Government Benefits

Question 1

What do “incapacity” and “incompetence” refer to for purposes of Special Needs Trusts?

Answer 1

These refer to the inability of a trustee to manage the trust.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 4]

Question 2

Generally, what does “disability” mean for government benefits eligibility?

Answer 2

For most purposes involving special needs trust, “disability” is “the inability to perform any SUBSTANTIAL GAINFUL EMPLOYMENT,” which is the standard used to determine eligibility for Social Security Disability Insurance and Supplemental Security Income benefits.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 4]

Question 3

When are SSDI/SSD benefits available?

Answer 3

Social Security Disability Insurance is available to individuals with a disability who either (1) have sufficient work history prior to becoming disabled or (2) are entitled to receive benefits by virtue of being a dependent or survivor of a disabled, retired, or deceased insured worker.
- NOTE: For SSDI, “disability” is “the inability to perform any SUBSTANTIAL GAINFUL EMPLOYMENT.”
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 5]

Question 4

What is the “means” test for SSDI eligibility? What significance does this have for Special Needs Trust planning?

Answer 4

There is no “means” test for SSDI eligibility. Thus, SNTs may not be necessary for some beneficiaries (they can qualify for entitlements like SSDI and Medicare even though they receive income or have available resources.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 5]

Question 5

When are SSI benefits available?

Answer 5

The Supplemental Security Income program provides benefits to low-income individuals who are disabled, blind, or elderly and have limited income and few assets.
- NOTE: For SSI, “disability” is “the inability to perform any SUBSTANTIAL GAINFUL EMPLOYMENT.”
- NOTE: SSI eligibility rules form the basis for many other government program rules, so they are important in SNT planning and administration.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 5]

Question 6

What is Medicare?

Answer 6

Medicare is the federal HEALTH INSURANCE program for people who paid into the social security system while working and are either (1) over 65 or (2) under 65 and determined to be disabled by the social security administration (have been entitled to SSDI benefits for the last 24 months).
[SOURCE: “Medicaid and Special Needs Planning: Practice Tips When a Client is Elderly or Disabled”; PG: 1-2]

Question 7

Who is entitled to receive Medicare?

Answer 7

Medicare benefits are available to (1) all those age 65 and over, provided that they would be entitled to receive Social Security benefits if they chose to retire (whether or not they are actually retired) and (2) those under 65 who have been receiving SSDI for at least two years.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 5]

Question 8

Who runs Medicare and who runs Medicaid (Federal vs. State)?

Answer 8

Medicare is operated and funded by the federal government. Medicaid is run by state governments but is partially funded by the federal government.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 5]

Question 9

What is the most common source of funds for special needs trusts?

Answer 9

Lawsuit proceeds (often a lawsuit over the injury that caused the disability).
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 5]

Question 10

What is the key element for determining whether a SNT is “self-settled?”

Answer 10

The key test in determining whether a trust is self-settled is to determine whether the beneficiary had the right to outright possession of the proceeds prior to the act establishing the trust.
- If so, public benefits eligibility rules will treat the beneficiary as having set up the trust even though the actual implementation may have been undertaken by someone else acting on their behalf.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 5]

Question 11

What are “Sole Benefit” trusts?

Answer 11

Trusts in which, via gifting in trust, a grantor secures Medicaid benefits for both themselves and the grantee.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 6]

Question 12

What determines eligibility for subsidized housing?

Answer 12

Eligibility depends on the family’s annual income. In general, an individual’s countable income may not exceed 80% of the median income in the area/region (where the person resides) to be considered “low income,” and the individual’s income may not exceed 50% of the median income to be considered “very low income.” There is no asset limit, but if assets exceed $5,000, interest income will be counted towards eligibility.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 7]

Question 13

What result for subsidized housing eligibility determinations when a person transfers an asset for less than its FMV? What significance for SNTs?

Answer 13

When a person transfers an asset for less than its FMV, then HUD will treat the asset as if it were still owned by the individual for two years after the transfer.
- HUD will assume that the asset generates income at the passbook rate and will include that income when calculating an individual’s rent.
- It is very likely that HUD will treat transfers to a SNT as a transfer for less than FMV will include interest generated by those assets for the next two years (passbook rate or actual earnings, whichever is greater).
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 7]

Question 14

How is rent determined for subsidized housing?

Answer 14

Generally, an individual/family’s rent will be 30% of their AGI.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 8]

Question 15

What is the difference between income and assets for SSI?

Answer 15

Money received in a given month is income in that month, and any portion of that income remaining on the first day of the next month becomes an asset.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 8]

Question 16

What is “countable” income for SSI?

Answer 16

Countable income means that it is used to compute eligibility and benefit amount.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 8]

Question 17

What is “excluded” income for SSI?

Answer 17

Excluded means that it is not counted.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 8]

Question 18

What is “regular” income for SSI? What is irregular income?

Answer 18

Regular means that it is received on a periodic basis, at least two or more times per quarter or in consecutive months. Irregular or infrequent means that it is not periodic or predictable.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 8-9]

Question 19

What is unearned income for SSI? What is earned income?

Answer 19

Unearned means that it is passively received (EX: SSDI benefits or bank account interest). Earned means that work is performed in exchange for the income.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 9]

Question 20

How do unearned vs earned income reduce SSI benefits?

Answer 20

Any unearned income reduces the SSI benefit by the amount of that income, so investment income or gifted money simply reduces the benefit dollar for dollar, less the disregard ($20).
Earned income only reduces benefits by about half of the earnings (treated more favorably to encourage SSI recipients to return to the workforce).
- NOTE: Remember that “disability” is defined as “unable to perform any substantial gainful activity,” so there are issues with earned income will eventually imperil SSI benefits if there’s enough of it.

Question 21

Is there an exclusion amount for income received during a month for SSI purposes?

Answer 21

Yes. An SSI recipient is permitted to receive a small amount of any kind of income ($20 per month) without reducing benefits. That amount is sometimes referred to as the SSI “disregard” amount.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 9]

Question 22

What effect does payment from a third party for necessities of life have on SSI?

Answer 22

SSI uses an “in-kind support and maintenance” (ISM) concept. Any payment from a third party (including a trust) to a provider of goods and services for necessities of life will be treated as countable income, but is subject to special rules for calculating its effect.
- CALCULATIONS: Receipt of ISM reduces SSI benefit by the lesser of (1) the presumed maximum value of the items provided or (2) an amount calculated by dividing the maximum SSI benefit (EX: $943 for an individual in 2024) by three and adding the $20 disregard amount.
- NOTE: Necessities of life include food or shelter, but “clothing” was removed from the list in 2005.
- Contrast this with cash distributions, where the payments reduce SSI payments dollar for dollar.
[SOURCE: “Administering a Special Needs Trust: A Handbook for Trustees (2021 Edition)”; PG: 9]