Special Needs Trust: Can Home Sale Fund Assisted Living?

Selling the Home in a Special Needs Trust

The short answer is yes, the home can be sold, and yes, the proceeds can generally be used to pay for assisted living, but it needs to be handled correctly to avoid jeopardizing your cousin’s essential government benefits like Medicaid.

The Primary Goal of a Special Needs Trust

A special needs trust (SNT) is designed to allow a person with a disability (the beneficiary) to receive funds — like the proceeds from a home sale or an inheritance — without losing eligibility for needs-based government assistance programs such as Medicaid and SSI (Supplemental Security Income, which is different from SSDI).

The money in the SNT is not considered an “available resource” when the government determines eligibility for these programs.

How SNT Funds Can Pay for Assisted Living

When moving to assisted living, the cost typically involves two main components:

1. Medical/custodial care: This part of the cost is often covered by Medicaid or Medicare.
    
2. Room and board: This includes costs such as rent, food, and basic utilities.

Crucial Distinction:

• Medicaid is very sensitive to how SNT funds are used. SNT funds cannot be used to pay for room and board if the beneficiary receives SSI (and potentially certain Medicaid programs) directly. You mentioned your cousin is receiving SSDI. Be aware that this program has substantially different eligibility criteria than SSI, and you must verify which program they are receiving. If she is in fact on SSI and not SSDI, paying for room and board is considered providing “food or shelter,” which is counted as In-Kind Support and Maintenance (ISM) by the Social Security Administration. If the SNT pays for these costs, it can result in a reduction or suspension of the beneficiary’s SSI benefits.
• However, SNT funds can be used to pay for a wide range of other “supplemental needs,” which often includes the cost of assisted living beyond the basic room and board (e.g., specialized equipment, therapy not covered by Medicare/Medicaid, travel, recreation, a private room upgrade, or certain services).

Assisted Living vs. Nursing Home Care

The rules can change depending on the type of facility:

• Assisted living: Generally, Medicaid does not cover the full cost of an assisted living facility, often only the care component. The SNT can be used to pay for the “supplemental” costs.
• Skilled Nursing Facility (SNF): Medicaid often does pay for most or all of the care in a nursing home. In this case, the SNT would still only be used for extra supplemental items.

Next Steps for the Person Managing the Trust

Since your cousin’s benefits may be at risk if the funds are used improperly, the trustee (the person managing the SNT) must:

1. Review the trust document: The specific terms of the SNT determine exactly what expenses the trustee is permitted to pay.
    
2. Verify SSI or SSDI, as well as which type of Medicaid: The rules and potential planning strategies are different depending on the specific programs your cousin is enrolled in.
    
3. Consult with a certified special needs planning attorney: A lawyer experienced with SNTs can structure the payments from the home sale proceeds to the assisted living facility in a way that is compliant with federal and state regulations, protecting the benefits.
    
4. Prioritize allowed expenses: The trustee should focus on using the funds for supplemental needs (e.g., a deposit, furniture, transportation to the facility, medical expenses not covered by insurance) rather than direct room and board payments.

In summary, the home sale funds can be used to fund the move and supplemental needs in assisted living, but the trustee must be extremely careful to avoid paying for room and board expenses that could trigger a reduction in benefits.