By Guest Author, Evelynn Passino, J.D. – Executive Director of Pooled Trust Services
The Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps, is a benefit for low income families who need assistance paying for food. If your client has SNAP benefits and is receiving a settlement, they need to be aware that their recovery could impact eligibility for this important benefit.
Recipients access SNAP through an Electronic Benefit Transfer (EBT) card which functions like a debit card for use at grocery stores and farmers’ markets to purchase food. There are restrictions on what the cardholder can purchase. Generally, they can only purchase raw, unprepared ingredients and basic staples such as bread, non-alcoholic beverages, and snack foods. You may be surprised to learn this includes edible plants and seeds for those who wish to grow their own food. Unfortunately they cannot use SNAP benefits to purchase gardening or farming supplies, such as fertilizer, but for those who are able to take advantage of this option, SNAP benefits will last much longer because growing food is far less costly than buying it from a store. SNAP benefits cannot be used to purchase prepared (or “hot” food), pet food, alcohol, tobacco, supplements, or vitamins.
SNAP is a means-tested benefit funded by the federal government and administered by state agencies who follow federal guidelines. Qualifications for SNAP vary by state but are generally based on the family’s income and resources. Like SSI and Medicaid, there are some resources that do not count towards the family’s asset limit, such as a home and vehicle (although there are restrictions on the value of vehicle and the purpose for which it is used). Non-citizens can qualify for SNAP if they have lived in the United States for 5 years, are receiving disability-related benefits, or are under 18.
Special Needs Trusts
One way to protect a client’s SNAP benefits is to utilize a special needs trust (SNT). An SNT is a type of trust authorized by the federal government under 42 USC § 1396p(d)(4)(a)-(c) to allow people with disabilities to shelter income and resources from being countable for public benefits programs. The SNAP program is one such benefit; however, some states apply additional restrictions when an SNT is created by someone with SNAP. For example, in some states, the trust cannot disburse funds for anything other than medical and education expenses without causing the client to be disqualified from SNAP benefits. The client may balk at this restriction, but that does not necessarily mean an SNT should not be considered. First, clients who qualify for SNAP almost always qualify for other benefits, and an SNT may be needed to protect one of those benefits. Second, the SNAP benefit may not be worth preserving, especially after the client has money from their settlement to supplement their income. SNAP benefits are generally very low (anecdotally, many of our beneficiaries with SNAP are receiving less than $50 per month) and not tied to any other benefit, so a client can decide to give up this one benefit without having an impact on others. If the client is ok with losing this benefit, it becomes especially important to understand all of the benefits the client qualifies for.
If the client has Supplemental Security Income (SSI), they need to understand that if their trust disburses funds for food, their SSI check will be reduced dollar-for-dollar, up to $261 (a third of the Federal Benefit Rate, which is $783 in 2020). To make the funds last as long as possible, trustees of SNTs generally try to avoid any reduction in benefits, but in some cases the reduction is worth the flexibility. Special care must be taken with SSI, however, because in many states qualifying for $1 of SSI will qualify the person for Medicaid. If a person is receiving a very small SSI check, then reducing that benefit to zero may inadvertently disqualify the person for Medicaid. Therefore, using a trust to pay for food can be extremely risky and is only done with caution and a full understanding of the risks.
There is one notable workaround, which may also serve as an alternative to an SNT for especially small settlements: ABLE accounts. This type of account comes from the Achieving a Better Life Experience (ABLE) Act of 2014. ABLE accounts are a type of tax-favored account, which, like SNTs, are not a countable asset for means-tested benefits such as SNAP. ABLE accounts have fewer restrictions than SNTs and can used for any “qualified disability expense” (QDE). Since the creation of ABLE accounts, there was debate amongst trustees and attorneys about whether food was a QDE and if purchasing food from an ABLE account would interfere with SSI benefits. Fortunately, in April of 2020, the Social Security Administration updated their regulations to state that “for ABLE purposes, food is considered a qualified disability expense.” There are, however, two drawbacks to ABLE accounts. First, ABLE accounts can only be created by those who were disabled prior to the age of 26. Second, an ABLE account can receive no more than $15,000 in deposits per calendar year. For that reason, it is rarely a good alternative to an SNT for a settlement, but it can be used in conjunction with an SNT. For a client with SSI, an SNT can be established for the entire settlement, with the trustee disbursing funds to the ABLE account, which the client can then use to purchase food. This preserves and supplements both the client’s SSI and SNAP benefits while increasing the client’s standard of living.
Taking Action to Protect a Client’s Benefits
ABLE accounts can be set up online in less than 15 minutes, but SNTs typically require the assistance of a specialized attorney and can be expensive due to costs for drafting and maintaining the trust. One alternative to consider is a pooled special needs trust. In a pooled special needs trust, funds are pooled for investment purposes while each person’s contributions are held in a separate sub-account. These types of trusts are run by non-profit organizations. Because the trust already exists, it can be joined very quickly and tends to cost far less than a traditional SNT. Pooled Trust Services offers the Settlement Solutions National Pooled Trust, which costs only $500 to join and has an annual fee of 1.5% (includes both trustee and investment management fees), which is one of the lowest fees for a pooled trust in the country.
If your client has SNAP benefits, it is important to understand how SNAP works so you can guide your client in their decision-making and connect them with experts who can educate them on preservation of this benefit. Whether they choose to preserve or forgo their benefits, the decision should be intentional and made with a full understanding of the benefits, risks, and solutions available.
Jason D. Lazarus is the managing partner and founder of the Special Needs Law Firm; a Florida law firm that provides legal services related to public benefit preservation, liens and Medicare Secondary Payer compliance. He is also a founding Principal and Chief Executive Officer of Synergy Settlement Services, which offers healthcare lien resolution, Medicare secondary payer compliance services, pooled trust services, settlement asset management services and structured settlements.