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Special Needs Trust, Continued; Various Federal/State Programs
Jan L. Warner & Jan Collins

We continue our answer to last week’s question from the parents who were planning for the special needs of a 20-year-old Down’s Syndrome child. That question and answer can be found at NextSteps

Those interested in planning for special needs children and adults should be aware of the most commonly available public benefits programs: Social Security Disability, SSI, Medicare and Medicaid, and the use of Special Needs Trusts.

Since neither Social Security Disability nor Medicare is a means-tested program, the disabled person can qualify and still retain significant assets. To qualify for Social Security Disability, an individual must 1) meet the disability criteria established by Social Security regulations, and 2) either have worked and contributed to Social Security, or have been disabled since childhood and qualify based on the Social Security record of a retired or deceased parent. After receiving Social Security Disability for two years, the recipient is entitled to Medicare coverage even before attaining age 65.

On the other hand, Supplemental Security Income (SSI) is a purely needs-based program -- meaning that the individual must not only meet the same disability requirements as Social Security Disability, but also have very limited assets and income. Certain assets – such as the home – are considered to be exempt for SSI purposes. Because SSI is designed to cover food, clothing, and shelter, the Trustee of Special Needs Trust should not use trust funds to pay for food, clothing, and shelter.

Those who qualify for SSI become “categorically” entitled to receive Medicaid that pays for most medical expenses not covered by Medicare and other health insurance plans. But the trustee, at his or her discretion, can pay for such items as medications, medical equipment, and therapy that are not provided by Medicare and Medicaid. The trustee can also pay for educational expenses (including collegiate education), musical instruments, travel, entertainment, and other supplementary items for the beneficiary.

It is important to remember that since the rules for Medicaid, SSI, and other public benefits – such as Veteran’s Benefits, Aid to Families with Dependent Children, Food Stamps, Social Security, and Medicare -- are not the same, eligibility for one program does not mean automatic eligibility for another.

The Trustee must also understand that although distributions from the special needs trust are reportable as income to the beneficiary for tax purposes, they are not necessarily `income'' under the public benefit rules. Both the trust and beneficiary must file income tax returns.

Because of their responsibilities and the complexities of special needs planning, trustees should familiarize themselves with the rules of each available program, maintain accurate records of what has been spent for the beneficiary, and report income and assets based on program rules. To remain eligible for benefits, the total assets titled in the beneficiary’s name must remain less than the asset limit for the particular program. And the trustee must understand that if an SSI recipient receives benefits from the trust to which he or she is not entitled, overpayments will have to be repaid to SSI.

If properly managed, a Special Needs Trust can help enrich the life of a beneficiary who receives very low income for food, clothing, and shelter from governmental programs. Because some disabled individuals who are eligible for Social Security Disability and SSI cannot secure private health insurance coverage, the cost of their medical care can wipe out a sizeable inheritance or accident settlement very quickly. Therefore, efforts to preserve public benefits for the beneficiary are very worthwhile to the individual and the family. To find a qualified lawyer, go to NAELA. To find a list of approved expenditures from Special Needs Trusts, visit

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