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Special Needs Trusts: Navigating the Evolving Landscape

As the Social Security Administration (SSA) continues to scrutinize distributions from special needs trusts, its interpretation of what is allowable and what is not is evolving.

During a NAELA National Aging and Law Institute session held at the end of 2012, New Jersey attorney Thomas D. Begley, Jr., whose firm has ongoing conversations with SSA officials, reported on the latest revelations:

  • Recent changes in the Social Security Administrations POMS prevent special needs trusts from paying for family members to visit the beneficiary. Trusts with such provisions would be considered not to be established for the sole benefit of the trust beneficiary.
  • The SSA recently announced that family caregivers must be medically trained. This is in fact a softening of SSAs stance in which the agency maintained that caregivers had to be medically trained, medically certified or have training approved by the state Medicaid agency. SSA has since dropped the medically certified and the state Medicaid agency criteria. The specific kind of medical training hasn’t been hashed out yet so SSA urges the use of common sense.
  • Reimbursements of those spending money on behalf of a beneficiary – the SSA now says that if the trust reimburses someone who has paid expenses on behalf of the beneficiary of the trust, that is unearned income to the beneficiary. Begley notes that this is not a sole benefit of issue but rather an income issue, so it could affect both first- and third-party trusts.

Begley offered the example of the mother of a 26-year-old beneficiary buying $400 worth of clothing for him on her own credit card. Under SSAs new interpretation, when the trust pays Mom back, that’s unearned income to the beneficiary that could reduce his SSI payments dollar for dollar.

A way to get around the problem, is to have the trust pay the credit card issuer directly rather than having Mom pay the credit card bill and then be reimbursed by the trust. SSA says that will work, Begley said.

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The recent changes appear to be driven by financial pressure at SSA due to budgetary constraints. Practitioners are starting to talk about sitting down with SSA officials to explain how these changes affect clients in the real world.

What should you do in the meantime?

Consult with an experienced special needs planning attorney.

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