Third party special needs trust
Key takeaway
A third party special needs trust holds someone else's property for a disabled beneficiary, excluding property of the beneficiary or their spouse, with SSI resource treatment depending on beneficiary control and saleable payment rights.
Start with whose property funds the trust
Under Social Security Administration guidance, having someone else establish the trust does not turn the beneficiary's own property into third party property.
For an irrevocable trust mixing outside assets with the beneficiary's or spouse's assets, SSI's statutory trust rules apply to the portion attributable to the beneficiary or spouse.
For a family business owner or property owner, start the conversation with an asset list. Record who owns each proposed contribution and bring that list with the trust document to the review.
Check control and payment rights separately
Under SSA guidance, principal is not the beneficiary's SSI resource if they cannot revoke or terminate the trust or direct assets for their support and maintenance.
Review the trust and applicable state or Tribal law, and separately evaluate any enforceable payment right that can be sold. Revocability by the outside grantor alone does not make principal the beneficiary's resource.
Distinguish direct medical payments from cash
Medical care and services paid by someone else directly to the provider are not SSI income. Direct payment of medical insurance premiums on the beneficiary's behalf is also not SSI income.
These rules address direct payments to providers or insurers. Ask the reviewer to examine each proposed payment route before the trustee starts making distributions.
Two related terms
Testamentary trust: Under SSA guidance, a trust established under a will and effective only at the testator's death. A trust receiving property during the testator's life is not testamentary for this guidance, even if the will also transfers property at death.
Residual beneficiary: Under SSA guidance, someone with a residual beneficial interest who receives the remaining benefit when a specified contingent event occurs, such as the primary beneficiary's death.
Common questions
How does SSI treat cash paid from the trust?
SSA guidance treats cash paid to the beneficiary, including additions to their personal debit card, as unearned income in the month received or added, subject to applicable statutory income exclusions.
Does every third party trust require Medicaid reimbursement at death?
No. The federal first party trust exception's reimbursement condition is not a universal requirement for entirely third party funded trusts, because that subsection's establishment test requires the individual's assets to form some or all of the trust.
This distinction does not resolve state estate recovery law or establish immunity from every government claim.
Can a trust be created during life or at death?
In Minnesota, for example, a trust may be created by transferring property to another person as trustee during life, or by will or another disposition effective at death, and other states differ.
This describes a method of creation, rather than a determination of benefit eligibility.
Sources
- SSA POMS SI 01120.200: Trust definitions, control, payment rights and distributions. Administrative guidance on funding source, SSI resources, testamentary trusts and residual beneficiaries.
- 42 U.S.C. §1382b(e): SSI statutory trust rules. Mixed irrevocable trust funding.
- 20 C.F.R. §416.1103(a): Medical care and services. Direct provider payments and medical insurance premiums.
- 42 U.S.C. §1396p(d): Medicaid trust provisions. Establishment test and the first party trust exception.
- Minnesota §501C.0401: Methods of creating a trust.