Disabled individuals who receive Supplemental Security Income (SSI) are very limited in the amount of assets that they can have in their names. An exception allows funds to be held in a special needs trust.
Disbursements from the trust can be used to pay for things that SSI and Medicaid won’t cover — and even provide for some comforts that a disability recipient might not be able to have based on the meager payments from SSI alone.
However, money given directly to the beneficiary from a trust is considered unearned income under the SSI program. It will end up reducing the beneficiary’s monthly check on a dollar for dollar basis (after the first $20).
How, then, can a trustee use the disbursements to improve the beneficiary’s life? There are ways to work around the issue, under the rules provided by SSI itself.
Imagine, for example, that you are the trustee for your nephew, who is on SSI due to a combination of autism and other problems. One day, your nephew asks you to buy him a computer at Best Buy.
You know if you simply give him the money for the computer, it would count as unearned income. The computer is about $600, and that much unearned income would wipe out most of the check he was due to receive the next month.
To avoid this problem, you can simply buy the computer for him. Since the computer is not food or shelter (which would also count as a sort of income), it would have no effect on your nephew’s SSI entitlement.
As an alternative, you could have your nephew buy the computer with his credit card (if he has one). You could then pay the credit card bill directly. Credit is considered a loan, and paying the loan is also a permitted use of the trust funds.
As you develop a plan for someone with special needs, it’s important to talk over these kinds of issues with your advisers so that you can be prepared to better meet the beneficiary’s needs in the future.