Use of Prepaid Debit Cards by Special Needs Trust Beneficiaries

Trustees of special needs trusts are increasingly relying on “administrator-managed prepaid debit cards,” such as True Link cards, when disbursing funds to beneficiaries.  These cards offer trust beneficiaries greater independence and the ability to get what they need more quickly.  But such cards existed in a regulatory gray area as far as the Social Security Administration (SSA) was concerned.  That is no longer the case.

Special needs trusts are created to protect the assets of people with disabilities. When properly maintained, special needs trusts preserve the individual’s eligibility for public benefit programs, such as Supplemental Security Income and Medicaid.

However, special needs trusts must abide by strict rules, overseen by the SSA, concerning what trust assets can be used for. For example, special needs trust funds can almost never be used for food and shelter expenses, medical expenses that would otherwise be covered by Medicaid, and items that can be traded for cash.

To ensure that trust distributions comply with these rules, trustees are increasingly relying on administrator-managed prepaid debit cards, the most commonly used being a reloadable Visa card known as the True Link card. These cards allow trustees to maintain oversight of card transactions while providing people with disabilities – the cardholders – the ability to make purchases quickly and independently.

Since the cards can be managed online, trustees are able to link the trust funds to checking and similar accounts and quickly transfer funds to beneficiaries for their use. Along with ongoing monitoring and the ability to print off regular reports, the cards allow trustees to block purchases that my run afoul of SSA’s rules, and thus jeopardize the beneficiary’s continued eligibility for public benefits.   Each True Link card, for example, can be customized to block transactions that might negatively affect benefits, such as purchases at grocery stores, restaurants, and bars. Administrators can also set up the card to work only at specific, authorized merchants -- and nowhere else.

The SSA SSA publishes guidelines regarding True Link and similar type cards in its Program Operations Manual System (POMS), the SSA’s internal guidance system that is used by field workers who handle benefits eligibility questions. This marks the first time the SSA has recognized these cards as a legitimate way for trustees to manage funds in a special needs trust.

Among the rules set forth in the POMS, the SSA specifies that to protect the beneficiary and the trust from making inappropriate disbursements, the trust must be the account owner and administrator. If the card is used to withdraw cash, such as from an ATM, then the funds will be counted as cash income and thus can affect the person’s eligibility for public benefit programs. If the beneficiary uses the card to pay for food or shelter, the disbursements will likely reduce SSI payments.

To learn more about how an administrator-managed debit card can be used in conjunction with a special needs trust, contact a special needs planner in your area today.