Use Care When Making Distributions to an SNT Beneficiary

By Ronald A. Fatoullah, Esq. and Eva Schwechter, J.D.

{3:56 minutes to read} One of the most important goals for people with disabilities is to preserve funds for the long-term, to help maintain a higher quality of life. A special needs trust is a vehicle that holds funds for the benefit of a disabled individual and is designed to supplement a beneficiary's income so that he or she can continue his/her standard of living, without jeopardizing his/her eligibility for public benefits, such as Supplemental Security Income ("SSI"). The trustee of the special needs trust can utilize trust funds to provide items and services for the beneficiary.

When serving as the trustee of a special needs trust, it is crucial to be careful when making distributions for the benefit of the beneficiary-distributions should not be made directly to the beneficiary. This is particularly true if the beneficiary receives SSI. The Social Security Administration ("SSA") has strict rules regarding unearned income for SSI recipients, and a distribution made directly to a beneficiary could potentially violate Social Security's rules. If a distribution violates these rules, the SSA will treat the distribution as unearned income on behalf of the beneficiary and reduce the beneficiary's income dollar-for-dollar after the first $20 of the distribution. For example, a trustee cannot provide a cash reimbursement to a beneficiary for a purchase the beneficiary has made. This is true even if the beneficiary has a receipt. If the trustee reimburses the beneficiary directly, the reimbursement will be considered unearned income and the beneficiary's SSI will be reduced dollar-for-dollar for the reimbursement.

It should be noted that there are ways to make purchases for beneficiaries that will not negatively affect the beneficiary's SSI benefits. Here are four examples of appropriate disbursements.

1) The trustee can distribute the requested goods directly to the beneficiary in person. For example, if a beneficiary wants a specific item from a brick-and-mortar store, he can communicate that information to the trustee; the trustee would then go to the store, buy the item using trust funds, and deliver it directly to the beneficiary. The beneficiary would receive the goods quickly, and shipping costs would be avoided. One potential downside to the beneficiary is the cost of having to compensate a professional trustee for the time spent purchasing and delivering the goods.

2) The trustee can purchase services or goods with trust funds and have the goods or services delivered directly to the beneficiary. For example, a trustee can purchase an item for the beneficiary online and have the items shipped to the beneficiary's residence. This can be a very efficient way to handle a beneficiary's request for an item.

3) The trustee can also reimburse a third party who pays for a service. For example, a relative might pay for a beneficiary to attend an event, and the trustee can reimburse the relative for the cost of the beneficiary's ticket. In such cases, it is important to have documentation of the cost of the service and the date on which it was provided.

4) In certain circumstances, the trustee can pay a beneficiary's credit card bills. It is important to note that this does not include debit cards, which are considered cash and should not be used. Credit cards offer a way for the trustee of a special needs trust to avoid giving the beneficiary cash while allowing the beneficiary more autonomy. However, there are additional restrictions for paying off a beneficiary's credit card bill, including not paying for food or shelter, and in the case of a Sole Benefit Trust, not paying for goods or services that were used by other people. When used correctly, a Special Needs Trust can be an important tool for individuals with disabilities to ensure that they keep their government benefits while also enjoying a higher quality of life.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Eva Schwechter is an associate with the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also a partner with Advice Period, a wealth management firm, and he can be reached at 424-256-7273.