The Intersection of Public Benefits and Disbursement Decisions
You may have heard that the beneficiaries you serve who currently receive public benefits cannot receive food, shelter, or cash, but do you know why and are you sure? Understanding what public benefits a beneficiary receives is paramount to answering these questions and making prudent distribution decisions. This article, while not an exhaustive list, will address the most common types of benefits, avenues for eligibility, and pitfalls faced by trustees when making disbursement decisions.
Types of Public Entitlements
There are two main “types” of entitlements that an individual with disabilities may receive from the federal or state government: Income Replacement and Health Insurance. If an individual cannot engage in substantial gainful activity (produce income) due to a disability that will last at least a year, then he or she is considered disabled by most standards and is entitled to income replacement as a result. You most likely have heard of Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), but did you know disabled individuals are also entitled to health insurance? The most common programs are Medicare and Medicaid. Medicare is awarded 24 months after an individual receives SSDI and Medicaid is typically awarded when one receives SSI.
Categories of Eligibility
Individuals with a work history – and enough quarters of withholdings – are eligible to receive SSDI and Medicare. The amount of SSDI is based on the amount of the withholdings that have been made from the worker’s pay. For those who do not receive SSDI or receive less than the Federal Benefit Rate (FBR) (currently $943 in 2024), SSI supplements their income up to the FBR if they have countable resources less than $2,000 for individuals (or less than $3,000 for a married couple).
In most cases, those who receive SSI are eligible for Medicaid benefits, but not all who receive Medicaid are receiving SSI. Traditional Medicaid eligibility is based on a countable resource and countable income test. Individuals with less than $2,000 in countable resources and low income – in most states 150% of the Federal Poverty Level – are typically eligible. In some cases, the individual must bear some share of the costs, or spend-down, if income is above the eligibility level. Medicaid has also expanded eligibility to low-income uninsured individuals between the ages of 19-64 without any resource restriction.
Dual Eligibility
Some beneficiaries who are dual eligible may receive both SSDI and SSI and/or Medicare and Medicaid. One cannot assume that the beneficiary does not receive SSI or Medicaid just because the beneficiary receives SSDI or is on Medicare. The interplay between the programs can be complex, as can the interplay with disbursement decisions.
Disbursements of Cash or Cash Equivalents
If an individual with a disability who is receiving SSI receives cash or cash equivalents such as a debit card, gift cards, or checks, the Social Security Administration (SSA) treats that cash as income to the individual. Because SSI only supplements income up to the FBR, the receipt of cash or equivalents reduces the SSI payment dollar for dollar. In other words, if an individual receives $50 of cash or has access to $50 through a debit or gift card, he or she will get $50 less in SSI. By contrast, receipt of cash by an individual receiving SSDI has no impact on his or her SSDI or Medicare eligibility.
Medicaid is more complicated. In many cases, the receipt of some cash will not affect eligibility, but if the individual is categorically eligible (tied to SSI), then losing SSI would mean losing Medicaid. Probably more important for disbursement decisions are the individuals whose Medicaid is strictly tied to their income: Expanded Medicaid, based on modified adjusted gross income, and traditional Medicaid for the Aged, Blind and Disabled. The latter of these has the countable resource and countable income test, and for those over the income limit but still medically needy, a share of cost. In both of these cases, too much income could cause the individual to lose Medicaid entirely or mean that the extra income merely increases their share of cost…dollar for dollar.
Disbursements for In-Kind Support and Maintenance
A more complicated problem surrounds disbursements for food and shelter expenses. SSA deems any payment that results in an individual receiving food or shelter (food is being eliminated as of September 30, 2024), as In-Kind Support and Maintenance. The calculation is complicated but, in short, it causes a one-third reduction in SSI income. There are times that it makes sense to make the disbursement and accept the reduction such as emergencies or when the payment is so large as to outweigh the loss. A prudent trustee will know these rules and make an informed decision – not just a mistake!
Special Needs Trusts and the Sole Benefit Rule
Finally, for those trustees administering a trust with language requiring that disbursements be for the beneficiary’s sole benefit (all first party special needs trusts by statute, and most third-party supplemental needs trusts), a trustee must understand the sole benefit rules. Disbursements that are not for the sole benefit of the beneficiary are considered a transfer of assets and may result in a transfer penalty for the beneficiary that will impact eligibility for SSI and Medicaid.
The sole benefit rule involves a good deal of discretion:
- Consider the purchase of a TV or furniture for a beneficiary whose family also watches the TV and uses the furniture (SSA allows for collateral benefits, but only to a point);
- Consider the payment of companion travel expenses when the beneficiary needs companion care with traveling (SSA considers it a sole benefit to the beneficiary if the companion’s travel expenses are absolutely necessary);
- Consider the purchase of a vehicle in a caregiver’s name or the renovation of a third party’s home to add accessibility for the individual who lives there (SSA allows the purchase of items in a third party’s name that require titling or the renovation of real property owned by a third party, but in most cases requires a lien against the title).
These decisions are complex and should involve the advice of a lawyer specializing in special needs planning.
The Protection of an Administrator Managed Prepaid Debit Card
One trusted and SSA-approved method to give your beneficiary autonomy while carefully monitoring spending is the True Link Visa® Prepaid Card. A trustee can easily link a trust checking account to a True Link account with a Visa-branded debit card for the beneficiary. Disbursements to a True Link card are not considered income to the beneficiary by SSA or any Medicaid program; however, the way in which the True Link card is used can cause income implications. The True Link platform has a Spending Monitor through which the trustee, as administrator of the card account, can toggle on and off certain spending categories, effectively blocking the withdrawal of cash or food and shelter expenses or known sources of spending that are not for the beneficiary’s sole benefit.
The Intersection
The intersection of the type of benefits, the category of eligibility, and the disbursement decision involves scrutiny and thought. If eligibility is based on income, the trustee must scrutinize payments in cash and cash equivalents, payments resulting in the beneficiary receiving food and shelter, and if the trust is a sole benefit trust, payments which might not be for the sole benefit of the beneficiary.
