Part Two: What’s New in the Social Security Administration’s Approach to Special Needs Trusts?

Although trust principal may not be considered an available resource to the beneficiary, disbursements from the trust may be considered income to the SSI recipient (trust beneficiary), depending on the nature of the disbursements. The following rules apply to both self-settled and third party Special Needs Trusts. POMS SI 01120.201I.1

(a) Disbursements of cash paid directly from the trust to the beneficiary are considered unearned income and result in a dollar-for-dollar reduction in benefits in the month received. POMS SI 01120.201I.1.a

(b) Disbursements from the trust to a third party that result in the beneficiary receiving non-cash items (other than food and shelter) are considered in-kind income in the month received, if the items would not be an excluded resource in the following month. The POMS give an example of a second car, which would be considered income in the month of receipt, since it would not be an excluded resource in the following month. See SI 00815.550 for a list of excluded resources.

Disbursements from a trust by the trustee to a third party, which result in the beneficiary receiving food and shelter, are considered income in the form of in-kind support and maintenance (ISM) and are valued under the presumed maximum value (PMV) rule. POMS SI 01120.201I.1.b and SI 00835.300 for rules pertaining to the PMV rule.

(a) Disbursements from the trust paid directly to third parties that do not result in the receipt of support and maintenance are not considered income to the beneficiary. Under the POMS, such disbursements may take the form of educational expenses, uncovered medical expenses, telephone bills, recreational and entertainment expenses, etc. POMS SI 01120.201I.1.c, See also POMS SI 00815.400

(b) Disbursements from the trust to a third party that result in the beneficiary receiving non-cash items (other than food and shelter) are not considered income in the month received, if the items would be an excluded non-liquid resource in the following month. The POMS gives the example of a trust purchasing a computer for the trust beneficiary, which would be excluded as household goods in the following month, and therefore, the computer is not income to the beneficiary in the month received. POMS SI 01120.201I.1.c, See also POMS SI 01130.430

(a) Disbursements from a trust to pay a credit card bill for items of food and shelter are considered income to the beneficiary in the form of in-kind support and maintenance in the month the credit card bill is paid, and are valued under the presumed maximum value rule. Payment of restaurant charges would be considered ISM.

(b) Disbursements from a trust to pay a credit card bill for items that are not food or shelter are not considered income to the beneficiary as a result of the payment, unless the items would be included as a resource in the following month. If the credit card bill includes the purchase of clothing, payment of clothing is not income to the beneficiary, since the clothing would be an excluded resource if retained into the following month. POMS SI 01120.201I.1.d

Gift cards and gift certificates are considered the equivalent of cash if the card can be used to buy food or shelter, or if the card does not have a legally enforceable prohibition on the individual selling the card for cash. The card is considered unearned income in the month of receipt, and any unspent balance on the card is a resource in the following month. POMS SI 01120.201I.1.e

Where a third party purchases items for a trust beneficiary, other than food and shelter, and thereafter is reimbursed directly from the trust for such expenditures, the Social Security Administration is now taking the position that such reimbursement is “in-kind income” to the SSI recipient in the month the reimbursement is made, and will reduce the beneficiary’s monthly benefit dollar-for-dollar with no limit.

In order to avoid this result, the trust should pay the retailer directly, or if a third party purchases items, other than food and shelter, on a credit card, the trust should pay the credit card company directly for the purchases made on behalf of the beneficiary.

Under the POMS, the Social Security Administration will reduce the income of the SSI recipient either dollar-for-dollar with no limitation, or no more than $256.66 per month in 2013 under the presumed maximum value (PMV) rule, depending on the nature of the distribution as described above.

Under Section 416.571 of the Code of Federal Regulation, the Social Security Administration will recoup the overpayment due to excess income by reducing the beneficiary’s monthly benefit by no more than 10% of the beneficiary’s total income for the month.

Philip H. Mondschein, Esq.

If you want to learn more about Special Needs Planning and Trusts, call our Miami office for a FREE telephone consultation now!

The Elder Law Center of Mondschein and Mondschein, P.A.