Parents most commonly establish special needs trusts for their children to provide financial support for them while not jeopardizing their eligibility for necessary public benefits. A special needs trust attorney can assist the parents in setting up the trust or other arrangements best designed to financially support the children and maintain their benefits, based on the family’s unique circumstances.

Preserving Eligibility for Public Benefits

Certain federal and state public benefits programs like Supplemental Security Income (SSI) and Medicaid have strict income and asset limits. By placing funds in a special needs trust controlled by a trustee instead of the child, the child remains eligible for the public benefits crucial for his or her care. At the same time, parents can provide needed funds to enhance their child’s quality of life.

For example, for a single adult with disabilities to receive SSI benefits, he or she must own no more than $2,000 in countable assets. This strict asset limit can make it extremely challenging for parents to save money for their child’s future needs, whether through inheritance or periodic savings. However, leaving the money to a special needs trust removes it as a “countable” asset but still makes money available for virtually any needs of the child at the discretion of the trustee.

Using Funds from a Special Needs Trust

Trustees for special needs trusts have broad discretion to make distributions for the benefit of the beneficiary. This includes making distributions directly to third parties to pay for goods or services on behalf of the beneficiary as well as taking reimbursement for well documented expenditures paid by another party on behalf of the beneficiary. There are some things that the trustee should either never do, or at least be very careful about regarding making distributions.

First, the language of the Special Needs Trust should generally prohibit the trustee from making distributions directly to the beneficiary as this would cause the distribution to be considered income for both SSI and Medicaid purposes, and it would generally be considered toward the $2000 asset test as well. This could result in jeopardizing their SSI eligibility immediately and potentially their Medicaid eligibility as well. if the funds received are not spent for their benefit so that total assets are back below $2000 before the end of the calendar month in which the distribution was received. 

Second, the Trustee of a third party special needs trust (which is by far the most common type of special needs trust) should never accept money contributed by the beneficiary himself or herself, as accepting such a contribution could cause the entire trust to be deemed a resource for SSI and Medicaid, thereby losing its special exempt status.

Third, a trustee should be very careful about making distributions to pay for housing and food expenses. This is because, while the beneficiary is still on SSI this will likely cause an automatic reduction of up to 1/3 of the SSI amount. The Trustee may determine that this reduction of less than $300 a month of income is immaterial given the benefit of a larger trust paying for food or shelter expenses directly. Moreover, this reduction can possibly be avoided entirely by having the Trustee contribute to an ABLE account and having the ABLE account be used for housing and food expenses since ABLE account distributions are exempt from the SSI rules regarding food and shelter. Furthermore, many people with lifelong disabilities will be on SSDI for most of their life, not SSI (either based upon their own work history or that of their parents once a parent has taken Social Security Retirement, SSDI, or has died. In those cases, the food and shelter rules are irrelevant as to their SSDI (which in many cases eliminates the SSI so that the beneficiary only receives a much larger sum from SSDI than they ever received from SSI each month). Further, Medicaid has no such rules, either, thereby eliminating this concern for the trustee entirely in those circumstances. Finally, there is reason to believe SSI may be eliminating the food and shelter rules that cause the 1/3 reduction in the SSI amount in the next 5 years, so stay tuned.

The beneficiary also cannot demand a disbursement of funds for his own use; disbursements remain at the trustee’s discretion in the beneficiary’s best interests. Generally, under 760 ILCS 3/1213, the “best interests” of a beneficiary with a disability include considering the financial impact on the family of the beneficiary with a disability.

Allowable expenditures may include:

• Transportation costs, including public or private transportation services or purchasing a vehicle equipped to transport an individual with disabilities
• Discretionary utilities, such as Internet service, cable or satellite television service, and cell phones, if not covered by regular utility service
• Additional personal items, such as clothing, shoes, toiletries, and personal care items
• Furniture, appliances, linens, and other household items
• Educational and vocational supplies
• Household modifications or renovations to better accommodate the child’s disabilities
• Housing upgrades, such as paying for a private room in a residential group home facility
• Medical expenses and equipment not covered by insurance or other sources, such as social therapy and enrichment, chiropractic care, hearing aids, etc.
• Other amenities that serve the “best interests” of or enhance the quality of life of the beneficiary, including recreational activities or equipment, entertainment costs, and travel opportunities
• This list is not exhaustive by any means, as long as it is for their primary benefit, it is an acceptable expenditure of the trust.

Contact Us Today to Learn More About Our Legal Services

Rubin Law is the only Illinois law firm exclusively dedicated to providing compassionate legal services for children and adults with special needs. In addition, we offer unique legal and future planning techniques to meet your family’s individual needs. At our law firm, you can discuss all your needs and objectives with an experienced Illinois special needs trust lawyer.

Call us today at 866-TO-RUBIN or contact us online to learn more about the services we can offer you and your family.