Can a special needs trust pay for a caregiver

On April 30, 2018, SSA updated its employee policy manual to permit special needs trusts to pay travel expenses of people other than trust beneficiaries, when the trust beneficiary is unable to travel by him- or herself. This change is a major loosening of restrictions on special needs trusts serving persons receiving Supplemental Security Income (SSI), a monthly cash stipend recipients use to pay food and shelter expenses.

Under prior guidelines, travel expenses for non-beneficiaries only were allowed: 1) when necessary in order for the trust beneficiary to travel for the purpose of obtaining medical treatment; or 2) when the trust beneficiary was living in a long-term care facility, and the travel was for the purpose of ensuring the beneficiary’s safety or medical well-being. Payments made in violation of the policy were considered transfers of resources by the trust beneficiary, which resulted in the beneficiary’s being temporarily ineligible for SSI. This restrictive policy often limited the ability of trust beneficiaries to travel at all. Beneficiaries who were unable to travel independently had to ask their caregivers to pay their own travel expenses; if a caregiver couldn’t afford to pay his or her own travel costs, the trust beneficiary often couldn’t go, since the beneficiary needed the caregiver’s help.

SSA’s new guidelines adopt a more common-sense approach, allowing payment of non-beneficiary travel costs when a caregiver’s assistance is necessary for the beneficiary to travel. This applies regardless of whether the trust beneficiary is traveling to obtain medical care or for another reason, such as recreation. During travel, the caregiver must provide the trust beneficiary services or assistance necessary due to the beneficiary’s medical condition, disability, or minority. The trust is permitted to pay caregiver travel costs for transportation, lodging, and food. In situations where more than one caregiver may be required in order to provide adequate support, SSA field offices are instructed to use a reasonableness test when evaluating the number of people accompanying the beneficiary.

Does this change mean that special needs trust trustees should rubber-stamp disbursement requests including non-beneficiary travel costs? No. Trustees of special needs trusts have a duty to ensure that trust funds are used appropriately and for the benefit of the trust beneficiary. Before approving a travel request, a trustee should satisfy itself that:

• Travel is reasonable considering the beneficiary’s circumstances. For example, if the beneficiary depends upon the trust for day-to-day living expenses and trust funds are running out, conserving trust funds might be a higher priority than recreational travel.
• The trip is appropriate for the beneficiary. Planned travel and accommodations should suit the beneficiary’s physical condition, abilities, and interests.
• Parents are meeting their duty of support. In cases where there is no special needs trust, parents of minors routinely pay the costs of their own and their child’s travel. Parents should offer a compelling reason if they are asking a child’s special needs trust to assume these costs.
• The companion’s services and assistance are necessary due to the trust beneficiary’s medical condition, disability, or minority.

Trustees also probably will more readily approve trips with destinations and amenities that typical Americans could afford. Movies stars and tycoons might fly first-class to Paris to for a weekend getaway, but that lifestyle is out of reach for the rest of us. It likely would be inappropriate for a person receiving public benefits to use special needs trust funds in order to live (or travel) like the ultra-rich. However, some amenities might be appropriate because of a beneficiary’s special needs. Trustees should evaluate each request on a case-by-case basis.

SSA’s new guidelines benefit special needs trust beneficiaries receiving SSI who couldn’t travel without help. Trustees now are able to pay a caregiver’s travel costs when the caregiver’s help is necessary to allow the trust beneficiary to travel. What great news, just in time for summer travel plans!

You can use a special needs trust to buy groceries or pay rent or mortgage for the beneficiary—but it might not always be a great idea.

If you are serving as trustee of a special needs trust, you need to know whether you can use the trust funds to pay for housing or food. The short answer, is you can, but you may not want to. This article explains why.

In-Kind Support and Maintenance (ISM)

Can a special needs trust pay the rent, mortgage, or groceries? Yes, it can, but you might run into some drawbacks. To understand why, it's important to first understand that when the trustee of a special needs trust pays for the beneficiary's food or shelter, the amount paid is considered income to the beneficiary. Specifically, it's called in-kind income or in-kind support and maintenance (ISM). The SSI program treats ISM differently from other types of income.

If the ISM can be assigned a specific value, that amount is deducted from the SSI grant—up to a limit. The amount of the deduction is currently capped at $300.33 in 2022. (This value, which is tied to the federal benefit rate, goes up each year).

EXAMPLE: Leo, who lives in his own home and receives an SSI grant because of his Down Syndrome, loves to eat out. Each month, Leo's restaurant tab averages $120. If the cost of the meals is picked up by a special needs trust or other outside source, Leo's SSI grant will be reduced dollar for dollar by $120. If Leo had fancier tastes and, courtesy of his special needs trust, spent $500 a month eating out, his grant would also be reduced, but only by a maximum of $300.33.

These rules mean that, if necessary, a special needs trust can provide your loved one with food or shelter—and still leave your loved one with the lion's share of the SSI grant as well as continued eligibility for Medicaid benefits.

Paying for Shelter May Be Worth the Reduction in Benefits

The question of ISM comes up most often with shelter, because the SSI grant is so inadequate when it comes to paying rent in the private housing market. If you use the special needs trust to pay for rent or mortgage payments on a house owned by the beneficiary, these payments are considered ISM, so they trigger a reduction of the SSI grant. Still, if a beneficiary's shelter needs can be met only through rental assistance from the special needs trust, a $300.33 reduction in the monthly SSI grant can be well worth it.

EXAMPLE: Sonya, the beneficiary of a special needs trust, receives SSI and Medicaid. When Sonya's group home closes, she is forced to rent housing at private market rates. She finds a suitable apartment for $2,000 per month—considerably more than her potential $841 SSI grant. The trustee of Sonya's special needs trust decides to pay for all of Sonya's rent and utilities, a total of $2,300 a month. Trust payments for rent and utilities are considered ISM, so Sonya's SSI grant will be reduced. The federal portion of the grant in 2022 is $841, and Sonya will lose $300.33 of her SSI check. She will also continue to receive Medicaid. In other words, Sonya's trust pays $2,300 for a nice, safe and clean apartment for Sonya, and her SSI is reduced only by $300.33. She continues to receive $540.67 in SSI.

It's important to know how much SSI a beneficiary is receiving. If Sonya was receiving less than $300.33 in SSI because she was receiving income from another source, the payment of the rent in the example above would eliminate her eligibility for SSI. Thus, it is important to know how much SSI the person with a disability is receiving to make sure that there is not a total loss of SSI and an accompanying loss of Medicaid.

Once the ISM maximum reduction of $300.33 (in 2022) is reached, the trustee may pay for all the beneficiary's food, rent, and utilities without any further reduction in SSI.

Can a Special Needs Trust Own a House?

If a special needs trust owns a house or has enough assets to buy one outright, the beneficiary may be able to live in the house rent-free without affecting his or her SSI grant. (For more about this, read How Special Needs Trust Funds Can Be Used.)

However, if the trust pays other expenses associated with shelter—such as electricity, heat, or water—the amounts are considered ISM, and the grant is reduced dollar-for-dollar up to the $300.33 per month (in 2022) maximum deduction, as described above. If the trust were making mortgage payments on the house, those payments would also be considered ISM and would result in an SSI reduction, up to $300.33 per month.

Computing the Maximum Deduction for ISM

The maximum federal SSI grant increases every year, as the cost of living increases. In 2022, it is $841. The maximum deduction for ISM is one-third of this amount, plus $20: $300.33.

For more information on federal and state SSI benefits, visit the Social Security Administration's website at www.ssa.gov.

For the ISM maximum deductions each year, see the SSA's Values for In-Kind Support and Maintenance.

Food stamps, low-income housing assistance, state-funded cash benefits, and noncash government benefits don't count as income in kind for purposes of computing an SSI grant.

Whether to Use a Special Needs Trust to Pay for Housing or Food

Before deciding whether you should use the funds in a special needs trust to pay for rent, mortgage, or food, you should understand how much money will be deducted from the beneficiary's SSI grant, and whether that deduction is worth it (or, conversely, could cause you to lose SSI and Medicaid benefits). In other words, ask the following:

• How much of the trust funds would you spend each month on rent, mortgage, or food?
• How much SSI is the beneficiary receiving each month?
• How much will be taken from the beneficiary's SSI grant each month as a result of the ISM deduction? (See the discussion above; this amount is capped.)
• Does the deduction exceed the beneficiary's SSI grant? (If so, you should not proceed, as you could lose not only SSI, but Medicaid as well.)
• Is the benefit to the beneficiary worth that deduction in the SSI grant?

More About Special Needs Trusts

To learn more about special needs trust, go to Nolo's Special Needs Trusts section.

For a detailed description about properly administering a special needs trust, read Administering the California Special Needs Trust, by Kevin Urbatsch and Michele Fuller.

This article was excerpted from Special Needs Trusts, by Kevin Urbatsch and Michele Fuller-Urbatsch (Nolo), which provides all of the information and forms you need to create a special needs trust without a lawyer.

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