Special Needs Trusts and Powers of Attorney

The trust is designed to receive property owned by Jane Doe, or property that he/she would otherwise receive, without being subject to a transfer penalty for purposes of Supplemental Security Income (SSI) or Medicaid eligibility and without the trust corpus being treated as an available resource. To achieve this result, the trust must comply with several requirements.

• First, the trust must be for the sole benefit of a disabled person under 65 (sixty-five) years of age. To meet this requirement, the Medicaid regulations require that the trust be “actuarially sound,” meaning that the trust must require a complete distribution of all trust assets within the life expectancy of the beneficiary. Jane Doe’s life expectancy is now __ years based on Medicaid’s tables, and the trust requires a complete distribution within this time frame.
• Second, the trust must be established by a parent, grandparent, guardian, or court. In other words, it cannot be established directly by Jane Doe herself. Thus, this trust is established by Jane Doe’s mother/father. In order for John Doe to have the authority to establish a trust for Jane Doe, a requirement specifically imposed by SSI, Jane Doe authorizes this action by executing the enclosed limited power of attorney.
• Finally, the trust must provide that Medicaid will be paid back from all remaining assets in the trust upon Jane Doe’s death, up to the amount Medicaid paid for her care during her life. The notion here is that the trust should be used in full for Jane Doe’s benefit during her life. If Jane Doe will benefit from another trust, for instance one created and funded by her parents during life or in their will, it will be optimal to exhaust the funds in this trust first because of the Medicaid payback provision.

How to Make Distributions

There are a number of thing that the trustee should keep in mind when providing benefits to Jane Doe. This is because some kinds of benefits that might be provided to Jane Doe may adversely impact her receipt of SSI and Medicaid.

The first, and most important concept, is that distributions of cash to Jane Doe will usually do her no good while she is on SSI and Medicaid. Generally, after the first $20.00 (twenty dollars) of unearned income, all distributions of cash to a SSI recipient reduce the SSI benefit on a dollar for dollar basis. And distributions of cash in excess of the SSI benefit amount (currently $570.00 per month) will result in a deductible for Medicaid coverage on a dollar for dollar basis for the excess. For instance, if the trust gives Jane Doe $650.00 this month, she would not be entitled to anything from SSI and would be responsible for the first $100.00 of her medical expenses before Medicaid would provide any medical coverage.

Because of the adverse effects of cash distributions, usually these kinds of trusts (and other people who want to help Jane Doe) provide her with in-kind benefits. This means making payments directly to vendors for goods and services that are provided to Jane Doe. The provision of any kind of in-kind benefit to Jane Doe by the trust will have no adverse impact on Medicaid eligibility or coverage, unless it is for a good or service covered by Medicaid.

However, certain kinds of in-kind distributions do have a limited impact on the amount of SSI that is received. In-kind distributions of food, clothing, or shelter have the effect of reducing the SSI benefit on a dollar for dollar basis, although the maximum reduction for such distributions is one-third of the federal SSI benefit rate. So, if the trust pays $100.00 toward her rent, she would receive $470.00 from SSI instead of $570. But also note, that if the trust pays $600.00 per month rent directly to the Landlord, pays $200.00 per month for her food and gives her clothes worth $100.00, her SSI payment would still be about $405.00 because the reduction for the in-kind provision of food, clothing or shelter is capped at one-third of the federal SSI benefit rate.

Generally, for SSI recipients, in-kind distributions for transportation, education and recreation are the areas to focus on because such distributions allow enhancing life without causing any reduction in governmental benefits.

Contact our Seattle, Washington Estate Planning Attorneys

For a free initial consultation with a Seattle attorney experienced at developing Special Needs Trusts, call Satterberg, Healy & Eeckhoudt at (206) 763-1510 or contact us online.