If you have a family member with a disability, or you have one yourself, you may already be familiar with special needs trusts, also known as supplemental needs trusts. These trusts are an essential component of planning for special needs, as they allow people with a disability to maintain or obtain eligibility for government benefits while receiving financial support from the trust.
It’s critical to comply with state and federal law regarding special needs trusts. Failure to do so could result in a loss of eligibility for benefits such as Medicaid or Supplemental Security Income (SSI). Depending on the type of trust and the government benefits, the beneficiary may be required to repay the government for benefits they received. There can also be tax implications or even trustee liability in certain circumstances.
All of which to say, failure of a special needs trust to comply with the law can create a financial crisis for the beneficiary. Even if eligibility can be restored, the beneficiary may be subject to a waiting period before they can again receive the benefits they need. And because the law evolves, it’s especially important to stay on top of developments in special needs trust law.
Developments that Affect Special Needs Trusts
An important change to the law that affects special needs trusts went into effect at the end of September 2024. Supplemental Security Income (SSI) is a program that provides financial support to disabled individuals who have limited income and assets. Many disabled people rely on SSI to meet their living expenses.
An increase in an SSI recipient’s income, however, reduces the amount of benefits for which they are eligible. “In-kind support and maintenance” (ISM), which includes the provision of shelter and food, has historically been considered “income” which would reduce SSI benefits. If a person received payments from a special needs or supplemental needs trust, those payments might be looked at closely to see if they constituted in-kind support and maintenance. As a practical matter, funds from a special needs trust could be used to take a beneficiary out to the ball game…but not to buy them some peanuts and Cracker Jacks while they were there.
Trustees had strict reporting requirements regarding the use of distributions from special needs trusts. There existed the constant spectre of an unintended failure in reporting, which could result in a reduction of benefits. The limitations imposed by the law counting food as ISM may have contributed to the existing food insecurity among people with disabilities.
Effective September 30, 2024, food, from whatever source, has been removed from the definition of ISM. That makes life easier on the trustees of special needs trusts, who can now pay for a beneficiary’s groceries, a restaurant meal, or an outing that involves food (like that baseball game!) without worrying about whether they are reporting it correctly.
Even more importantly, the change makes life better for individuals with special needs and other disabilities. They can get help paying for food from their supplemental needs trust, increasing the likelihood that they have enough to eat and that the food they get is of high quality. It’s a quality of life issue, as well as a dignity issue: everyone should be able to get the nourishment they need and to enjoy their food.
It’s important to note that shelter is still included in the definition of “in-kind support and maintenance.” That means that payments from a special needs trust for rent or mortgage are still considered ISM, and could reduce SSI benefits for the beneficiary of the trust. That said, the update in the law provides trustees of special needs trusts with greater flexibility in ensuring that their loved ones have better health and a greater quality of life.
An estate planning attorney who is experienced in helping families plan for their loved ones with special needs can help you use the new ISM rule to your beneficiary’s maximum advantage. For example, your special needs planning attorney can help you structure distributions from the trust and ensure that they are used in a way that does not reduce the beneficiary’s SSI and other government benefits.
Get Help With Your Estate Plan
The knowledgeable estate planning attorneys at Barron, Rosenberg, Mayoras & Mayoras work with clients who are concerned about protecting their loved ones with special needs and helping them get the most out of life. Schedule a consultation today by calling (248) 213-9514 in Michigan or (941) 222-2199 in Florida to learn how we can assist you. You can also use our simple online contact form.