What Are the Special Needs Trust Distribution Guidelines?

HomeOther Settlement Planning TopicsWhat Are the Special Needs Trust Distribution Guidelines?

Clients often ask us about the distribution guidelines of a special needs trust. Clients who will benefit from a special needs trust are most likely receiving needs-based government benefits like SSI and Medicaid, so it is a good idea for them to understand the items that special needs can pay for.

Due to the vast number of items that special needs trust can pay for, it is easier to enumerate which items it cannot pay for. Funds from a special needs trust cannot pay for expenses that SSI and/or Medicaid are already paying for. For example, if a client is receiving SSI, SSI is meant to cover food and basic shelter expenses like water, sewer, electricity, and gas bills. The special needs trust funds must be used for other items.

Allowed Distribution of Funds from Special Needs Trust

Funds from a special needs trust can be spent on the following:

  • Medical expenses and special equipment not covered by other benefits
  • Dental work not covered by Medicaid
  • Grocery items
  • Public transportation costs
  • Travel expenses
  • Clothing
  • Education
  • Appliances
  • Vacation
  • Cleaning services
  • Legal services
  • Insurance
  • Burial services

What if SSI and/or Medicaid are Not Enough to Cover Basic Needs?

If SSI is not enough each month to cover basic food and shelter expenses, or Medicaid is not enough to cover the client’s medical expenses, then the special needs trust can pay for them but the benefit amount will be reduced by about a third of the original allowance.

There’s a maximum amount that will be reduced because the government will view the trust as a third party providing in-kind support and maintenance to the beneficiary. For example, if there is a situation where the client needs to pay a rent or mortgage payment from the trust, funds from the trust can cover it, but they need to understand there will be a corresponding reduction in the SSI amount that they will receive.

In Summary

When clients ask, “What can the special needs trust be used for, and is it restrictive?”, the answer is anything that the beneficiary of that trust needs as long as it’s for their benefit. It can pay for clothing, appliances, vacations, medical costs that are not covered by Medicaid, funeral expenses, and many others. The purpose of a special needs trust is to make the beneficiary’s life better. The only restriction is it can’t pay for what other benefits are already paying for.

If you think a client may benefit from a special needs trust, give us a call and we’ll educate them about its distribution guidelines and discuss if a special needs trust makes sense in their situation.

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