So you are the trustee of a special needs trust, also referred to as a supplemental needs trust (SNT), and you are wondering what in the world you can pay for on behalf of the special needs beneficiary? Or the special needs beneficiary may ask you to buy a certain item or pay for a certain service for them.
What are you allowed to do as a trustee? The answer is critical, as you do not want to disqualify the beneficiary from the governmental benefits, such as SSI or Medicaid, that they are receiving.
This can often be tricky when you are trying to navigate the complicated rules for expenditures from a supplemental needs trust. If you purchase goods or services directly, referred to as an in-kind purchase, this can potentially affect SSI benefits as an “in-kind support and maintenance” payment, but not Medicaid benefits.
Remember that rules prohibit the purchase of “food and shelter.” The Social Security Administration, as well as Nevada, include the following items as food and shelter:
2. Mortgage payments, which include property insurance required by the lender
3. Real property taxes
4. Rent payments
5. Heating fuel
10. Garbage removal
With respect to shelter, it is important to remember that any condominium assessments that are paid may include, at least in part, payments for sewer, water, garbage removal and similar items. Be careful with condo assessment payments.
Interestingly, the purchase of a new home is not counted and such will not cause a loss of SSI payments. However, it may reduce the beneficiary’s SSI benefits for the one month in which the home was purchased. Whether or not a home should be purchased for the beneficiary is the subject of another blog post.
So now that I’ve explained what items cannot be purchased, you are now wondering what may be purchased.
Prior to 2005, the purchase of clothing was considered an in-kind support and maintenance item for the SSI rules, similar to food and shelter. However, since March 7, 2005, the purchase of clothing for the beneficiary will not affect the beneficiary’s benefit amount or eligibility for the governmental program.
Even though the utilities mentioned above may not be paid for, other utilities are allowed. These include a phone bill, a cable bill, internet services, newspaper, and other “utilities”.
Also, under federal law you may purchase a vehicle and maintain that vehicle. This would include a converted van for the disabled beneficiary, or similar vehicle.
The difficulty can come in providing benefits from the trust that can be converted to food or shelter. One method of dealing with this situation is to arrange for the beneficiary to use a gas company credit card. Certain types of these cards cannot be used to purchase groceries or easily converted to cash that can be used for food or shelter.
Additional items that can be paid for include prepaid funeral or burial arrangements. When purchasing or paying for funeral arrangements, it is important to purchase an irrevocable, prepaid funeral plan. That way the beneficiary may not convert the plan to cash that may be used for food or shelter.
Tuition, Books, or Tutoring
There’s also no limit to the use of SNT funds for the payment of school tuition, textbooks, or tutoring. Other non-textbooks are also allowed.
Travel and Entertainment
Also, there is no limit regarding the payment of travel and entertainment expenses. However, there may be some concern about the payment for a hotel, as it could be considered shelter.
It is possible that the state will impose limitations on companion travel, even though that is not prohibited by federal law. For example, the Special Needs Trust may not be allowed to pay for more than one traveling companion on the trip, as only one companion is necessary to provide care for the beneficiary. Furthermore, the traveling companion should not be someone that is otherwise obligated to support the beneficiary. This may include, for example, a minor beneficiary’s parent.
It may also be important to remember that travel expenditures, such as airline tickets to a foreign destination, if refundable, could end up being treated as being able to be converted to food and shelter. Also, if the beneficiary travels outside of the United States for more than a month, he or she may become ineligible for the government assistance that they were receiving.
Household Furnishings, Television, Computers
Even though there are restrictions on shelter, the trust is allowed to purchase household furnishings, furniture and appliances for the home. This is something that was clarified by the changes in March, 2005.
Along with the household furnishings, the trust may purchase a television, computers, or other electronics.
You are also allowed as Trustee of the SNT to purchase durable medical equipment. However, there may be limitations placed on the purchase of some medical equipment that the state deems not being necessary.
Similar to medical equipment, the trust may pay for therapy, medications, and alternative treatments.
Care or Management
In addition, there is no federal limitation, although some states attempt to limit payments for care or management made to a relative of the beneficiary. This is particularly true if there is a support obligation.
The payment of legal fees for setting up the SNT, for trust administration, are also clearly allowable under both state and federal law. It is important that the legal fees charged to the trust are reasonable in nature.
What about loans? Typically a loan from a Special Needs Trust to the beneficiary will not count as income for SSI or Medicaid programs. However, the loan must be reasonable in nature and subject to an enforceable agreement.
Also, repayment of the loan cannot be based upon a future contingency, such as winning the lottery. Also, it must be reasonably feasible that the loan will be paid back. Ask yourself, “How will the beneficiary repay the loan?”
In the event that the loan is forgiven, it will be counted as income at the time it is forgiven. The Trustee must also keep in mind that if the beneficiary is still holding the loan proceeds into the following month, it will become a countable resource.
Also keep in mind that goods and services paid for by a credit card are considered a “loan”. They must be paid back to the credit card company and therefore, such loans are not considered income. Remember that the credit card should not be used for food and shelter related items listed above.
Unlike credit cards, using a debit card when purchasing items from a trust-funded bank account is considered income to the beneficiary for the amount of the purchase. If the beneficiary has such a debit card, the total amount of funds in the Trust’s bank account tied to the debit card could be a countable resource.
The purchase of a gift card by the SNT for the beneficiary is a difficult issue that should probably be avoided. It’s not clear at this time whether the use of a gift card will be treated as a distribution of income from the trust, a loan to a vendor similar to a credit card, or just an in-kind purchase of services or goods on behalf of the beneficiary. If you’re going to use a gift card, the safe approach would be to use them only in a limited way, keeping receipts for all purchases made by the beneficiary with the gift card. It may be best to keep in mind and be prepared for adverse treatment of the use of gift cards.