How special needs trustees manage assets and benefits
Key takeaway
Special needs trust administration involves reviewing proposed payments, supplying documents for SSA review and meeting applicable state administration duties.
Research notice: Based on primary sources linked below. Social Security Administration guidance describes the agency's treatment of trusts and payments. Minnesota trust law and Georgia Medicaid guidance appear as state examples. Ask an attorney familiar with the beneficiary's benefit programs to review the actual trust, amendments, payment arrangements and agency correspondence before acting.
Distributions involve decisions about payments and benefits
Begin a payment review with two questions: How is the trust principal treated for SSI, and what will the proposed payment provide? Keep the trust document beside the payment request so the review addresses the actual arrangement.
How do control and payment rights affect third party trust principal?
Under SSA guidance for third party trusts, principal is not the beneficiary's SSI resource when the beneficiary lacks legal authority to revoke or terminate the trust or direct its assets for personal support and maintenance.
Review the instrument and applicable state or Tribal law to determine those powers. An enforceable payment right that can be sold requires separate resource evaluation. Revocability by a third party grantor alone does not make the principal the beneficiary's resource.
SSA does not universally require a spendthrift clause. Whether such protection prevents sale of payment rights depends on applicable law.
For funding distinctions, read the glossary entries for pooled special needs trusts, first party special needs trusts and third party special needs trusts.
How does SSI treat cash and personal debit card payments?
SSA guidance treats cash paid directly from a trust to the beneficiary, including payments to the beneficiary's personal debit card, as unearned income in the month received or added to the card, subject to applicable statutory income exclusions.
Excluding trust principal as a resource does not resolve the income treatment of distributions. For different payment arrangements, read the answer about shelter and provider payments.
Services can involve family members
Under SSA's sole benefit guidance, goods or services purchased from another person must primarily benefit the beneficiary. Incidental benefits to others are permitted, and a family member may receive payment for services provided to the beneficiary, including qualifying companion services.
The guidance also permits reasonable trustee compensation and reasonable investment, legal or other service costs incurred on the beneficiary's behalf concerning the trust. Evaluate administration compensation using the time and effort involved and prevailing rates for similar services, considering trust size and complexity.
These SSA rules do not establish blanket approval under Medicaid rules or the trust instrument. Apply the separate travel conditions below when the proposed expense involves another person's trip.
Companion and oversight travel have specific conditions
Under SSA guidance, another person's travel to accompany the beneficiary must provide assistance necessary because of the beneficiary's medical condition, disability or minority. Assistance based on age means the beneficiary is a minor who cannot travel unaccompanied.
The number of accompanying people must be reasonable. Travel expenses include transportation, lodging and food. Paying for people who provide no assistance necessary for the beneficiary's travel violates this companion travel rule.
SSA guidance also permits specified travel to ensure the beneficiary's safety or medical well being. A service provider may travel to oversee living arrangements in an institution, nursing home, other long term care facility or other supported living arrangement.
When the beneficiary does not reside in an institution, the guidance permits travel by a trustee, trust advisor named in the trust or successor to exercise fiduciary duties or ensure the beneficiary's well being. Ordinary family visits are outside these stated approvals.
Agency disclosure and accounting accompany asset management
Prepare the trust and related documents for agency requests. Use the answer about SSA document review to prepare for that discussion. Keep benefit reporting and state trust records as separate items in the administration file.
SSI reporting has two different timing rules
Events listed in the SSI reporting regulation should be reported as soon as they happen. A report is late if made more than ten days after the close of the month in which the event occurred, and a late report may cause a penalty deduction.
A written SSA request for information has a separate thirty day response period. Failure to respond within that period may lead to an ineligibility determination and benefit suspension beginning the month after that determination.
Review the beneficiary's reporting arrangements and any representative payee appointment to identify who will handle reports and agency correspondence.
Georgia illustrates additional agency reporting
In Georgia, special needs trusts covered by the Medicaid manual's special needs trust provision are subject to yearly audit by the Department of Community Health or its agents. The department may also audit prior years.
The trustee must update a schedule yearly identifying the initial funding source, all trust assets, assets purchased with trust funds, and wages or payments for caregiver or other services. Submit schedules to DFCS and DCH Legal Services. Other states differ.
Records and separation of property
In Minnesota, for example, a trustee must keep adequate records of the administration of the trust. A trustee must also keep trust property separate from the trustee's own property. If the records clearly indicate the respective interests, a trustee may invest the property of two or more separate trusts as a whole. Other states differ.
For a practical review, organize the trust instrument, agency correspondence, account records and payment explanations together. Use that file to identify unanswered questions about a distribution or an agency request.
Beneficiary information duties
In Minnesota, for example, trustees generally must keep qualified beneficiaries of irrevocable trusts reasonably informed about administration and material facts needed to protect their interests. Unless unreasonable under the circumstances, trustees must respond promptly to beneficiary requests about that administration.
An express trust provision may substitute specified recipients during a period when the instrument requires keeping the settlor or another person, including beneficiaries or their representatives, informed about administration and material facts needed to protect beneficiaries' interests.
The trustee must promptly respond to those substituted recipients' administration information requests. A beneficiary may waive information rights and later withdraw the waiver, with either action made by notice delivered to the trustee. Other states differ.
Investment management considers the whole portfolio
In Minnesota, for example, the default prudent investor rule requires reasonable care, skill and caution, considering trust purposes, terms, distribution requirements and other circumstances. Evaluate individual assets within the whole portfolio and an overall strategy with suitable risk and return objectives.
Considerations include liquidity needs, regularity of income, and preservation or appreciation of capital. Trust terms may expand, restrict, eliminate or otherwise alter the default rule.
Diversification is required unless the trustee reasonably determines that special circumstances make the trust's purposes better served without it. Other states differ.
Questions about payees, taxes and administration after death
Prepare questions for the beneficiary's benefits adviser, trustee and tax adviser using the governing instrument, amendments and agency correspondence.
The special needs and elder law guide covers letters of intent, life care plans and family care instructions as planning topics. Use that guide to prepare questions about the beneficiary's preferences, routines and family wishes.
What authority does a representative payee have?
A representative payee receives designated Social Security or SSI benefits for the recipient's use and benefit when SSA determines that appointment serves the recipient's interest.
SSA investigates the proposed payee and requires adequate evidence that appointment serves that interest. Appointment can occur regardless of legal competency or incompetency. Benefit payment authority does not establish authority over trust property or confer a power of attorney.
The statutes require revocation or termination of payee authority and alternative payment arrangements when misuse occurs. Bring any appointment documents when coordinating benefit reporting and agency correspondence.
How does grantor ownership affect trust tax reporting?
When the grantor trust provisions treat a person as owner of a trust portion, that person includes its attributable income, deductions and credits to the extent those items enter an individual's income tax computation.
Ownership must arise under the applicable grantor trust provisions. Remaining portions follow the separate trust tax rules. Grantor ownership does not determine SSI resource treatment or Medicaid eligibility.
For a different tax classification, read the qualified disability trust question and the related answer below. Bring the trust, amendments and prior tax filings to the tax review.
Which expenses may precede Medicaid reimbursement after death?
Under SSA guidance for the statutory special needs and pooled trust exceptions, taxes due from the trust because of the beneficiary's death and reasonable trust termination administration fees may be paid before Medicaid reimbursement.
Permitted administration fees concern termination and wrapping up, such as trust accounting, document preparation and filing. Before reimbursement, the guidance prohibits payment of other beneficiary estate taxes, remainder beneficiaries' inheritance taxes, third party debts, funeral expenses and remainder distributions.
Pooled trust retention is distinguished from payment to a remainder beneficiary. Lifetime administration expenses depend on the trust document. Review the actual termination provisions before approving final payments.
Delegation and protector powers depend on the trust and state law
Use the actual governing documents to frame questions about who directs payments, who performs care services and who can change an appointment. The broader guide covers care planning and instrument specific administration topics.
Delegation requires selection and continuing review
In Minnesota, for example, trustees may delegate duties and powers that a prudent trustee with comparable skills could properly delegate under the circumstances. They must use reasonable care, skill and caution in selecting an agent.
The trustee must use that same standard to establish delegation terms consistent with trust purposes and terms, and periodically review the agent's performance and compliance. The agent must exercise reasonable care to comply, and the trustee must enforce that duty.
A care manager's actual assignment needs review before describing delegated authority. Other states differ.
Direction and protector powers depend on the instrument
In Minnesota, for example, a governing instrument may authorize a distribution trust advisor to direct, consent to, veto or otherwise exercise specified trustee distribution powers. A protector's powers likewise depend on the instrument's grant.
Those granted powers may include amendment to achieve favorable tax status or respond to changes in federal or state law, rulings or regulations. They may also include removing or appointing trustees, investment or distribution advisors, directing parties or committee members, including succession arrangements.
When a charity is a current or presumptive remainder beneficiary, specified protector actions, including removals or appointments, require at least sixty days' notice to the attorney general's charitable trust division unless it waives notice.
A protector is generally not a fiduciary unless the instrument provides otherwise. Investment advisor or distribution advisor powers make the protector a fiduciary to the extent of those powers. Other states differ.
Use these distinctions to prepare questions about the particular trust's decision makers. Review the instrument before assigning authority to replace a participant or amend a special needs trust.
Common questions
What does SSA review to decide whether trust assets count?
SSA cannot make a trust resource determination without reviewing the trust documents. Its guidance calls for evaluating new or amended trusts needing a determination during initial claims and posteligibility events.
SSA obtains a copy of the trust document and any related documents. The original trust document is not required. Review includes funding sources, access to principal and provisions permitting payments to the individual or on the individual's behalf.
Previously reviewed resource determinations are not routinely reevaluated without new and material evidence, such as amendments or relevant policy changes. Potential income effects of distributions and payments remain reviewable.
How does SSI treat shelter and provider payments from a special needs trust?
Shelter payments can count as in-kind support and maintenance, while certain provider payments may avoid income treatment when the conditions below are met.
The SSI regulation considers shelter provided directly or through someone else's payment. Shelter includes room, rent, mortgage payments, real property taxes, heating fuel, gas, electricity, water, sewerage and garbage collection. Review these categories before treating a housing payment like another provider expense.
Under SSA guidance, when trust principal or the paying portion is not a resource, payments for education, therapy, transportation, professional fees, medical services not covered by Medicaid, phone bills, recreation and entertainment may avoid income treatment.
For noncash items other than food or shelter, determine whether the item would be wholly or partly excluded as a nonliquid resource if retained into the next month. The examples are illustrative, and paying a provider alone does not establish exclusion.
Use the cash payment section for payments directly to the beneficiary. Ask a benefits adviser about any proposed payment that does not fit these distinctions.
How is a Minnesota trustee's compensation set?
In Minnesota, for example, a trustee is paid as the trust specifies or, if it is silent, a reasonable amount under the circumstances. A court may adjust specified compensation when duties differ substantially from those contemplated at creation or the specified amount is unreasonably low or high. Other states differ.
Read the SSA service payment discussion alongside the trust's compensation terms, and ask the proposed trustee to explain the fee arrangement before accepting it.
Resources to check out
- SSA: Trust development and documentation: Document review and reevaluation guidance.
- SSA: Sole benefit payments and allowable expenses: Service payment and travel distinctions.
- SSI: Reporting deadlines: Event reporting and responses to written information requests.
- Minnesota: Recordkeeping and separation of trust property: The state example for administration records and separate property.
- Minnesota: Directed trusts and trust protectors: Powers granted by the instrument and their limits.