A special needs trust has been likened to a "parent's pocket" -- that is, it pays for the kinds of things th...Read more
Special needs trusts are designed to supplement, not replace, the kind of basic support provided by government programs like Medicaid and Supplemental Security Income (SSI). Special needs trusts pay for comforts and luxuries -- "special needs" -- that could not be paid for by public assistance funds.
This means that if money from the trust is used for food or shelter costs on a regular basis or distributed directly to the beneficiary, such payments will count as income to the beneficiary. This can affect eligibility for government benefits like Medicaid and SSI. One of the trustee's most important jobs is to use discretion in making distributions from the trust so as not to jeopardize the beneficiary's eligibility for these government benefits.
If the beneficiary receives SSI, here are some basic expenses that should not be paid through a special needs trust without consultation with a special needs attorney.
However, many of these payments will only cause a one-third reduction in SSI benefits. The trustee may determine that the benefit of the trust making these payments far outweighs the loss of income.