result in the receipt of income in the form of ISM, each valued at no more than the PMV. POMS SI 01120.200(F)(3)(b). The same result would occur if the SNT paid the disabled daughter’s rent each month.
NOTE: A trustee may need to search for a lender willing to provide a mortgage (at a reasonable interest rate) to an SNT. It may be very difficult (if not impossible) to find such a lender if the SNT is recently established.
EXAMPLE: If the SNT trustee purchases a home for $500,000 by paying half in cash and half through a mortgage with monthly payments of $1200 for 20 years, the SNT beneficiary would lose $244.67 (the 2010 PMV amount) of SSI in the month of purchase as ISM. Going forward, each and every month the mortgage is paid, the SNT beneficiary would also lose the same amount each month as ISM.
WARNING: An SNT beneficiary whose monthly SSI benefit is less than the PMV amount ($244.67 in 2010) will lose his or her SSI and Medicaid if the home purchase is made through a mortgage.
If the home is purchased outright in the name of the SNT and the beneficiary is a SSI recipient, SSA considers the SNT beneficiary to have an “equitable ownership under a trust.” POMS SI 01120.200(F)(1). This means that the home purchase would be considered income in the form of ISM in the month of purchase only. This ISM is valued at no more than the PMV, regardless of the value of the home. POMS SI 01120.200(F)(3)(a).
After the initial month, the SNT beneficiary may live in the home rent-free without it being considered ISM. POMS SI 01120.200(F)(2). The SNT beneficiary may also move from the home without it affecting SSI. POMS SI 01120.200(F)(1).
EXAMPLE: If the SNT trustee purchases a home for $800,000, the SNT beneficiary would lose only $244.67 (the 2010 PMV amount) of SSI in the month of purchase as ISM. Going forward, the SNT beneficiary may live in the home rent-free without any further reduction of SSI. The SNT beneficiary may also move from the home at any time without affecting SSI.