Proper Uses of Special Needs Trust Funds

Once you have a third party Special Needs Trust set up for a disabled beneficiary, you should know what the proper uses of Special Needs Trust funds are. The general rule is that the funds cannot be used to pay for any expense covered by Medicaid. Here is a general list of how the Special Needs Trust funds should be spent:

1. Purchase of home.
2. Architectural modification to residence owned by either the trust or the disabled beneficiary to permit greater accessibility.
3. Home improvements, repairs and maintenance including tools to perform home improvements, repairs and maintenance.
4. Furniture and home furnishings.
5. Home alarm or monitoring system.
6. Repair services for appliances, bicycle, household items and fitness equipment.
7. Cable television service like Comcast or Direct TV, telephone and internet.
8. Computer, laptop or tablet or e-readers including Apple Ipad, or Kindle with software, programs, e-books and applications.
9. Telephone service and equipment, including cell phone, pager, etc.
10. Appliances such as TV, DVD, microwave, stove, refrigerator, clothes washer and dryer.
11. Assistive technology not covered by Medicaid.
12. Snow removal, landscaping and lawn service.
13. House cleaning and laundry services.
14. Purchase of automobile or van to transport the disabled beneficiary including maintenance, insurance, repairs, fuel etc.
15. Fitness equipment.
16. Non-food grocery items such as laundry soap, bleach, fabric softener, deodorant, dish soap, hand and body soap, personal hygiene products, paper towels, napkins, tissues, toilet paper, any household cleaning products.
17. Over-the-counter medications including vitamins, herbs and protein shakes.
18. Holiday decorations, parties, dinner dances, holiday cards, reasonable modest gifts from beneficiary for customary special occasions to close family and friends.
19. Stationery, stamps, Christmas cards, etc.
20. Case management of the programs for the disabled beneficiary including attendant care.
21. Elective surgery.
22. Dental work not covered by Medicaid, including anesthesia.
23. Personal assistance services not covered by Medicaid.
24. Physical or occupational or speech therapy or any medical specialist not covered by Medicaid.
25. Musical instruments including lessons and music.
26. Prepaid funeral expense.
27. Psychiatric and psychological services including evaluations and private counseling if not covered by Medicaid.
28. Accounting services to prepare annual trust income tax returns.
29. Legal fees and Court costs to appoint a guardian.
30. Haircuts, salon services and message therapy.
31. Pet and pet’s supplies, veterinary services.
32. Educational courses or classes including supplies and tutoring.
33. Clubs and club dues including record clubs, book clubs, health clubs, service clubs, zoo, advocacy groups, museums etc.
34. Tickets for concerts and conferences
35. Travel costs like airline tickets to family and friends.

If you have any questions about setting up or operating a special needs trust please contact Gregory J. Spadea at 610-521-0604 of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

Determining The Purpose of an SNT and the Appropriate Expenditures

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A Special Needs Trust might have been created to handle proceeds from a personal injury settlement or an inheritance left directly to an individual with a disability. It might be designed to protect eligibility for Supplemental Security Income (SSI), Medicaid or other public benefits programs — or for a number of programs (usually including those two) at the same time. Common questions about use of trust money revolve often revolve around what expenses should be paid from the trust such as travel and entertainment, transportation and housing and other expenditures.

The first place the trustee should look is at the trust document itself. It may be fine that state and federal law permit a particular expenditure, but if the trust does not then the trustee cannot take advantage of the government’s flexibility. Sometimes there is nothing to prohibit a proposed expenditure in public benefits law or the trust document, but that still might not mean that the purchase is appropriate — it might be imprudent considering the circumstances, or a violation of general trust administration principles.

All that said, the very purpose of Special Needs Trusts is usually to provide extra, or supplemental, items to the beneficiary the things that the system, family and other sources cannot or will not provide. One of the very few court cases addressing this concept is a 2004 Minnesota Court of Appeals case, In re: The Irrevocable Supplemental Needs Trust of Collins. The Court of Appeals ruled that the proper approach was not to second-guess the trustee as to each expenditure, but to determine whether the trustee was properly exercising his discretion. Since the whole point of a Special Needs Trust is to provide for extra benefits that are not otherwise available, the trial judge here should have presumed that a trustee/father knows best whether his daughter is mature enough to ride a snowmobile or attend a Britney Spears concert.

The Collins case was an unreported case and therefore sets no precedent for other courts.
Nonetheless, the Collins case can give us some assistance in determining whether a given expenditure should be approved from a Special Needs Trust. Among the items to consider in a given case:

1. Is the expenditure permitted by the trust terms? Is it prohibited by Medicaid or Social Security regulations?

2. Does the expenditure clearly benefit the trust’s beneficiary? Does it also benefit others, such as family members? If it benefits the trustee (as, for instance, a home improvement that clearly aids the beneficiary but also increases the value of the home owned by a parent/trustee), it should be scrutinized much more closely, and may not be permissible in all circumstances.

3. Is there enough money in the trust to make the proposed payment without seriously affecting the ability to provide other benefits in coming years? Not every expenditure that reduces future benefits is forbidden, but the larger the expenditure (in relation to the trust’s size), the harder it is to justify.

4. Is the proposed expenditure related to the purpose for which the trust was established? In other words, if the trust came from a personal injury settlement it will ordinarily be easier to approve expenditures for therapy or adaptive equipment related to the injury for which the settlement was obtained.

5. Are there other sources of funds? If public benefits are available to provide the same items, the money ordinarily should not come from the trust. But if the public benefits are so limited that the quality of the items will suffer, or if it takes an extremely long time for equipment or services to get to the beneficiary, the trust might still be available to make the purchase more quickly or to purchase better supplies or equipment. Where family resources are available, it might be better to save trust funds — especially if the beneficiary is a minor, and parents have a general obligation of support.

There will, of course, be other considerations in each case. We do not mean to give an encyclopedic list here, so much as to suggest that decisions about expenditures can be very difficult. It is not enough for the trustee to really, really want to make the expenditure, or to be completely convinced it is appropriate — it is important to consider the proposal from all sides, admitting that there may be good reasons not to proceed, as well. The key is that the trustee must act reasonably, remain free from self-interest or bias, and above all, be prudent.

How Does a Trustee Act Prudently? The best way to assure that proper decisions are made, and to minimize the possibility of later difficulties, is to seek independent advice from a qualified legal expert.

Payment by the trust for housing and food directly to the organization providing the services (income distributions) will not usually eliminate SSI and Medicaid benefits. Income distributions of food and shelter invoke special rules, known as In Kind Support and Maintenance, or “ISM,” which may reduce but not necessarily eliminate benefits.

What kind of expenses are considered “shelter” or “household” expenses according to the Social Security Administration? Social Security’s rules list these and only these:

1. Mortgage, including property insurance
2. Property taxes
3. Rent
4. Gas
5. Electricity
6. Heating fuel
7. Sewer/Garbage removal
8. Water
9. Food

In general, the benefit is not reduced by more than one third of the maximum Supplemental Security Income plus $20.00.

Sometimes it may be appropriate to consider the options and risks, to make an expenditure and report it to the appropriate government agency and wait for a response. Sometimes it may be better to seek the blessing of the court system, giving notice to government agencies as appropriate and asking for a determination of the validity of the proposed expenditure in advance.

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