Advising Trustees of Special Needs Trusts (SNT) on What They Can and Cannot Spend Trust Funds For

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Special Needs Trust Attorney

Special Needs Trusts for disabled and handicapped persons are often created with funds received from legal settlements or inheritances. These Trusts are important legal documents when established for people who are receiving government benefits because they protect these benefits from mandatory spending. However, a trustee must also make distributions in accordance with the guidelines of the trust so as not to risk loss of Supplemental Security Income (SSI) or Medicaid benefits for the beneficiary.

Special Needs Trust payments are designed to “supplement payment of expenses” or luxury needs not provided by government benefits. SNT funds are not intended to be used for basic shelter or food, as those needs are provided for by the government benefits, but never in an amount adequate to cover the real cost of living. Any money from the trust spent on food or shelter on a regular basis, or given directly to the beneficiary, can count as income for government benefit purposes thereby jeopardizing continued benefit eligibility.

The First place a trustee should look when making a distribution from an SNT is the four corners of the document. Even though state law may allow a distribution under the trust, if the trust instrument itself does not, the trustee must abide by the language of the trust. For example, most states will allow SNT funds to be used to pay for vacations, but if the trust instrument itself states it is not to be used for “travel expenses,” the trustee is now limited beyond what the state law allows. (New Jersey does allow for the payment of travel expenses) However, once the trustee is familiar with the limitations of the trust document, he or she should look to New Jersey law and what programs the beneficiary is on for any other limitations on trust disbursement.

If a beneficiary is receiving SSI benefits, the trustee should be cautious not to make payments directly to the beneficiary, payments to restaurants or grocery stores, mortgage or rent payments, or tax payments on the home. Some jurisdictions also frown on disbursements to basic utility companies, stating that those payments are covered by the SSI payment. Most of these types of payments will result in a 1/3 loss of SSI income. So, while they are discouraged disbursements, there may be some cases in which the trustee determines that the benefit of making the payment outweighs the loss of SSI income. For example, if the beneficiary is unable to pay the tax bill on his home, the trustee may decide to pay the taxes and let that money count as income for the beneficiary the month it was paid.

However, there are plenty of supplemental needs the trust money can pay for. A trustee can use the money in an SNT to pay additional fee(s) for a private room, a television, eye glasses and dental costs not provided for by Medicaid, the travel expenses and mileage of the sponsor to come and check on the patient, and caregiver expenses. Oftentimes, care providers including assisted living, 2nd program sponsors are happy to hear that a patient has a Special Needs Trust to pay for additional expenses that arise, and some will look more favorably upon Medicaid and Medicaid-pending patients who have such funds to “supplement” care costs.

It is, of course, important that the trustee understand what distributions he or she can make for the benefit of the SHHI/Medicaid beneficiary and that the trustee contacts us about disbursements if in any way unsure of its permissibility.

To discuss your NJ Special Needs Trust matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

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