When you add a special needs trust to a financial aid calculation, things can get complicated because the regulations governi...Read more
Case Teaches Valuable Lesson About Special Needs Trusts
A recent Massachusetts case illustrates why trustees of special needs trusts have to be very careful before making distributions for people receiving public benefits.
Special needs trusts are designed to hold resources for the benefit of a person with special needs without harming his ability to receive government benefits. If properly established, the funds held in the trust don't count as the beneficiary's resources for Supplemental Security Income (SSI), Medicaid or Section 8 Housing benefits.
While all three of these benefit programs exclude resources held within a special needs trust, the trouble begins when the trusts are actually used to take care of the beneficiary's special needs because each program treats trust distributions in different ways. For instance, cash distributions from a special needs trust to the beneficiary count as unearned income for SSI, Medicaid and Section 8, but payments from the trust to directly purchase goods or services other than food or shelter for the trust beneficiary don't typically count as income for SSI or Medicaid.
However, Section 8 housing agencies treat payments from special needs trusts much differently, as Brookline, Massachusetts resident Kimberly DeCambre recently learned. Ms. DeCambre is the beneficiary of a special needs trust that was funded with the proceeds from a personal injury settlement, and up until recently she received SSI, Medicaid and a Section 8 voucher. Unfortunately for Ms. DeCambre, her Section 8 benefits were terminated because her local housing agency determined that trust payments for Ms. DeCambre's car, cable and Internet bills and veterinary care for her pets counted as income. These payments are the type of payments that special needs trusts are designed to make, and they have no impact on SSI or Medicaid benefits. But the U.S. District Court in Massachusetts determined that, when it comes to Section 8, the payments can be treated as income.
The irony of Ms. DeCambre's case is that Section 8 does not count payments from a lump-sum personal injury settlement against a voucher recipient, so if Ms. DeCambre had not placed the settlement into the trust, she would have continued to receive Section 8, although she would have lost her SSI benefits and perhaps her Medicaid as well.
The court's ruling, which only applies to this particular case and might not represent the views of courts in the rest of the country, proves that there is no one-size-fits-all solution to special needs planning, especially when it comes to making distributions from special needs trusts to people who receive several different types of government benefits. While the outcome in Ms. DeCambre's case may not have been avoidable, an experienced special needs planner can help your family understand the risks, and rewards, of making trust distributions.
Read the case.