Trustees often find themselves in the unfortunate position of having to say no to their beneficiaries. In order to meet their fiduciary duties, they not only have to follow the terms of the trust, but they must also understand how each and every distribution will impact beneficiaries, many of whom have public benefits. This requires thorough knowledge of a number of complex state and federal laws relating to Social Security, Medicaid, etc. If they make a disbursement that violates one of these rules, those funds may be counted as income, resulting in a reduction the person’s benefits. For example, the following are items that, if paid by a trust, may jeopardize a beneficiary’s Supplemental Security Income (SSI) benefits:
- Paying for basic shelter-related expenses
- Paying for food
- Cash distributions to the beneficiary
- Paying for a service already paid for by another source
- Distribution not for the beneficiary (i.e., made primarily for the benefit of another person)
To further complicate matters, “shelter-related expenses” include: mortgage payments, rent payments, homeowner’s insurance, gas bills, electric bills, heating fuel, water bills, sewer bills, garbage collection, and property taxes. Explaining this to clients often leads to the inevitable question: What can I use the trust for?
The prohibition against paying for these expenses is because the monthly SSI payment is intended to cover “food and shelter,” despite the maximum payment being only $771. Trustees work with beneficiaries every day who are struggling to make ends meet while they have money in a trust they can’t use for their most basic human needs.
Fortunately, Trustees have a couple of tools to assist. The first is taking another look at a beneficiary’s budget. They always look for the things they can pay to free up money for the things that they can’t. The second is introducing the client to ABLE accounts.
ABLE accounts are authorized by the Achieving a Better Life Experience Act, passed by Congress in 2014. This is a federal law allowing individuals who are disabled (and experienced the onset of their disability prior to age 26) to create a special kind of account. This account is 100% controlled by the individual and allows them to save or spend funds on “qualified disability expenses” (QDE). QDEs are broadly defined to include virtually anything used to support the health and wellness of the individual.
The greatest benefit of an ABLE account, however, is the additional flexibility it provides to a person with SSI. While it takes some planning, funds can be disbursed from a special needs trust to the ABLE account. These funds retain their non-countable status, and once in the ABLE account, the individual can spend those funds on any QDE (including food and shelter). They can even access cash for this purpose—without jeopardizing their SSI. Access to cash is helpful in facilitating certain cash-only transactions, such as paying for parking or purchasing medical marijuana (if a trustee chooses to authorize expenditures for this purpose). There is currently a limit of $15,000 per year that can be contributed to an ABLE account; however, it can make a world of difference to the beneficiary who is struggling with the SSI limits.
There are a number of ABLE account programs now available. The STABLE Account is one such program. STABLE is based in Ohio but can be used by individuals in all 50 states. STABLE also gives the beneficiary access to a debit card, powered by True Link, and access to an online portal which allows them to track and manage their spending. An individual with an ABLE account is responsible for keeping records and receipts of what they spend (in order to prove they spent funds on QDEs, if they get audited), so this functionality can help them manage that responsibility. STABLE account goes a long way to bridge the gap for beneficiaries and helps Trustees say “yes” more often.
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.