Special Needs Trusts and Disability Benefits

By Eva Schwechter, J.D. and Ronald A. Fatoullah, Esq.

Funds held in a properly drafted special needs trust will not affect a Supplemental Security Income (SSI) or Medicaid recipient's benefits. However, problems may develop when funds are removed from a special needs trust. This leads to one of the most commonly asked questions about special needs trusts: What can the trust pay for?

This question is best answered by stating what the trustee of a special needs trust for an SSI beneficiary should typically never do without first consulting a special needs planner - the trust should never give the beneficiary cash or a cash equivalent, or pay for food or shelter.

If an SSI beneficiary receives cash (or a cash equivalent such as a gift card) from a trust (or from anyone else for that matter), his or her benefit will be reduced by one dollar for each dollar received, up until the point at which he or she loses SSI completely. This is a hard-and-fast rule and should be disregarded only after a serious conversation with an attorney.

The rules about food and shelter are a little more complicated. If a trust pays for a beneficiary's food or shelter directly to a landlord, restaurant or store, the beneficiary could lose up to one-third of his or her SSI benefit. In addition, payment of bills for housing-related expenses such as mortgage payments, real estate taxes, utilities and condo fees cause a similar reduction in benefits. While a one-third reduction in benefits might be a small price to pay for guaranteed shelter and meals, if the beneficiary works or receives other income, the additional one-third reduction could cause the beneficiary to actually lose SSI and accompanying Medicaid benefits entirely.

Apart from cash, housing and food, a special needs trust can typically pay for most other things a beneficiary might need to supplement his or her lifestyle. However, because these rules are very complicated, it is always best for the trustee to meet with an attorney prior to making payments to anyone.

Ronald A. Fatoullah, Esq. is the principal and founder of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Eva Schwechter recently graduated from Hofstra University School of Law, where she was a member of the Hofstra Law Review. The law firm can be reached at 718-261-1700, 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also the co-founder of JR Wealth Advisors, LLC. The wealth management firm can be reached at 516-466-3300 or 800-353-3775.